BCAJ | Bombay Chartered Accountant Journal

RECENT DECISIONS PART B : VAT

Jyothy Laboratories Limited vs. State of Bihar
and Others, (2019) 60GSTR 71 (Patna High
Court) – Judgment dated 17th July, 2018
Correction in the C Form.

FACTS
The Department had issued incorrect Form C. the Petitioner
had written several letters to the authorities, however
no action was taken to issue correct C Form. Finally, the assesse approached the High Court under Article, 226 of the
Constitution of the India.

HELD
The Hon’ble High Court directed the Commissioner of
Commercial Taxes to either himself take up the issue and
decide the question of correction in the Form C as prayed for
or should assign the matter to any other Statutory Authority
constituted for that purpose. The action was directed to be
taken within Three Weeks from the date of appearance of the Petitioner. It was also directed that in case, the corrected
form C could not be issued to the Petitioner, it would be
incumbent upon the authority to hear the Petitioner, consider
the submissions and pass a speaking order indicating
reasons to the Petitioner as to why his grievance could not
be remedied.

V.V. Shameer vs. State of Kerala(2019) 60 GSTR
73 (Ker)– Judgment dated 3rd July, 2018
Whether a claim can be granted when the Credit
Notes were not issued in the prescribed form?

FACTS
The Petitioner had received incentives from the
manufacturer. Those incentives were received at a later
stage. The Petitioner had shown such incentives in the books
of accounts, however, had not shown them in the returns,
neither had filed revised returns. The Petitioner had claimed
Input Tax Credit without considering the incentives received
by him. During assessment the Petitioner contended that
the manufacturer had paid full tax and had not considered
the incentives given by him to the buyers. Further, Petitioner
had also issued Credit Notes to the manufacturer. However,
the assessing authority disallowed the Input Tax Credit.

HELD
It was held that the Credit Notes as relied on by the Petitioner
were not in the prescribed form. Those did not contain the
details that would be necessary for allowing the claim of
credit to the dealer by the manufacturer. Though the amounts
were disclosed in the book of account and discrepancy was
noticed in the Audit Statement the Petitioner did not attempt to file revised return. Thus, the Credit Notes having not been
issued in the prescribed form the disallowance of Input Tax
Credit having been granted with respect to the incentives
was confirmed by the Court.
Commissioner, Commercial Tax, Uttarakhand
vs. Jai Durge (2019) 60 GSTR 82(Uttarakhand)–
Judgment dated 10th April, 2018
Whether the filing of prescribed form in the case
under consideration was mandatory?

FACTS
The assessee was the Job Worker. He had manufactured
tiles for the Government Department and supplied the
same to them. The Tribunal had given the findings that all
materials were supplied by the Government Department to
the assessee and that what was supplied by the assessee
was actually the labour component. The materials were
made use of by the assessee, who had supplied the labour
to make the tiles to be supplied. The Revenue contended
before the High Court that the assessee had not filed Form
No. IIID which was prescribed for that purpose.

HELD
The Court Noticed that the findings of the Tribunal were not
challenged by the Revenue. The Court also noticed that for
the earlier year the Tribunal as well as the High Court had
decided the same issue in favour of the appellant and had
held that the appellant was doing only a job work. The Court
therefore, held that the submission of Form IIID was not fatal
to the case of the assessee and confirmed the order of the
Tribunal.

BCAJ Admin

Tech Mantra

This time we present a few nifty productivity tips for
Accountants – from the must-haves to the exotic. Each tool
has its advantages and some are those which you simply
cannot do without!

SENDTHISFILE.COM

Very often, we need to send
large files to colleagues, friends or family. They may be
image files or video files or just pdf files. Sometimes, it may
be large medical reports which need to be sent to a doctor
abroad for a second opinion. Most of the email clients
cannot handle file sizes of more than 20-25 MB at a time –
gmail has a limit of 25MB for attachments.
www.sendthisfile.com comes to the rescue. This is a very
simple but powerful utility which helps us send large files. You
just need to logon, create an account – yes it is free – and send
your file. As simple as that! What it does, is that it uploads the
files to a secure server, and sends the link of the uploaded
file to the email recipient. The email recipient just has to click
on the link, and she can download the file directly. So neither
your email account nor the recipient’s email account is used,
except for a brief line communicating the link.
It works pretty efficiently. The speed of the uploads and
downloads depends on the total no. of files that you have
transferred. The first time, it goes at full speed and then,
as your traffic increases, the speed slows down. However,
the counter is re-set every month for your account. So the
first file which you send in any month is super-fast and the
speed keeps deteriorating as you send more and more
files. Also, you can send only one file at a time. The other
limitation is that the recipient can download the file that you
have sent, only 3 times. And the file is held on their servers
only for 3 days. But in spite of all these limitations, it works
extremely well for most users without any problems.
If you go for a paid account, these limitations are eliminated.
Besides, it offers encryption of the data also, just in case
there are peeping toms around! Check it out the next time
you are stuck with a LARGE file to send or receive. http://
www.sendthisfile.com is a great transporter of large files!

NEEDTOMEET.COM

When you wish to organise a meeting of 3 or more people,
it is a challenge to check with each one about their available
timings and trying to synchronise a meet. Needtomeet.
com is a simple tool that helps you effortlessly find a
time to meet. The design principle used in creating this
service is simplicity. Meetings can be created in just three
simple steps. There is no need to register for an account
or provide any information not pertinent to the task. The
unique calendar interface allows you to select meeting
times in an intuitive and user-friendly manner and to see at
a glance which times work best for your group.
You can setup a meeting in just 3 simple steps:
1 Define a meeting and select available times. The
site gives you a link which you then send across to the
prospective attendees.
2 Attendees indicate their availability by clicking on the
link.
3 Find the best time to meet when the majority are
available!
So go ahead – schedule that meeting, organise that
event, book that trip, or set up that conference – all with
the convenience of a few clicks and an easy to use and
uncluttered interface.

IRFANVIEW

One of the best and lightest image viewers
that I have come across is Irfanview –
available free at irfanview.com
IrfanView is very fast, small, compact and innovative and
hence, very popular too. It is very simple for beginners and
powerful for professionals. It creates new and/or interesting
features in its own way. You need no knowledge of any
graphic programs when you use Irfanview. Just download
it, install it and run it – as simple as that. The variety of
graphic files it can handle, is to be seen to be believed. And
coupled with the Plugins / Addons available, it can manage
multimedia audio and video files too.

Although primarily it is a viewer, it gives some basic but
powerful image editing options too – you can adjust the
brightness, contrast and color of your image at the touch
of a button with a visual preview online. Rotation and
giving special effects to your images like a professional,
is a breeze. Format conversion, is as simple as clicking on
Save As, and re-sizing your large camera images before
uploading online, is child’s play. The batch-processing
mode helps you run several repetitive tasks, like re-sizing
of hundreds of photos, in a single click.
An added bonus is that you can play slide-shows of your
favorite pictures and also play movies in a large range of
formats – which used to be a daunting task for the lay user.
Capturing snapshots of your screen, running the multiimage
viewer, flipping images – one can go on and on. All
this, and much more, is available in a very light, easy to
use, intuitively designed interface.
Now, go ahead, be a PRO at image viewing and editing
with Irfanview.

MOVING EXCEL SHEETS – VERY EASY !!

Moving Right Next Door!
As I’m sure we all know, you can rearrange worksheets in
an MS Excel file with a simple click-hold-and-drag of the
sheet tab.

But, did you know that you can also move
worksheets from one workbook to another
using the same method? No? Well, the
good news is, you can, and it’s really as
easy as it sounds.
First, open both workbooks. (The one with the worksheet
and the one to which the worksheet needs to be relocated).
Next, arrange your workbooks side by side.
Next, you need to click and hold the sheet tab to be moved.
Now, still holding down the left mouse button, drag the
sheet tab into the other file.
You’ll see the small triangle that appears when a sheet is
moved, so you can tell where it will be located.
When it’s where you need it to be, simply release the
mouse button.
Voila!
The sheet is moved from one workbook to another. No
fuss, no muss!

BCAJ Admin

RECENT DECISIONS PART B: VAT

The Addi. Commissioner of Sales Tax vs.
Benchmark Engineering Pvt Ltd.(Bom H.C) –
Judgment dated 28th November, 2018
Whether VAT can be levied on Service Tax,
Separately collected, even when the VAT is paid
under Composition Scheme?

FACTS

The appeal related to the period 2005-2006. The substantial
question of law referred to the Hon’ble High Court was
whether the Tribunal was justified in holding that for
determining the Composition amount in lieu of amount of
tax payable in respect of Works Contract Sales, the amount
of Service Tax charged separately in the invoice will not be
included in total contract value?

HELD

The Hon’ble Court upheld the judgment of the Tribunal
which had observed that the amount of Service Tax charged
separately in the invoice will not be included in total contract
value for the purpose of levy of VAT. The Hon’ble Court
referred to Trade Circular No.6T dated 14.05.2015 issued
by the Commissioner of Sales Tax, Maharashtra State which
had informed the trade that the Government had accepted
the judgment of the Tribunal in the case of Sujata Painters
wherein it was held that the Service Tax could not formed
part of Sale Price u/s.2(25) of the MVAT Act, in a transaction
wherein the sale price is determined subject to Rule 58 of
the MVAT Rules and is not liable to VAT. The Court said,
once the State had accepted the decision of the Tribunal in
the case of Sujata Painters by issuing Trade Circular and
pointing out that so far as the period prior to 01.04.2015 was
concerned, the Department had accepted the order of the
Tribunal that Service Tax would not form part of the Sale price
and informed the trade, the same would bar the Revenue
from taking a contrary view. The Court further said that the
State has to apply law uniformly to all the assesses. The
AGP had drawn the attention of the Court to the appeal on
similar issue, involved in the case of Technocrat Engineers,
and submitted that the same had already been admitted by
the Hon’ble Court. However, the Court refused to accept his
submissions stating that aforesaid Circular No.16 of 2015
was not pointed out to the Court at the time of admission of
that appeal.

Deepak Fertilisers And Petrochemicals
Corporation Ltd. vs. State of Maharashtra and
Others (Bom H.C.) – Judgment dated
26th June, 2018
Whether the Trade Circulars issued by the
Commissioner of Sales Tax, Maharashtra State can
controll the substantive notifications?

FACTS

The Petitioner was engaged in the manufacture and sale of
fertilisers and for the purpose of manufacture of fertilisers,
purchased natural gas from GAIL. The natural gas was
either utilised as fuel or as an input in the manufacture
and processing of fertilisers and chemicals. The rate of tax
applicable to the natural gas prior to 30th June 2017 was
13.5% under the MVAT Act,2002. However, Input Tax Credit
was available under that Act above 3%. Thus, the effective
rate on natural gas under that Act, was 3%. The Goods and
Service Tax was introduced on 1st July 2017. The natural
gas along with some other few goods was left outside the
coverage of the GST Act and VAT and CST continued to be
levied on the same. With effect from 1st July 2017, when any
person purchased natural gas domestically, the seller would
collect full tax from him @ 13.5% and since the person was
no longer a dealer under the 2002 Act due to the section
16(6A), he could not claim setoff or refund of the input tax
collected from him. Furthermore, he would be liable to pay
goods and service tax on his outputs at the full rate since the
GST Act only provided for ITC of goods and Service Tax paid
and not of value added tax paid. Hence, the effective rate
after 1st July 2017 got increased to 13.5%. The Government
of Maharashtra in exercise of its powers conferred u/s. 9(1)
of the MVAT Act issued a Notification dated 24th August
2017 adding Entry 16 in Schedule “B” to the MVAT Act, by
which the sale of natural gas to a registered dealer, subject
to the condition mentioned in the notification, was eligible
for a lower rate of VAT @ 3%. To avail the benefit of the
reduced rate of 3%, the purchasing dealer was required to
be certified by the Joint Commissioner. Queries were raised
to the Commissioner of Sales Tax whether the benefits
given under the Notification dated 24th August, 2017 were
available to the tax payers registered under the GST Act.
The Commissioner issued trade Circular No.39T dated 8th
September 2017 clarifying that the benefits of notifications dated 24th August 2017 would also be available to taxable
persons registered under the GST Act. Subsequently, by
Notification dated October 13, 2017, an explanation to
entry 16 of Schedule “B” of the MVAT Act was amended
with effect from 14th October 2017 to the effect that the
benefit of the Entry 16 in Schedule “B” shall be available to
a registered taxable person under the GST Act. However,
by Trade Circular No.3T of 2018 dated 16th January 2018 it
was clarified that manufacturers – buyers who did not hold
registration certificate under the MVAT Act on or after 1st
July 2017 either due to cancellation of registration certificate
or due to the deeming provision relating to cancellation of
registration certificate u/s. 16(6A) of the MVAT Act, shall
not be entitled for the benefits of the reduced rate of 3% in
respect of use of natural gas in manufacturing, for the period
24th August 2017 to 13th October 2017. Writ Petitions were
filed contending that Notification dated 13th October 2017
should be given effect to and operated from 24th August 2017
because Trade Circular No.3T of 2018 dated 16th October
2018 and the addenda dated 13th January 2018 enabled
recovery of VAT in excess of 3%.

HELD
Writ Petitions were dismissed holding that the language of
the Notifications issued was clear. The circulars were for
internal guidance or clarification of queries of the trade and
officials, but their language could not control the substantive
notifications.

Vishat Diagnostic Pvt Ltd. vs. State of
Maharashtra and Others (VAT Appeal Nos. 425
and 567 of 2017 (MSTT) – Judgment dated
30th November, 2018
Whether the words ‘on the body’ appearing in the
Entry for “Drug’ in the MVAT Act, 2002 exclude the

diagnostic kits used in the laboratory for testing of
blood etc., from the coverage of that entry and sent
the same to the residuary entry?

FACTS
The appellant was dealing in diagnostic reagents which were
used in laboratories in the diagnosis of the diseases like
diabetes, cancer etc.. The Advance Ruling Authority (ARA)
had relied upon the words ‘on the body’ appearing in Entry
No. C-29 (a) which was for drugs and held that the same
were falling under the residuary entry liable to tax @12.5%. It
was the contention of ARA that the words ‘on the body’ were
inserted in the said entry consequent to the judgment of the
Hon’ble Bombay High Court in the case of Merind Ltd. The
introduction of the said words in the Entry under the MVAT
Act was conscious. The legislature intended to exclude such
products which are used outside the human body i.e. in the
laboratory.

HELD
Hon’ble Maharashtra Sales Tax Tribunal relied on the
several judgments of the Apex Court, more particularly,
on the judgment in the case of Rajendra Prasad Yadav
and Others vs. State of M.P. and others (1997) 6 SCC
678 dated 09/07/1997 were in it was held that it is settled
principal of interpretation that all the provisions should be
harmoniously interpreted to give effect to all the provisions
and no part thereof rendered surplusage or otiose. Thus,
the words ‘diagnosis’ and ‘on the body’ were harmoniously
construed by the Hon’ble Tribunal. The Tribunal also relied
on the certificates issued by the competent authorities which
averred that there is no such product which can be used for
the purpose of diagnosis on the body of a person as held by
the ARA. The Hon’ble Tribunal gave liberal meaning to the
words ‘on the body’ and held that the diagnostic kits sold by
the appellant were covered by the entry for Drugs attracting
tax @5% and not 12.5%.

BCAJ Admin

FROM THE PRESIDENT

Dear Members,

One more month, one more
opportunity for communication, in a slightly relaxed month of May, the
preferred month for taking vacations. Vacation for anybody is a chance to take
a break from work, see the world and enjoy time with your near and dear ones. Today’s
world is full of choices – right from the choice of destination and
accommodation to the travel options, the sight-seeing itinerary and the like.
In an attempt to optimise the vacation benefits, at times, we cramp too many
goals into one vacation. As if there is no tomorrow!

The objective of vacations
is to increase the happiness levels. The attempt is not only to increase
happiness levels but to portray happiness. Substantial time is spent in taking
selfies, photographs and updating social media rather than really sinking into
the new environment and enjoying the moment. In an attempt to capture and store
the moments, do we compromise on the real feel of the environment?

A slew of notifications was
issued under the GST Law to implement the GST Council recommendation of a lower
rate of tax for builders and developers. The objective was to simplify, but a
cursory look would suggest that the outcome is complex. The taxpayer is
expected to procure at least 80% of goods and services from registered vendors.
What is the genesis of such a provision? Is it the mindset of the taxpayer to
use every possible opportunity to optimise tax outflows or is it reflective of
the government mindset to not trust the taxpayers enough? Whatever may be the
genesis, one thing is certain, we are back to the old days of complex laws,
litigation and uncertainty. Before things really go out of hand, we need to
bring back the much desired simplicity in the law.

GST Law prescribes for a
mandatory audit in case of assessees having aggregate turnover above Rs. 2
crore. This audit represents an opportunity as well as a challenge. In view of
the implementation of GST from the middle of the financial year and the concept
of rectification in subsequent periods rather than revision of returns, the
approach towards audit will have to be fine-tuned. At the same time, by its very nature there will be substantial
transactional volume. Initial months of GST resulted in a lot of chaos. The
auditor will have to walk the tightrope of ensuring strict compliance as per
the law as well as be sensitive to the compliance and portal-related issues.
With this challenge also comes the opportunity of showcasing the abilities of
the members to rise to the occasion and provide valuable and balanced inputs through
the audit report both to the government officials and the assessees.

The renewal fees for
ordinary memberships, subscriptions for journals (including new life members)
and study circles have become due and the Society has already sent emails in
this regard. I am happy to inform that a substantial percentage of renewals are
already effected. In case you have missed the email in view of your busy
schedule, I urge you to kindly renew your memberships or subscriptions at the
earliest.

The ITF Conference to be
held in August, 2019 has already been announced. The preparations for the Jal
Erach Dastur CA Students Annual Day event “Tarang 2K19” are in full swing. This
event will be held in June, 2019 where about 500 CA students will showcase
their talent in various extra-curricular activities. The Youth RRC, specially
designed by young chartered accountants, has also been announced and is
receiving encouraging response. In addition to the above, your Society has
lined up a series of educational programmes, the details whereof are available
alongside. I would request you to participate in large numbers and take benefit
of the same.

Regards

CA.
Sunil Gabhawalla

President

BCAJ Admin

SOCIETY NEWS Part 1

DTAA Course held on 1^st, 8^th,
15^th and 22^nd December, 2018 and 5^th, 12^th
and 19^th January, 2019 at BCAS Conference Hall

BCAS successfully conducted
its 19^th Study Course on Double Taxation Avoidance Agreement at BCAS
Conference Hall spanning over 7 Full Days – 1^st, 8^th, 15^th
and 22^nd December, 2018 and 5^th , 12^th and 19^thJanuary, 2019. As a result of continuous refinement, the Study Course was
designed to cover all the articles of DTAA, FEMA / BEPS / MLI / GAAR, Transfer
Pricing, Source Rules under Income Tax Act, 1961, TDS u/s. 195, Substance v/s
Form and other relevant provisions. The lectures were delivered by 25 eminent
faculties who shared their experience by way of case studies on critical topics
like Residence (including case studies and POEM) and PE. The Study Course was
attended by 64 participants with diverse background such as Senior
Professionals, Practicing CAs, Young Professionals associated with Big and SME
Accounting Firms. The Study Course was an eagerly awaited event amongst the
Practitioners of International Taxation from all around the country and was
well received and appreciated by the participants. The participants were hugely
enlightened with the knowledge imparted by learned speakers.

Technology Initiatives Study Circle

Study Circle Meeting on “Data Analytics and
use of CAATs” held on 22^nd January, 2019 at BCAS Conference Hall

Technology Initiatives
Committee of the Society conducted a Study Circle Meeting on “Data Analytics
and use of CAATs” on 22^ndJanuary, 2019 at BCAS Conference Hall. The
study circle was led by CA. Murtaza Q. Ghandiali, who is a Practicing Fellow
Chartered Accountant and also having diploma in cyber law & information
technology from Mumbai University.

The Speaker discussed Data
Analytics and how to use CAATs tools more effectively along with practical
examples and shared his in-depth knowledge with the participants. He also
resolved all the questions raised by the participants during the session.

The participants benefited
a lot and appreciated the efforts put in by the Speaker and group leaders.

BEPS Study Circle

Study Circle Meeting on
“Impact of MLI” held on 28^th and 30^th January, 2019 at
BCAS Conference Hall.

Study Circle Meeting was
held on 28^thJanuary, 2019 on Impact of MLI on Treaties entered into
by India with UK, Netherland and Belgium, at BCAS Conference Hall. The
discussion was led by Mr. Jimit Devani, Ms. Barkha Dave and Ms. Darshani Shah.
A very analytical presentation was given and an ‘Article by Article’ discussion
on clauses of MLI was done. The speakers also made references to other Treaties
entered into by India as well.

To keep the momentum on,
the next meeting was held on 30^th January, 2019 for further
discussions. Again a very interactive and informative session, the learned
speakers agreed to update the presentation with the inputs received during the
meetings and circulate to the participants.

The participants
appreciated the efforts put in by the speakers and benefitted a lot from the
sessions.

Lecture Meeting on “Changing Professional
Opportunities for Corporate Social Responsibility in India” held on 6^th
February, 2019 at BCAS Conference Hall

Corporate and Allied Laws
Committee organised a meeting on the captioned subject at BCAS Conference Hall
which was presented by CA. Zubin Billimoria who has authored a book on the same
topic.

The
speaker provided a holistic view of Corporate Social Responsibility prevailing
since post-independence era and its evolution in the form of personal and
professional social responsibility. He spoke on various aspects of Corporate
Social Responsibility with regard to 4 P’s viz., People, Planet, Profit and
Process. He also shared broad framework for CSR commencing from internal
restructuring and reorganisation to reporting requirements of CSR citing some
good examples and anecdotes on social responsibility.

His in-depth knowledge and
passion towards the subject made the lecture meeting insightful, interesting
and knowledge enriching. He very diligently shared the professional
opportunities in CSR for professionals, consulting agencies and NGOs at large.
The meeting was a huge takeaway for the participants.

International Economics Study Group

International Economics Study Group Meeting
on “The Modi Government – Building India of our Dreams” held on 14^th
February, 2019 at BCAS Conference Hall

International Economics
Study Group conducted a meeting on 14^th February, 2019 at BCAS
Conference Hall to discuss “Road to 2019 – Modi`s perspective”. CA. Shalin
Divetia presented his well researched theme “The Modi Government – Building
India of our Dreams” covering Challenges faced by Modi Govt., Addressing
Core Issues (Inequality in Living Standards, Lack of Economic Opportunities,
Corruption & Security), Permanent Solutions, Holistic Approach, Vision
backed by Execution, International Relations, Civilisational Pride. Modi
Government has launched schemes that encompass human lifecycle: Infancy, For
the Young, Family necessities, Risk Protection and Retirement. He also brought
out how Modi has attempted in Bridging Rural-Urban Divide, Initiative for
farmers, creating Economic Opportunities (Mudra Yojna, Make in India, Ease of
Doing Business, and Innovation), Tackling Corruption & NPAs, Economic
Reforms – GST & IBC, and International Relations.

CA. Harshad Shah
highlighted that 2019 Election has turned From Cakewalk to Contest and World’s
biggest election has suddenly become competitive. He highlighted few key themes
for this election such as:

Will Women Decide
India’s 2019 Elections? – Women have become a focal point of the BJP’s 2019
re-election campaign. When we empower the women in a family, we empower the
entire house-hold and have thus brought Women Centric Schemes. Women Turnout is
dramatically increasing from 2014.

“Welfare Hook”– Big
Ticket Popular Schemes – 22 to 50 crore beneficiaries.

Health,
Pension, Electricity, Gas – 10% Reservation to
Economically backward, Financing of MSMEs and Traders, KIsan Yojana, Tax Sops
for Middle Class Salaried & Small traders

Social
Media – India has 30 crore Facebook users, 20 crore WhatsApp Members
(In 2014, they had only 5 crore), Twitter 3.44 crore, 45 crore Smart phones (3
times more than 2014 election) 1.14 billion mobile phone connections. Remember
2016 US Election?

UP
Mahagathbandhan – Caste, Religion, Mathematics in politics,
1+1 doesn’t always equal 2 when 2 or more parties with diverse views, caste
matrix, ideology join together and fights compound.

Big 4 toss up states – Bengal,
Orissa, Tamilnadu, and Kerala

Numbers
Game – Higher Voter Turnout benefits BJP & People vote differently
for state and general elections

Critical
Issues – Farm Distress, Loan Waivers, Unemployment, Ram Mandir, Cow,
Polarisation, Triple Talaq etc.

CA.
Rashmin Sanghvi deliberated upon “Is this the beginning of Cold War II after
Trump withdrawing from Nuclear Missile Treaty” and brought out historical
perspective of Cold War 1 which was between 2 Super Powers USA (NATO) &
USSR. This time it`s between USA (not NATO) & China plus Russia and is
playing out through different wars – Trade, Currency, Space, Cyber etc.

The sessions were a good
learning experience for the participants

“Interactive Session with Students for
Success in CA Exams” held on 16^th February 2019 at BCAS Conference
Hall

The BCAS Students Forum
under the auspices of the HRD Committee organised an Interactive session with
students for success in CA Exams on 16^th February, 2019 at BCAS
Conference Hall. Students Forum had invited CA. Mayur Nayak and CA. Atul Bheda
to guide students on how to crack CA exams. They both left the audience spell
bound.

CA. Rajesh Muni, Chairman
of HRD Committee in his opening address welcomed the speakers and the student
participants. He discussed about the activities which are undertaken by HRD
Committee throughout the year and motivated the students to actively take part
in the same.

CA. Mihir Sheth, Honourable
Joint Secretary of BCAS through his inspiring words encouraged the students.
CA. Raj Khona, HRD committee member then introduced the speakers and also
shared his experience in clearing the CA exams.

CA. Mayur Nayak took the
students through his own journey on how he turned his weaknesses into
opportunities and how he prepared to crack CA final exams in first attempt with
a Rank. His session was truly motivational and inspired the students to work
hard and excel in their exams. CA. Atul Bheda took the students through the
entire ICAI exam process and solved various myths and misunderstandings
regarding the same. He provided practical tips and tricks to be implemented in
order to crack the same exams. His session was very informative and
knowledgeable to the participating students.

Around 60 students got
enlightened from this interactive session and their feedback was very positive.

BEPS Study Circle

Study Circle Meeting on “OECD Report on
addressing the Tax Challenges of the Digitalisation of the Economy” held on 21^st
February, 2019 at BCAS Conference Hall

Study Circle Meeting was
held on 21^stFebruary, 2019 on OECD Report on “Addressing the Tax
Challenges of the Digitalisation of the Economy” at BCAS Conference Hall. The discussion was led by CA. Ganesh
Rajgopalan and CA. Rashmin Sanghvi.

OECD released “Public
Consultation Document – Addressing the Tax Challenges of the Digitalisation of
the Economy” and sought public comments on key issues identified in a public
consultation document on possible solutions to the tax challenges arising from
the digitalisation of the economy. The last date for submission of comments was
1^st March, 2019 and therefore, the meeting was held to discuss the
report and the background thereof and also to take inputs from the participants
to enable BCAS to finalise its comments.

CA. Ganesh Rajgopalan
presented masterly overview of the paper and CA. Rashmin Sanghvi gave the
understanding of background facts which helped the participants to understand
the report in proper perspective. The participants benefited immensely from the
efforts put in by the speakers on the subject.

Technology Initiatives Committee

Half day workshop on “Technology as an
enabler for Compliance on Audit Documentation” held on 22^nd
February, 2019 at BCAS Conference Hall

Technology Initiatives
Committee conducted a half day workshop on “Technology as an enabler for
Compliance on Audit Documentation” on 22^nd February, 2019 at BCAS
Conference Hall. The Workshop was conducted by CA. Ashesh Jani who has domain
experience thereof in solutioning, architecting, customising and execution of
technology tools for ensuring compliance on audit documentation.

The speaker dealt with the
topic very systematically by providing insights on importance of thorough audit
documentation while conducting the audit assignments and essentials of
maintaining audit documentation in digital form. He also discussed various
issues and the control point to mitigate the issues while dealing with
technology for maintenance of audit documentation.

The program was truly
enthralling with participants. The participants appreciated the in-depth
insight given by the learned Speaker.

“9th Ind AS Residential Study Course” held on 28^th February to 2^nd March, 2019

The 9^th Ind AS RSC was held at The Gateway Hotel, Taj Group, Nashik from 28^th February to 2^nd March, 2019 where 107 participants from across the country participated in this Mahakumbh of learning on Ind AS subject, based on the concept of Group discussion and Presentation. This year, the topics chosen for Group Discussion were of Topical importance like Ind AS 115 on “Revenue from contracts with Customers”, Ind AS 109 on “Financial Instruments”, other Ind AS topics like Ind AS 16 PPE, Ind AS 21 Foreign Currency Differences, Ind AS on Consolidation, Jt. Control, etc. There were 3 papers for presentation on very important and highly relevant topics like Ind AS 116 Leases, Ind AS and MAT, Audit Reporting under the revised Reporting Standards etc.

The list of Topics and the paper writers/presenters name is as under:-

Sr. No.	Paper	Author	GD or Presentation
1.	Case Studies on Ind AS 115	CA. Anand Banka	GD
2.	Case Studies on Various Important Ind ASs	CA. Santosh Maller	GD
3.	Case Studies on Financial Instruments	CA. V. Venkat	GD
4.	Audit Reporting under Revised Reporting Standards	CA. S. Vasudeva	Presentation
5	Impact of Ind AS on MAT	CA. Santosh Maller	Presentation
6	Ind AS 116 Leases	CA. Manan Lakhani	Presentation

The RSC Started on Friday, 28^th February, 2019 with the group discussion on case studies on Revenue from contract with customers, Ind AS 115. The participants were divided into 3 groups to have a great learning and sharing experience. The group leaders had put in lot of efforts to prepare their PPTs for better discussion on the allotted Topics.

At the RSC inauguration function, CA. Sunil Gabhawalla, President BCAS, CA. Himanshu Kishnadwala, Chairman Accounting & Auditing Committee, CA. Abhay Mehta Jt. Secretary, CA. Amit Purohit and CA. Rajesh Mody, Convenors were present. The President – BCAS, in his opening remarks welcomed all the participants and wished all of them a great learning experience. He also briefly elaborated on the activities undertaken at BCAS and invited non-members to become members to gain uninterrupted knowledge.

Himanshu Kishnadwala then briefly explained the importance and relevance for such RSC and outlined the events for next 2 days. At this occasion, the publication on “FAQs on Standards on Auditing – Part I” was released at the hands of CA. Sanjay Vasudeva, past Vice Chairman of AASB of ICAI. The Booking was opened for outstation members and the response was very positive.

Then the paper writer of 1^st GD paper CA. Anand Banka presented his views and gave clarity on the issues covered by him. The evening ended with the Presentation Paper on “Reporting requirements under Revised Reporting Standards” presented by CA. Sanjay Vasudeva.

Next morning CA. Santosh Maller gave his views on the issues covered by his paper and he also clarified on the issues raised by the members. There was also a Presentation Paper on Ind AS and MAT by CA. Santosh Maller, who ably covered the most difficult and sought after subject in a very lucid manner. After a break, the groups assembled to discuss the 3^rd GD Paper on Financial Instruments Standard.

The last day of the RSC started after the gruelling schedule of the previous day. The session started with the presentation of views by CA. V. Venkat on very complex Topic of Financial Instruments Standard. He also replied to members’ queries in his unique style to the fullest satisfaction of the members.

The last session of the RSC was a paper on Ind AS 116 – Leases which was aptly dealt by CA. Manan Lakhani. He covered the whole topic with lots of case studies and explained the complex standard. The RSC ended with a concluding session where in 8-10 members who were 1^sttime participants expressed their experience at the RSC.

The chairman thanked the participants for making the event a grand success. The Jt. Secretary, CA. Abhay Mehta thanked CA. Himanshu Kishnadwala for successfully planning and executing such an important event this year by setting highest benchmark for quality learning.

The participants got highly enlightened with the knowledge shared by the learned and experienced speakers.

“What Next? – A Career Planning Talk for Fresh Chartered Accountants” held on 8^th March, 2019 at BCAS Conference Hall

The Seminar and Membership Development Committee organised a career planning talk for Fresh Chartered Accountants on the topic of “What Next?” on 8^th March, 2019 at BCAS Conference Hall which was addressed by CA. Mudit Yadav, a TEDx speaker and Success Coach.

The session began with opening remarks by Chairman of committee CA. Narayan Pasari who briefed the young audience about BCAS and its activities. He also encouraged new CAs to join BCAS and become part of the knowledge sharing. CA. Sunil Gabhawalla, President, BCAS also addressed the gathering and inspired them to aim high and become respected professionals with immense integrity. A Rank holder of Nov. 2018 was felicitated and he shared his views on success in
CA exams.

The speaker CA. Mudit Yadav took up the following major issues faced by young professionals like:

(a) How to choose the ideal career path for yourself? (b) Difference between an average and a star professional. (c) Habits of the most extraordinary professionals. (d) How to develop the mindset of a true professional? (e) How to develop a sharper executive presence? (f) How can you be a pioneer of the future of CA profession?

Mudit Yadav also shared his personal experience around his career and challenges he faced while carving out his career in unconventional and non-traditional field as a motivational speaker.

The talk was attended by more than 60 fresh Chartered Accountants who extensively benefited from the talk and experiences shared by the Speaker.

Half-Day Workshop for Senior CAs – Get the most from your smart phone! held on 9^th March, 2019 at BCAS Conference Hall

HRD Committee organised half day workshop for the benefit of Senior CAs (including spouse) and those who were not familiar with their smart phone and mobile apps, on 9^th March, 2019 at BCAS Conference Hall.

The first session was conducted by young and dynamic CA. Pankaj Singhal who narrated the benefit of various Banking Support Apps and Mobile Wallets. The participants were guided to download various apps like PhonePe, UTS, PayTM, Google Maps and Uber. He assisted them to register on these apps and perform transactions.

The second session was conducted by a senior and well-experienced techie CA. Yazdi Tantra who narrated the benefits of Google. He gave live training on optimum use of Google through Voice Search and performing simple arithmetic calculations, setting reminders and alarms, exploring time/weather in any city, playing a song or current news, translating in various languages and many more benefits of Google. He also explored various apps like Tripit, Shush, MAadhar, DigiLocker, Senthisfile.com, Blinkist, True Caller, Camscanner, Texpand, Skedit, Life360, Voter Helpline, Otter-Voice Notes and Calm.

The entire session was very interactive and participants were provided hands on experience on usage of various mobile apps. The faculties too were energetic in guiding the participants who were overwhelmed on knowing numerous benefits of a smartphone which till date was used largely by them for only making calls.

Lecture Meeting on “Recent Important Decisions in Income Tax” held on 13^th March 2019 at BCAS Conference Hall

BCAS organised a lecture meeting on Recent Important Decisions in Income Tax on 13^thMarch, 2019 at BCAS Conference Hall which was addressed by CA. Rajan Vora. The Speaker gave his insights on important decisions delivered by various courts and tribunals and the rationale behind those decisions, amongst other decisions on different topics and issues. He further explained far reaching impact of recent Supreme Court decision u/s. 68. The Speaker also responded to the queries raised by the participants during the Q&A session.

The lecture meeting was a good learning and very enlightening experience for the participants.

Suburban Study Circle Meeting on “The Banning of Unregulated Deposit Schemes Ordinance, 2019” held on 16^thMarch, 2019

The Suburban Study Circle had organised a meeting on “The Banning of Unregulated Deposit Schemes Ordinance, 2019” on 16^th March, 2019 at Bathiya & Associates, Andheri East which was addressed by CA. Janak Bathiya.

The Speaker made a detailed presentation on the section wise analysis of the “The Banning of Unregulated Deposit Schemes Ordinance, 2019” which was promulgated by the Hon’ble President of India Shri Ram Nath Kovind on 21^stFebruary, 2019. The Speaker explained some of the Important Provisions as noted below:

Meaning of Unregulated Deposits, Applicability of this Ordinance to Proprietors, Partnership Firm, LLP, Company etc., Impact on Existing Loans and Advances or Deposits, how to ensure compliance of this Ordinance, Grievance, Appeal, etc.

The practical examples helped the participants in understanding the latest ordinance. The participants learnt a lot from the presentation shared by the speaker.

International Economics Study Group

Study Group meeting on the topics “How IBC is Revitalising Indian Economy” and “Current Economic & Geopolitical Developments” held on 19^th March, 2019 at BCAS Conference Hall

International Economics Study Group conducted a meeting on 19^th March, 2019 at BCAS Conference Hall to discuss “How IBC is Revitalising Indian Economy and Current Economic & Geopolitical Developments”. CA. Pravin Navandar (Insolvency Professional) led the discussion and presented his thoughts on the subject. He presented various provisions of IBC and how it is helping in resolving many big ticket NPAs such as – Essar Steel are getting handed over to new owners. He brought out India`s ranking in implementation of IBC, many finer provisions of the law, Supreme Court`s speedy disposal of some cases and bringing out clarity in law.

He also brought out how IBC has overriding effect on all other laws relating to insolvency and bankruptcy matters and how the new owners are reviving the sick units with increasing capacity utilisation and workers playing very important role in driving India to New age of economic growth. He also brought out how many Corporations are now taking preventive steps making sure that they don’t default and not land themselves in Insolvency proceedings. Bank lending will resume once IBC helps to clean up Balance Sheets of Banks and they get their stuck dues. India will develop an environment with ease of selling and buying Businesses. Financial Risk to Foreign Lenders would be decreased (faster and higher recovery), Foreign Investors now invited to take ready units without existing promoters and India will have much higher FDIs in Debt segment etc.

This has resulted in quantum jump of 30 places in World Bank`s “ease of doing business” in India. Lenders have been able to recover Rs.1.43 lakh crore from their NPAs. Truly, IBC is not just a Surgical Strike, it`s a full-fledged war on NPAs. Due to fear of IBC proceedings, many promoters are now approaching banks/financers and trying to regularize their loan accounts.

Harshad Shah brought out developing situation in Venezuela which has largest proven Oil (one of the best quality) reserve in the world. USA is intending for a regime change in Venezuela where as China and Russia have economic interest to recover their debt from Venezuela. He also brought out reasons for sudden appreciation in exchange rate of Indian Rupee.

The sessions were very interactive and interesting for the participants to understand about the current Indian Economy.

Four Day Study Course on Foreign Exchange Management Act (FEMA) held on 15^th, 16^th, 22^ndand 23^rd March 2019 at BCAS Conference Hall

Four Day Study Course on FEMA was conducted at BCAS Conference Hall on 15^th, 16^th, 22^nd and 23^rdMarch 2019. There were 14 presentation sessions and one Panel Discussion. The Course started with a topic “Understanding of FEMA” and it went on to cover various other subjects such as Practical aspects of FDI in Real Estate Sector, Immovable Property in India & Outside India, Export and Import of Goods & Services, Setting up of a Liaison Office, Branch Office & Project Office in India & outside India, FDI, Outbound Investment, Borrowing(ECB), Due Diligence/Audit from FEMA Perspective, Practical aspects of filing various forms under FEMA, Practical aspects of Money Laundering, Fugitive economic offence, Black Money Act, Compounding of offence etc. The study course concluded with a Panel Discussion wherein the participants got answers to various tricky questions. A total of 90 participants enrolled for the Course amongst whom many participated from outside Mumbai.

Eminent faculties shared their knowledge and experience with the Participants who got enriched immensely.

BCAJ Admin

REPRESENTATIONS

1. Dated: 6^th
March, 2019

To: Tax Policy and
Statistics Division, Centre for Tax Policy and Administration, Organisation for
Economic Cooperation and Development (OECD)

Subject: Thanking
OECD for providing an opportunity to study and offer comments in the
consultation document on Addressing the Tax Challenges of the Digitalisation
of the Economy

Representation by:
International Taxation Committee of the Bombay Chartered Accountants’ Society.

2. Dated: 18^th
March, 2019

To: Principal Chief General Manager, Non-Resident Foreign Account
Division (NRFAD)-Policy Division, Foreign Exchange Department, Reserve Bank of
India

Subject: Private
Trusts for Indian assets-clarification required

Representation
by: International Taxation Committee of the Bombay
Chartered Accountants’ Society.

BCAJ Admin

MISCELLANEA

1. Economy

1. 1.
Startups cheer as rule changes ease path for receiving new investments

CBDT clarifies relief like an increase in the limit
to Rs 25 crore and raising of benefit period to 10 years will be available from
February 19.

Indian startups are cheering the bonanza of the
proposed implementation of the recent changes to the ‘angel tax’ from February
19. The Department for Promotion of Industry and Internal Trade (DPIIT) has
announced new norms including a change in the definition of startups to help
budding entrepreneurs to benefit from the full range of the angel tax
concession, media reports say.

The new norms that the Central Board of Direct
Taxation (CBDT) has issued raise the limit of investments that can benefit from
angel tax norms to Rs 25 crore. The angel tax is the income tax payable on
capital unlisted companies raise through the issue of shares where the share
price is in excess of the fair market value of the shares sold. The excess
realisation is treated as income and taxed accordingly. The angel tax was first
introduced in the 2012 Union Budget by then finance minister Pranab Mukherjee
to tackle money laundering. The tax has come to be called angel tax because it
mostly affects angel investments in startups.

The CBDT will implement the detailed framework the
DPIIT has formulated for which it recently issued a new clarification,
according to a report in The Economic Times. The CBDT has said section 56
(2)(viib) of the Income Tax Act prescribing the angel tax will not apply to
consideration in excess of the fair value of shares issued to an investor if
the funds had been received in accordance with the DPIIT’s conditions. In the
past, the amount a startup raises by the issue of shares in excess of the fair
market value was being deemed as income from other sources liable to be taxed
at 30 per cent, deterring angel investors.

The new provisions have also raised the investment
limit for a startup to seek exemption under the section to Rs 25 crore from Rs
10 crore. The startups would also be able to avail themselves of the tax
benefits for up to 10 years as against seven years earlier, according to
reports. The only condition is that the startup will have to submit a
self-declaration about the use of the raised amount to the DPIIT, which will be
forwarded to the CBDT.

“……this was a procedural notification which the
CBDT was required to issue to put in place the mechanism for claiming benefit
given to startups by the earlier DPIIT notification. Startups are elated the
notification came at a time when many said they had received notices under
Section 56(2)(viib), adversely affecting their businesses. The CBDT has
reportedly directed the field staff to clear the proceedings if the tax demands
have been raised.

(Source: International Business Times – By
Prathapan Bhaskaran, 8 March 2019)

2. 2.
Government completely bans import of solid plastic waste to fight pollution

It is to be noted that China had banned such
imports a few years ago, in the meanwhile India became one of the largest
importers of plastic waste.

The central government has now completely banned
the imports of solid plastic waste/scrap into the country. The decision has
been taken to fight the ever-growing plastic waste in India. As per the
official data, the country generates 25,940 tonnes of plastic waste daily. In
the past, such imports were partially banned as only the special economic zones
(SEZ) were allowed to import such solid wastes. Additionally, the government
had also allowed the imports of plastic waste/scrap by export-oriented units
(EOUs) which used to procure it from abroad as post-recycling resources.

Quoting one of the environment ministry officials,
national daily, the Times of India reported that keeping up with India’s
commitment to completely phase out single-use plastic by 2022, the government
has now entirely banned the imports of solid plastic waste. He added, “The
country has now completely prohibited the import of solid plastic waste by
amending the Hazardous Waste (Management & Trans-boundary Movement) Rules
on March 1.” He further said that the rules were changed because of the huge
mismatch between waste generation and recycling capacity in the country.

It is to be noted that China had banned such
imports a few years ago. Meanwhile, India became one of the largest importers
of plastic waste. In India, many companies were misusing the partial ban on the
pretext of being in an SEZ. The country lacks the adequate capacity to recycle
plastic waste and it is because of this reason a huge amount of such wastes
remains uncontrolled. This eventually causes heavy damages to soil and water
bodies. A study conducted by the Central Pollution Control Board (CPCB) shows
that out of 25,940 tonnes of plastic waste per day around 10,376 tonnes remains
uncollected. The figures are astonishingly high as it is almost 40 per cent of
the total waste generated.

The ministry has made changes in the existing
rules, now white category (practically non-polluting or very less polluting) of
industries will dump their hazardous wastes generated to authorised users,
waste collectors or disposal facilities. Since its inception in 1950, global
plastic production has increased exponentially, from 2 million tonnes to 380
million tonnes in 2015. Its sheer convenience — lightweight and durability –
has made this man-made material present in every sphere of human existence. In
the last 70 years, 8.3 billion tonnes of plastic have been produced.

(Source: International Business Times – By Ashesh
Shukla, 7 March 2019)

3. 3.
Cross-border insolvency law changes to boost ease of doing business in India

A separate section in the Insolvency and Bankruptcy
Code (IBC) modelled after international best practices will help partners in
foreign tie-ups.

A proposal by the Narendra Modi government to tweak
the bankruptcy law to tackle cross-border insolvency is expected to boost the
country’s ease of doing a business ranking, media reports say. India made huge
strides in the World Bank’s Ease of Doing Business ranking to reach 77^th
spot among 190 countries in 2018 from 100 in 2017.

The government proposes to bring about the changes
through an ordinance amending the Insolvency and Bankruptcy Code (IBC) and
adding a chapter on cross-border insolvency, a report said. The amended law is
aimed at giving comfort to foreign investors in India and vice-versa. The new
law will reduce the time for exchanging information with another country,
encouraging foreign investors and multi-lateral agencies such as the World
Bank.

A panel headed by Corporate Affairs Secretary
Injeti Srinivas recommended using the model law formulated by the United
Nations Commission on International Trade Law, known as the UNCITRAL model,
which has been accepted by 44 nations including some from where India’s major
investments originate like the US, the UK and Singapore. A cabinet nod for the
new law is soon expected, according to a report in Business Standard.

In view of the general election 2019 in a couple of
months, only the next government may introduce a bill in parliament. Such
cross-border insolvency provisions empower foreign creditors to get back money
lent to Indian corporate entities. The reciprocity of the law makes it easier
for Indian companies to claim their dues from foreign companies. The
cross-border insolvency provisions in sections 234 and 235 of the IBC have not
yet been notified and cannot be enforced. The amended law will replace the
provisions and make the Indian law up to international best practices.

The government is aware of the limitations of any
law handling cross-border insolvency because in the case of some foreign
governments bilateral treaties are required for effective execution, an
unidentified official in the Ministry of Corporate Affairs told the newspaper.

Such treaties take a long time finalising as each
one is different and all through the protracted negotiations, foreign investors
will be uncertain of the provisions. The ambiguity will also affect Indian
courts and the National Company Law Tribunal (NCLT), which have to handle each
case separately.

The compulsion for an altogether separate section
for handling insolvency of cross-border investors is to make the law more
comprehensive based on a global model so to encourage its global acceptance.
The new law will revolutionise the key aspects of cross-border insolvency
litigation. The law will give direct access to foreign insolvency professionals
and foreign creditors to participate in or commence domestic insolvency
proceedings against a defaulting debtor. Under the law, foreign proceedings and
remedies will find acceptance in Indian courts. It will enable cooperation
between domestic and foreign courts and domestic and foreign insolvency practitioners
as also coordination between two or more concurrent insolvency proceedings in
different countries, according to sources.

(Source: International Business Times – By
Prathapan Bhaskaran, 5 March 2019)

2. Science

4. 4.
New study finds evidence of extraterrestrial life on Mars; could revolutionise
future space missions

The discovery of alien life on Mars is expected to
revolutionise future Mars missions and planetary colonisation projects.

Conspiracy theorists including popular
extraterrestrial researcher Scott C Waring have been long alleging that alien
life might be thriving or might have thrived on Mars. Adding heat to these long
spanning claims, a new study published in the Journal of Astrobiology and Space
Science has suggested the possible presence of alien life forms on the Red
Planet.

As per the new study report, NASA’s Curiosity Rover
has snapped images of fungi and algae on Mars. Even though NASA has not
admitted or denied the conclusions made in the study, several space experts
strongly believe that this research report is indisputable proof of alien
presence on Mars.

It should be noted that the potential alien life
which has been now spotted on Mars are not evolved, but rather simple living
beings like fungi and algae.

As per Dr Regina Dass of the Department of
Microbiology, School of Life Sciences, India, the lead author of the study,
Curiosity Rover has sent at least 15 images that show fungi and algae growing
on the Martian surface.

“There are no geological or other abiogenic
forces on Earth which can produce sedimentary structures, by the hundreds,
which have mushroom shapes, stems, stalks, and shed what looks like spores on
the surrounding surface. In fact, fifteen specimens were photographed by NASA
growing out of the ground in just three days,” said Dass, Express.co.uk
reports.

Dr Vincenzo Rizzo, a
National Research Council biogeologist revealed that the seasonal fluctuations
of methane in the Martian atmosphere can be connected with natural life-and-death
cycles of organic matter on earth.

The study report is expected to revolutionise
future space missions to Mars. Upcoming probes to Mars by NASA is expected to
analyse these Martian fungi so that the habitat in which they are thriving can
be studied in depth. Potential life on Mars, even in its simplest form will
also raise the hope of surviving on Mars during colonisation.

Earlier, SpaceX founder Elon Musk had revealed that
he will surely go to Mars despite minimal chances of survival. With this new
discovery, it has been proved that alien life, at least in the simplest form
can survive on the Red Planet, and this will surely elevate the projects which
are being now carried out aiming at colonizing Mars.

A few weeks back, self-proclaimed researcher Scott
C Waring had claimed to have spotted fossil-like structures on Mars. In a post
on his website ‘UFO Sightings Daily’, Waring argued that Mars was once home to
an alien civilisation. The researcher also urged United States President Donald
Trump to make him the head of NASA, so that he can unveil the unknown mysteries
surrounding alien life on the Red Planet.

(Source: International
Business Times – By Nirmal Narayanan, 25 March 2019)

BCAJ Admin

STATISTICALLY SPEAKING

1. Inflation rate in India from 2012 to 2018

2. Top 10 Fastest Growing cities in the World,
2019-35

3. Budget 2019 – Increase in direct tax
collection

4. Mumbai Roads

5. Commuting time to be included in working
hours

BCAJ Admin

ETHICS AND U

Arjun (A) — Bhagwan, we meet every
month. I always get valuable insights
from you.

Shrikrishna — I also enjoy talking to you and
observe how you are following the principles from Geeta

A — I must admit that Kauravas
had a huge army; many times more than ours. But we won only because we followed
your advice.

S —Even today, you are in constant
war against evil. You can fight it only with the shield of ethics and sword of
action. If you want to be independent, you need to be eternally vigilant.

A—True. Times have changed.
People’s thinking has changed. Now we CAs are expected to be blood-hounds and
not mere watch-dogs.

S—Many scams are revealing
direct or indirect involvement of your clan. People are perceiving auditor’s
involvement. This is very dangerous.

A—I have the same dilemma as I
had in the Mahabharata what to do. It is whether to continue to act as
Auditor?

S—I understand your anxiety.
But what else can you do?

A—Krishna I feel like giving
up all audit and signing assignments.

S—That’s not the answer. A
professional like you cannot think of running away. Do you think there is no
risk in rendering other services like advisory?

A—The reality is that all
authorities are after our blood. They harass our clients – result – all
tensions come on us.

S—That’s precisely what I had
advised you in Geeta. Be detached. Yours’ probably is the only
profession that gets emotionally involved with the client.

A—We are trapped in a vicious
circle. On one side laws are radically changing. New laws are coming. Our own
Institute’s rules and regulations are a little too much for a small entity. On
the other hand, there is lack competent manpower. We can’t afford to employ too
many qualified people. The irony is that our clients don’t appreciate our
efforts and are also not willing to pay for our services! They take us for
granted.

S—That’s because they don’t
find any value addition. The client perceives your services as mere compliance.

A—Krishna but that is a wrong
perception. By ensuring compliance we save them from penalty and prosecution.
Another issue that bothers us is : How much to study? Under pressure we neglect
our health and family. There is no time to relax and live – we merely exist.

S—Today, you seem to be too
stressed.

A—Yes. As it is, every March
is like this. March mars our mood!

S—(smiles). In Geeta, I
advised you to be a ‘sthitapradnya’ – a balanced and steady mind.
Unperturbed by anything!

A—Krishna, it is easy to advise, but difficult to
follow. See how many fronts we have to fight – advance tax, GST, planning for
closure of books, gearing up for bank audits! To add to this our
assistants/trainees are on exam leave! On top of this the tax authorities are
all out for coercive recoveries! How can they have target oriented tax
assessments and recoveries? Government’s thinking is strange!

S—Arjun, why are you whaling?
I understand your difficulties. But today all professions are sailing in the
same boat. Please remember your very survival depends on the laws made by the
Government! Don’t complain about complicated and confusing laws.

A—I envy other professions –
that perform and also enjoy without any tension!

S—That’s a wrong impression.
Grass is always greener on the other side.

A—What was the point you were
making?

S—See, you criticised the
Government. Now elections are coming. It is your duty to vote consciously. And
also educate and motivate others to do so! As intellectual professionals you
owe a duty to the nation and society.

A—That’s OK. But this year I
am worried about bank audits! The recent scams are frightening!

S—Ensure that you write to the
previous auditor. Better talk to him and get fair idea and opinion about the
branch you are going to audit. Also, keep the record of your work – working
papers. In short, be diligent, meticulous and careful. Timely communication
backed by proper evidence will help you in doing the work smoothly. Remember,
work should not only be done; but it should be seen that it is done.

A—Yes, Lord! I cannot run away
from the profession. Everywhere the
things may be the same. Whatever I do, I must do it properly and diligently. I
seek your blessing!

S—You are always blessed, My
Dear!

Om
Shanti.

BCAJ Admin

RIGHT TO INFORMATION (r2i)

PART A I DECISION
OF SIC

SIC awards Rs. 10,000 relief to RTI
applicant

Telangana State
information Commission has awarded a compensation of Rs. 10,000 to a senior
citizen who was fighting for information regarding her revised pension and
other records from the medical department for the last 10 months. Dr TSS
Lakshmi (76), a retired professor of dermatology/Medical Superintendent of
Osmania General Hospital, had filed a Right To Information petition in December
2017 seeking information from the Director of Medical Education on the revision
of her pension details. “Provide me with the xerox copy of my service register
and information of health card and a copy of the proposal for revision of pay
fixation and pension,” said the applicant in the petition. However, the
applicant did not get the required information even after 30 days of the
standard procedure time mentioned under the RTI Act, 2005.

In the follow up hearing of the case, she
was informed by the Public Information Officer that there were no records of
her data. Irked by the PIO’s response, the Chief Information Commissioner Dr
Raja Sadaram Soma ruled in favour of Lakshmi. He said that the complainant
retired in 2002 and that she has been drawing pension from the State,
suggesting that the PIO’s response was not convincing at all.

(Source:http://www.newindianexpress.com/states/telangana/2019/mar/17/sic-awards-rs-10000-relief-to-rti-applicant-1952150.html)

RTI applicant can choose mode of information collection: SIC

The State Information Commission has held
that it is for the information seeker under the Right to Information Act to
choose the mode of collecting the required information and that the State
Public Information Officer (SPIO) has no discretionary power to dictate any
particular mode.The commission made the observation while issuing a show cause
notice to the SPIO of the Revenue Divisional Office, Kottayam, for asking an
information seeker to visit the office and gather the required information by
perusing the relevant files there.

The commission pointed out that as per
section 2(j) of the RTI Act, right to information meant the information held by
or under the control of any public authority and which include the right to
inspect work, documents, records, and take note, extracts or certified copies
of documents or records. The Commission pointed out that section 2(i)(ii)(iii)
and (iv) of the Act spoke of the right of the information seeker to gather
information by adopting his/her own mode of choice.

(Source:https://www.thehindu.com/news/national/kerala/rti-applicant-can-choose-mode-of-info-collection-sic/article26493229.ece)

PART B I RTI ACT, 2005

With the RTI Law in Place,
Rafale Deal Secrets Can’t Be Called ‘Stolen’

For discovering an incriminating document from the defence department, a
journalist is threatened. For attaching those documents to a public interest
litigation, a lawyer is threatened with prosecution under the Official Secrets
Act. The battle is now between the freedom of speech and official secrecy. Can
official deals, if wrongful, be protected under the curtains of secrecy?

In the wake of resistance and criticism from media bodies and the public,
the attorney general said the government had no intention of prosecuting
journalists and lawyers for using the ‘documents’.

Then Centre filed an affidavit on March 13, 2019 stating that those who
leaked were guilty of penal offences including theft. It was claimed that
annexed notes were marked ‘secret’, and exempted from disclosure even under the
Right to Information Act. It also raised a point under the Evidence Act, on the
use of evidence derived from unpublished official records relating to the
affairs of the state without permission.

These claims reflect the intention to attack the review petition on
technical grounds, without condemning the veracity of the contents that
strengthen allegations. First of all, it is not a trial in which admissibility
of evidence need to be thoroughly examined; the government can raise those
points in the trial that happens after the investigation the petitioners
are seeking. The facts of the case have to be considered to decide whether a
probe should be ordered.

The second point is on the documents being marked ‘secret’. Which part of
the deal is secret, and why? The test established by the Supreme Courts of
India and the US in several cases to withhold a document as secret is the
doctrine of ‘clear and present’ danger. The Pentagon Papers case in the
US and Raj Narain’s case against Indira Gandhi in India, the Supreme Courts
laid down the norm that the danger should be so clear that secrecy needs to be maintained.

In Pentagon Papers, failures of the US Army in Vietnam were leaked
by the New York Times, Washington Post and others. The US
government wanted to prevent newspapers from publishing these reports, citing
‘national security’. In the Raj Narain case, the Centre was refusing to
share the blue book for the then prime minister’s visit during electioneering,
even many years after the event. The Centre has a duty to explain how a dissent
note from three negotiators would pose a clear and present danger to
‘security’.

To say that this document could not have been disclosed even under RTI
Act is legally not tenable, because the RTI Act provided for disclosure of
defence details and information from exempted organisations as well in the
context of corruption and human rights violation. The political executive
cannot use the Official Secrets Act and a ‘national security’ defence, without justifying them, to hide the truth and prevent a
probe.

The very origins of the Official Secrets Act was to muzzle the voice of
the opposition and criticism. The pre-independence 1923 Official Secrets Act
promotes secrecy and confidentiality around ‘governance’. It is shocking that
attorney general, representing the Centre, said the prosecution had stolen
‘secret’ documents and pleaded with the Supreme Court not to consider the
stolen parts of the deal papers.

The review of the apex court’s December 14 decision will have very
serious implications because the petitioners – Yashwant Sinha, Arun Shourie and
Prashant Bhushan – are seeking an FIR against Prime Minister Narendra Modi and
others involved in the Rafale deal.

Relying largely on documents published in the media, the petitioners want
the Supreme Court to reverse their conclusion about the absence of alleged
commercial favouritism, because certain critical information was suppressed
from judicial scrutiny.

The AG attacked the review petition, claiming the documents were stolen
and then attached to the petition before the bench, which means the petitioners
are involved. It is in this context that the threat of prosecution under the
Official Secrets Act has to be examined.

Though the AG has retreated from this threat, it has stirred a debate
about practical application of provisions of the Official Secrets Act, because of
their inconsistency with the Right to Information Act, 2005. One must see how
official secrets are valid when transparency is the law and disclosure the
rule. Secrecy is now an exception.

More than a threat to the freedom of press and due process, the use and
abuse of the Official Secrets Act threatens good governance and promotes
corruption.

CULTURE OF SECRECY

As rightly observed by the Second Administrative Reforms Commission, the
Official Secrets Act is founded on colonial mistrust of people and primacy of
officials who deal with citizens. The culture of secrecy was established
through this draconian law.

The commission’s recommendation to repeal it was rejected. In 2017, a
committee of the cabinet secretariat recommended making the Act more transparent,
at least. That was not acted on.

On the one hand, the government fills information commissions with former
bureaucrats to discourage disclosure, and on the other promotes the use of the
Official Secrets Act. The pre-independence Congress party had resolved to
repeal the Act, but every party including the Congress has used it to stifle
voices. When it is used in the forum of the Supreme Court to stall a probe into
the Rafale deal, the public must doubt the commitment to transparency and zero
tolerance of corruption.

Every document is not a secret and every leak is not a crime under the
Official Secrets Act. Criminality lies in “intending to benefit enemy country
directly or indirectly”. Sections 3 and 5 of the Act refer to making or
accessing a sketch, plan, model or note or document which is useful to the
enemy or wrongfully communicating it, which is likely to affect the sovereignty
and integrity of India, security of state or friendly relations with foreign
state.

THE ACT DOES NOT DEFINE ‘SECRECY’

The most interesting factor is that the Officials Secrets Act does not
define ‘secret’ or ‘official secret’, and does not provide a ‘classification’
of documents. The Manual of Departmental Security Instruction (MODSI) of the
Ministry of Defence has laid down procedures and criterion for classification
of documents as ‘top secret’, ‘secret’ and ‘confidential’.

Papers containing vital information which cannot be disclosed for reasons
of national security are classified as ‘top secret’, and these must not be
disclosed to anyone for whom they are not essential. Such papers include
references to current or future military operations, intending movements or
disposition of armed forces, shaping of secret methods of war, matters of high
international and internal political policy, ciphers and reports derived from
secret sources of intelligence.

The ‘secret’ classification is reserved for papers the disclosure of
which could cause administrative embarrassment or difficulty, an internal
breach of peace and amity, injury to the interest and prestige of the
government, or would be of advantage to a foreign nation or enemy.

The ‘confidential’ category is reserved for papers containing information
the unauthorised disclosure of which, while not endangering national security,
would be prejudicial to the interests of the nation, any government activity or
individuals, or would cause administrative embarrassment or difficulty or be of
an advantage to a foreign nation. In S.P. Gupta, the Supreme Court
rejected the criteria of ‘embarrassment to the government’.

OFFICIAL SECRETS ACT VS RTI

Section 2 of the Official Secrets Act defines ‘document’ as ‘document
includes part of a document. This means if any part of the document is secret’,
then the disclosure of part other than ‘secret’ part also can be denied.

Section 10 of RTI Act provided for separation of the ‘secret’ part and
release of the rest.

This is the conflict between these two Acts. Section 22 of the RTI Act
expressly provided that the provisions of the RTI Act shall have effect
notwithstanding anything inconsistent therewith contained in the Official
Secrets Act, 1923, and any other law for the time being in force or in any
instrument having effect by any law other than the RTI Act.

This was further fortified in section 8(2), which stated that information
exempted under sub-section (1) or exempted under the Official Secrets Act, 1923
can be disclosed if public interest in the disclosure overweighs the harm to
the protected interest.

The Bofors scandal was the result of a media investigation and the
leakage of key documents. In fact, the official radio of Sweden released
threads of the bribery to Indian dealers behind the Bofors deal with India.
This could happen because there is a Freedom of Press Act in Sweden, which
granted people the right to information back in 1766. The transparency law
ensures corruption-free defence deals.

STOLEN TRUTHS

In this context of a 21^stcentury access law overriding a
97-year-old British relic law of secrecy, one has to see whether all papers of
negotiations, undue increase in the price, irrational preference of Anil Ambani
to HAL, ignoring the ‘make in India’ policy, dissent of three members of
seven-member negotiating team against a parallel bargain by the PMO in Rafale
deal, etc., can be considered as ‘official secrets’.

Even if agreed that they are stolen, as contended by the AG, the
documents accessed by the media are not condemned as false. This strengthens
the plea to review the Supreme Court’s December 14 decision. The government has
a duty to tell the apex court and people which part of the Rafale deal could
harm security interests, and disclose the rest.

Whether citizen, journalist or lawyer, shouldn’t everyone have the right
to criticise and challenge the purchase of Rafale fighter aircraft at a price
much higher than earlier estimated?

M. Sridhar Acharyulu is a former Central Information Commissioner and a
professor of media law at Bennett University.

(Source:https://thewire.in/law/rafale-deal-official-secrets-act-rti)

PART C I INFORMATION ON & AROUND

Movie Ticketing Apps Not Allowed to
Charge ‘Internet Handling Fee’ from Customers, Says RBI In Response to RTI
Query

An RTI query has revealed that portals like BookMyShow levy an extra
‘internet handling fee’ against each ticket, which is in violation of the RBI’s
Merchant Discount Rate (MDR) regulations that were issued by the Reserve Bank
of India on Dec 6, 2017.

As per the regulations, the merchant (in this case, the movie theater)
is supposed to pay an amount to the bank against every transaction made by
customers using a credit or debit card as per MDR regulations.

However, movie ticketing apps may be allowing the merchant to transfer
this fee onto unwitting customers by charging it from them in the form of
“internet handling fee”. This fee includes 18 percent Integrated GST
(IGST) which the customer is supposed to pay.

(Source:https://www.news18.com/news/buzz/rti-bookmyshow-overcharging-customers-rbi-meity-2068071.html)

Rural distress: Farmer suicides in Maharashtra
doubled in last 4 years, reveals RTI

In the last four years, Amravati division, commonly known as Vidarbha,
recorded highest number of suicides, at 5,214.This was followed by Aurangabad
division, also known as Marathwada, with 4,699 farmer suicides.

At a time when drought has been declared in about half of Maharashtra –
about 150 tehsils out of 360 – a Right to Information query has revealed that
the number of farmer suicides in the state has doubled in the last four years.

In a letter to the National Human Rights Commission (NHRC), the
Maharashtra government says between 2011 and 2014, which is when the
Congress-NCP was in power, 6,268 famers committed suicide. The number rose
sharply by 91 per cent to 11,995 from January 2015 till the end of 2018.

“The core issues of farmers related to the distress in the rural
area is mostly related to the credit, cost and the crop pattern adopted by the
farmers. The issues of health, rural unemployment and natural climate are also
very significant,” Kishore Tiwari, head of Vasantrao Shetti Swawalamban
Mission, Maharashtra government.

(Source:https://www.moneycontrol.com/news/india/rural-distress-farmer-suicides-in maharashtra-doubled-in-last-4-years-reveals-rti-3617231.html)

Only one musk deer in country’s zoos,
reveals RTI reply

Only one musk deer is present across zoos in the country, according to a
response obtained under the Right to Information Act.

The Central Zoo Authority, under the Ministry of Environment, Forest and
Climate Change (MoECC), stated that the lone male musk deer was in a zoo in
Himachal Pradesh.

A Noida-based RTI activist had sought details on the population of musk
deer across states in the country, both in zoos as well as in the wild. He had
also asked statistics related to the poaching of the wild species, if any.

“There is only single male musk deer (that) exists in recognized zoo
(Himalayan Nature Park, Kufri as on 31.03.2018),” said the Central Zoo
Authority, which maintains the records of captive animals in zoos.There are
seven musk deer species of the genus Moschus and all of them are endemic to
Asia.

(Source:https://www.tribuneindia.com/news/nation/only-one-musk-deer-in-country-s-zoos-reveals-rti-reply/739473.html)

Does The Office Of CJI Come Under The
Purview Of RTI Act? SC Finally Lists Its Own Appeal Before Constitution Bench

In the list of cases to be heard by the Constitution bench of the
Supreme Court from March 27^th, the Supreme Court has included its
own appeal against a Delhi High Court judgment that had held that the Supreme
Court and the Chief Justice of India are “public authorities” under
the Right to Information Act. Three Judge bench of Delhi High Court comprising
the then Chief Justice A P Shah, Justice Vikramjeet Sen and Justice S
Muralidhar had upheld the single bench judgment that Supreme Court and the
Chief Justice of India have statutory duty to furnish information sought by
citizens regarding the functioning and administration of the Supreme Court. The
single bench had dismissed the challenge against the order of Central
Information Commission whereby it had directed the Supreme Court CPIO to
provide the information requested by Subhash Chandra Agarwal for supply of
information concerning declaration of personal assets by the Judges of the
Supreme Court.

(Source:https://www.livelaw.in/top-stories/constitution-bench-hearing-list-143623)

Only 920 MBBS seats added in 5 years
against 10,000 approved: RTI

Only 920 MBBS (Bachelor of Medicine and Bachelor of Surgery) seats have
been added in the government medical colleges against the approved 10,000, in
the last five years, reveals an RTI.

According to the RTI filed by Chandra Shekhar Gaur, a resident of Madhya
Pradesh, the government has approved 36 medical colleges for adding 2,615 MBBS
seats in Andhra Pradesh, Gujarat, Jharkhand, MP, Odisha, Punjab, Rajasthan,
Tamil Nadu, Uttarakhand, West Bengal, Manipur and Karnataka.

It also released Rs 685 crore in 2015-18 for 12 states for increasing
the number of MBBS seats.

In Andhra Pradesh and Rajasthan, only 50 new seats each have been added
against the approved 150 and 350 seats, respectively, in Karnataka, 350 seats
have been created against the approved 550, the RTI revealed.

In states like Jharkhand, MP, Tamil Nadu, Uttarakhand, West Bengal and
Manipur not a single seat has been added.

According to the RTI, 450 seats were to be created in MP. But even after
sanction of Rs 108 crore in three years for the four government-owned medical
colleges, not a single seat has been added.

In Tamil Nadu, too, over Rs 82 crore has been released by the Centre to
add 345 seats. But the seat count remains the same.

States like Odisha (200 seats), Gujarat (170 seats) and Punjab (100
seats) have upgraded their medical colleges and increased the requisite number
of MBBS seats.

In 2014, a cabinet committee of the UPA government had approved the
Ministry of Health and Family Welfare’s proposal relating to the
Centre-sponsored scheme for upgradation of government medical colleges and
increasing the number of MBBS seats. It was also announced that Rs 10,000 crore
would be invested for increasing the MBBS seats. Of this, the Centre was to
contribute Rs 7,500 crore and states/UTs Rs 2,500 crore.

The funding pattern was to be 90:10 between the central and the state
governments for northeastern states and the special category states. The ratio
of 70:30 was decided for other states.

Creation of one MBBS seat cost around Rs 1.20 crore, according to the
cabinet committee in 2014.

Again in 2018, the cabinet approved the proposal for adding 10,000
under-graduate seats by 2020-21 and 8,058 post-graduate seats — 4,058 in the
first phase by 2018-19 and 4,000 in the second phase by 2020-21.

(Source:https://www.moneylife.in/article/only-920-mbbs-seats-added-in-5-years-against-10000-approved-rti/56456.html)

Two years after demonetisation: Okaying
note ban, RBI rejected govt claim on black money, fake notes

Less than four hours before Prime Minister Narendra Modi announced
demonetisation on November 8, 2016, the Central Board of the Reserve Bank of
India (RBI) gave its approval to the scheme but also rejected, in writing, two
of the key justifications — black money and counterfeit notes — that he would
make in his televised address to the nation.

The minutes of the 561^st meeting of the RBI’s Central Board,
which was convened hurriedly in New Delhi at 5.30 pm that day, reveal that the
central bank’s directors described the move as “commendable” but also warned
that demonetisation “will have a short-term negative effect on the GDP for the
current year”.

The minutes were signed by RBI Governor Urjit Patel on December 15,
2016, five weeks after the meeting was held. In all, six objections, described
as “significant observations”, were recorded in the minutes by the RBI Board.
The RBI directors, after receiving a proposal draft of the scheme from the
Ministry of Finance on November 7, 2016, argued that the government’s
reasoning, that the withdrawal of HD (high denomination) currency notes of Rs
1,000 and Rs 500 would help in curbing black money and restrict circulation of
counterfeit cash, did not really hold good.

The minutes list out the justifications given by the Ministry of
Finance.

RBI Red Flags

• Short term
negative on GDP

• Rs. 400 crore
fake notes not very significant share of total cash

• Most black money
not held in cash but gold, real estate • Adjustment for inflation, difference
between economic growth and cash available not so stark.

(Source:https://indianexpress.com/article/india/two-years-after-demonetisation-okaying-note-ban-rbi-rejected-govt-claim-on-black-money-fake-notes-5438516/)

SBI has found fraud worth Rs 7,951.3
crore in Apr-Dec: RTI reply

The State Bank of India has said as much as Rs 7,951.29 crore involving
1,885 cases of fraudulent activities have come to light during the first nine
months of the current fiscal year. In a reply to a right to information query,
the nation’s largest lender said, the first quarter reported 669 cases of
fraudulent activities amounting to Rs 723.06 crore, the second quarter saw 660
cases involving an Rs 4,832.42 crore and the third quarter reported 556 cases
amounting to Rs 2,395.81 crore. According to RTI activist Chandrashekhar Gaud,
the bank shared the data on Feb. 25.

Though he had also sought information about the financial losses to its
customers due to these fraudulent activities, the SBI refused to share the same
saying such information is exempted from disclosure under section 7 (9) of the
RTI Act of 2005. The bank did not share details of frauds such as phishing,
online, debit, credit cards fraudulent transactions or borrowers engaging in
fraudulent activities with the borrowed money.

(Source:https://www.bloombergquint.com/business/sbi-has-found-fraud-worth-rs-7-951-3cr-in-apr-dec-rti-reply#gs.1xytaa)

Maharashtra: No internal committees in
ministers’ offices to receive, address sexual harassment complaints

In a response to a Right to Information (RTI) application filed by The
Indian Express, the office of Maharashtra Chief Minister Devendra Fadnavis said
no IC has been established. In addition, none of the ministers’ offices have
such an IC either.

The Sexual Harassment of Women at Workplace (Prevention, Prohibition and
Redressal) Act, 2013, mandates that all places of employment with 10 or more
employees are mandated to have a functioning IC. While the Maharashtra CM
Secretariat has 110 employees, including 20 women, all the ministers’ offices
have more than 10 employees. In all, there are 38 ministers, including the
Chief Minister.

An RTI request was filed with the CM Secretariat seeking to know the
date of formation of the IC as per the provisions of law. In its reply, Public
Information Officer Geeta Yadav said, “The establishment works related to the
CM Secretariat is handled by the Desk 21 of the General Administration
Department (GAD),” and hence, such a committee was not established at the CM
Secretariat. “However, appropriate action is being taken in the matter after
seeking remarks from the concerned departments,” the reply added.

(Source:https://indianexpress.com/article/cities/mumbai/no-internal-committees-in-ministers-offices-maharashtra-sexual-harassment-complain-5605934/)

PART D I RTI CLINIC-SUCCESS STORY

RTI Clinic of BCAS was approached by Mr.
Gandhi whose goods (Bales) were in the custody of the GST department and a
penalty was charged to him. It was mentioned that on payment of the penalty his
goods would get released by the department, but even after 3 months of paying
the penalty the goods were not released. After filing of a RTI application the
goods were released by the department.

RTI Clinic in April 2019: 2^nd, 3^rd,
4^th Saturday, i.e. 13^th, 20^th and 27^th 11.00 to 13.00 at BCAS premises. _

BCAJ Admin

GLIMPSES OF SUPREME COURT RULINGS

1.
CIT (Exemptions) vs. Jagannath
Gupta Family Trust (2019) 411 ITR 235 (SC)

Charitable purpose – The High Court allowed
the appeal mainly on one ground, namely, that one bogus donation would not
establish that the activities of the trust are not genuine – According to the
Supreme Court, the High Court had committed error in entertaining the appeal
against the remand order passed by the appellate-authority, and in quashing the
order of cancellation of registration

Jagannath Gupta Family Trust (the Trust), a
registered Trust u/s. 12AA of the Income Tax Act, 1961, (for short ‘the Act’)
and also approved u/s. 80G(5)(vi) of the Act, was created with an avowed object
of public and charitable purposes, namely, medical relief, education, any other
causes of public utility etc. The Trust is running an Engineering College.

A survey was conducted u/s. 133A of the Act,
in the premises of School of Human Genetics and Population Health (SHGPH),
Kolkata by the Investigation Wing on 27.01.2014. During the said survey the
Income-tax Department noticed a donation entry of Rs. 37,00,000/- (Rupees
Thirty-Seven Lakh) in two tranches in the months of February and March, 2013.
According to the Department, such donation given to the Trust was bogus and
sham. The donor did not actually donate such amount, such entry was shown by
receiving the amount in cash from the Trust, by retaining commission.

In view of such allegation, the Commissioner
of Income-tax (Exemptions) initiated the proceedings for cancellation of
registration and issued a show-cause notice to the Trust on 04.12.2015. The
Trust replied to the same and contested the proceedings. The main plank of the
defence was that the procedure adopted by the Department was contrary to the
principles of natural justice. It was also the case of the Trust, that though a
statement of the representative of the donor was recorded and on the said basis
proceedings were initiated for cancellation of registration, but the Trust was
not given any opportunity to cross examine such representative.

After receipt of the explanation to the
show-cause notice, alleging that the activities of the Trust were neither
genuine nor as per the objects of the trust, further alleging that the
transaction in question was only a money laundering, therefore, receipt of
donation in lieu of cash was never the object of the trust and as such it was
to be treated as ingenuine and illegal activity. It was also held that such activities
were carried out by the Trust not only in one year but in several years.

By recording the aforesaid findings, the
primary authority, by order dated 15.03.2016, in exercise of power u/s. 12AA(3)
of the Act, cancelled the registration of the Trust.

Aggrieved by the order of cancellation dated
15.03.2016, the Trust filed an appeal before the Income Tax Appellate Tribunal,
at Kolkata. The appellate authority, recorded a finding that, though the
statement of the donor was made basis for initiating proceedings for
cancellation of registration of the Trust, but the Trust was not given an
opportunity to cross-examine the representative. The appellate-authority held
that an opportunity of cross-examination of the representative of the donor was
to be given to the Trust. The appellate-authority set aside the order dated
15.03.2016 and remanded the matter for fresh consideration by primary
authority.

Aggrieved by the order of the appellate
authority dated 10.04.2017, the Trust filed an appeal, before the High Court of
Calcutta. By the impugned order, the High Court allowed the appeal by order
dated 18.09.2017 and quashed the order of cancellation of registration. The
High Court held that while it was possible that a particular donation may be
bogus or fictitious and, the Trust may be assessed to tax therefor and other
steps could be taken but the single donation which was allegedly bogus, would
not establish that the activities of the trust were not genuine and not being
carried out in accordance with the objects of the trust. It also held that if
there were multiple bogus transactions of similar kind, it may lead to
reasonable assessment for the Competent Authority to hold that the trust was
engaged in such activities which could be said to be not genuine or not in
conformity with the objects of the trust.

The Commissioner of Income tax (Exemptions),
Kolkata, aggrieved by the Order dated 18.09.2017 passed by the High Court of Calcutta filed an appeal before the Supreme Court.

The Supreme Court noted that in the
proceedings initiated for the cancellation of registration, mainly it was the
case of the Trust that proceedings for cancellation were initiated only on the ex-parte
statement of the representative of the donor, without giving any opportunity to
the Assessee. It noted that though a survey was also conducted on the Trust,
but nothing adverse was found during such survey to support the case of the
Revenue, to cancel the registration. The Supreme Court, on the perusal of the
order passed by the High Court, found that the High Court had allowed the Writ
Petition mainly on one ground, namely, that one bogus donation would not
establish that the activities of the trust are not genuine.

According to the Supreme Court, such a reason
assigned by the High Court was erroneous and ran contrary to the plain language
of section 12AA(3) of the Act. In view of the serious allegations made against
the Trust, it was a matter for consideration of the issue, after giving
opportunity as pleaded by the Trust but the High Court had committed error in
entertaining the appeal against the remand order passed by the
appellate-authority, and in quashing the order of cancellation of registration.

The Supreme
Court therefore set aside order of the High Court, but however, clarified that
it had not expressed any opinion on merits, and it was open to the Commissioner
of Income Tax (Exemptions), Kolkata to consider all the issues on its own
merit, uninfluenced by the observations made by the appellate authority, the
High Court or in this order by it.

BCAJ Admin

FROM PUBLISHED ACCOUNTS

Audit
Reporting as per revised Standard on Auditing (SA 701)

Compilers’
Note

The
International Auditing and Assurance Standards Board (IAASB) has issued revised
and new International Standards on Auditing (ISAs) for audit reporting. These
audit reporting ISAs are applicable for all reports issued after 15^th
December, 2016 onwards.

With a
view to align the Standards on Auditing (SAs) in India, ICAI has also issued
revised reporting standards which are effective for audits of financial
statements for periods beginning on or after 1^stApril, 2017. The
said date was subsequently deferred by 1 year to now become effective for
audits of financial statements for periods beginning on or after 1^stApril,
2018. ICAI has also issued an implementation guide to SA 701.

One of the
key features of the revised audit reports is the inclusion of a paragraph
called “Key Audit Matters” (KAM). KAM are defined as those matters that, in the
auditor’s professional judgment, were of most significance in the audit of the
financial statements of the current period. KAM are selected from matters
communicated with TCWG.

Given
below is an illustration of the KAM paragraph included in the audit of interim
consolidated financial statements.

Infosys
Ltd: (9 months ended 31^st December, 2018)

Key
Audit Matters

Key audit matters are those
matters that, in our professional judgment, were of most significance in our
audit of the financial statements of the current period. These matters were
addressed in the context of our audit of the interim consolidated financial
statements as a whole, and in forming our opinion thereon, and we do not
provide a separate opinion on these matters.

KEY AUDIT MATTER	RESPONSE TO KEY AUDIT MATTER
Accuracy of revenues and onerous obligations in respect of fixed price contract involves critical estimates Estimated effort is a critical estimate to determine revenues and liability for onerous obligations. This estimate has a high inherent uncertainty as it requires consideration of progress of the contract, efforts incurred till date and efforts required to complete the remaining contract performance obligations. Refer Notes 1.5a and 2.16 to the Interim Consolidated Financial Statements.	*Principal Audit Procedures* Our audit approach was a combination of test of internal controls and substantive procedures which included the following: ? Evaluated the design of internal controls relating to recording of efforts incurred and estimation of efforts required to complete the performance obligations. ?Tested the access and application controls pertaining to time recording, allocation and budgeting systems which prevents unauthorised changes to recording of efforts incurred. ? Selected a sample of contracts and through inspection of evidence of performance of these controls, tested the operating effectiveness of the internal controls relating to efforts incurred and estimated. ? Selected a sample of contracts and performed a retrospective review of efforts incurred with estimated efforts to identify significant variations and verify whether those variations have been considered in estimating the remaining efforts to complete the contract. ? Reviewed a sample of contracts with unbilled revenues to identify possible delays in achieving milestones, which require change in estimated efforts to complete the remaining performance obligations. ? Performed analytical procedures and test of details for reasonableness of incurred and estimated efforts. *Conclusion* Our procedures did not identify any material exceptions.
Reasonableness of carrying amount of assets reclassified from “held for sale” Carrying amounts of assets reclassified from “held for sale” is at the lower of cost and recoverable amounts. Recoverable amounts of assets reclassified from “held for sale” have been estimated using management’s assumptions relating to business projections which consist of significant unobservable inputs. Refer Note 1.5f and 2.1.2 to the Interim Consolidated Financial Statements.	*Principal Audit Procedures* Our audit procedures consisted of challenging management’s key assumptions relating to business projections and other inputs used by the external valuer in computing the value in use to determine the recoverable amounts. We have also considered the sensitivity to reasonable possibility of changes in key assumptions and inputs to ascertain whether these possible changes have a material effect on the recoverable amounts. *Conclusion* The assumptions and inputs have been appropriately considered in estimating the recoverable amounts.

KEY AUDIT MATTER

RESPONSE TO KEY AUDIT MATTER

Accuracy of revenues and onerous obligations in
respect of fixed price contract involves critical estimates

Estimated effort is a critical estimate to determine revenues
and liability for onerous obligations.
This estimate has a high inherent uncertainty as it requires
consideration of progress of the contract, efforts incurred till date and
efforts required to complete the remaining contract performance obligations.

Refer Notes 1.5a and 2.16 to the Interim Consolidated Financial
Statements.

Principal Audit Procedures

Our
audit approach was a combination of test of internal controls and substantive
procedures which included the following:

? Evaluated the design of internal controls
relating to recording of efforts incurred and estimation of efforts required
to complete the performance obligations.

?Tested the access and
application controls pertaining to time recording, allocation and budgeting
systems which prevents unauthorised changes to recording of efforts incurred.

? Selected a sample of
contracts and through inspection of evidence of performance of these
controls, tested the operating effectiveness of the internal controls
relating to efforts incurred and estimated.

? Selected a sample of
contracts and performed a retrospective review of efforts incurred with
estimated efforts to identify significant variations and verify whether those
variations have been considered in estimating the remaining efforts to
complete the contract.

? Reviewed a sample of
contracts with unbilled revenues to identify possible delays in achieving
milestones, which require change in estimated efforts to complete the
remaining performance obligations.

? Performed analytical
procedures and test of details for reasonableness of incurred and estimated
efforts.

Conclusion

Our procedures did not identify any material exceptions.

Reasonableness of carrying amount of assets
reclassified from “held for sale”

Carrying amounts of assets reclassified from “held for sale” is
at the lower of cost and recoverable amounts.

Recoverable amounts of assets reclassified from “held for sale”
have been estimated using management’s assumptions relating to business
projections which consist of significant unobservable inputs.

Refer Note 1.5f and 2.1.2 to the Interim Consolidated Financial
Statements.

Principal Audit Procedures

Our audit procedures consisted of challenging management’s key
assumptions relating to business projections and other inputs used by the
external valuer in computing the value in use to determine the recoverable
amounts. We have also considered the sensitivity to reasonable possibility of
changes in key assumptions and inputs to ascertain whether these possible
changes have a material effect on the recoverable amounts.

Conclusion

The assumptions and inputs have been appropriately considered in
estimating the recoverable amounts.

BCAJ Admin

CORPORATE LAW CORNER

1 Commissioner of Income Tax vs. Gopal Shri
Scrips Pvt. Ltd. [2019] LSI-87-SC-2019(NDEL) (SC) Civil Appeal No. 2922 of 2019 Date of Order: 12^th March, 2019

Section 560(5)
of the Companies Act, 1956 – In the event name of a company has been struck off
the Register of companies, liability, if any, of every director, manager or
other officer who was exercising any power or management, and of every member
of the company, would continue and could be enforced as if the Company had not
been dissolved.

FACTS

Commissioner of Income-tax (“CIT”) Jaipur (IT department) had
filed an appeal u/s. 260A of the Income Tax Act, 1961 in the High Court of
Rajasthan (Jaipur Bench) against the order of Income Tax Appellate Tribunal
(“ITAT”). During the course of the hearing of the said appeal, status of G Pvt
Ltd was sought. ROC had issued communication to the court that name of G Pvt
Ltd been struck off from the register and said company was dissolved. The High Court
of Rajasthan held that the appeal filed has become infructuous and accordingly
dismissed the appeal u/s. 260A of IT Act, 1961. An SLP was filed in Supreme
Court challenging the order of High Court of Rajasthan, dismissing the appeal
of IT department.

HELD

The Supreme Court (SC) examined the
provisions of section 560(5) of the Companies Act, 1956 and held that the High
Court failed to notice section 560 (5) proviso (a) of the Companies Act and
further failed to notice Chapter XV of the Income Tax Act which deals with
“liability in special cases” and its clause (L) which deals with
“discontinuance of business or dissolution”.

The SC further observed that the
aforementioned two provisions, namely, one under the Companies Act and the
other under the Income Tax Act specifically deal with the cases of the
Companies, whose name has been struck off u/s. 560 (5) of the Companies Act.

The SC further concluded that these
provisions provide as to how and in what manner the liability against such
Company arising under the Companies Act and under the Income Tax Act is
required to be dealt with.

Since the High
Court of Rajasthan did not decide the appeal keeping in view the aforementioned
two relevant provisions the order of the High Court is not legally sustainable
and hence was set aside. The case was accordingly remanded to the High Court
for deciding the appeal afresh on merits in accordance with law keeping in view
of the relevant provisions of Companies Act and the Income tax Act.

(Note: This judgment was delivered in the
context of section 560(5) (a) of the 1956 Act, dealing with the striking of the
name of the Company. 2013 Act covers identical provisions u/s. 248 and hence
this case is relevant in the current context).

BCAJ Admin

ALLIED LAWS

1.
Appeal – Ground before lower
authorities – Issue could not be adjudicated at appellate stage [Code of Civil
Procedure, 1908; Order 41, Rule 22]

Gunamma
(D) by L.R. vs. Shevantibai (D) by L.R. and Ors. (2018) 15 SCC 599

An issue was raised before
the court which was not raised before the lower authorities.

It was observed that the
filing of cross-objection is an optional course of action and not mandatory.
While the same may be correct, Under Order XLI Rule 22 of the Code of Civil
Procedure, 1908 a contest can also be made to a finding adverse to a party
though the decree may be in his favour. No contest to the findings of the
learned first appellate Court was made in the Second Appeal before the High
Court.

It was held that it was not
appropriate to go into the said question in the present proceedings under
Article 136 of the Constitution of India.

2.
Evidence – Confessional
Statements after repeated interrogation – Recovery of incriminating material –
Held to be not voluntary and hence invalid [Constitution of India; Article
20(3)]

Ashish
Jain and Ors. vs. Makrand Singh and Ors. AIR 2019 SC 546

In a criminal appeal before
the honourable Supreme Court, it was observed that all the confessions by the
accused persons were made after interrogation, but the mode of this
interrogation did not appear to be of normal character, inasmuch as
investigating officer had deposed that the accused persons were grilled and
interrogated multiple times before extracting the confessions which lead to the
recovery of the ornaments, cash, weapons and key.

It was held that the
confessions that led to the recovery of the incriminating material were not
voluntary, but caused by inducement, pressure or coercion. Once a confessional
statement of the accused on facts is found to be involuntary, it is hit by
Article 20(3) of the Constitution, rendering such a confession inadmissible.
There is an embargo on accepting self-incriminatory evidence, but if it leads
to the recovery of material objects in relation to a crime, it is most often
taken to hold evidentiary value as per the circumstances of each case. However,
if such a statement is made under undue pressure and compulsion from the
investigating officer, as in the present matter, the evidentiary value of such
a statement leading to the recovery is nullified. It was opined that the
recovery of the stolen ornaments, etc., in the matter were based on involuntary
statements, which effectively negates the incriminating circumstance based on
such recovery and severely undermines the prosecution case.

The criminal appeal was
dismissed and the order of acquittal was upheld.

3.
Hindu Law – Partition –
Memorandum of Settlement entered into after partition – Admissible in evidence
for collateral purpose provided the document is impounded, stamp duty is paid
together with penalty. [Registration Act, 1908 – Section 17]

Sita Ram
Bhama vs. Ramvatar Bhama (2018) 15 SCC 130

The facts of the case state
that Plaintiff and Respondent are brothers being sons of Late Mr. D. Mr. D on
25.10.1992 decided to divide his self-acquired movable and immovable properties
between the Plaintiff and the Defendant. The father D, however, did not execute
any settlement deed. D died on 10.09.1993 and thereafter on 09.09.1994, the
Plaintiff and the Defendant recorded a memorandum of settlement as decided by
their father regarding his self-acquired properties. The memorandum of
settlement was signed by mother of the parties as well two sisters had signed
as witnesses. The Plaintiff filed suit for partition.

The Defendant pleaded that
there was no cause of action for the Plaintiff to file a partition suit since
the partition had already taken place and a memorandum showed that the
partition had taken place.

The lower authorities
accepted the case of the Defendant that the parties which were in joint family
have been divided, there was nothing joint between the parties, and hence there is no cause of action for the
Plaintiff for filing the suit for partition.

In
appeal, the Defendant contended that the memorandum of settlement was a family
settlement deed and a relinquishment document which was not admissible as
evidence, being inadequately stamped and not being registered. The High Court
upheld the view that so called family settlement takes away the share of the
sisters and mother, therefore, the same was compulsorily registrable. The
plaintiff is in appeal against the same.

The Hon’ble Apex Court,
while dealing with whether the memorandum of settlement could have been
accepted by the trial court in evidence or whether trial court had rightly
taken the view that the said document was inadmissible, held that the
memorandum of settlement was compulsorily registrable. However, it may be
admissible in evidence for collateral purpose provided the Appellant gets the
document impounded and pays the stamp duty together with penalty.

4.
Natural Justice – Hearing
both sides to a Writ petition mandatory. [Constitution of India; Article 14,
226]

Johra and
Ors. vs. State of Haryana and Ors. AIR 2019 SC 542.

The High Court, in a writ
petition filed before it observed that they do not deem it necessary to issue
any notice to any of the private Respondents except to the State and its Authorities
considering the nature of the order they intend to pass for the disposal of the
writ petition.

In an SLP filed before the
Supreme Court, the Court observed that when a person is made a party to the
judicial proceedings in relation to a dispute, such person has a legitimate
right to raise an objection that before passing any order in such proceedings,
he should be at least heard and his views/stand in relation to the subject
matter of the proceedings be taken into consideration. The Court is duty bound
to hear all such person(s) by giving them an opportunity to place their stand.

It was held by the Supreme
Court that the High Court issued some mandatory directions to the State in
relation to the subject-matter of the proceedings but it was done without
hearing the Appellants (Respondents in the writ petition before the High
Court). It is for this reason, the impugned order was set aside.

BCAJ Admin

GOODS AND SERVICES TAX (GST)

I.
High Court

1. 2019 [21] G.S.T.L. 3 (Kerala). Kun Motor Co. Pvt. Ltd. vs.
Assistant State Tax Officer, Kerala State GST Department, Thiruvananthapuram.
Dated 6^th December, 2018.

E-way
bill not required in case of transportation of car for personal use by dealer
of one State to individual buyer of another State, considered as intra-state
supply.

Facts

First
appellant, a resident of Thiruvananthapuram (Kerala) purchased a Mini-Cooper
Car from Second appellant assessee, a motor vehicles dealer, situated in
another State at Pondicherry for his personal use. Instead of driving, the
appellant opted for transportation of same to Thiruvananthapuram. Dealer’s
owned transportation and logistics wing registered under GST was used for the
transportation of car, in a specifically equipped carriage by road, without
issuance of E-way Bill. Revenue officials intercepted and seized the car in
Pondicherry due to non-compliance of E-way Bill.

Held

The
Hon’ble High Court held that transfer of property in goods vested with the
purchaser at Pondicherry itself, wherein supply was terminated. Further, it was
used for some distance which indicated that it was “used for personal effect”.
Further, subsequent transportation of car to another State would not make the
buyer liable to comply with E-way Bill requirements. Apparent doubt of the
Revenue as to whether a transaction was an inter-state or intra-state sale was
absurd as in case of intra-state there was no ground of detention and for the
latter case the applicable IGST was satisfied, which document was accompanying
the transport also. Detention notice and order quashed as illegal and without
jurisdiction. Appeal of Appellant was allowed.

2.
2018 [19] G.S.T.L. 84
(N.A.P.A) Ankur Jain vs. Kunj Lub Marketing Pvt. Ltd. Dated 8^th October, 2018.

Benefit
of reduction in rate of tax of one product cannot be passed by reducing the
price of another product to a greater extent.

Facts

Complaint
was lodged against the respondent a distributor of Maggie Noodles alleging
profiteering. The rate of tax on Maggi Noodle pack (35 gms and 70 gms) was reduced
from 18% to 12%. However, the benefit of such reduction in rate of tax for pack
of 35 gms was not passed on. Instead, the respondent reduced the price of
Maggie Noodles of 70 gms to a greater extent than required.

Held

N.A.P.A
held that benefit to be passed on account of reduction in rate of tax cannot be
granted selectively thereby, concluding that benefit given to one set of
customers cannot be enhanced and set off against another. It was further held
that the respondent had no legal authority to fix the MRP of the product
arbitrarily. Subsequently, penalty was imposed and the respondent was directed
to refund the so earned profit.

3.
2018 [19] G.S.T.L. 90
(N.A.P.A.) Raman Khaira and others vs. Yum Restaurants Pvt. Ltd.
and others. Dated 29^th October, 2018.

Allegation
of profiteering by non-passing of benefit of reduction in GST rate to recipient
could not be established for want of credible evidence, hence no violation of
Anti-profiteering provisions.

Facts

The
respondent was alleged to be resorting to profiteering on sale of products
after reduction in rate of tax from 18% to 5%. The Applicant could not conduct
investigation as specific evidence of profiteering against specific supplier.

Held

N.A.P.A
held that there lies no sustainability in the contention of the application
since no credible evidence was produced against the respondent by the
Applicants. The application was dismissed as no violation of anti-profiteering
provisions could be established.

II.
Authority for Advance Ruling (AAR)

4.
[2019-TIOL-12-AAAR-GST]
Ernakulam Medical Centre Pvt. Ltd. Dated 14^thDecember, 2018

Medicines
sold to outpatients by a pharmacy attached to the hospital is not a composite
supply of health care services and therefore taxable.

Facts

AAR had held
that supply of medicines and allied items provided by the hospital through the
pharmacy to the in-patients is part of composite supply of health care
treatment and hence not separately taxable. However, it was held that supply of
medicines and allied items by the hospital through the pharmacy to the
out-patients is taxable. An appeal is filed with the plea that the ruling of
AAR be modified by ruling that the supply of medicines and allied items to the
outpatients through the pharmacy attached to the hospital is also a part of
healthcare services and exempted under the notification.

Held

In case of
outpatients, it is the choice of the patient whether to follow the medical
advice given by the doctor or not. Neither the hospital nor the consulting doctors
can coerce the patient to follow the medical advice given by the doctor and nor
do they have any control over the patients’ medical care. Thus in the case of
outpatients, the healthcare service provided by the hospital is restricted to
the consultation of the doctor and these are not naturally bundled to be
considered as composite supply. Thus even if the outpatient decides to buy
medicines from the pharmacy run by the hospital, the charges for supply of
medicines is billed separately and cannot be considered as composite supply to
extend the exemption.

5. [2019-TIOL-16-AAAR-GST] Shreenath Polypast Pvt. Ltd. Dated 24^th
July, 2018

Interest
or late fee or penalty for delayed payment of consideration by the customer
would be leviable to Goods and Services Tax.

Facts

In the
present case, goods are supplied directly from the principal to the buyer
(recipient) and in case the buyer (recipient) is not in position to pay to the
principal by the due date, Del-Credere Agent extends loan to the buyer
(recipient) and makes payment of such supply to the principal on behalf of the
customer. The said loan is repaid by the buyer along with interest agreed
between the Agent and the buyer (recipient). AAR held that service provided by
applicant is by way of extending short term loans and that insofar as the
consideration is represented by way of interest, same is covered under Sl. No.
27 of Notification 12/2017-CT(R) and hence exempted from payment of Goods and
Services Tax – Appeal filed against this order before the AAAR by Assistant
Commissioner.

Held

It was
noted that once the Agent makes payment to the principal on behalf of the
customer, the Del-Credere Agent enters into the shoes of the principal and
becomes entitled to recover the amount from the customer. If such transaction
is treated as a short term loan and the interest thereon considered as exempt
then clause (d) of sub-section (2) of section 15 becomes otiose. In case of
direct transaction between supplier and the customer, where the customer makes
delayed payment with interest, the amount of interest would be charged to GST.
Therefore it was held that an interpretation which would make the leviability
of GST on the interest/late fee/penalty for delayed payment of consideration by
the customer dependent upon the nature of transaction is untenable. Thus, that
interest or late fee or penalty for delayed payment of consideration by the
customer would be leviable to Goods and Services Tax.

6. [2019] 102 taxmann.com 37 (AAAR-Karnataka) Toshniwal Brothers (SR)
(P) Ltd. Dated 9^th January, 2019

Since the
after sales support services are independent of promotion and marketing
services, though such services are supplied in terms of single composite
contract, the same cannot be considered as “composite supply” under GST law.

In light
of section 97(2) of CGST Act, 2017, the AAR lacks jurisdiction to give ruling
on questions relating to determination of place of supply.

Facts

Appellant
supplies services of marketing, sales promotion and post-sale support services
to overseas clients located in non-taxable territory. As per the agreement, 25%
of the commission was attributable towards after sales support services. An
application was made to determine as to whether such after sales support
services, provided under composite contract, would amount to “composite supply”
under GST law and if so, what would be the principal supply? The AAR held that
the “after-sales support service” is independent from the promotion and
marketing service and is not a composite supply. Further, as regards whether
services supplied qualify as “export of services” and whether they will be
treated as “zero rated supply”, AAR refrained from giving a ruling for the said
issue being out of scope of section 97(2). Being aggrieved appellant filed
present appeal.

Held

As regards
whether after sales support services constitutes composite supply, the
Appellate Authority observed that it is admitted fact that such after sales
services by way of installation are not required in each and every case of
sale. It was observed that in order for the supply to be termed as a “composite
supply”, what is required is that the supply of the said services should at
least be bundled, more specifically be “naturally bundled” and supplied in
conjunction with each other. The term “naturally bundled” has not been defined
in the GST Act. The appellate Authority noted that the concept of composite
supply under the GST law is similar to the concept of naturally bundled
services that prevailed under the service tax regime and the same was
understood to refer to those transactions involving an element of provision of
service and an element of transfer of title in goods in which various elements
are so inextricably linked that they essentially form one composite
transaction. Accordingly, it was held that the question of after sales service
being naturally bundled with other promotional and marketing services does not
arise for the reason that every promotional activity with a prospective
customer does not result in a sale. Further, every sale does not necessarily
mean that installation support or after-sale support is required. Consequently,
the Appellate Authority held that the after sales support service, although
rendered in a composite manner with the promotion and marketing service is not
a composite supply and especially when the price for the after sales support
service is clearly identifiable and has been so stated in the contract itself.
The ruling given by AAR was upheld. As regards next issue, the appellate
authority upheld ruling of AAR by observing that since question of
determination of place of supply is not covered under section 97(2) of CGST
Act, 2017, the AAR was right in refraining from answering this question on the
grounds of lack of jurisdiction.

7.
[2019] 102 taxmann.com 278
(AAAR-Haryana) Awla Infra. Dated 13^th September, 2018

Providing
godowns on lease and the services of management of “storage and warehousing of
agricultural produce” in such godowns can be provided independently, thus when
both services are supplied simultaneously, it is case of “mixed supply”, and
applicable rate of GST would be rate for such supply which attracts highest GST
rate.

Facts

The Food
Corporation of India (FCI) framed a scheme for construction of godowns for
storage of agricultural produce and appointed a nodal agency for implementing
said construction scheme. The nodal agency invited tenders from private parties
for construction of godowns for FCI and the godowns were to be managed and
supervised by nodal agency for guaranteed lease of ten years on Build, Own and
Operate/lease basis for varying capacity of storage of food grains. In terms of
agreements between (a) FCI and Applicant and (b) Applicant and Agency, there
were two types of schemes (i) on lease only basis and (ii) on lease and service
basis. In case of lease only scheme, godowns were built by the Applicant and
were leased out to Nodal Agency which then manages the godowns. Under “lease
and service arrangement”, Applicant entered into agreement with nodal agency
for construction of godowns, wherein Applicant built godowns, leased it to the
nodal agency and also managed the storage & preservation of stocks of food
grains of FCI under the supervision of nodal agency. The “rent received from
leasing of immovable property” is chargeable to GST, whereas “storage and
warehousing of Agricultural produce (Wheat & Paddy) and Rice” is exempt
from GST. However, due to nature of arrangement on “lease with service basis”
between Applicant and nodal agency, the FCI clarified that such arrangement
would be exempt from GST. Accordingly, applicant sought present ruling as to
whether the services supplied by Applicant to nodal agency would be exempt or
chargeable to tax as “renting of immovable property services”?

Ruling

The
authority held that since the Applicant provides both the services to nodal agency
i.e. support services in relation to agricultural produce as well as real
estate services and since both these services are capable of being provided
independently, these cannot be considered naturally bundled. Therefore, it was
held that such services would be regarded as “mixed supply” under section 2(74)
of CGST Act, 2017 and would attract GST rate of that particular supply which
attracts the highest rate of tax of that particular supply in terms of section
8(b) of the CGST Act, 2017. Consequently, the services supplied by Applicant to
nodal agency are held to be chargeable to GST at 18%”.

8. [2019] 102 taxmann.com 284 (AAAR-Haryana) Esprit India (P) Ltd.
Dated 22^nd November, 2018

The
Advance Ruling Authority declined to give ruling on questions regarding
taxability of export of services and refund of ITC to exporter for said
questions being out of scope of section 97(2) of CGST Act, 2017.

Facts

The
Appellant is engaged by its foreign holding company/associates to provide
support services to them in relation to goods and merchandise sold by them in
India. Advance ruling is sought on taxability of such support services provided
to foreign associates under GST regime. Further, ruling is sought as to whether
such services would be “export of services” and thus, whether they would be
eligible for refund of Input Tax Credit paid on inputs services or goods or
both. The AAR held that services provided would be chargeable to GST being “intermediary
services”. As regards question of “export of services” and “refund of ITC”, the
AAR declined to give ruling by holding that said question is out of scope of
section 97(2) of CGST Act, 2017. Being aggrieved, Appellant filed the present
appeal.

Held

The
Appellate authority upheld the decision of AAR that services supplied to its
associates would be chargeable to GST under category of “intermediary
services”. As regards remaining two questions, it was observed that the powers
of Authority for Advance Ruling are limited to cases covered u/s. 97(2) of CGST
Act, 2017 only. However, the question
whether a service is “export of service” and thereby whether assessee would be
eligible for “refund of taxes paid on inputs/input services” falls out of the
ambit of section 97(2), it was held that the AAR correctly declined to give
ruling on said issues.

Note: In [2019]
102 taxmann.com 217 (AAR-Maharashtra) K.Uttamlal Exports (P) Ltd. (Date of
Ruling: 23.10.2018), similar issue arose i.e. whether goods exported out of
India directly by the manufacturer but mentioning the applicant as “Third Party
Exporter” on export documents for the purpose of compliance under Foreign Trade
Policy, can be considered as “export of goods” in the hands of applicant for
the purpose of GST law, the AAR declined to give ruling on the ground that said
question is not covered under purview of section 97(2) of CGST Act, 2017.

9.
[2019] 102 taxmann.com 420
(AAR-Odisha) Indian Institute of Science Education & Research. Dated 13^th
February, 2019

Imported
Goods supplied by Indian OEM suppliers to specified research institutions are
chargeable to GST at concessional rates and not exempted from GST as such
exemption is available only when specified goods are directly imported by such
research institutions.

Facts

Applicant institution is engaged in imparting science education and
research training. Research laboratories procure imported equipments from
abroad or from OEM (Original Equipment Manufacturer) suppliers of such imported
equipments in India. In terms of Notification No. 51/1996-Customs dated
23.07.1996 read with Notification No. 43/2017-Customs dated 30.06.2017,
equipments directly imported by applicant (i.e. Eligible Institution as
specified in notification) from outside India, are exempted from IGST. In some
cases, research institutions to which the imported goods are to be supplied is
known to the importer at the time of import and in some cases not. Since the
OEM suppliers charged GST at the rates applicable from time to time, the
applicant sought ruling as to whether benefit of exemption granted under
aforesaid notifications would be applicable for specified imported equipments
delivered to eligible research institutions and the applicant is not liable to
pay IGST charged on such imported equipments by OEM suppliers of imported
equipments. Also, applicant sought ruling as to whether concessional rate of
GST vide Notification No. 45 & 47-IGST (Rate) dated 14.11.2017 are
applicable for supply of specified indigenous equipments to the eligible
institutions?

Held

The
Authority noted that the OEM supplier is located in India and the supply of
equipments by such supplier to the specified research institutions is a case of
domestic supply. The transaction of import of equipments by the OEM suppliers
on their own and thereafter, supply of such equipments to some pre-determined
or other research institutions, who otherwise qualify for IGST exemption on
imports, are two different consecutive transactions. Since importer is not
covered under said exemptions under Customs Law, importer would be liable to
pay IGST. Authority observed that the liability to pay GST on the
importer-supplier and not on applicant. Thus, Authority held that in absence of
any liability, the applicant cannot claim for exemption. As regards next question,
authority held that concessional rate of GST is applicable to supply of all the
specified goods, whether imported or indigenous.

10. [2019] 102 taxmann.com 282 (AAR-Haryana) B. M. Industries. Dated 29^th June, 2018

Merger of
proprietary going concern with private limited company does not come within
ambit of term ‘supply’ and thus, not liable to GST. Upon the merger, the
transferor can transfer the balance in its Electronic Credit ledger only to the
transferee and not the balance in Electronic Cash Ledger.

Facts

Applicant
proposed to merge his going concern proprietary business with a private limited
company along with all the assets, liabilities, rights, claims of proprietary
business etc. After merger, applicant would apply for cancellation registration
within 30 days as prescribed. The applicant sought ruling on GST implications
on said merger and transfer of balance lying in Electronic Credit Ledger and
Electronic Cash ledger of applicant to the company in which applicant’s
proprietary concern would be merged.

Held

The
Authority observed that in terms of schedule II of CGST Act, 2017, transfer of
business as going concern to another person is not treated as supply under GST.
Thus, authority held that there will not be any GST liability on transfer of
assets and liabilities by applicant to another entity in the course of proposed
merger. AS regards transfer of balances lying in Electronic Cash and Credit
Ledger of Applicant, the authority held that in terms of provisions of section
18(3) of CGST Act, 2017 read with Rule 41 of the CGST Rules, 2017, only the
balance lying in Electronic Credit ledger pertaining to unutilised input tax
credit can be transferred to the credit ledger of the transferee by filing form
GST ITC-02. Since the said provision is not applicable to balance in Electronic
Cash Ledger, applicant cannot transfer such balance to the transferee.

11. [2019] 102 taxmann.com 283 (AAR-Haryana) Pasco Motor LLP. Dated 14^th
August, 2018

When the
invoice for sale of goods is issued in one month but the goods are delivered in
subsequent month, the ITC is available to buyer in the month in which he
receives physical delivery of goods.
Further, irrespective of date of actual delivery of goods i.e. whether
in the same month in which invoice is issued or subsequent month, the time of
supply shall be the date of issue of invoice by supplier.

Facts

Applicant
purchases goods from vendors which is in transit for five to ten days. The
vendor raised invoices on applicant only after receiving payment in advance. As
regards the invoices issued by vendor in the end of the month, the goods are
received in subsequent month and thus,
entry for such purchases is made in its books upon receipt of goods. However,
the vendor reports the invoices in its GST returns for the previous months only
i.e. the month in which such invoices are issued. The applicant sought ruling
as to whether the applicant would be entitled to claim the ITC in the same
month in which the vendor has issued the invoices or the next month in which
goods are received. Further, in order
meet its monthly sales target, the applicant raises invoices on its customers
without being in actual possession of goods i.e. before receiving the physical
delivery of goods from its suppliers since the goods are in transit and then,
the applicant makes delivery of goods to its customers in next month. The
applicant sought ruling as to whether applicant will be under liability to pay
tax in the same month in which the invoice was raised though he was not in
possession of goods to be delivered under such invoice.

Held

As regards
the first issue, The authority observed that the explanation to section
16(2)(b) covers only those situations where goods are supplied on “Bill to –
Ship to” basis. In present case, since the applicant himself is the buyer and
the seller of the goods, it was held that the ITC on goods would be available
to the applicant only when he has received the goods in the next month and not in
the month in which the seller has raised the invoice.

As regards
next question, authority held that the provisions of section 12(2), which deals
with the time of supply in case of liability to pay tax on goods, clearly
stipulates that the time of supply shall be earlier of date of issue of invoice
or date of receipt of payment. Thus, in case of issuance of invoice where the
goods are delivered by applicant later on, but the invoice is raised earlier,
the date of issue of invoice will be the time of supply for the purpose of
determining tax period for filing of return and payment of tax.

BCAJ Admin

SERVICE TAX

Tribunal

1.
[2019-TIOL-530-CESTAT-MAD]
The Leigh Bazar Merchants Association Ltd vs. Commissioner of GST and Central
Excise Date of Order: 24^th January, 2019

Demand of
service tax on rent received from members is not sustainable on account of
principles of mutuality.

Facts

The appellant is an
association formed for the purpose of facilitating merchants to store and trade
food grains from the demarcated premises. They received certain amounts from
its members, who are merchants for utilising the land owned by them. A show
cause notice was issued demanding service tax under the category of
“Renting of Immovable Property”.

Appellant contended that
members are able to take lease of the lands only because they are members of
the association and therefore the principle of mutuality prevails. Further it
was also stated where the property is leased to non-members, the total taxable
value would be within the threshold limit and therefore, the demand cannot
sustain.

Held

The Tribunal relying on
Appellant’s own case held that the rent collected from members cannot be
subject to levy of service tax due to the principle of mutuality as laid down
in the case of Saturday Club Ltd. [2004-TIOL-48-HC-KOL-ST] and Ranchi Club
Ltd. [2012-TIOL-1031-HC-JHARKHAND-ST]. Further the benefit of threshold
limit was extended for the rent collected from non-members and the demand on
such rent from non-members was also set aside.

2.
[2019-TIOL-722-CESTAT-MUM]
Commissioner of Service Tax, Mumbai-II vs. Reliance Communications
Infrastructure Ltd Date of Order: 8^th February, 2019

Not
considering the written submissions while passing the order is an error
apparent on record.

Facts

Revenue has filed this
miscellaneous application, seeking rectification of mistake in the order passed
by the Tribunal. The appeal was heard in presence of both sides and the order
was reserved. Both sides were directed to file written submissions within two
weeks’ time. Revenue filed the written submissions in the Registry but they
were not placed on the file.

Held

The Tribunal held that it
is evident that without considering the submissions made by Revenue, the order
was passed which is an apparent mistake on the face of the record. Accordingly,
the miscellaneous application merits consideration for recalling the order and
for hearing of appeals afresh.

3.
[2019-TIOL-725-CESTAT-DEL]
Premium Real Estate Developers vs. CST Service Tax, Delhi Date of Order: 27^th
November, 2018

In
absence of any defined consideration for alleged service, there is no contract
of service at all and hence is not liable for service tax.

Facts

The assessee, a partnership
firm in the business of real estate trade entered into a Memorandum of
Understanding with Sahara India Limited. On perusal of the MOU, it is obvious
that MOU is not only for providing purely service for acquisition of the land but
also involves many other functions such as verification of title deeds of the
persons from whom the lands are to be acquired, obtaining necessary rights for
development of the land from the Competent Authority etc. The remuneration or
payment for providing this activity was not quantified in the MOU. The MOU
provided “the difference, if any, of the amount being actually paid to the
owner of the land and the average rate shall be payable to the second party
(appellant).” A show cause notice was issued demanding service tax under the
category of Real Estate Agent.

Held

The Tribunal noted that no
fixed amount was agreed in the MOU, the amount of remuneration for service, if
any is not clear in this case. It was noticed that for levy of service tax, a
specific amount has to be agreed between the service recipient and the service
provider. Reliance was placed on the decision of Mormugao Port Trust vs. CC,
CE&ST, Goa [2016-TIOL-2843-CESTAT-MUM]. Accordingly it was held that
since the specific remuneration was not fixed in the deal for acquisition of
the land, both the parties have worked more as partners in the deal rather than
as an agent and the principal. Therefore the taxable value itself did not
acquire finality. Further it was also held that the issue relates to
interpretation and there is no malafide intention on the part of the
appellant. It was noted that the transaction is duly recorded in the books of
accounts. Therefore there is no suppression of information. Thus extended
period is also not invokable.

4.
2018
[19] G.S.T.L. 270 (Tri. Mumbai) Raymond Ltd. vs. Commissioner of Service Tax,
Mumbai-II
Date of Order: 23^rd March, 2018

Amount
deducted by foreign banks in foreign currency from the bank in India as
collection charges from export proceeds not taxable in the hands of Indian
exporter.

Facts

Appellant assessee incurred
certain expenditure on account of bank charges in foreign currency in respect
of which the Revenue authorities confirmed the demand contending that the said
charges were liable for service tax along with interest and penalty.

Held

Relying on its decision
passed in an identical case of Greenply Industries Ltd. vs. CCE, Jaipur,
Final Order No. 50149 dated 03.01.2014 of the Hon. Tribunal held that an
amount collected as bank charges by the foreign bank was collected from the
Indian bank and not from the assessee and thus the assessee cannot be construed
as service recipient and thereby not liable to service tax. The appeal was thus
allowed.

5.
2018 [19] G.S.T.L. 277 (Tri.
All.) P.V.S. Construction Pvt. Ltd. vs. Commissioner of Central Excise &
Service Tax, Ghaziabad Date of Order: 23^rd March, 2018

No
service tax on security deposit received as pure agent on behalf of flat owners
and subsequently given to society after its formation by flat owners.

Facts

Appellant,
a builder, did not discharge his service tax liability on account of late
registration and late filing of ST-3 returns. Consequent upon the audit by the
department, Appellant paid not only the tax amount, interest and late fee, but
also an excess amount at regular intervals except for the time when the
Appellant’s bank account was frozen. Despite paying more than the proposed tax
liability, the demand was confirmed along with interest, late fee and penalty.
Also tax was confirmed on amounts received by the Appellant as “Security
Deposit” from the prospective flat owners which were later handed over to the
Society.

Held

The Hon’ble Tribunal held
that the Appellant had no intentions of evasion of tax and freezing of bank
account was a reasonable cause for delay in submission of payment of taxes and
accordingly filing of returns were delayed. Therefore, penalty was liable to be
set aside. Further, Appellant suo motu applied for registration and also
did not have any taxable receipts prior to the date of registration. As regards
service tax liability on the amount of security deposit, it was held that said
amount received was in the nature of pure agent as it was later given to the
society when formed. Further it was also held that the amount paid in excess
was eligible for refund and such claim applied in respect of it shall be
granted with interest as per the rules.

6.
2018 [19] G.S.T.L. 653 (Tri.
All.) Commissioner of Central Excise and Service Tax, Allahabad vs. Balrampur
Chini Mills Ltd Date of Order: 2^nd August, 2018.

In case
of an exempt service, payment under reverse charge does not arise.

Facts

Appellant assessee obtained
certain amount from the International Finance Corporation as “External
Commercial Borrowings” for the purpose of purchase of a plant. Authorities
opined that service recipient was liable to pay tax on reverse charge basis
since supplier of service did not have an office in India. On perusal of facts
it was clearly seen that service supplier i.e. IFC was exempt from payment of
any tax and duty in India as per the IFC Act, 1958 and hence question of
payment of tax on reverse charge basis should not arise on something that was
already exempt. Thus, demand against assessee was set aside by Ld. Commissioner
(Appeals). The Revenue filed this appeal.

Held

On perusal of records and
facts of the case, the Tribunal held that the assessee had obtained services
from an institution that enjoys relief in the form of exemption given to it
vide the IFC Act, 1958 and thereby payment of tax by the service provider does
not arise. Therefore, the question of shifting any obligation on service
recipient does not arise. The Revenue’s appeal was thus dismissed.

7.
2019 [20] G.S.T.L. 88 (Tri.-
Mumbai.) Pushpak Steel Industries Pvt. Ltd. vs. Commissioner of Central Excise
& Service Tax, Pune-III Date of Order: 7^th May, 2018

Arrangement
of transportation merely to facilitate delivery of duty paid excisable goods at
buyers’ premises cannot be categorised as “Business Support Service”.

Facts

Appellant collected
delivery charges separately from the buyers along with assessable value of
goods, statutory dues etc., for delivery of excisable goods to buyers’
premises. No other agreement existed between the parties for providing any
service, over and above the supply of goods. Delivery charges were collected
from the buyers which were incurred for delivery of goods at buyers’ premises
for which appellant paid lump sum amount for transportation of goods and the
balance was shown as “Freight Reimbursement” in the books. Service tax and
penalty was imposed considering the balance amount retained by the appellant as
taxable service under the category of “Business Support Service”.

Held

The Hon’ble Tribunal held
that the appellant did not support the business of his clients in any manner.
The activity of the appellant cannot be held liable for service tax as Business
Support Service as they were outside the ambit of taxable services, thereby
allowing the appeal.

8. 2019 [21] G.S.T.L. 33 (Tri. All.)
Commissioner of Customs, Central Excise & Service Tax, Noida vs. Fortune
Cookie Date of Order: 26^th July, 2018

Restaurant
Services provided from rented premise in Golf Course would not amount to
Outdoor Catering Service.

Facts

Revenue
initiated proceeding against Respondent alleging that activity of providing
food in premises of Noida Golf Course to their members through Noida Golf
Course by the respondent would fall under “outdoor catering service” and not
under “restaurant service”. The demand was confirmed and penalty was imposed
vide adjudication order holding the assessee liable to pay service tax 2007
onwards. The adjudication order was quashed by the Ld. Commissioner (Appeals).

Held

It was held that since the
place from where service was provided was taken on rent from Noida Golf Course,
the services are considered as provided from premises of respondent assessee
only. Further, relying on the decision in the case of Tamil Nadu Kalyana
Mandapam Assn. vs. UOI 2006 (3) STR 206 SC, it was observed that the
service of restaurant and outdoor catering are distinguishable and the service
provided by respondent are in nature of “restaurant service”.

9.
2019 [21] G.S.T.L. 37 (Tri.
Chennai) MAS Logistics vs. Principal Commissioner of C.T. & Central Excise,
GST, Chennai Date of Order: 25^th September, 2018

Logistic
services provided from India to foreign company for re-export of returned goods
amounts to export of service. Eligible for refund of tax on input services used
for such re-export of returned goods.

Facts

The Appellant provided
Logistic Support Service of return of imported goods under instruction of a
foreign shipper and received consideration in convertible foreign exchange.
Also availed various input services for the export of logistic services and
hence filed a refund claim. The said refund claim was rejected by the Revenue
stating that it did not appear to be in relation to export of service.

Held

The Hon’ble Tribunal held
that the allegation of department that Appellant acted as intermediary and so
place of provision of service as India cannot be sustained in light of the fact
that as Appellant was engaged by H & H, China, to whom they actually
provided service and raised invoices on account of facilitating re-export of
goods. As contract between shipper and importer cancelled, the delivery of
goods was not taken by the importer and the goods were taken back to China
resulting in re-export. The input services availed for doing such return of
goods to China are services availed for exports of services. It was H & H,
China who acted as intermediary and as recipient of logistic services situated
outside India and which paid consideration in convertible foreign exchange.
Therefore Appellant’s service is export of service. Consequently the appeal was
allowed and the refund along with consequential relief was granted.

BCAJ Admin

GLIMPSES OF SUPREME COURT RULINGS

13.
ITO vs. Urban Improvement Trust and Ors. (2018) 409 ITR 1 (SC)

Exemption – Local
Authority – The word “Municipal Committee” occurring in clause (iii) Explanation
to section 10(20) has a definite purpose and object, namely, to cover those
bodies, which are discharging municipal functions but are not covered by the
definition of municipalities as is required to be constituted by Article 243Q
of the Constitution of India – Urban Improvement Trust constituted under the
Rajasthan Urban Improvement Act, 1959 was not covered by the definition of
Municipal Committee as contained in clause (iii) of Explanation to section
10(20) of the Act.

A notice u/s. 142(1) of the
Act dated 01.08.2005 was issued requiring the Assessee to file a return for the
assessment year 2003-2004. A reply was submitted on behalf of the Assessee that
Urban Improvement Trust-the Assessee was a municipality within the meaning of
Article 243P of the Constitution of India, hence it was not required to file an
income tax return. Assessing Officer passed an assessment order dated
28.03.2006 rejecting the contention of the Assessee that its income was
exempted u/s. 10(20). An appeal was filed by the Assessee before the
Commissioner (Appeals). Commissioner (Appeals) passed an order on 10.02.2010
holding that Assessee was a local authority within the meaning of section
10(20) of the Act. The Revenue filed an appeal before the Income Tax Appellate
Tribunal challenging the appellate order. The ITAT accepted the Revenue’s claim
that Assessee was not covered within the definition of clause (iii) of
Explanation to section 10(20). The Appellate Tribunal allowed the appeal and
restored back the matter to the Commissioner of Income Tax (Appeals) for
consideration of the other issues.

Both
the Assessee and Revenue aggrieved by the order of ITAT had filed appeals
before the High Court. The High Court decided all the appeals vide its judgment
dated 25.07.2017. High Court held the Assessee to be local authority within the
meaning of section 10(20) Explanation. After answering the above issue in
favour of the Assessee, the High court held that other issues have became
academic. Consequently, the appeals filed by the Revenue were dismissed and
that of the Assessee were allowed.

According to the Supreme
Court, the only issue which arose before it was as to whether the Urban
Improvement Trust constituted under the Rajasthan Urban Improvement Act, 1959
was a local authority within the meaning of Explanation to section 10(20) of
the I.T. Act, 1961.

The Supreme Court noted
that section 10(20) was amended by Finance Act, 2002 w.e.f. 01.04.2003. By
Finance Act, 2002, provisions of section 10(20A) were also deleted. Section
10(20A), which existed prior to amendments made by Finance Act, 2002 exempted
any income of an authority constituted in India by or under any law enacted
either for the purpose of dealing with and satisfying the need for housing
accommodation or for the purpose of planning, development or improvement of
cities, towns and villages or for both. The Rajasthan Urban Improvement Act,
1959 was enacted for the improvement of Urban Areas in Rajasthan. The Rajasthan
Urban Improvement Act, 1959 was, thus, clearly covered by Section 10(20A). It
was availing exemption u/s. 10(20A) prior to Finance Act, 2002.

According to the Supreme
Court it had to decide as to what was the consequence of deletion of section
10(20A) and further insertion of Explanation u/s. 10(20) providing for an
exhaustive definition of the word “local authority”, which was not
defined under the Act prior to Finance Act,
2002?

The Supreme Court on
perusal of the Scheme of the Rajasthan Urban Improvement Act, 1959 as well as
the Rajasthan Municipalities Act, 1959 held that the provisions of the said Act
indicated that Urban Improvement Trust undertook development in the urban area
included in municipality/municipal board. Urban Improvement Trust was not
constituted in place of the municipality/municipal board rather it undertook
the act of improvement in urban areas of a municipality/municipal board under
the Rajasthan Urban Improvement Act, 1959. It could also perform certain
limited power of the municipal board as referred to in sections 47 and 48 but
on the strength of such provision Urban Improvement Trust did not become a
municipality or municipal board.

The Supreme Court further
observed that Learned Counsel for the Assessee had not based its claim on the
basis of clause (ii) of Explanation which relates to Municipalities rather it
had confined its claim to only clause (iii). Under clause (iii) claim of the
Assessee was that it was a “Municipal Committee”. The Supreme Court, thus,
proceeded to examine as to whether the Assessee was a Municipal Committee
within the meaning of Explanation to section 10(20) or not?

The Supreme Court noted
that the word “Municipal Committee” as occurring in section 10(20)
Explanation came for consideration before it in Agricultural Produce Market
Committee Narela, Delhi vs. Commissioner of Income Tax and Anr. (2008) 305 ITR
1. In the above case, it had examined the Explanation to section 10(20) as
amended by Finance Act, 2002 and the definition of local authority contained
therein. It held that the words “Municipal Committee and District
Board” in Explanation were used out of abundant caution. In 1897, when the
General Clauses Act was enacted there existed in India Municipal Committees and
District Boards, which were discharging the municipal functions in different
parts of the country. The expression “Municipal Committee and District
Board” were included by amendments incorporated by Finance Act, 2002 to
take into its fold those Municipal Committees and District Board which are
still discharging municipal functions where no other municipalities or boards
to discharge municipal functions have been constituted.

The Supreme Court held that
the word “Municipal Committee” occurring in clause (iii) Explanation,
thus, had a definite purpose and object. Purpose and object was to cover those
bodies, which are discharging municipal functions but were not covered by the
definition of municipalities as was required to be constituted by Article 243Q
of the Constitution of India. Urban Improvement Trust constituted under the
Rajasthan Urban Improvement Act, 1959, thus, could not be held to be covered by
the definition of Municipal Committee as contained in clause (iii) of
Explanation to section 10(20) of the Act.

The Supreme Court observed
that in New Okhla Industrial Development Authority vs. Chief Commissioner of
Income Tax and Ors. (2018) 406 ITR 178, it had considered in detail the
object and purpose of section 10(20A), the object and purpose of Finance Act, 2002
amendment adding the Explanation to section 10(20) and deletion of section
10(20A).

The Supreme Court further
held that the provision of sections 47 and 48 which permits certain powers of
the municipal boards to be performed by the Trust does not transform the Trust
into a Municipal Committee. The power entrusted u/s. 47 and 48 was for limited
purpose, for purposes of carrying out the improvement by the Improvement
Trusts. Further, sections 61 to 64 which empowers levy of betterment charges,
were again in reference to and in context of carrying out improvement by the
Improvement Trust in urban areas. The Municipal Board, Kota performed its
functions, in areas where Municipal Board existed. There was no reason to
accept that Urban Improvement Trust was a Municipal Committee within the
meaning of section 10(20) Explanation clause (iii). Also, section 105, which
provides for ultimate dissolution of Trust and transfer of its assets and
liabilities to the Municipal Board, does not in any manner improve the case of
the Assessee. The provision was for different purpose and object. The above
provision did not support the contention that Improvement Trust was a Municipal
Committee as referred to in clause (iii) of Explanation to section 10 of the
Act.

The Supreme Court was,
thus, of the view that Scheme of the Rajasthan Urban Improvement Act, 1959 did
not permit acceptance of the contention of the Appellant Assessee that Urban
Improvement Trust was a Municipal Committee within the meaning of section
10(20) Explanation (iii).

According to the
Supreme Court, the High Court had based its decision on the fact that functions
carried out by the Assessee were statutory functions and it was carrying on the
functions for the benefit of the State Government for urban development. The
said reasoning could not have lead to the conclusion that it was a Municipal
Committee within the meaning of section 10(20) Explanation clause (iii). The
High Court has not adverted to the relevant facts and circumstances and without
considering the relevant aspects had arrived at erroneous conclusions.

14. Honda Siel Cars India Ltd. vs. CIT (2018)
409 ITR 42 (SC)

Capital or revenue expenditure – Lump-sum
payment of technical fee as well as continuing royalty both as capital
expenditure – Assessee is entitled to depreciation thereon

The
Supreme Court in its judgment in Honda Siel Cars India Ltd. vs. CIT [2017]
395 ITR 713 (SC) for the assessment years 1999-2000 and other years treated
the lump-sum payment of technical fee as well as continuing royalty both as
capital expenditure for the assessment years in question. On a miscellaneous
application filed by the Appellant, the Supreme Court held that since these
were capital expenditure, the applicant/Appellant would be entitled to
depreciation thereon.

15. Anil Kumar Nehru vs. ACIT Civil
Appeal No(s). 11750 of 2018; Dated:
31^st December, 2018

Appeal to the High Court – Condonation of
delay – Delay of 1662 days – The High Court should not take a technical view
and dismiss the appeal on the ground of delay when appeals for earlier
assessment years with identical issues are already pending before it

The Supreme Court noted that on the identical issue raised by the
appellant in respect of earlier assessment, the appeal was pending before the
High Court. In these circumstances, according to the Supreme Court, the High
Court should not have taken such a technical view of dismissing the appeal in
the instant case on the ground of delay, when it had to decide the question of
law between the parties in any case in respect of earlier assessment year. For
this reason, the Supreme Court, set aside the order of the High Court; condone
the delay for filing the appeal and directed the High Court to decide the
appeal on merits.

The
appeals were allowed accordingly.

BCAJ Admin

ETHICS AND U

Arjun: O hell with this profession!
Lord Krishna, please save me!

Shrikrishna: Arey Arjun, you are now
in practice over three decades. Well settled now. Then, why this frustration?

Arjun: I am really fed up with this
tax representation work. Nothing moves without corruption! So much wastage of
time and energy! And on the top of it, so much botheration and harassment. Life
has become miserable.

Shrikrishna: Relax, Parth. I have
explained to you the theory of Karma. You get the fruit of what you do.

Arjun: What do you
mean? Are we also corrupt?

Shrikrishna: What do you mean by
corruption?

Arjun: See, even for petty things, they take so much
of bribe! Right from locating your file – to passing of the order. Not only
that, even for delivering the order, you have to pay. They don’t do their duty
honestly.

Shrikrishna: I agree. But do you mean
bribery is the only form of corruption?

Arjun: Then what else is
corruption?

Shrikrishna: It could be corrupt
thinking, corrupt behaviour; any deviation from duty, especially knowingly, is
also corruption.

Arjun: I didn’t
follow what you want to say. Tell me, where we have not performed our duty.

Shrikrishna: See, Arjun. Your profession
is like that of the police. When you do audit, you are a financial police.

Arjun: I see your
point.

Shrikrishna: You curse
the police department for corruption. Do you sign all financial statements only
after
proper verification?

Arjun: Well, we
try our utmost to get all information and explanations. But as you know, we
cannot see everything.

Shrikrishna: And whatever discrepancies
you notice, how do you deal with them.

Arjun: Wherever
possible, we get it corrected. But sometimes, clients don’t accept the
correction. They insist on the presentation that suits them.

Shrikrishna: So they want it that way
only. That means some deliberate mistakes.

Arjun: Yes. After
all, it is to suit the banks, financial institutions and revenue authorities…
rather, all authorities under
all laws!

Shrikrishna: In short, adjustments!
Right?

Arjun: (smiles):
Yes, Lord. There is no financial statement without any ‘adjustment’.

Shrikrishna: And knowingly you sign them!

Arjun: There is no
alternative.

Shrikrishna: And still you say it is
‘True and Fair’. And also take full fees. Is it not corruption?

Arjun: There is a
point in what you are saying.

Shrikrishna: Further, you not only certify erroneous accounts, you help in
filing an erroneous return and then try to justify it as correct in the
tax-proceedings.

Arjun: In recent
years many such matters were exposed as scams or frauds. This has spoilt the
image of the profession. But what is the way out?

Shrikrishna: You need to act objectively, without fear or favour. You need to
be impartial.

Arjun: All this is
easy to say. But where is independence? If we do our duty strictly, we will
lose the assignment.

Shrikrishna: Then the entire profession needs
introspection. Where do we stand? Are we united? Have we lost our spine? Are we
compromising on principles?

Arjun: You have
opened my eyes. Still, unless we get united and act collectively, our voice
will never be heard. That is why people are running away from our core function
of audit.

Shrikrishna: True.
Then this is a serious ethical issue.

Arjun: Even the government does not listen to us.
There is no respect for the profession. We are being taken for granted. And see
the ever-increasing regulation! We can’t cope with it.

Shrikrishna: Government treats you like its own extended
arm. Your very survival depends on the laws and regulations. How can you raise
your voice?

Arjun: Then what is the solution?

Shrikrishna: Prove that you are indispensable. Be
assertive. You may lose a few clients; but eventually you will command respect.
Increase your credibility. That requires systematic working. And of course,
there is some sacrifice necessary.

Arjun: Unfortunately, the profession does not have
good and strong leaders. We lack courage and boldness to assert ourselves.

Shrikrishna: That is the reason… every time you have
to compromise on ethics. There is no point in blaming others. Stand up and
learn to say ‘No’ to ‘adjustments’. Update your knowledge, upgrade your skills
and maintain documents and discipline. Then you have nothing to worry. Good
rewards will flow. That is the theory of Karma.

Arjun: Yes, Bhagwan.

Om Shanti

(This dialogue is based on
the present unenviable situation of the CA profession and a few reasons for the
same.)

BCAJ Admin

FEMA FOCUS

ANALYSIS OF RECENT COMPOUNDING ORDERS

An analysis of some interesting compounding orders
passed by the Reserve Bank of India in the period March to June, 2019 and
uploaded on the website¹ is given below. This article refers to
regulatory provisions as existing at the time of offence. Changes in regulatory
provisions are noted in the comments section.

FOREIGN DIRECT INVESTMENT (FDI)

A. M/s. Shri Naveen Trehan

Date of order: 1^st March, 2019

Regulation: FEMA 20/2000-RB Foreign Exchange
Management (Transfer or issue of security by a person resident outside India)
Regulations, 2000

ISSUE

1. Purchase
of equity shares of an Indian company by an NRI through a resident savings bank
account.

FACTS

The NRI acquired equity shares of an Indian
company from an individual resident in India.

On 28^th January, 2016 the NRI
buyer issued a cheque drawn on HDFC Bank in favour of Indian resident
individuals towards payment of the sale consideration.

The said amounts were paid through the
resident savings bank account of the NRI maintained with HDFC Bank.

However, the NRI got converted his ordinary
resident savings account into an NRO account; the Foreign Investment Division
(FID) of FED advised the AD Bank to let the NRI know that his investment is
being treated as non-repatriable.

Regulatory Provisions

Paragraph 3 of schedule 4 of Notification No.
FEMA 20/2000-RB states that the amount of consideration for purchase of shares
or convertible debentures of an Indian company on non-repatriation basis shall
be paid by way of inward remittance through normal banking channels from abroad
or out of funds held in NRE/FCNR/NRO/NRSR/NRNR account maintained with an
authorised dealer or as the case may be with an authorised bank in India.

Regulation 5(3) (ii) of Notification No. FEMA
20/2000-RB states that a non-resident Indian or an overseas corporate body may
purchase shares or convertible debentures of an Indian company on
non-repatriation basis other than under Portfolio Investment Scheme, subject to
the terms and conditions specified in schedule 4.

Contravention

Relevant para of FEMA 20 Regulation

Nature of default

Amount involved (in rupees)

Time period of default

Para 3 of schedule 4 read with regulation 5(3) (ii) of this
regulation

Purchase of equity shares of an Indian company by an
individual pursuant to becoming a Non-Resident Indian (NRI) through a
resident savings bank account

Rs. 39,00,000

15^th April, 2015 to 26^th April, 2018

Compounding penalty

A compounding penalty of Rs.75,350 was levied.

Comments

Under provisions of FEMA, once an Indian resident
becomes non-resident, his Indian savings bank account will be designated as NRO
bank account. However, the balance lying in this NRO bank account cannot be
utilised for buying shares of an Indian company either on repatriation or
non-repatriation basis.

The said funds can be utilised for undertaking
permissible transactions in the nature of local payments, transfers to another
NRO account, remittance of current income outside India net of applicable
taxes, etc., as permitted by the Foreign Exchange Management (Deposit)
Regulations, 2016.

B. M/s. Celon Laboratories Private Limited

Date of order: 15^th March, 2019

Regulation: FEMA 20/2000-RB Foreign Exchange
Management (Transfer or issue of security by a person resident outside India)
Regulations, 2000

ISSUE

1. Received
consideration amount from third party for the allotment of shares to NRI on
non-repatriation basis.

2. Transfer
of repatriable shares issued to non-resident to another non-resident on
non-repatriation basis.

FACTS

The applicant, an NRI, was allotted equity
shares on non-repatriation basis, whereas the consideration of those shares was
received from DNA Biotec Limited, a resident Indian company on behalf of the
NRIs.

Further, NRIs were also allotted equity
shares of an Indian company on repatriation basis. These shares were
subsequently transferred to another NRI without any consideration and on
non-repatriation basis.

Regulatory Provisions

Regulation 4 of Notification No. FEMA
20/2000-RB which states that remittance has to be received from the same person
to whom shares are to be allotted.

Once shares are issued on repatriation basis,
the same cannot be converted into non-repatriation basis.

Contravention

Relevant para of FEMA 20 Regulation

Nature of default

Amount involved (in rupees)

Time period of default

Regulation 4

Issue 1: Receiving
consideration amount from third party for the allotment of shares to resident
outside India on non-repatriation basis

Issue 2: Transfer of
shares to non-resident under non-repatriation, which were originally held on
repatriation

Issue 1:
Rs. 1,07,25,000

Issue 2:
Rs. 71,68,340

Issue 1: 10 years, 3
months, 7 days

approximately

Issue 2: 8 years, 6
months, 1 day approximately

Compounding penalty

A compounding penalty of Rs. 2,15,470 was levied.

Comments

Under provisions of FEMA, extreme care needs to be
taken that entity / person to whom shares are issued is the same as the one who
has paid consideration and shares cannot be issued on behalf of anyone. Care
also needs to be taken for ensuring that once shares are issued on repatriation basis, the same cannot be transferred on non-repatriation basis.

C. M/s. Ibiz Consultancy Services India Pvt. Ltd.

Date of order: 13^th March, 2019

Regulation: FEMA 20/2000-RB Foreign Exchange
Management (Transfer or issue of security by a person resident outside India)
Regulations, 2000

ISSUE

Taking on record the transfer of shares in the
books of the company without certified FC-TRS.

FACTS

The company has taken the transfer of 40,000
shares on record without certified Form FC-TRS.

Form FC-TRS was submitted for certification
to the AD Bank on 14^th August, 2015, whereas the company has taken
the transfer of shares on record 18 days prior to filing of Form FCTRS with AD
Bank

Regulatory Provisions

Regulation 4 of Notification No. FEMA 20/
2000-RB which states that Indian company will record share transfer only upon
receipt of Form FC-TRS acknowledged by AD Bank

Contravention

Relevant para of FEMA 20 Regulation

Nature of default

Amount involved (in rupees)

Time period of default

Regulation 4

Taking on record the transfer of shares in the books of the
company without certified FC-TRS

Rs. 4,00,000

18 days approximately

Compounding penalty

Compounding penalty of Rs. 10,080 was levied.

Comments

Any Indian company having non-resident
shareholders should ensure that any share transfer between resident and
non-resident is not taken on record without receiving Form FC-TRS duly
acknowledged by AD Bank.

D. Vijay P Uttarwar

Date of order: 12^th April, 2019

Regulation: FEMA 20/2000-RB Foreign Exchange
Management (Transfer or issue of security by a person resident outside India)
Regulations, 2000

ISSUE

Transfer of shares of Indian company by way of
gift by a resident to non-resident without RBI approval.

FACTS

An Indian resident individual transferred
2,50,000 equity shares of Re. 1 each of an Indian company as gift to a
non-resident on 31^stMarch, 2016 without obtaining prior RBI
approval.

Post-facto approval was granted by RBI
on 12^th March, 2018.

Regulatory Provisions

Regulation 10A(a) of Notification No.
FEMA20/2000-RB which provides that transfer of shares by way of gift from
resident to non-resident is subject to prior RBI approval.

Contravention

Relevant para of FEMA 20 Regulation

Nature of default

Amount involved (in rupees)

Time period of default

Regulation 10A(a)

Transfer of shares by way of gift by a resident to
non-resident without RBI approval

Rs. 2,50,000

2 years approx.

Compounding penalty

Compounding penalty of Rs. 51,375 was levied.

Comments

Transfer of shares by an Indian resident to
non-resident by way of gift requires prior RBI approval both under earlier FEMA
20 regulation as well as revised FEMA 20(R), dated 7^th November,
2017.

E. Ramasubramanian Balasubramanian

Date of order: 12^th April, 2019

Regulation: FEMA 20/2000-RB Foreign Exchange
Management (Transfer or issue of security by a person resident outside India)
Regulations, 2000

ISSUE

Transfer of shares by way of gift by a resident to
a non-resident without RBI approval.

FACTS

The applicant is an NRI and is also a
promoter / director of an Indian company, viz., IBIZ Consulting Services India
Pvt. Ltd.

The applicant transferred 40,000 shares held
by him in the Indian company to IBIZCS Group Pte. Ltd, Singapore (a
non-resident entity) for a consideration of Rs. 4,00,000 on 9^th
July, 2015.

Transfer of shares by an NRI to an NR was not
a permitted transaction under automatic route during the said period.

Regulatory Provisions

Regulation 9(2)(ii) of Notification No. FEMA
20/2000 states that an NRI can transfer shares of an Indian company by way of
gift or sale only to another NRI.

Hence, NRI cannot transfer shares of an
Indian company to another person resident outside India.

Contravention

Relevant para of FEMA 20 Regulation

Nature of default

Amount involved (in rupees)

Time period of default

Regulation 9(2)(ii) read with Regulation 3 of FEMA 20.

Transfer of shares by way of gift by an NRI to non-resident
without RBI approval

Rs. 4,00,000

2 years and 4 months

Compounding penalty

Compounding penalty of Rs. 52,400 was
levied.

Comments

It is interesting to note that earlier
Notification No. FEMA 20 provided that NRI could transfer shares only to
another NRI and not to any other person resident outside India without prior
RBI approval. The revised Notification No. FEMA 20(R) permits an NRI to
transfer shares to any other person resident outside India, including an NRI.

OVERSEAS DIRECT INVESTMENT
(ODI)

F. Aricent Technologies (Holdings) Limited

Date of order: 15^th April, 2019

Regulation: FEMA 20/2000-RB Foreign Exchange
Management (Transfer or issue of security by a person resident outside India)
Regulations, 2004

ISSUE

Making Overseas Direct Investment (ODI) in an
entity with an already existing Foreign Direct Investment (FDI) structure.

FACTS

The applicant, an Indian company, acquired
the shares of a Mauritian company, Aricent Mauritius Engineering Services PCC
(Aricent Mauritius), from its existing shareholders.

The total amount remitted by the applicant to
the existing shareholders for acquiring equity participation of 50.28%,
amounted to USD 9,00,00,000 (Rs. 572,58,60,000).

However, Aricent Mauritius was already
holding investment in an existing Indian company, Aricent Technologies Private
Limited, India (Aricent India) when ODI was made by the applicant Indian
company.

The resultant structure amounted to making
ODI in an entity with pre-existing FDI, which is not permitted without the
prior approval of RBI.

The entire structure, i.e., FDI and ODI, was
unwound before compounding application was filed.

Regulatory Provisions

Regulation 5(1) read with Regulation 13 of
Notification No. FEMA 120/2004-RB (‘FEMA 120’).

Contravention

Relevant para of FEMA 120 Regulation

Nature of default

Amount involved (in rupees)

Time period of default

Regulation 5(1)

Making Overseas Direct Investment (ODI) in a company with an
already existing Foreign Direct Investment (FDI) structure

Rs. 572,58,60,000

Three years, one month

Compounding penalty

Compounding penalty of Rs. 3,72,68,090 was levied.

Comments

It is interesting to note that existing Regulation
FEMA 120 governing outbound investment does not specifically mention that ODI
is not allowed in an entity which has FDI structure. Further, in the instant
case, RBI has specifically mentioned in the compounding order that the entire
structure, i.e., both FDI and ODI, was wound up before compounding application
was considered indicates that if both FDI and ODI are existing in one
structure, RBI may not compound the same unless it is unwound. Besides, in the
revised FAQs on ODI published by RBI in May, 2019, a specific answer has been
provided that FDI and ODI in one structure is not permissible under existing
ODI regulations.

Hence, care needs to be taken to ensure that even
in cases where an Indian entity is buying stake from existing investors of a
foreign company, the foreign company should not have any FDI in India to avoid
FDI and ODI in one structure.

ACQUISITION AND TRANSFER OF IMMOVABLE PROPERTY

G. Mr. Sha Mathew

Date of order: 8^thMarch, 2019

Regulation: FEMA 21/2000-RB Foreign Exchange
Management (Acquisition and Transfer of Immovable property in India)
Regulations, 2000

ISSUE

Acquisition of immovable property in India by an
NRI without RBI permission.

FACTS

The applicant, Mr. Sha Mathew, an NRI,
acquired two agricultural properties in Kerala in the year 2012 without
obtaining prior permission from the Reserve Bank of India.

The immovable properties were acquired for a
total consideration of Rs. 16,38,700.

Regulatory Provisions

Regulation 8 of Notification No.
FEMA-21/2000-RB dated 3^rd May, 2000 provides that an NRI is not
eligible to purchase any agricultural property in India. Accordingly, the NRI
was advised to transfer the property to any resident person within six months
and not to repatriate the sale proceeds outside India without prior permission
of the RBI.

Contravention

Relevant para of FEMA 21/2000 Regulation

Nature of default

Amount involved (in rupees)

Approx. Time period of default

Regulation 8

Purchase of immovable property, being agricultural land, by
an NRI without RBI permission

Rs. 16,38,700

05 years, 10 months, 04 days, i.e., from 13^th
July, 2012 to 17^th May, 2018

Compounding penalty

Compounding penalty of Rs. 24,53,590
was levied.

Comments

In the instant case, based upon the
RBI’s letter to transfer the immovable property to a resident in India, the
applicant transferred the property in favour of his son, who was resident in
India. However, RBI determined the value of land at Rs. 40,30,000 based on a
valuation report as on the date of filing the compounding application.
Accordingly, undue gain was computed at Rs. 23,91,300 (difference between value
as per valuation report, i.e., Rs. 40,30,000 minus Rs. 16,38,700, being cost of
land). Hence, the compounding penalty of Rs. 24,53,590 was levied through which
the entire undue gain derived by the NRI on purchasing agricultural land was
neutralised. The quantum of penalty reflects the stringent view taken by RBI on
purchase of immovable property by citizens from select countries. The said
restriction is not applicable if such nationals are OCI card-holders²
.

OPENING AND MAINTAINING
ORDINARY SAVINGS ACCOUNT

H. Mr. Thakorbhai Dahyabhai Patel

Date of order: 18^thMarch, 2019

Regulation: FEMA5/2000-RB Foreign Exchange
Management (Deposit) Regulations, 2000

ISSUE

Transfer of funds from NRE account to
ordinary savings account.

FACTS

The applicant, Mr. Thakorbhai Dahyabhai
Patel, was an OCI and a person non-resident in India in terms of section 2(w)
of FEMA.

The applicant had opened and maintained an
ordinary savings bank account with ICICI Bank and Prime Co-operative Bank
Limited.

Being a non-resident, he was not eligible to
open and maintain an ordinary savings account as per extant FEMA guidelines.

The applicant had granted a loan of Rs.
1,39,01,100 to his friend, Mr. Narendra V. Solanki, a person resident in India,
in five tranches starting from 1^stApril, 2013 to 4^th
September, 2013, from his ordinary savings account maintained with ICICI Bank.

He had also charged interest at the rate of
6% per annum on the above loan.

The amount given as loan represented either
transfer of funds from his NRE Account maintained with HDFC Bank or amount
received from LIC on his father’s death.

For this purpose, the applicant has
transferred Rs. 85,01,100 from his NRE Account maintained with HDFC Bank to his
ordinary savings account maintained with ICICI Bank.

The loan was subsequently repaid in FY
2017-18.

Regulatory Provisions

Regulation 4(C) of schedule 1 to Notification
No. FEMA.5/2000-RB states that permissible debit of NRE account is transfer to
NRE / FCNR (B) accounts of the account holder or any other person eligible to
maintain such an account.

Regulation 4(i) and (ii) of Notification No.
FEMA.4/2000-RB regulates borrowing and lending in rupees between a person
resident in India and a person resident outside India.

Contravention

The amount of contravention is Rs. 85,01,100 and
the period of contravention is five years, seven months and six days from 4^th
January 2013 to 10^th August, 2018.

Compounding penalty

A compounding penalty of Rs. 1,13,758 was levied
in the case.

Comments

This case reflects a common violation wherein
persons resident outside India, specifically NRIs and OCI card-holders, open
savings bank accounts even when they are not resident in India. Once a person
becomes non-resident, he / she cannot open savings bank accounts and can
transact only through NRE / NRO Account in the manner which is permissible.
Further, if an Indian resident individual becomes non-resident, all his
existing savings accounts would be converted into NRO accounts and hence he
cannot operate his old savings account without changing its status to NRO
account.

BCAJ Admin

FROM PUBLISHED ACCOUNTS

DISCLAIMER OF OPINION FOR REPORT
ISSUED ON FINANCIAL RESULTS IN TERMS OF SEBI LODR

RELIANCE INFRASTRUCTURE LTD. (31^ST MARCH, 2019)

From Auditor’s Report on standalone annual financial
results

1. We
were engaged to audit the standalone annual financial results of Reliance
Infrastructure Limited (the Company) for the year ended 31^st March,
2019, attached herewith, being submitted by the company pursuant to the
requirement of regulation 33 and regulation 52 of the Securities and Exchange
Board of India (Listing Obligations and Disclosure Requirements) Regulations,
2015 (Listing Regulations). Attention is drawn to the fact that the figures for
the last quarter ended 31^st March, 2019 and the corresponding
quarter ended in the previous year as reported in these standalone annual
financial results are the balancing figures between figures in respect of the
full financial year and the published year to date figures up to the end of the
third quarter of the relevant financial year. Also, the figures up to the end
of the third quarter had only been reviewed and not subjected to audit.

2. These
standalone annual financial results have been prepared on the basis of the
standalone annual financial statements and reviewed quarterly financial results
which are the responsibility of the company’s management. Our responsibility is
to conduct an audit of these standalone annual financial results based on our
audit of the standalone annual financial statements which have been prepared in
accordance with the recognition and measurement principles laid down in the
Companies (Indian Accounting Standards) Rules, 2015 as per section 133 of the
Companies Act, 2013 and other accounting principles generally accepted in India
and in compliance with regulation 33 and regulation 52 of the listing
regulations.

3. Our
responsibility is to conduct an audit of the standalone annual financial
results in accordance with the standards on auditing and to issue an auditor’s
report. However, because of the matter described in the paragraph below, we
were not able to obtain sufficient appropriate audit evidence to provide a
basis for an audit opinion on these standalone annual financial results.

4. We
refer to Note 10 to the standalone annual financial results which describes
that the company has investments in and has various amounts recoverable from a
party aggregating Rs. 7,082.96 crores (net of provision of Rs. 3,972.17 crores)
[Rs. 10,936.62 crores as at 31^stMarch, 2018 net of provision of Rs.
2,697.17 crores] comprising inter-corporate deposits including accrued interest
/ investments / receivables and advances. In addition, the company has provided
corporate guarantees during the year aggregating to Rs. 1,775 crores (net of
corporate guarantees aggregating to Rs. 5,010.31 crores cancelled subsequent to
the balance sheet date) in favour of the aforesaid party towards borrowings of
the aforesaid party from various companies, including certain related parties
of the company.

According to the management of the
company, these amounts have been mainly given for general corporate purposes
and towards funding of working capital requirements of the party which has been
engaged in providing engineering, procurement and construction (EPC) services
primarily to the company and its subsidiaries and its associates. We were
unable to obtain sufficient appropriate audit evidence about the relationship
of the aforementioned party with the company, the underlying commercial
rationale / purpose for such transactions relative to the size and scale of the
business activities with such party and the recoverability of these amounts.
Accordingly, we are unable to determine the consequential implications arising
therefrom and whether any adjustments, restatement, disclosures or compliances
are necessary in respect of these transactions, investments and recoverable
amounts in the standalone annual financial results of the company.

5. On
account of the substantive nature and significance of the matter described
above, we have not been able to obtain sufficient appropriate audit evidence to
provide a basis for an audit opinion as to whether these standalone annual
financial results:

(i) are
presented in accordance with the requirements of regulation 33 and regulation
52 of the listing
regulations; and

(ii) give
a true and fair view of the net loss and other comprehensive income and other
financial information for the year ended 31^st March, 2019.

6. (a)
We draw attention to Note 3 to the
standalone annual financial results regarding the scheme of amalgamation (the
scheme) between Reliance Infraprojects Limited (a wholly-owned subsidiary of
the company) and the company sanctioned by the Honourable High Court of
Judicature at Bombay vide its order dated 30^th March, 2011 wherein
the company, as determined by the Board of Directors, is permitted to adjust
foreign exchange gain credited to the standalone statement of profit and loss
by a corresponding credit to general reserve which overrides the relevant
provisions of Indian Accounting Standard 1 Presentation of financial
statements. Pursuant to the scheme, foreign exchange gain of Rs. 192.24
crores for the year ended 31^st March, 2019 has been credited to
standalone statement of profit and loss and an equivalent amount has been
transferred to general reserve.

(b) We
draw attention to Note 4 to the standalone annual financial results wherein,
pursuant to the scheme of amalgamation of Reliance Cement Works Private Limited
with Western Region Transmission (Maharashtra) Private Limited (WRTM),
wholly-owned subsidiary of the company, which was subsequently amalgamated with
the company with effect from 1^st April, 2013, WRTM or its
successor(s) is permitted to offset any extraordinary / exceptional items, as
determined by the Board of Directors, debited to the statement of profit and
loss by a corresponding withdrawal from general reserve, which override the
relevant provision of Indian Accounting Standard 1 Presentation of financial
statements. The Board of Directors of the company in terms of the aforesaid
scheme, determined an amount of Rs. 6,616.02 crores for the year ended 31^st
March, 2019 as exceptional item comprising various financial assets amounting
to Rs. 5,354.88 crores and loss on sale of shares of Reliance Power Limited
(RPower), an associate company pursuant to invocation of pledge of Rs. 1,261.14
crores. The aforesaid amount of Rs. 6,616.02 crores for the year ended 31^st
March, 2019 has to be debited to the standalone statement of profit and loss
and an equivalent amount has been withdrawn from general reserve.

Had the accounting treatment
specified in paragraphs 6(a) and 6(b) above not been followed, loss before tax
for the year ended 31^stMarch, 2019 would have been higher by Rs.
6,423.78 crores and general reserve would have been higher by an equivalent
amount.

7. We draw attention to Note 8 of the
standalone annual financial results. The factors, more fully described in the
aforesaid Note, relating to losses incurred during the year and certain loans
for which the company is guarantor, indicate that a material uncertainty exists
that may cast significant doubt on the company’s ability to continue as a going
concern.

8. We
draw attention to Note 9 to the standalone annual financial results which
describes the impairment assessment performed by the company in respect of its
investment of Rs. 5,231.18 crores and amounts recoverable aggregating to Rs.
1,219.63 crores in RPower as at 31^stMarch, 2019 in accordance with
Indian Accounting Standard 36 Impairment of assets / Indian Accounting
Standard 109 Financial Instruments. This assessment involves significant
management judgement and estimates on the valuation methodology and various
assumptions used in determination of value in use / fair value by independent
valuation experts / management as more fully described in the aforesaid note.
Based on management’s assessment and the independent valuation reports, no
impairment is considered necessary on the investment and the recoverable
amounts.

…..

Notes below financial results of
Reliance Infrastructure Ltd. (extracts of relevant notes)

3.
Pursuant to the scheme of
amalgamation of Reliance Infraprojects Limited with the company, sanctioned by
the Hon’ble High Court of Judicature at Bombay on 30^thMarch, 2011,
net foreign exchange gain of Rs. 98.98 crores and Rs. 192.24 crores for the
quarter and year ended 31^st March, 2019, respectively, has been
credited to the statement of Profit and Loss and an equivalent amount has been
transferred to General Reserve. Had such transfer not been done, the loss
before tax for the quarter and year ended 31^st March, 2019 would
have been lower by Rs. 98.98 crores and Rs. 192.24 crores, respectively, and
General Reserve would have been lower by Rs. 192.24 crores. The treatment
prescribed under the scheme overrides the relevant provisions of Ind AS 1 Presentation
of Financial Statements. This matter has been referred to by the auditors
in their report as an emphasis of matter.

4. Pursuant
to the scheme of amalgamation of Reliance Cement Works Private Limited with
Western Region Transmission (Maharashtra) Private Limited (WRTM), wholly-owned
subsidiary of the company, which was subsequently amalgamated with the company
w.e.f. 1^st April, 2013, during the quarter and year ended 31^st
March, 2019 an amount of Rs. 6,616.02 crores has been withdrawn from General
Reserve and credited to the statement of Profit and Loss against the
exceptional items of Rs. 8,597.36 crores and Rs. 12,797.36 crores for the
quarter and year ended 31^stMarch, 2019 representing a loss on sale
/ w/off of / provision for diminution in the value of certain financial assets
including Rs. 1,261.14 crores being loss on sale of investments pursuant to
invocation of pledge. Had such withdrawal not been done, the loss before tax
for the quarter and year ended 31^st March, 2019 would have been
higher by Rs. 6,616.02 crores and General Reserve would have been higher by an
equivalent amount. The treatment prescribed under the scheme overrides the
relevant provisions of Ind AS 1 Presentation of Financial Statements.
This matter has been referred to by the auditors in their report as an emphasis
of matter.

…..

8.
The company has incurred net
losses (after impairment of assets) of Rs. 913.39 crores during the year ended
31^st March, 2019. Further, in respect of certain loan arrangements
of certain subsidiaries / associates, certain amounts have fallen due and / or
have been reclassified as current liabilities by the respective subsidiary /
associate companies. The company is guarantor in respect of some of the loans /
corporate guarantee arrangements and consequently, the company’s ability to
meet its obligations is significantly dependent on material uncertain events
including restructuring of loans, achievement of debt resolution and
restructuring plans, time-bound monetisation of assets as well as favourable
and timely outcome of various claims. The company is confident that such cash
flows would enable it to service its debt, realise its assets and discharge its
liabilities, including devolvement of any guarantees / support to the
subsidiaries and associates in the normal course of its business. Accordingly,
the standalone annual financial results of the company have been prepared on a
going concern basis.

9.
The company has an investment of
Rs. 5,231.18 crores as at 31^st March, 2019 which represents 33.10%
shareholding in Reliance Power Limited (RPower), an associate company. Further,
the company also has net recoverable amounts aggregating to Rs. 1,219.63 crores
from RPower as at 31^st March, 2019. RPower has incurred a net loss
(after impairment of certain assets) of Rs. 2,951.82 crores for the year ended
31st March, 2019 and its current liabilities exceeded its current assets by Rs.
12,249.17 crores as at that date. Management has performed an impairment
assessment of its investment in RPower as required by Indian Accounting
Standard 36 Impairment of assets, Indian Accounting Standard 109 Financial
Instruments, by considering inter alia the valuations of the
underlying subsidiaries of RPower which are based on their value in use
(considering discounted cash flows) and valuations of other assets of RPower /
its subsidiaries based on their fair values, which have been determined by
external valuation experts and / or management’s internal evaluation. The
determination of the value in use / fair value involves significant management
judgement and estimates on the various assumptions including relating to growth
rates, discount rates, terminal value, time that may be required to identify
buyers, negotiation discounts, etc. Further, management believes that the above
assessment based on value in use / fair value appropriately reflects the
recoverable amount of the investment as the current market price / valuation of
RPower does not reflect the fundamentals of the business and is an aberration.
Based on management’s assessment and the independent valuation reports, no
impairment is considered necessary on this investment and recoverable amounts.

10.
The Reliance Group of companies, of which
the company is a part, supported an independent company in which the company
holds less than 2% of equity shares (EPC Company) to inter alia
undertake contracts and assignments for the large number of varied projects in
the fields of power (thermal, hydro and nuclear), roads, cement, telecom, metro
rail, etc. which were proposed and / or under development by the Group. To this
end, along with other companies of the Group, the company funded EPC Company by
way of EPC advances, subscription to Debentures and Preference Shares and
inter-corporate deposits. The aggregate funding provided by the company as on
31^st March, 2019 was Rs. 7,082.96 crores (previous year Rs.
10,936.62 crores) net of provision on Rs. 3,972.17 crores, Rs. 2,697.17
crores). In addition, the company has provided corporate guarantees during the
year aggregating (net of subsequent cancellation) to Rs. 1,775 crores.

The activities of EPC Company have
been impacted by the reduced project activities of the companies of the Group.
In the absence of the financial statements of the EPC Company for the year
ending 31^st March, 2019 which are under compilation, it has not been
possible to complete the evaluation of the nature of relationship, if any,
between the independent EPC Company and the company. At present, based on the
analysis carried out in earlier years, the EPC Company has not been treated as
related party.

Similarly, in the absence of full visibility on
the assets and liabilities of the EPC Company, and after considering the
reduced ability of the holding company of the Reliance Group of Companies to
support the EPC Company, the company has provided / written-off further Rs.
2,042.16 crores during the year in respect of the outstanding amount advanced
to the EPC Company. Given the huge opportunity in the EPC field, particularly
considering the Government of India’s thrust on infrastructure sector coupled
with increasing project and EPC activities of the Reliance Group, the EPC
Company with its experience will be able to achieve substantial project
activity in excess of its current levels, thus enabling the EPC Company to meet
its obligations. The company is reasonably confident that the provision will be
adequate to deal with any contingency relating to recovery from the EPC
Company.

BCAJ Admin

GOODS AND SERVICES TAX (GST)

I.
High Court

34. [2019] 105 taxmann.com 324 (Orissa HC) Safari
Retreats (P.) Ltd. vs. CC-CGST

Date
of order: 17^th April, 2019

High Court held that input tax
credit in respect of input and input services used for construction of
immovable property can be utilised for payment of GST on rent charged for
letting out such property and restrictions imposed u/s 17(5)(d) of Finance Act,
1994 would not be applicable in such cases

FACTS

The petitioner constructed a
shopping mall for the purpose of letting out the same to numerous tenants and
lessees. He paid GST on various inputs and input services consumed in the
course of construction of the mall. But the petitioner is liable to charge GST
on the rents charged for supply of services of letting out the units in the
mall. The petitioner approached the Revenue authorities as to whether he can
utilise the input tax credit of GST paid on inputs and input services used for
construction of the shopping mall towards payment of GST charged on rent
received from tenants of the mall. However, he was advised to deposit GST
liability without taking input tax credit, in view of restrictions placed as per
section 17(5)(d) of the CGST Act, 2017 and was warned of penal consequences if
he did not do so. Accordingly, the petitioner filed the present writ petition.

HELD

The Hon’ble High Court opined that
while considering the provisions of section 17(5)(d), the narrow construction
of interpretation put forward by the Department is frustrating the very
objective of the Act, inasmuch as the petitioner has to pay huge amount without
any basis. In the present case, the petitioner is retaining the property and is
not using it for his own purpose; he is letting out the property on which he is
covered under the GST, but still has to pay huge amount of GST for which he is
not liable. The Court noted that in light of the decision of the Supreme Court
in Eicher Motors Ltd. vs. Union of India 1999 taxmann.com 1769 (SC),
the very purpose of the credit is to give benefit to the assessee. Therefore,
it was held that when the assessee is required to pay GST on the rental income
arising out of the investment on which he has paid GST, the assessee would be
entitled to take ITC which is otherwise considered as blocked credit in terms
of section 17(5)(d) of the GST law.

35. [2019] TIOL-1443 (HC-Ahm.-GST) M/s Amit
Cotton Industries vs. Principal Commissioner of Customs

Date of order: 27^th
June, 2019

Circular 37/2018-Customs stating
that refund of IGST cannot be granted if the drawback is claimed at a higher
rate is contrary to the statutory rules and therefore has no legal force

FACTS

The applicant exported goods in
July, 2017 and availed drawback at 1% higher; he also availed refund of the
IGST paid in regard to the ‘Zero Rated Supply’, i.e., the goods exported out of
India. It is submitted that the refund ought to have been sanctioned
immediately irrespective of the fact whether the drawback was claimed at the
rate of 1% (higher rate) or at the rate of 0.15% (lower rate). Further, it is
not in dispute that the differential drawback is paid back. The Revenue argued
that the return of the drawback amount is a unilateral act not recognised in
law. Further, reliance was placed on Circular No. 37/2018-Customs dated 9^th
October, 2018 which categorically provides that it is not justified allowing
exporters to avail IGST refund after initially claiming the benefit of higher
drawback.

HELD

The Court noted that the contention
of the Revenue that there is no option available in the system to consider the
drawback to be paid back and therefore the applicant is not entitled to refund
of the IGST, is not acceptable. Further, the circular upon which reliance has
been placed cannot be said to have any legal force. The circular cannot run
contrary to the statutory rules, more particularly, Rule 96 referred. Rule 96
is relevant for two purposes. The shipping bill that the exporter may file is
deemed to be an application for refund of the integrated tax paid on the goods
exported out of India and the claim for refund can be withheld only if a
request is received from the Jurisdictional Commissioner, or if the export is
done in violation of the provisions of the Customs Act, 1962. Accordingly, the
respondents were directed to immediately sanction the refund of the IGST paid.

II.
AUTHORITY FOR ADVANCE RULING (AAR)

36. [2019] TIOL-173 (AAR-GST) Kansai Nerolac
Paints Ltd.

Date
of order: 19^th March, 2019

In case of supplies made between
distinct entities, Rule 28 of the Central Goods and Services Tax Rules, 2017
can be applied and the value will not be questioned, if the recipient is
eligible to avail full input tax credit

FACTS

The applicant is engaged in the
manufacture and sale of decorative and industrial paints to its customers
across the states from its factories and depots located all over India. They
seek a ruling as to whether value of supply of goods by one distinct entity
(factory / depot) to another distinct entity can be determined on the basis of
cost of production as the same depends mainly on cost of inputs and input
services, and which fluctuates, inasmuch as the company is contemplating
determining the value of supply of goods as per the second proviso to Rule 28
of the CGST Rules and replacing the existing method of valuation of goods,
viz., 110% of the manufacturing cost prescribed under Rule 30 of the Rules.

HELD

The Authority noted that Rule 28
has been specified to determine the value of transactions between related
persons – moreover, Rule 30 will come into operation in a situation where the
value of a supply of goods or services or both is not determinable by any of
the rules preceding Rule 30 of Chapter IV of the CGST Rules (thus Rule 28 is
the specified rule); also, as per the second proviso to Rule 28 if the
recipient is eligible for full ITC, the invoice value will be deemed to be the
open market value. Therefore, the Authority finds no breach by the applicant in
changing the method of determination of value of supply by the application of
Rule 28 instead of Rule 30.

37. [2019] TIOL-188 (AAR-GST) Time Tech Waste
Solutions Pvt. Ltd.

Date
of order: 27^th June, 2019

The provisions of section 51 of the
GST law dealing with tax deducted at source are not applicable to exempt
supplies

FACTS

The applicant is providing
conservancy / solid waste management service to Bally Municipal Corporation
(BMC) merged with Howrah Municipal Corporation (HMC). The BMC is deducting TDS
while paying consideration for the supply in terms of Notification
50/2018-Central Tax (Rate) and insists that the applicant take registration.
However, since their services are exempted in terms of serial No. 3 of
Notification 12/2017-Central Tax (Rate), they are not required to pay tax and
consequently not liable for registration.

HELD

The Authority noted that the
recipient is a municipal corporation, which is a local authority as defined in
section 2(69) of the Act. Article 243W refers to the functions listed under the
12^th Schedule and serial No. 6 of the Schedule refers to public
health, sanitation, conservancy and solid waste management. Therefore, the
applicant’s supply to BMC / HMC is a function mentioned under the 12^th
Schedule and their service is exempt. Since they are making an exempt supply,
the provisions of section 51 of the Act dealing with tax deducted at source do
not apply. Further, since supply of unbranded organic manure, unless packed in
containers, is classifiable under HSN 3101 and Municipal Waste is classifiable
under HSN 3825, supplies of both of these are exempt under serial Nos. 108 and
110 of the exemption notifications (goods) [2/2017-Central Tax (Rate)], and
therefore if the applicant’s turnover consists entirely of exempt supplies he
is not liable to registration u/s 23 of the Act.

38. [2019] 105 taxmann.com 143 (AAR-W. Beng.)
Senco Gold Ltd., In re

Date
of order: 8^th May, 2019

AAR held that the applicant can
discharge consideration for inward supplies to recipient by way of ‘book
adjustment’ and in such case, ITC will not be required to be reversed in light
of section 16(2) of CGST Act, 2017 prescribing condition of payment of value of
supply along with tax to the recipient within 180 days from the date of
invoices

FACTS

The applicant,
a manufacturer and retailer of jewellery and other articles made of gold,
silver, platinum, diamonds and other precious stones, also maintains a network
of franchisee-operated stores. The applicant raises tax invoices on the
franchisees for the supply of jewellery and other articles and also for
franchise support services in terms of the agreement periodically. On its part,
the franchisee also raises tax invoices on the applicant for the supply of old gold,
silver, etc. received from the customers. The applicant intends to settle the
mutual debts through book adjustments. The applicant sought the present advance
ruling on whether the input tax credit is admissible when he settles through
book adjustment the debt created on inward supplies from the franchisee, as in
light of section 16(2) of CGST Act, 2017 if the recipient fails to make payment
of value of supply along with tax to the supplier within 180 days from date of
issue of invoice, the recipient is liable to reverse ITC in respect of such
invoice.

HELD

The Authority noted that the
‘consideration’, as defined u/s 2(31), provides the scope and ambit for modes
of payment and it includes in relation to the supply of goods or services, any
payment made or to be made, whether in money or otherwise, and also the
monetary value of any act or forbearance. AAR held that if the payee owes the
payer a debt, and accepts a reduction in such a debt liability as a valid form
of payment, i.e., reduction in book debt (an asset in the payer’s books of
accounts) should also be regarded as a valid ‘consideration’ for a supply.
Therefore, AAR held that unless the law specifically restricts the recipient
from claiming the input tax credit when consideration is paid through book
adjustment, credit of input tax cannot be denied.

39. [2019] 105 taxmann.com 91 (AAR-Mah.) Puranik
Construction (P.) Ltd., In re

Date
of order: 20^th March, 2019

Once the construction project
qualifies to be an affordable housing project, the benefit of concessional GST
rate of 12% is available, irrespective of whether the project is undertaken by
a developer or a contractor appointed
by a developer

FACTS

The applicant engaged in the
business of civil construction of residential premises as a contractor has
proposed to enter into civil construction contracts with a developer for
construction of a residential project comprising of 135 buildings, wherein 98.5%
sq. mtrs. of FSI will be consumed for flats having residential units with a
carpet area of up to or less than 60 sq. mtrs., i.e., an ‘Affordable Housing
Project’ (AHP). The applicant sought a ruling on whether the construction
services proposed to be provided will qualify for the reduced GST rate of 12%,
as provided in Sr. No. 3, item (v)(c) of Notification No. 11/2017 Central Tax
(Rate) dated 28^thJune, 2017, as amended by Notification No. 1/2018
Central Tax (Rate), dated 25^th January, 2018.

HELD

AAR held that the issue was similar
to that raised in Prajapati Developers, In re [2018] 97 taxmann.com 21/69
GST 851 (AAR-Mah.) with a slight variation, i.e., in said application
it was the developer who had raised the question and in the present case it is
the contractor providing composite supply to the developer who is raising the
question. AAR held that the entry (v)(da) of Notification 01/2018 mentioned
above nowhere restricts the benefit to a ‘Developer’ only.

The Notification entry is qua
the supply of service and not qua the person and therefore once a
project qualifies as an AHP, the benefit of concessional rate of tax would be
available in respect of works contract services pertaining to low cost houses,
irrespective of it being supplied by the developer or the contractor. Since the
project proposed to be undertaken by the applicant qualified to be an AHP, AAR
held that the benefit of concessional rate of tax would be available to the
applicant.

BCAJ Admin

SERVICE TAX

I.
HIGH COURT

30. [2019] (25) GSTL 207 (Del.) Commr. of Central
Tax, GST, Delhi East vs. Team HR Services Ltd.

Date
of order: 24^th August, 2018

Invocation of extended period was
set aside as mere omission to fulfil one’s tax liability cannot automatically
lead the authorities to conclude that the assessee had practiced fraud or
misrepresentation

FACTS

The respondent was engaged in providing
services like marketing of car loans and other retail finance products which,
as per the department’s view, fell under the definition of ‘business auxiliary
service’. However, the respondent disclosed these services under the head
‘business support services’ when introduced with effect from 1^st
April, 2006 and filed its return.

Show cause notice was issued on 23^rd
July, 2008 proposing assessment of service tax for the period 1^stJuly,
2003 to 9^th September, 2004 and demanding tax under the head
‘business auxiliary services’ which was resisted by the respondent including
the invocation of extended period. Denying the contention of the respondent,
the demand was confirmed by the Commissioner.

Aggrieved, the respondent
approached the CESTAT against the imposition of tax liability along with
interest levied from 1^st July, 2003 onwards. CESTAT partially
confirmed the Commissioner’s order to the extent of levy of demand to the
extent of details filed by the respondent in its service tax return under the
head ‘business support services’ but set aside the extended period of
limitation invoked by the Department holding it to be unwarranted. Revenue
preferred an appeal before the Hon’ble High Court against the CESTAT order.

HELD

The Hon’ble High Court, relying on
decisions of the Hon’ble Supreme Court [2012 (9) SCC 753 and 2013 (288) E.L.T
161 (S.C)] dismissed the appeal filed by the Revenue holding that mere omission
to fulfil one’s tax liability cannot automatically lead the authorities to
conclude that the assessee had practiced fraud or misrepresentation and found
no reasons to interfere with the order passed by the CESTAT.

II.
TRIBUNAL

31. [2019] (25) GSTL 257 (Tri. – Mum.) Commr. of
C. Ex. & S.T. (LTU), Mumbai vs. IDBI Bank Ltd.

Date
of order: 15^th March, 2019

Inadmissible Cenvat credit not
available to the assessee for any purpose, not even for payment of pre-deposit
under section 35F

FACTS

The respondent
was issued the impugned order on 30^th June, 2016 by the Commissioner
disallowing the Cenvat credit and raising the service tax demand of Rs.
61,49,57,000. The respondent preferred an appeal before the Tribunal which,
under Rule 6(3B) of Cenvat Credit Rules, 2004 reversed the 50% Cenvat credit
amounting to Rs. 30,74,78,500 (equivalent to 50% of demand raised). However, no
pre-deposit amount equivalent to 7.5% of the disputed adjudged demand was made
u/s 35F of the Central Excise Act, 1944.

Revenue filed a miscellaneous
application challenging the maintainability of the appeal filed by the
respondent on the ground that the respondent had failed to meet the
prerequisites to file an appeal.

HELD

The Hon’ble
Tribunal affirmed the Revenue’s view, allowed the miscellaneous application
filed by the Revenue and directed the respondent to comply with the
requirements of section 35F read with section 83 of the Finance Act, 1994
within a period of 30 days from the date of receipt of order.

32. [2019] (25) G.S.T.L. 230 (Tri. – Hyd.) Bayer
Bio Science Pvt. Ltd. vs. Commr. of Cus., C. Ex. & S.T., Hyderabad-II

Date
of order: 26^th February, 2019

Providing guidance does not amount
to rendering of scientific and technical consultancy services since it amounts
to merely transferring of knowhow

FACTS

The appellant,
who was engaged in the activity of developing seeds of new varieties and
hybrids, had an agreement with its client in Germany to provide the services
under the guidance of its client. The appellant had a plant-breeding team which
looked for specific traits from the germplasm and then cross-pollinated such
plants with existing parental lines. Such varieties were tested for seven to
nine years across various climatic zones in the country to check their
performance. Reports were sent to its client who thereafter filed a patent
application and obtained Intellectual Property Rights (IPR) for the hybrid
seeds so produced. As per another set of agreements, the appellant provided
guidance to farmers for a fee to multiply the hybrid seeds which they provided
to farmers for multiplication and to purchase the seeds so produced for a
price; it sold the seeds for profit. The above appeal was filed contesting the
demand of service tax on the above services as ‘Scientific and Technical Consultancy’
services.

HELD

The Hon’ble CESTAT, after a
detailed perusal of the facts of the appellant, held that the services rendered
by it to its client in Germany were in the nature of Scientific and Technical
Consultancy services and were exempt from the levy for the period 1^stApril,
2004 to 14^th March, 2005 and were held as Export of Services under
Rule 3(1) of the Export of Services Rules for the period thereafter.

So far as the second element of the
demand was concerned, it was held that guidance provided by the appellant is
known as extension-education which involved merely transferring the knowhow to
farmers and no involvement of scientific or technical research. Therefore, the
said appeal was allowed setting aside demands, interest as well as the
penalties arising out of the impugned order.

33. [2019] (25)
G.S.T.L. 263 (Tri. – Chenn.) Ambika Cotton Mills Ltd. vs. Commissioner of GST
and C. Ex., Madurai

Date of order: 7^th March, 2019

Demand cannot
be raised invoking the extended period of limitation by issuing fresh show
cause notice abating the previous notice after the retrospective introduction
of the liability in the statute

FACTS

The appellants, engaged in
manufacturing of cotton yarn, had availed services of transporters during the
period 16^th November, 1997 to 1^st June, 1998. Show cause
notice was issued on 30^th August, 2001 alleging suppression of facts
and invoking the extended period of limitation. Later, the Finance Act, 2000
brought the retrospective amendments to validate the recovery of the service
tax. Till then it was settled that the recipient of the service could not be
made liable to pay service tax vide the Supreme Court judgement in the case of Laghu
Udyog Bharti vs. Union of India 1999 (112) ELT 365 (SC).

Subsequent to
the said amendment, a second show cause notice was issued on 27^thApril,
2004 to the appellants for demand of service tax for the period 16^th
November, 1997 to 1^st June, 1998, wherein it was stated that the
said notice arose out of the show cause notice issued earlier. However, in the
operative portion of the notice, contradicting its own statement, it specified
that the earlier notice issued on 30^thAugust, 2001 abates and
stands withdrawn.

HELD

The Hon’ble CESTAT held that when
there is no liability on the appellants, the expectation from it to file
returns and pay tax is unwarranted. The ingredients for invocation of extended
period were absent and therefore the demand was held unsustainable. Allowing the
appeal, the impugned order was set aside.

34. [2019] (25) G.S.T.L. 110 (Tri. – Del.)
Executive Engineer E., C/o BSNL vs. Commissioner of Central Excise and Service
Tax, Jaipur

Appellant, a telecommunication
service provider, provided service to its associate company and thus service
provided to one’s own self does not result in a taxable event

FACTS

The appellant is a holder of
service tax registration under the category of ‘Telecommunication Service’ and
provided such services to its telecommunication operators and its associate
company for which the appellant has collected monthly charges and discharged
tax on the same. It was evident that its associate company had booked the
amount as income in the books of accounts. However, the appellant had not
considered the said amount as taxable; as a result, a show cause notice dated
20^th October, 2014 was served on the appellant raising the demand
along with the appropriate interest and penalty which was confirmed by the
order under challenge.

HELD

The Hon’ble Tribunal held that for
the provision of service there had to be a service provider as well as a
service recipient. The appellant was a service provider and an associate
company was the service recipient; both had different service tax registrations
but under the same PAN as both had the same incorporation. The law mandatorily
required existence of two different entities which was missing in the instant
case and hence the transaction was not termed as provision of service. It was
certain that service provided to one’s own self is not a taxable event.
Therefore, the Department was not entitled to invoke the extended period of
limitation, thus the show cause notice was held time-barred. The order under
challenge was set aside and the appeal was allowed.

35. [2019] 105 taxmann.com 344 (Chandi. – CESTAT)
DLF Commercial Projects Corporation vs. CST

Date
of order: 22^nd May, 2019

When the appellant obtained land /
development rights from land-owning companies on behalf of another entity and
the land-owning companies had not transferred the development rights to the
appellant, the Tribunal held that such activity being only acquisition of land,
the same would be outside the definition of ‘service’ u/s 65B(44) of the
Finance Act, 1994

FACTS

M/s. DLF Ltd. (DLF) is engaged in
the business of construction and development of integrated townships. As per
its business module, it appointed the appellant to purchase the land /
development rights on its behalf from various land-owning companies (LOCs),
obtain necessary permissions / approvals from various Government authorities
for carrying out development of land and to hand over the land to DLF for
further development, and thereafter to transfer the same to the appellant for
construction and sale of flats / properties developed by DLF to prospective
buyers. DLF would pay advances to the appellant which in turn would remit the
same to various LOCs and which in turn would purchase the lands.

At the time of transferring the
constructed property to prospective buyers, there is a tri-pirate agreement
between the land-owning company, DLF and the prospective buyers and documents
of transfer of title are executed at that time. Revenue alleged that the
appellant has transferred development rights to DLF and therefore was liable to
pay service tax on amounts received by it from DLF as business advances from
which the appellant had paid the LOCs. The impugned demand was confirmed along
with interest and penalty was imposed. Being aggrieved, the appellant filed the
present appeal.

HELD

The Hon’ble
Tribunal noted that the agreement between the appellant and the LOCs provided
that on acquisition of land the appellant was required to transfer the
development rights to DLF. Further, it observed that the ownership of land /
development rights was never transferred by the LOCs to the appellant and the
LOCs remained the owner of the land. The Tribunal therefore held that when the
appellant never remained the owner of the land at the time of receiving the
advance from DLF against purchase of land, they cannot transfer the land
development rights to DLF. Thus this is mere transaction of the sale and
purchase of land, or purchase of land by the appellant for DLF for further
development. As the appellant did not get any ownership of the land, in the
circumstances transfer of development right does not arise.

Further, the
Tribunal observed that when the LOCs transfer land development rights to the
developers, the developers get the right to not only develop their project on
such land but also the right to sell such developed property along with
undivided interest in the land underneath and to receive payments for such
transfers from the buyers. Once the land-owning companies transfer the land
development rights to the developer for a consideration, they are obligated to
transfer the undivided interest in the land in favour of developer’s buyers for
which no separate consideration is paid. In other words, such transfer of
undivided interest in the land by the land-owning company is in return for the
initial consideration paid by the developer to it for transfer of land
development rights only.

Thus,
it is the ownership of the land, which stands transferred effectively by the
land-owning company in return for consideration payable by the developers. The
moment it is either land or ‘benefits arise out of land’, it goes outside the
purview of ‘service’ as defined in section 65B(44) of the Finance Act, 1994.
The Tribunal also noted that under similar factual circumstances, in Premium
Real Estate Developers vs. CST [2018] 100 taxmann.com 471 (New Delhi – CESTAT),
the impugned service tax demand on amounts received by the appellant therein
for acquisition of land was set aside.

BCAJ Admin

GOODS AND SERVICES TAX (GST)

I. AUTHORITY
FOR ADVANCE RULING

2019 [21] G.S.T.L. 272
(A.A.R.-GST)

[In Re: Storm Communications
Pvt. Ltd.

Date of order: 28^th
January, 2019]

For
a person to avail and utilise ITC he has to be registered, and then only the
credit of the input tax paid is available

FACTS

The Applicant was engaged in supply of event management services and for
the said purpose he had to move to various States where he was being charged
GST in respect of the input services received by him. The applicant then
applied for advance ruling to confirm whether ITC of one State can be utilised
for payment of liability in another State when he was not registered in the
State where tax was paid. His query was based on the fact that he had received
services in the State of Tamil Nadu and was issued a B2B invoice with his GSTIN
for the State of West Bengal; he wanted to utilise the said credit against his
liability of West Bengal (his registered premise).

HELD

It was held that since the applicant was not registered in the State of
Tamil Nadu, GST levied on services received by him will not qualify as input
tax in respect of that State and hence won’t be available for utilisation
against the liability of West Bengal. Further, that a person registered in one
State cannot claim ITC for CGST and SGST of other States and thereby cannot adjust
ITC of one State’s CGST for payment of another State’s CGST.

[2019] 103
taxmann.com 209 (AAAR-Maharashtra) IL&FS Education & Technology
Services Ltd.

Date of order: 4^th
February, 2019

The
activity of implementation of project ‘Information & Communication
Technology’ (ICT) Lab in government schools constitutes ‘composite supply’
wherein imparting training is the principal supply and the supply of computer
equipments for ICT labs is naturally bundled with training services. Therefore,
the said supply can be said to be covered under entry No. 72 of Exemption
Notification No. 12/2017-CT(R) – exemption to training programmes where total
expenditure is borne by Central/State government

FACTS

The Government of India has framed a national policy for the implementation
of its Information & Communication Technology (ICT) school project
(hereinafter referred to as ICT) across the country. The implementation is
being carried out through the State governments by engaging the services of
private partners under “Build, Own, Operate and Transfer”, i.e., the BOOT
model. Accordingly, the appellant is entrusted with the responsibility to
implement ICT in 5,000 schools in Maharashtra.

As per the terms of the agreement between the State government and the
appellant, the government would arrange the necessary minimum constructed rooms
/ space in each school for setting up computer labs and the appellant would
carry out the work, viz., flooring, furniture and fixtures, etc., for preparing
each site to be used as an ICT lab. The appellant will procure the requisite
quantity of IT equipment for installation in the labs. Then the appellant has
to operate the ICT labs for imparting computer training, appointing one teacher
in each school for the same. The curriculum of the training was designed and
developed by the government.

The responsibility of maintenance and upkeep of ICT labs in proper
working condition is vested with the appellant at his cost. The appellant would
also maintain a help-desk to execute service requests. Upon completion of the
contract period, the appellant transfers the entire infrastructure to the
government at a nominal value of Rs. 1. The appellant sought advance ruling
from the AAR as to whether the said activity would be exempt in terms of entry
No. 72 of Notification No. 12/2017-Central Tax (Rate) which provides exemption
from payment of GST to services provided under the training programme for which
the entire expenditure is borne by Central / State government.

The AAR held that the said entry covers supply of services only and not
supply of goods, whereas the appellant is engaged in a composite supply which
includes supply of various computer equipments along with imparting training on
use of such equipments. Thus, AAR held that as activities of the appellant are
in the nature of “composite supply” which is not naturally but artificially
bundled having distinctly separate components with distinct value attributable
to each of its components, the exemption provided under said entry No. (72)
shall not be applicable to the appellant. Being aggrieved, the appellant filed
this appeal.

HELD

As regards the issue as to whether activities of the appellant can be
regarded as “composite supply”, the learned appellate authority observed that
the ICT scheme, a project of the Central Government, is itself introduced with
the aim of promoting computer literacy. The training along with the supply of
computers is an inherent part of the project and the project is imagined as such.
Further, the Education Department of the State government accepts the services
of the appellant as a package, i.e., a bundle of service, and the same model is
being followed by the appellant all over the country. As such, a single party
performing as a package is envisaged.

The
appellate authority concurred with the appellant’s contention that a single
price is not a mandatory requirement in case of a composite supply, because
u/s. 2(74) of the CGST Act, 2017, the requirement of single price is in the
case of mixed supply and not in the case of composite supply. Accordingly,
the appellate authority held that the supply of computers along with training
can be said to be naturally bundled.

[2019] 103 taxmann.com 371
(AAAR-Gujarat) Sapthagiri Hospitality (P) Ltd.

Date of order: 2^nd
January, 2019

The services
supplied by a hotel located in SEZ to persons located outside SEZ, i.e., in
DTA, would be chargeable to GST u/s. 5(1) of IGST Act, 2017

FACTS

The appellant constructed a hotel in the SEZ on land allotted to it and
started providing hospitality services from the premises. The appellant sought
advance ruling as to whether such services provided to clients located in the
SEZ as well as outside the SEZ would attract GST. The AAR held that services
provided by the appellant to other SEZ units for authorised operations will be
treated as zero-rated supplies u/s. 16(1) of the IGST Act, 2017 read with
section 2(m) of the SEZ Act, 2005. However, services supplied to clients
located outside the territory of the SEZ cannot be regarded as “zero-rated
supply” and are thus liable for GST u/s. 5(1) of the IGST Act, 2017. Being
aggrieved by the decision of the AAR on the second issue, the appellant filed
the present appeal.

The appellant submitted that the services were provided directly in
relation to immovable property in the SEZ and such services are a part of the
authorised operations of the SEZ as is evident from the Letter of Permission.
Thus, in light of sections 51 and 53 of the SEZ Act, 2005, IGST should not be
applicable on the services provided in SEZ to persons other than SEZ units as
the said services are received within the SEZ, which is deemed to be territory
outside India. The appellant also submitted that u/s. 53(2) of the SEZ Act,
2005 a deeming fiction is created whereby a SEZ is deemed to be a port,
airport, inland container depot, land station and customs station u/s. 7 of the
Customs Act, 1962, and that in terms of Circular Nos. 46/2017-Cus dated
24.11.2017 and 3/1/2018-IGST dated 25.05.2018, goods transferred / sold while
being deposited in a warehouse registered u/s. 57 or 58 or 58A of the Customs
Act, 1962 (customs bonded warehouse) are not liable to IGST. Similarly, no GST
would be chargeable to services supplied within SEZ.

HELD

The appellate authority observed that section 53(1) of the SEZ Act, 2005
provides a deeming fiction that only for the specific purposes of undertaking
the authorised operations the SEZ shall be deemed to be a territory outside the
customs territory. The term “customs territory” cannot be equated
with the territory of India. Further, the AAAR stated that the interpretation
adopted by the appellant would lead to a situation where a SEZ would not be
subject to any laws of India whatsoever. Then, the entire SEZ Act, 2005 would
be rendered redundant since it is argued to be extending to the whole of India.
AAR noted that section 51 of the SEZ Act, 2005 provides for overriding effect
in case there is anything inconsistent contained in any other law.

Further it
was noted that even if SEZ is deemed to be a port, etc., u/s. 7 of the Customs
Act, 1962, the aforementioned circulars issued under the Customs law deal with
import or export of goods and not of services. Therefore, it was held that
services supplied by the appellant to persons located outside the territory of
a SEZ would be regarded as “DTA supply” and chargeable to GST. Consequently,
the appeal was dismissed by upholding the ruling of AAR that services supplied
to non-SEZ units would be chargeable to GST.

[2019] 103
taxmann.com 127 (AAR-Maharashtra) Biostadt India Ltd.

Date of
order: 20^th December, 2018

The input tax
credit on gold coins procured for distribution to customers fulfilling criteria
laid down under a sales promotion scheme would be disallowed u/s. 17(5) of CGST
Act, 2017 by treating the same as ‘gifts’

FACTS

The
applicant is in the business of developing, manufacturing and distributing crop
protection chemicals and hybrid seeds. In order to achieve sales and collection
targets, a sales promotion scheme was launched wherein the customers were
entitled to gold coins upon fulfilment of certain conditions which are linked
to either purchase of products in specified quantities or making payment in
prescribed staggered manner. In the present application, the applicant sought a
ruling as to whether they will be entitled to input tax credit of GST paid on
purchase of gold coins. The applicant submitted that since they are
contractually bound to give gold coins to the customers who fulfil prescribed
criteria and it was not a voluntarily act, such gold coins cannot attract
disallowance of ITC u/s. 17(5) of the CGST Act, 2017.

HELD

The AAR observed that in cases where inputs are procured with the levy
of input tax and are supplied without tax being paid on such output supplies,
the scheme of the GST Act provides no input tax credit, except export. U/s. 17(5),
no ITC on any goods can be availed if they are given as gifts, whether or not
in the course of or furtherance of business. As a corollary, if it is
considered that the gift has some commercial consideration, then GST shall be
paid at the time of giving away or disposal of the same and in such cases only
ITC will be available.

Further, the AAR found that a gift is normally seen as an enticement to
customers, as in the subject case which would bear heavily on the customers in
making purchase of particular quantities or in making payment of certain value.
If it is not excluded from the scope of being supply, the provisions of
valuation rule would be relevant. The AAR held that in such cases it can be
assumed that the purchase value and output supply value of the gift shall be
the same and therefore, the ITC would be the same as the output GST is payable.
In other words, if the giver of the gift does not pay output tax on the same,
then the compensation to the government would be by foregoing the ITC on such
gifts. Accordingly, the AAR held that gold coins distributed by the applicant
under its sales promotion scheme are gifts and thus, ITC paid on purchase
thereof would be disallowed u/s. 17(5).

[2019] 103
taxmann.com 123 (AAR-Maharashtra) Allied Digital Services Ltd.

Date of order: 19^th
December, 2018

Services of
design, development, implementation and maintenance of CCTV-based surveillance
system for city constitutes composite supply of works contract, but such
contract not being contract for original works, applicable rate of GST would be
18% and not reduced rate of 12%

FACTS

The
Government of Maharashtra envisaged to set up a comprehensive CCTV-based City
Surveillance System for the city of Pune and Pimpri-Chinchwad (hereinafter
referred as “surveillance project”) The applicant was engaged as a “system
integrator” so as to provide services of design, development, implementation
and maintenance of the CCTV-based surveillance system under the said project.
The applicant sought an AAR ruling as to whether fees received by them for the
said project would be chargeable to GST, being consideration for supply of
services, and what would be the applicable rate of GST. The applicant submitted
that services provided by them under the surveillance project would constitute
composite supply of works contract services and accordingly attract tax rate of
12%.

HELD

The AAR found that the applicant supplies more than two taxable supplies
of goods or services or combination/s thereof and the provision consists of
different supplies such as design, development, implementation and maintenance
of CCTV-based surveillance system and are integrated in such a way that all of
them constitute, overall, a supply to set up a comprehensive CCTV-based city
surveillance system. Thus, the AAR held that various supplies contemplated
under contract for the surveillance project constitute “composite supply” u/s.
2(30) of the CGST Act, 2017.

As regards whether such a contract can be regarded as a “works contract”
under GST, AAR noted that the CCTV-based city surveillance system can be termed
as “immovable property” as such a system is permanently fastened to things
attached to earth and the same cannot be shifted without first dismantling it
and erecting it at another site. The AAR held that the activities of the
applicant result in installation / commissioning of immovable property wherein
transfer of property in goods is involved in execution of works contract and
thus, “surveillance project” is a works contract as defined u/s. 2(119) of the
CGST Act, 2017 and is supply of services as per 6(a) of Schedule II of the CGST
Act.

Further, the
AAR noted that reduced rate of tax (i.e., 12%) is applicable only if it is
original work. The expression “original works” is not defined under GST law. As
per the CPWD Works Manual, 2014, “original works” would mean all new
constructions, all types of additions and alterations to abandoned or damaged
structures on land that are required to make them workable, erection,
installation, etc., that results in increase in the life and value of the
property. The AAR held that the work done by the applicant in the present case
cannot be said to be “original works” and the said service being one of
composite supply of works contract would attract 18% GST.

[2019] 103
taxmann.com 124 (AAR-Maharashtra) Cummins India Ltd.

Date of
order: 19^th December, 2018

The Annual
Maintenance Contracts for repairs and maintenance of diesel and gas engines,
wherein maintenance and inspection services are provided along with supply of
parts / consumables as and when necessary, constitute ‘composite supply’ u/s.
2(30) of the CGST Act, 2017 and principal supply in such case would be supply
of service as supply of parts / consumables is incidental to such supply of
maintenance services

FACTS

The applicant, engaged in the business of manufacturing diesel and
natural gas engines, executed Annual Maintenance Contracts (AMC) with
end-customers to provide maintenance services to keep the engines in good
working condition by undertaking regular maintenance. The AMC services included
carrying out routine maintenance, preventive maintenance, inspection of parts,
supply of consumables and other repairs and replacements. The applicant treated
such AMC contracts as “composite supply” u/s. 2(30) of the CGST Act, 2017. In
terms of the present application, the applicant sought ruling as to what would
constitute “principal supply” of the composite supply qua their
maintenance contracts with their customers.

HELD

The AAR noted that the main purpose behind executing the AMC contract is
to keep the engines unimpaired and operative at all times for which a fixed
price has been decided for the AMC. The dominant intention of the activity is
service where skill is important rather than supply of goods and the skill is
supplied by the applicant who uses competent engineers to perform the services
mentioned in the contract. The AAR observed that goods, material, spare parts,
etc., are required to be supplied only if and when required. Thus, even though
the AMC covers both, supply of goods and service, the predominant intention is
to provide maintenance services for the proper upkeep of the machines belonging
to their clients and supply of goods follows as a consequence of the supply of
maintenance service.

Accordingly, the AAR held
that the supply made by the applicant under an AMC contract is naturally bundled,
with the supply of goods being incidental to the supply of services. Therefore,
such contracts are to be considered as a composite contract where the principal
supply is that of service.

BCAJ Admin

SERVICE TAX

I. Tribunal

2019 [21] G.S.T.L. 42
(Tri.-Chennai) Bharat Sanchar Nigam Ltd. vs. Commissioner of GST & Central
Excise, Chennai

Date of order: 6^th
September, 2018

Interconnectivity Usage Charges (IUC) service from a telecom service
provider located outside, tax demand not sustainable. SCN proceedings void ab
initio as it lacked clarity in regard to the category of service under
which the tax was proposed

FACTS

The
appellant was a provider of telecommunication services. During the Departmental
Audit it appeared to the Revenue that the appellant also provided Interconnectivity
Usage Charges (IUC) services to other telecom operators in India and was
receiving IUC services from a provider located outside India to whom payments
were made in foreign currency. Therefore, a show cause notice was issued
proposing to demand service tax without specifying the category of service.
Subsequently, the said demand. An appeal was filed against this before the
Hon’ble Tribunal.

HELD

It was observed that the show cause notice issued by the department
lacked proper clarity in regard to the category of service under which the tax
was proposed to be demanded, thereby spoiling the proceedings from the very
commencement. Further, a reference was made to the proposed new definition of
“Telecommunication Service” which made IUC service a taxable one.

Contesting the above definition, the appellant made a reference to
Circular 91/2/2007-S.T. which stated that since the service provider was
outside India and was not covered u/s. 65 (105) of the Finance Act, 1994, the
services provided by such a provider cannot be taxed under telecommunication
services. Based on the above facts and grounds as presented, it was held that
the demands made by the department were liable to be set aside.

2019 (21) GSTL 44 (Tri.-Chennai)
Good Fortune Capitals (P) Ltd. vs. Commissioner of GST & Central Excise,
Salem

Date of order: 14^th
September, 2018

No late fee, when return filed manually belatedly due to system error

FACTS

The appellant, a provider of “Stock Broker Service”, was served with a
show cause notice alleging default in filing ST-3 returns within the stipulated
time and thereby liable to pay late fee. The appellant contested that due to
difficulty in filing of ST-3 returns electronically within stipulated time,
they filed the return manually and got it duly acknowledged by the department
and also intimated the issue to the department. However, the department
contested that the appellant did not have any evidence of communication of the
said problem to the authorities, and therefore the Appellate Authority
confirmed the demand of late fee only for the partial period and set aside the
demand for the rest of
the period.

Aggrieved, the appellant preferred an appeal before the Tribunal and
submitted screen shots of the returns filed by them manually bearing signatures
of the Jurisdictional Superintendent.

HELD

It was held that the Appellant had communicated the said problem to the
department by way of acknowledgement obtained for the manually filed returns
and it is the duty of the department to solve such an issue as communicated by
the appellant. Since the problem faced by the appellant was genuine, the appeal
was allowed, setting aside the demand.

2019 (21)
GSTL 57 (Tri.-Chennai) B.S.N.L. vs. Commissioner of Central Excise, Tirunelveli

Date of
order: 11^th October, 2018

Sale of space on the reverse of the telephone bill for advertisement

FACTS

The appellant, a telecom company, issued telephone bills printed through
a printer, for which tender of two rates of printing telephone bills was
issued, one @ Rs. 0.68 per page without advertisement and the other @ Rs. 0.58
per page with free supply of space for advertisement. The appellant agreed to
Rs. 0.58 per page with free supply of space for advertisement. The Revenue
issued a show cause notice proposing service tax on the sale of space alleging
that the activity of making profit from agreeing to provide space on the
reverse side of the bill for commercial advertisement attracts service tax
under “selling of space or time for advertisement, other than print media”. The
adjudicating authority, however, quashed the SCN. The Appellate Authority held
that the Appellant was liable for service tax.

HELD

It was held that the printer was allowed to put advertisement on 1/5^th
portion of the bill by way of a consideration for reducing the printing cost.
Since this was for commercial benefit, it would be an indirect income or
consideration as per section 65(2) of the Finance Act, 1994. The differential
amount saved very much becomes value of taxable service under “sale of space
for advertisement” and thus the appeal was dismissed.

2019 (21)
GSTL 561 (Tri.-Mumbai) Holtec Asia P. Ltd. vs. Commissioner of Central Excise,
GST, Pune-I

Date of
order: 20^th April, 2014

Services provided to a foreign company, which had project office in
India, held as export of service as both were different establishments and the
project office had no connection with service rendered from the service provider
in India

FACTS

The appellant claimed refund of CENVAT credit of service tax paid on
input services used in providing output services under Rule 5 of CENVAT Credit
Rules, 2004 read with Rule 6A of Service Tax Rules, 1994. The appellant
provided service from India to Holtec International, USA which had its project
office in Pune, India. Therefore, Revenue rejected their claim of refund on the
ground that impugned service did not qualify as export of service as both
service provider and recipient are located in India; therefore, the conditions
of Rule 6(A)(b) and (d) of the Service Tax Rules, 1994 were not satisfied and
thus the Appellant was liable to pay service tax. This was also confirmed by
the appellate authority. Hence the appeal.

HELD

It was found that the Pune (India) office of Holtec International, USA
had no connection with the services rendered by the Appellant to the company
abroad and thus found the interpretation of lower authorities incorrect as
regards the place of provision of service. It was held that services were
rightly rendered to the recipient located outside India and further as per
Explanation 3 to section 65B(44) of the Finance Act, 1994, Holtel
International, USA was a distinct establishment from its project office at Pune,
India. Thus, services rendered by appellant would clearly fall under category
of Export of Service for which consideration was also received in convertible
foreign exchange and hence the Appellant was eligible for refund.

[2019-TIOL-1260-CESTAT-HYD]
Marinetrans India Pvt. Ltd. vs. Commissioner, Service Tax, Hyderabad-ST

Date of
order: 17^th January, 2019

The sale of space by freight forwarders acting on a
principal-to-principal basis is not liable for service tax under Business
Auxiliary Service

FACTS

The appellant is a freight forwarder and is registered as a service
provider. Intelligence gathered by the Excise Department revealed that they
purchased space from shipping lines and sold the same to exporters for a
profit. The space purchased at a lower price from the shipping lines is in turn
sold at higher prices to the exporters, on account of which they earn some
extra income. SCN was issued seeking to levy service tax under Business
Auxiliary Service, on grounds that they were promoting the services of the main
shipping line and getting paid for it.

HELD

The Tribunal primarily noted that their activity is on
principal-to-principal basis between them and the shipping lines and again
between the exporters and them. It could purchase the space for a lower price
and sell it at a higher price and so earn profit. On the other hand, if they
failed to sell the space to exporters after purchasing from the shipping lines,
they may incur a loss. Besides, it is evident from CBIC Circular No. 197/7/2016-ST
dated 12.08.2016 that service tax is
payable when one acts as an intermediary and not analogical to a trader dealing
on principal-to-principal basis on their own account; it was held that sale of
space on ships does not amount to rendering a service and so any profit arising
therein is not taxable. Considering such a position, the duty demands, interest
and penalties warrant being quashed.

[2019-TIOL-1336-CESTAT-HYD]
Oil India Ltd. vs. Commissioner of Central Tax

Date of
order: 6^th May, 2019

A refund claim filed for a tax paid beyond the provisions of the Act is
not maintainable as the same is beyond the jurisdiction of the officers and the
scope of the Act

FACTS

The assessee company is engaged in exploration of mineral oil and
natural gas. During the relevant period, they availed services of drilling
exploratory wells. The vendor paid the appropriate service tax amount. However,
the assessee also paid service tax on the same service, under reverse charge
mechanism. Upon realising this, a refund claim was filed u/s. 11B of the
Finance Act, 1994. The Revenue issued SCN proposing to deny refund on grounds
that it was claimed after one year from the date of payment of service tax. On
adjudication, the denial of refund claim was sustained on grounds of time bar.
On appeal, such findings were upheld. Hence the present appeal.

HELD

The Tribunal primarily noted that the refund application was clearly
filed beyond the one-year limitation period. Further, it was noted that the
refund jurisdiction of the Central Excise and Service Tax officers emanates
from sections 12E and 11B of the Central Excise Act, 1944 and section 83 of the
Finance Act, 1994. The Commissioner (A) draws authority from section 35 of the
CEA, 1944 to decide upon appeals or take such decisions. Thus, the officers
lack jurisdiction to decide matters falling beyond the scope of law.

In such cases, the appropriate remedy is to file a civil suit u/s. 72 of
the Indian Contracts Act, 1872 and the officers here lack the jurisdiction to
decide upon such suits. Where the contractor has already paid service tax and
the assessee also pays the same despite not being liable to do so, such payment
representing service tax is beyond the scope of the Finance Act, 1994. Hence
the limitation provisions or those pertaining to jurisdiction of officers to
sanction refund claims will not apply in such a case. Hence the order in
challenge is upheld because the refund claim is not maintainable for any amount
paid beyond the scope of the Finance Act, 1994 itself.

II. HIGH
COURT

[2019-TIOL-1027-HC-DEL-ST]
Amadeus India Pvt. Ltd. vs. Pr. Commissioner, Central Excise, Service Tax and
Central Tax Commissionerate

Date of order: 8^th
May, 2019

Show
Cause Notice issued without giving an opportunity for pre-consultation is
liable to be set aside

FACTS

Pre-show cause notice consultation by the Principal Commissioner /
Commissioner prior to issue of show cause notice in cases involving demands of
duty above Rs. 50 lakhs is made mandatory by Para 5 of instruction issued vide
F. No. 1080/09/DLA/MISC/15 dated 21.12.2015. In the present case, show cause
notice issued in the month of September, 2018 was despatched without an
opportunity for pre-consultation. Whether the said issuance was valid in law?

HELD

The Court primarily noted
that in terms of section 37B of the Central Excise Act, 1944 as made applicable
to service tax by section 83 of the Finance Act, 1994, instructions issued by
the CBEC would be binding on the officers of the department. The Court noted
that the exception to Para 5 of the said instruction is applicable in case of
preventive and offence-related cases which is not applicable in the present
case. Therefore, without expressing any view on the merits of the case of
either party in relation to the issues raised, the court sets aside the
impugned SCN and relegated the parties to the stage prior to issuance of
impugned SCN.

BCAJ Admin

SOCIETY NEWS

TECHNOLOGY INITIATIVE STUDY CIRCLE

‘Tricks and Tips of GST compliances in Tally
ERP9’ held on 4^thand 8^th June, 2019 at BCAS Conference
Hall

The Study Circle meeting on this
important subject was led by CA Punit Mehta, a practicing fellow Chartered
Accountant and a Director of Aimtech Business Solutions Pvt. Ltd. Punit is a
regular speaker at various seminars and conferences. He has also conducted
several training and workshops on Tally software implementation at study
circles and branches of the WIRC of the Institute of Chartered Accountants of
India and of the BCAS.

In the course of the programme, CA
Punit covered the importance of the ‘Alt + N’ function, the key role of
Hierarchy for incorporating the GST number, the issue of invoice of different
locations with the same Tally company, issue of invoice to the customer for
various locations with the same ledger along with many more different tricks
for ease of compliance along with practical demonstrations. He shared his
in-depth knowledge with the participants and answered all the questions raised.

FEMA STUDY CIRCLE

Meeting on ‘Overseas Direct Investment – Procedure &
Documentation’ held on 8^th June, 2019 at BCAS Conference Hall

CA Kaumudi Joshi led the discussion
on the subject ‘Overseas Direct Investment – Procedure & Documentation’. A
banker by profession, she shared her vast knowledge about the procedure to be
followed and documentation to be submitted to the authorised dealer in relation
to overseas direct investments. She shared her insights on common errors
committed while submitting the form for ODI. The members appreciated her
presentation.

HRD STUDY CIRCLE

Meeting on ‘Breath the Healer’ (Breath heals life! Breath is
life!) held on 11^th June, 2019 at BCAS Conference Hall

Between birth and death, we live
life. How happy and peaceful our life depends a lot on our health. Proper
breathing is essential not just for healthy lungs but also for good health.

The presentation emphasized the
techniques of breathing and pointed out how we neglect giving time to
ourselves. By consciously training ourselves to breathe correctly, we can live
a long and healthy life.

Wrong breathing can be harmful. It
can cause blockages and prevent proper blood circulation. We forget that breath
is free and proper breathing is in our hands. We must learn to breathe
correctly, training ourselves consciously so that proper breathing is an automatic
occurrence.

The participants found the
learnings from Mr. Pravin Mankar very useful and requested more such meetings.

INTERNAL AUDIT CONCLAVE

‘Joining Hands to Raise the Bar – Taking
Internal Audit to New Heights’ held on 20^th and 21^st
June, 2019

The two-day foundation course was
conducted at Hotel Orchid and attracted a full house of more than 75
participants, with a healthy mix of practicing members as well as members in
the industry, including a few who came from outside the city.

The programme
provided the participants the opportunity to learn, unlearn, debate, discuss
and network. The eminent speakers, a careful mix of Chief Internal Auditors,
Audit Committee Chairs and Internal Audit Partners, shared their knowledge with
the participants, liberally interspersing their talks with their own
experiences in handling audits, from either side of the table.

CA Mario Nazareth, the
Keynote speaker, set the tone by urging participants to shake off their
complacency and be aware and responsive to the changing environment.

CA Satish Shenoy highlighted
the importance of being agile and thoughtful, acquiring new skill sets and
harnessing technology.

CA Ashutosh Pednekar spoke on
the audit of related party transactions from the viewpoint of the Internal
Auditor. His suggestions included comparing terms and conditions agreed with
related parties to those agreed with third parties and checking to see whether
related parties are rated and evaluated just like third parties.

CA Nandita Parekh brought out
the essence of the audit exercise by identifying the key Internal Audit
matters. She candidly shared the need to decide upon three things right at the
start of every engagement – the rules of the game, the stakes and the quitting
time.

The speakers on the second day took
the momentum forward and provided a lot of food for thought to the
participants.

CA Shailin Desai dwelt on
the differences between an Internal Audit and an investigation, highlighting
the use of technology to identify data patterns. He gave many practical
suggestions such as approaching industry forums to understand the specific
industry-related frauds and accessing the reporting done to the whistle-blowing
mechanism and their resolution.

CA Nawshir Mirza spoke about
the responsibility of those charged with governance in setting the tone at the
top for an empowered Internal Audit function. He emphasised the need to build a
strong relationship with the Audit Committee and insist on regular meetings.

CA Jyotin Mehta shed light on
auditing the Compliance Function which gives comfort to the Boards. He spoke of
the merit in auditing the benefits that accrue to the organisation.

CA Naren Aneja touched the
very nerve of every organisation – auditing the organisation culture. After all,
the cover-page of a recent Harvard Business Review reads, The main challenge
isn’t technology, it’s culture.

The thoughtfully-curated two-day
conclave left the participants wanting more. A unique feature of the programme
was that the participants took it upon themselves to introduce the speaker
before the session and propose a well-deserved vote of thanks at the end.

With a balanced and vibrant faculty
keen on sharing their practical insights into the changing role and
expectations from the Internal Auditor, the foundation has been well laid for
many more interesting programmes in the future.

HUMAN RESOURCE DEVELOPMENT COMMITTEE

HRD Study Circle – ‘International YOGA Day Celebration’ held on 21^st
June, 2019 at BCAS Conference Hall

From 7.30 to 8.30 a.m. on Friday,
21^st June, the Committee organised a ‘Yoga’ session jointly with the
ISH foundation. This was to mark the International Yoga Day which falls on 21^st
June every year.

Pradeep Thakkar, a professional
Yoga teacher and also an active member of the ISH Foundation, guided the
participants who attended the programme.

He demonstrated and guided
participants to perform different Asanas with ease and comfort for a
healthy body and mental relaxation. He also taught some ‘powerful’ Asanas
to improve memory and also for different types of discomfort such as sciatica,
maintaining mental fitness, to keep the body flexible and tone the muscles.

TARANG 2K19 – CA STUDENTS’ ANNUAL DAY held on 29^th June,
2019 at K C College Auditorium

Four months ago, when the students’
team met with the members of the Human Resource Development Committee, the
success and grandeur of the past eleven glorious years began to reverberate in
everyone’s mind.

It was decided then that the 12^th
edition of the Jal Erach Dastur CA Students’ Annual Day under the brand of
‘Tarang’ had to be bigger and better. With this in mind, the students’ team
embarked upon the journey with enthusiasm and dedication for ‘Tarang 2k19’
led by the student coordinators – Mr. Rohit Dhanesha and Ms. Devyani Choksi.

This year ‘Tarang’ altered its
eleven-year-old essay-writing competition and turned it into a story-writing
competition to create a fun-filled and thrilling experience for the students.
This year’s edition also witnessed the reintroduction of the debate competition
which was last witnessed in Tarang 2k17.

There was a huge enrolment of 450
students in spite of the delay in CA exams and the various due dates on the 30^th
of June, 2019. There were as many as 260 participants in the contests, with the
highest number of participants in the talent show and the photography
competitions.

The event was organised by the BCAS
Students’ Forum under the auspices of the Human Resource Development Committee
of the BCAS for the CA students. It was sponsored by Mr. Sohrab Dastur and
supported by the Late Mr. Pradeep Shah and Family. The Students’ Forum
comprised of a team of 37 dedicated and enthusiastic students. The event was
truly an event ‘OF CA students, FOR CA students and BY CA students’. It
completely changed the perception regarding CA students as they excelled in
their roles as event managers, anchors, dancers, and photographers.

The ‘Tarang 2K19’ event
was held at K.C College Auditorium on 29^th June, 2019 from 4.00 pm
onwards.

It commenced with the lighting of
the traditional lamp by the HRD Committee and the student coordinators – with
the Ganesh Vandana and the Saraswati Vandana playing in the background,
invoking the blessings of Lord Ganesh, the god of Wisdom and Maa Saraswati, the
Goddess of Knowledge.

The three finalist teams of the
‘Antakshari’ competition, named as ‘Deewane’, ‘Parwane’ and ‘Mastane’, were the
first to take the stage. It had fun-filled and innovative rounds to test the
quick thinking of the participants while tickling their lighter side. Everyone
was astonished to witness the accuracy of CA students, even in the arena of
Bollywood songs and trivia. The event was hosted by the dashing CA Vijay Bhatt
who was accompanied by CA Tej Bhatt. Overall, it provided a great start to the
event and the audience actively participated throughout the show.

The next event was the debate which
had eight finalists who were declared on the spot. The moderator was our very
own Mr. Ryan Fernandes, who left the audience amazed with his moderation
skills. The topic for debate was given on the spot by Mr. Ryan – ‘Should there
be a Dress Code in Colleges?’ The judges and the audience were astonished with
the debating skills of the students. The audience was equally involved. To add
to the excitement, the moderator switched the ‘for’ and ‘against’ sides in the
last round to assess the spontaneous thinking of the students and that was a
fun-filled experience.

Mr Sohrab Dastur, Sr Advocate the
brother of late Jal Dastur, in whose name the event is conducted, was present
for the debate.

After the debate, one of the
student coordinators, Ms. Devyani Choksi, came on stage to talk about the other
events of the BCAS for all CA students throughout the year. CA Rajesh Muni, the
chairman of the HRD Committee, then felicitated all the students who were
actively involved in the students’ activities throughout the year under the
auspices of CA Raj Khona and CA Jigar Shah.

The next event was ‘Talk Hawk’
(sponsored by Smt. Chandanben Maganlal Bhatt Elocution Fund) wherein the three
finalists had to give a four-minute Ted Talk on any topic. This enabled a level
playing field for all participants who came up with impressive performances. It
was indeed a close contest, even for the judges to decide the winner. One could
only gasp at the ability of CA students to give motivational talks with such
wit and vigour.

This was followed by a 15-minute
break.

Then the time was ripe for the most
awaited event of the evening – ‘CA’s got Talent’. The singers had assembled,
the guitars, flutes, and violins were in place, dancers were on their feet and
actors began polishing their lines before they could thrill the audience with
their mesmerising performances. To give a spirited kick-start to this most
awaited event, the students’ team presented a three-minute flash mob which was
choreographed by CA Rishikesh Joshi.

The audience could sense that the
amazing flash mob was just a trailer of what they were going to witness in the
talent show. And rightly so, the 13 performances in music (which included
singing, instrumental and beatboxing), dancing and other performing arts,
enthralled the audience. The judges were fascinated, rather bewitched, by the
talent of the young CA students. They indeed had a Himalayan task of choosing
the winner.

After the talent show, the winning
film of the short film-making competition – ‘The Screenmasters’ was played. All
the films were so precisely shot that one could easily imagine chartered
accountants as the next big-league film directors.

Next, the best photographs from the
photography competition ‘Khinch Le’ were displayed. For the public choice
award, photographs were put up by the participants on the BCAS Tarang Page and
the photograph with the maximum likes was declared the winner. Participants
were given themes on which they had to click creative photographs and post
these on the Facebook Page with an innovative tagline based on the theme
selected. This competition saw a record participation of 51 entries and kept
the Facebook Page thundering. With such mind-boggling photographs, the judges
indeed had a herculean task of selecting the best.

With the clock ticking away, the
participants began crossing their fingers as the ice was about to be broken.

The winners of the competition
representing their firms were finally announced. The list goes as follows:

Story Writing Competition – ‘Ink It!’

Prize

Name of Student

Name of Firm

1^st Prize Winner

Isha Samant

Dhruv A. & Co.

2^ndPrize Winner

Prachi Gosalia

CNK & Associates LLP

3^rd Prize Winner

Janvi Kuruwa

GBCA & Associates LLP

The Rotating Trophy went to
Dhruv A. & Co.

Talk Hawk – ‘Aspire to
Inspire’

Winner

Tanvi Parekh

Talent Show – ‘CA’s Got
Talent’

1^st Prize
(Music-Singing Category)

Vanishree Srinivasan

1^st Prize
(Music-Others Category)

Prakhar Gupta

DK Surana & Associates

1^st Prize
(Dancing Category)

Tanvi Parekh

1^st Prize (Other
Performing Arts Category)

Nilay Gokhale

V.K. Bhate & Co.
Chartered Accountants

Antakshari Competition –
‘Suro ke Sartaaj’

Winning Team

Jagat Dave

Dipen Mehta & Co.

Akash Gupta

Amit Bhatt & Associates

Nikhil Taksande

ASBS & Co.

Best Individual Performer

Jagat Dave

Dipen Mehta & Co.

Drawing Competition – ‘The
Artpreneur’

1^stPrize Winner

Darshan Mamania

GBCA & Associates LLP

2^nd Prize Winner

Romil Goyal

3^rdPrize Winner

Amravati Saroj

S.K. Patodia &
Associates

Photography Competition –
‘Khinch Le’

Judges’ Choice Prize

Sophia Pereira

J.H. Gandhi & Co.

Public Choice Prize

Nilay Gokhale

V.K. Bhate & Co.,
Chartered Accountants

Short Film-Making
Competition – ‘The Screenmasters’

1^st Prize Winner

Pratik Hingu, Hardik Dedhia,
Hetana Shah, Ankit Shah and Viral Shah

Debate Competition – ‘War of
Words’

Winning Team

Gauri Kakrania

Phaphat and Rathi

Anirudh Parthasarathy

Tanvi Parekh

Best Debater

Gauri Kakrania

Phaphat and Rathi

Hearty Congratulations to
all the winners and their firms!

Judges for the various
competitions were as follows:

Competition

Elimination Round

Final Round

Story Writing

CA Narayan Pasari, CA
Namrata Dedhia and CA Sangeeta Pandit

Talk Hawk

CA Ashish Fafadia

CA Mukesh Trivedi

CA Aliasgar Kherodawala

CA Zubin Billimoria

CA Tushar Doctor

Talent Show

CA Suresh Subramanium

CA Hrudyesh Pankhania

Mr. Salil Jamdar

CA S. Padmanabhan

Mrs. Pallavi Choksi

CA Rishikesh Joshi

Antakshari Competition

Mr. Satyaprakash Dubey

CA Devansh Doshi

CA Ryan Fernandes

CA Kartik Srinivasan

Drawing Competition

CA Gunja Thakrar and Mrs.
Dipti Shah

Photography Competition

CA Divyesh Muni and Dr.
Candida Saldanha

Short Film-Making
Competition

CA Raman Jokhakar and CA
Charmi Shroff

Master Of Ceremony Contest

CA Nitin Shingala, CA Mihir
Sheth and CA Rajesh Muni

The entire evening was superbly
anchored by Mr. Monil Mehta, Mr. Akash Narayanan, Ms Raseeka Gokhale, and Ms.
Hemanshi Gandhi with their sheer display of energy and with mind-blowing
performances. The anchors were also supported by Mr. Nilay Gokhale, Mr. Kedar
Pandey, and Ms. Gauri Kakrania in hosting the show. Together, they ensured that
the audience had no reason to blink their eyes during the entire show.

Ms. Drishti Bajaj proposed the
well-deserved vote of thanks to Mr. Sohrab Erach Dastur for sponsoring the
annual day in the fond memory of his brother, the late Jal Erach Dastur, the
family of Smt. Chandanben Maganlal Bhatt for sponsoring the Elocution
Competition, the members of the Managing Committee and HRD Committee, the
coordinators of the Annual Day, the photographer of the event, the BCAS Staff,
parents and principals of students, sound technicians, the vibrant team of
student volunteers and all the students for participating in big numbers.

A scrumptious
dinner was arranged after the event for all those who marked their presence at
the Annual Day. The underlying purpose of the event was to not only develop and
encourage skills and extracurricular participation but to bring together the
entire fraternity, which was well achieved this time again, leaving some
unforgettable memories. With this 12^th edition scaling new
heights and raising the bar, all eyes are now set on what the next edition has
to offer.

BEPS & INTERNATIONAL ECONOMICS STUDY
GROUP

Meeting on ‘How Tax Havens Damage Global Economy’ held on 1^st
July, 2019 at BCAS Conference Hall

BEPS and the International
Economics Study Groups held their joint meeting on 1^st July, 2019 to
discuss ‘How Tax Havens Damage Global Economy’. CA Rashmin Sanghvi and CA Kapil
Sanghvi (Jamnagar) led the discussions and presented their thoughts on the
subject.

CA Kapil
presented the basics of tax havens, which are those havens, how do MNCs manage
to avoid paying fair and legitimate taxes in the jurisdictions they operate in.
CA Rashmin Sanghvi, on the other hand, presented the mechanics of how ‘Tax War’
is being fought through the use of several means like treaty shopping,
resulting in substantial loss to India. He brought out how MNCs and the world’s
leading developed economies are facilitating erosion of tax revenue to the
detriment of developing countries like India.

CA Abhay Bhagat shared his thoughts
on the book – ‘The Big Nine – How the Tech Titans and Their Thinking
Machines Could Warp Humanity’ by Amy Webb wherein it is explained how
Artificial Intelligence will, by design, begin to behave unpredictably,
thinking and acting in ways which defy human logic. The big nine corporations
(six American, viz., Amazon, Google, Apple, IBM, Microsoft and Facebook, and
three Chinese, Baidu, Alibaba, and Tencent) may be inadvertently building and
enabling vast arrays of intelligent systems that don’t share our motivations,
desires, or hopes for the future
of humanity.

INTERNATIONAL ECONOMICS STUDY GROUP

Meeting on ‘Budget 2019 & Economic Survey 2018-19 @ Modi 2.0’
held on 11^th July, 2019 at BCAS Conference Hall

CA Rashmin Sanghvi and CA Kapil
Sanghvi (Jamnagar) led the discussions and presented their thoughts on
the subject.

CA Kapil spoke
on ‘Economic Survey & Budget 2019 # Economy @ $5 trillion’. He presented
the strategic blueprint of the government through the investment-driven
virtuous cycle, nourishing dwarf to become giant, use of behavioural economics
in policy-making and data-driven government.

CA Rashmin explained in detail the
examples of ‘Virtuous cycle’ of rupee appreciation and ‘Internal vicious cycle”
of rupee depreciation. He also presented his thoughts on some of the key
proposals of the budget such as Zero Budget Organic and natural farming, water
issues, targeted schemes, DBTs, rural infrastructure, and so on.

CA Rashmin also presented the
mechanics of how ‘Tax War’ is being fought through the use of several means
like treaty shopping, resulting in substantial loss to India.

He brought out how MNCs and the
world’s leading developed economies are facilitating erosion of tax revenue to
the detriment of developing countries like India.

CA Abhay Bhagat shared his thoughts
on the Book, ‘The Big Nine…’ by Amy Webb which describes how
Artificial Intelligence will, by design, begin to behave unpredictably,
thinking and acting in ways that defy human logic.

The big nine corporations (six
American and three Chinese) may be inadvertently building and enabling vast
arrays of intelligent systems that don’t share our motivations, desires, or
hopes for the future of humanity.

FEMA STUDY CIRCLE

Held on 12^thJuly, 2019 at BCAS Conference Hall

It was a remarkable beginning of
the new year of the study circle, which was graced by the presence of more than
50 FEMA enthusiasts. The room brimming with the energy of young members and the
icing on the cake was the presence of learned group leader CA Manoj Shah,
Chairman Mayur Nayak and our newly-elected BCAS President CA Manish Sampat.

CA Manoj Shah led the discussion on
Foreign Direct Investment in India. The group leader discussed each regulation
of FEMA 20(R) along with the relevant FAQ published by the RBI which enabled
360-degree coverage of the topic. A lot of emphasis was placed on the practical
aspects of FDI during the discussion.

BCAJ Admin

GLIMPSES OF SUPREME COURT RULINGS

14. Snowtex Investment Ltd. vs.
Pr. CIT; [2019] 414 ITR 227 (SC)

Loss – Set off – Speculative transaction – The assessee having made an
admission on a statement of fact that the principal business activity was
trading in shares and securities, must bind it – The principal business of the
assessee thus not being of granting loans and advances during the assessment
year, the deeming fiction under section 73 was attracted – The provisions which
were contained in the Finance Act (No. 2) 2014 insofar as they amended the
Explanation to section 73, were not clarificatory

The appellant was registered as a non-banking financial company under
the Reserve Bank of India Act, 1934. The appellant filed its return of income
for the assessment year 2008-09 on 27^th September, 2008. By an order
dated 14^th December, 2010 the AO recorded that the principal business
activity of the assessee was trading in shares and securities. The loss from
share trading was held to be a speculation loss. The AO further held that in
view of the provisions of section 43(5)(d), activities pertaining to futures
and options could not be treated as speculative transactions. The loss from
speculation was held not to be capable of being set off against the profits
from business.

Against the AO’s order for the assessment year 2008-2009, an appeal was
filed before the CIT(A). The CIT(A) rejected the contention of the assessee
that the AO had erred in not allowing the speculation loss to be set off
against profits of trading in futures and options.

The assessee appealed against the decision of the CIT(A). The Income Tax
Appellate Tribunal, by its decision dated 6^th November, 2015 held
that the claim of the assessee for setting off the loss from share trading
should be allowed against the profits from transactions in futures and options,
since the character of the activities was similar. The ITAT held that the
assessee who was in the business of share trading had treated the entire
activity of the purchase and sale of shares, which comprised both of
delivery-based and non-delivery-based trading, as one composite business.

The Revenue appealed before the High Court which, by its judgement dated
22^ndNovember, 2016 accepted its submission. The High Court held
that the profits which had arisen from trading in futures and options were not
profits from a speculative business. Hence, the loss on trading in shares could
not be set off against the profits arising from the business of futures and
options.

On an appeal by the assessee, the Supreme Court noted that the
provisions of section 43(5) were amended by the Finance Act, 2005. Prior to the
amendment, section 43(5) defined a ‘speculative transaction’ to mean a
transaction in which a contract for the purchase or the sale of any commodity
including stocks and shares is settled otherwise than by the actual delivery or
transfer of the commodity or scripts. The impact of the amendment by the
Finance Act, 2005 was that an eligible transaction on a recognised stock
exchange in respect of trading in derivatives was deemed not to be a
speculative transaction. With effect from 1^st April, 2006 trading in
derivatives was by a deeming fiction not regarded as a speculative transaction
when it was carried out on a recognised stock exchange. The circular of the CBDT
dated 27^th February, 2006 indicated that this amendment was
occasioned by the changes which were introduced by SEBI both at the legal and
the technological level for bringing in greater transparency in the market for
derivatives.

The Supreme Court further noted that section 73 deals with losses from
speculation business. Under sub-section (1) of section 73, a loss computed in
relation to speculation business carried on by an assessee can only be set off
against the profits and gains of another speculation business. The Explanation
to section 73 contains a deeming fiction where certain businesses shall, for
the purposes of that section, be deemed to be speculation businesses. The
Explanation also carves out an exception in respect of certain specified businesses
which shall lie outside the fold of the deeming fiction. Prior to amendment of
the Explanation by the Finance (No. 2) Act, 2014 with effect from 1^st
April, 2015, the business of trading in shares carried on by a company was not
excluded from its purview. However, by the amendment which was brought into
force from 1^st April, 2015, the Explanation to section 73 further
excluded from the deeming fiction a company whose principal business was
trading in shares or banking.

The Court observed that while, on the one hand, Parliament amended
section 43(5) with effect from 1^st April, 2006 as a result of which
trading in derivatives on recognised stock exchanges fell outside the purview
of the business of speculation, a corresponding amendment to the Explanation to
section 73 in respect of trading in shares was brought in only with effect from
1^stApril, 2015.

The submission which had been urged on behalf of the appellant was that
there was no logical reason to exclude from the purview of speculation business,
trading in shares, whereas trading in derivatives was excluded, from the ambit
of section 43(5) after 1^st April, 2006.

The Supreme Court first dealt with the first submission, namely, that
the Explanation to section 73, as it stood prior to the amendment, excluded
from the deeming definition of a speculation business a situation where the
principal business of a company was granting of loans and advances.

The Court noted that there was no dispute about the fact that the
assessee was registered as an NBFC under the provisions of the Reserve Bank of
India Act, 1934. Before the Supreme Court it was urged that the principal
business was of granting of loans and advances. According to the Court, the
correctness of this aspect of the submission was not required to be determined
in the facts of the present case since the High Court had relied upon the
specific admission of the assessee that during the assessment year in question
its sole business was of dealing in shares.

The Supreme Court noted that while the assessee had given loans and
advances of Rs. 11.32 crores during the assessment year, it included
interest-free lending to the extent of Rs. 9.58 crores.

Having regard to these facts and circumstances, the specific admission
of the assessee before the AO assumed significance. According to the Supreme
Court, the assessee had made an admission on a statement of fact which must
bind it. Thus, the principal business of the assessee was not of granting loans
and advances during the assessment year. As a consequence, the
deeming fiction under section 73 was attracted. Hence, the finding of the High
Court on the first aspect could not be faulted.

So far as the second submission which was canvassed in the course of the
hearing of the appeal was concerned, the Supreme Court held that it was
difficult to hold that the provisions which were contained in the Finance Act
(No. 2) 2014 insofar as they amended the Explanation to section 73 were
clarificatory or that notwithstanding the provision by which the amendment was
brought into force with effect from 1^stApril, 2015, that it should
be given retrospective effect.

BCAJ Admin

FROM PUBLISHED ACCOUNTS

MULTIPLE KEY AUDIT MATTERS IN INDEPENDENT
AUDITORS’ REPORTS

RELIANCE INDUSTRIES LTD. (31^stMARCH,
2019)

From Auditor’s Report on Consolidated
Financial Statements

KEY AUDIT MATTERS

Key Audit Matters are those matters that, in our professional judgement,
were of most significance in our audit of the Consolidated Financial Statements
for the financial year ended 31^st March, 2019. These matters were
addressed in the context of our audit of the Consolidated Financial Statements
as a whole, and in forming our opinion thereon, and we do not provide a
separate opinion on these matters. For each matter below, our description of
how our audit addressed the matter is provided in that context. We have
determined the matters described below to be the Key Audit Matters (KAMs) to be
communicated in our report.

We have fulfilled the responsibilities described in the auditor’s
responsibilities for the audit of the Consolidated Financial Statements section
of our report, including in relation to these matters. Accordingly, our audit
included the performance of procedures designed to respond to our assessment of
the risks of material misstatement of the Consolidated Financial Statements.
The results of audit procedures performed by us and by other auditors of
components not audited by us, as reported by them in their audit reports
furnished to us by the management, including those procedures performed to
address the matters below, provide the basis for our audit opinion on the
accompanying Consolidated Financial Statements.

KAM: Capitalisation of property, plant and
equipment, intangible assets and related depreciation and amortisation

The holding company has identified capitalisation of property, plant and
equipment as a KAM. As a part of the gasification project, the holding company
has incurred additional capital expenditure for modification of power plant
equipments, i.e., gas turbines, auxiliary boilers, HRSGs, process furnaces,
etc., to make them compatible with multiple feedstock, including those received
from petcoke gasifier. Currently, all units of the gasification complex, its
associated utilities and offsites have been started and the complex is under
stabilisation. The testing phase of the project is under progress as at 31^st
March, 2019 as it has not achieved the quality and efficiency parameters.
Accordingly, significant level of judgement is involved to ensure that
capitalisation of property, plant and equipment meet the recognition criteria
of Ind AS 16 Property, Plant and Equipment, specifically in relation to
determination of the trial run period and costs associated with trial runs for
it to be ready for intended use. As a result, the aforesaid matter was
determined to be a KAM.

The auditors of Reliance JioInfocomm Limited (‘RJIL’), a subsidiary of
the holding company, have reported a KAM on capitalisation of property, plant
and equipment / intangible assets and amortisation / depreciation of spectrum
costs and related tangible assets as it is a material item on the balance sheet
of the subsidiary in value terms. The property, plant and equipment and
intangible assets of the subsidiary as at 31^st March 2019 is Rs.
134,000 crores. While the subsidiary has capitalised the wireless
telecommunication project, it continues to augment capacity therein and
continues to invest in setting up the wireline telecommunication project. Items
of property, plant and equipment and intangibles are capitalised when they are
ready for use as intended by the management.

Further, spectrum costs and the related tangible assets are amortised /
depreciated to appropriately reflect the expected pattern of consumption of
expected future economic benefits from continued use of the said assets (Refer
Note B.3 [e] of the Consolidated Financial Statements). Determination of timing
of capitalisation as well as rate of amortisation / depreciation in order to
ensure compliance with the stipulation of the applicable Accounting Standards
involve estimates, significant use of technology and significant judgement. Accordingly,
valuation and completeness are key assertions related to capitalisation of
property, plant and equipment and intangible assets, while accuracy is the key
assertion in respect of depreciation / amortisation charge.

How our audit addressed the KAM

Our audit procedures included and were not limited to the following:

Assessing the nature of the costs incurred to substantially modify the
existing power plants to test whether such costs are incurred specifically for
trial runs and meet the recognition criteria as set out in paras 16 to 22 of
Ind AS 16.

Evaluating the assessment provided by
third-party vendors involved in the construction and testing process to
determine whether capitalisation ceased when the asset is in the location and
condition necessary for it to be capable of operating in the manner intended by
the management.

In respect of the KAM reported by the auditors of RJIL, we performed
inquiry of the audit procedures performed by them to address the same. As
reported by the subsidiary auditor, the following procedures have been
performed by them:

(i) Testing the design, implementation and operating effectiveness of
controls in respect of review of capital work in progress, particularly in
respect of timing of the capitalisation with source documentation;

(ii) Testing controls over determination of
expected economic benefits from the use of relevant assets and monitoring
actual consumption thereof to true-up (sic) the expected pattern of
consumption during an accounting period;

(iii) Testing, including substantial involvement of internal telecom and
information technology specialists, to validate the expected pattern of
consumption of the economic benefits emanating from the use of the relevant
assets, as well as testing the relevant application systems used in monitoring
of actual consumption of the expected economic benefits;

(iv) Substantive testing procedures, including testing necessary
authorisations for capitalisation of items of PPE and intangible assets,
testing supporting documentation for consumption of capital goods inventory,
comparison of actual pattern of consumption of benefits for the current year
with the budget and testing the mathematical accuracy of computation of amortisation
/ depreciation charge for the year.

Obtained and read the financial statements of RJIL to identify whether
disclosure for capitalisation of property, plant and equipment and intangible
assets including spectrum and related amortisation / depreciation has been
appropriately disclosed in the consolidated financial statements of the group.

KAM: Changes in useful life and residual
value of plant and machinery

As at 31^st March, 2019 the holding company had a gross block
of Rs. 228,340 crores in plant and machinery which constitutes 52.1% of the
property, plant and equipment. In the current year, the holding company has
revised the useful life and residual value of the plant and machinery used in
the refining segment. Assessment of useful lives and residual values of plant
machinery in an integrated and complex plant involves management judgement,
consideration of historical experiences, anticipated technological changes,
etc. (Refer Note 1.7 of the Consolidated Financial Statements). Accordingly, it
has been determined as a KAM.

How our audit addressed the KAM

Our audit procedures included and were not limited to the following:

(a) Evaluating the reasonableness of the assumptions considered by the
management in estimation of useful life and residual values;

(b) Examining the useful economic lives and residual value assigned with
reference to the holding company’s historical experience, technical evaluation
by third party and our understanding of the future utilisation of assets by the
holding company;

(d) Review of the disclosures made in the financial statements in this
regard.

KAM: Estimation of oil reserves and decommissio-ning
liabilities

Refer to Note 30.2 on proved reserves and production, both on product
and geographical basis, and Note C(A) on estimation of oil and gas reserves,
Note C(C) on depreciation, amortisation and impairment charges and Note B.3(k)
on provisions. The determination of the holding company’s oil and natural gas
reserves requires significant judgements and estimates to be applied. Factors
such as the availability of geological and engineering data, reservoir
performance data, acquisition and divestment activity, drilling of new wells
and commodity prices, all impact the determination of the holding company’s
estimates of oil and natural gas reserves. The holding company bases its proved
reserves estimates considering reasonable certainty with rigorous technical and
commercial assessments based on conventional industry practice and regulatory
requirements. Estimates of oil and gas reserves are used to calculate depletion
charges for the holding company’s oil and gas assets.

The impact of changes in estimated proved reserves is dealt with
prospectively by amortising the remaining carrying value of the asset over the
expected future production. Oil and natural gas reserves also have a direct
impact on the assessment of the recoverability of asset’s carrying values
reported in the financial statements. Further, the recognition and measurement
of decommissioning provisions involves use of estimates and assumptions
relating to timing of abandonment of well and related facilities which would
depend upon the ultimate life of the field, expected utilisation of assets by
other fields, the scope of abandonment activity and pre-tax rate applied for
discounting. Accordingly, the same is considered as a KAM. The auditors of
Reliance Holding USA Inc. (‘RHUSA’), a subsidiary of the holding company, have
also reported a KAM on the aforesaid topic.

How our audit addressed the KAM

Our procedures have focused on the management’s estimation process in
the determination of oil and gas reserves and decommissioning liabilities. Our
work included, and was not limited to, the following procedures:

(I) Understand the holding company’s process and controls associated
with the oil and gas reserves estimation process;

(II) Evaluate the objectivity, independence and competence of the
internal specialists involved in the oil and gas reserves estimation process;

(III) Test that the updated oil and gas reserve estimates were included
appropriately in the holding company’s consideration of impairment, accounting
for amortisation / depletion and disclosures of proved reserves and proved
developed reserves in the financial statements;

(IV) Test the assumptions used in determining the decommissioning
provisions. And compare these assumptions with the past year and inquire for
reasons for any variations;

(V) In respect of the KAM reported to us by the auditors of RHUSA, we
performed an inquiry of the audit procedures performed by them to address the
same. As reported to us by the subsidiary auditor, they have performed
procedures in relation to the approach used; test of controls performed with
regard to data input into the system for calculation of oil and gas reserves;
audit report issued by external experts appointed by the subsidiary relating to
the audit of the key data and assumptions used by the management for estimating
the oil and gas reserve and the future net income as at the year-end;
competence and objectivity of the external experts; calculation of the
depletion charge and future net income and reasonableness of the discount rate
used by the subsidiary for calculating the future net income for impairment
calculation;

(VI) With respect to RHUSA, obtain and read its financial statements to
identify whether the disclosures on estimation of oil reserves have been
included in the Consolidated Financial Statements of the group.

KAM: Litigation matters (oil and gas)

The holding company has certain significant open legal proceedings under
arbitration for various complex matters with the Government of India and other
parties, continuing from earlier years, which are as under:

(i) Disallowance of certain costs under the production-sharing contract
relating to Block KG-DWN-98/3 and consequent deposit of differential revenue on
gas sales from D1D3 field to the gas pool account maintained by Gail (India)
Limited (Note 30.3 and 30.4 [b]);

(ii) Claim against the holding company in respect of gas said to have
migrated from neighbouring blocks (KGD6) (Note 30.4 [a]);

(iii) Claims relating to limits of cost-recovery, profit-sharing and
audit and accounting provisions of the public sector corporations, etc.,
arising under two production-sharing contracts entered into in 1994 (Note 30.4
[c]);

(iv) Suit for specific performance of a contract for supply of natural
gas before the Hon’ble Bombay High Court (Note 30.4 [d]). Due to the complexity
involved in these litigation matters, management’s judgement regarding
recognition and measurement of provisions for these legal proceedings is
inherently uncertain and might change over time as the outcomes of the legal
cases are determined. Accordingly, it has been considered as a KAM.

How our audit addressed the KAM

Our audit procedures included, and were not limited to, the following:

(a) Assessing management’s position through discussions with the
in-house legal expert and external legal opinions obtained by the holding
company (where considered necessary) on both the probability of success in the
aforesaid cases and the magnitude of any potential loss;

(b) Discussion with the management on the
developments in these litigations during the year ended 31^st March,
2019;

(c) Roll out of inquiry letters to the holding company’s legal counsel
(internal / external) and studying the responses received from them. Assessing
that the accounting / disclosures made by the holding company are in accordance
with the assessment of the legal counsel;

(d) Review of the disclosures made in the financial statements in this
regard;

(e) Obtaining a representation letter from the management on the
assessment of these matters.

KAM: IT systems and controls over financial
reporting

We identified IT systems and controls over financial reporting as a KAM
for the holding company because its financial accounting and reporting systems
are fundamentally reliant on IT systems and IT controls to process significant
transaction volumes, specifically with respect to revenue and raw material
consumption. Automated accounting procedures and IT environment controls, which
include IT governance, IT general controls over programme development and
changes, access to programmes and data and IT operations, IT application
controls and interfaces between IT applications, are required to be designed
and to operate effectively to ensure accurate financial reporting.

How our audit addressed the KAM

Our procedures included and were not limited to the following:

(I) Assessing the complexity of the IT environment by engaging IT
specialists and through discussions with the head of IT;

(II) Assessing the design and evaluation of the operating effectiveness
of IT general controls over programme development and changes, access to
programmes and data and IT operations by engaging IT specialists;

(III) Assessing the design and evaluation of the operating effectiveness
of IT application controls in the key processes impacting financial reporting
of the holding company by engaging IT specialists;

(IV) Assessing the operating effectiveness of controls relating to data
transmission through the different IT systems to the financial reporting
systems by engaging IT specialists.

KAM: Impairment of goodwill

The group’s balance sheet includes Rs. 11,997 crores of goodwill,
representing 1% of its total assets. In accordance with Ind AS, goodwill is
allocated to cash generating units (CGUs) which are tested annually for
impairment using the discounted cash-flow approach of each CGU’s recoverable
value compared to the carrying value of the assets. A deficit between the
recoverable value and the CGU’s net assets would result in impairment. The
impairment test includes sensitivity testing of key assumptions, including
revenue growth, operating margin and discount rate. The annual impairment
testing is considered a significant accounting judgement and estimate and a KAM
because the assumptions on which the tests are based are highly judgemental and
are affected by future market and economic conditions which are inherently
uncertain.

How our audit addressed the KAM

With respect to goodwill relating to material subsidiaries, our audit
procedures included and were not limited to

the following:

(i) Obtaining and reading the financial statements of the material
subsidiaries. Assessing the appropriateness of the methodology applied in
determining the CGUs to which goodwill is allocated;

(ii) Assessing the assumptions around the key drivers of the cash flow
forecasts including discount rates, expected growth rates and terminal growth
rates used, including engaging valuation specialists in certain cases;

(iii) Assessing the recoverable value headroom by performing sensitivity
testing of key assumptions used;

(iv) Discussing potential changes in key drivers as compared to previous
year / actual performance with management in order to evaluate whether the
inputs and assumptions used in the cash flow forecasts were reasonable.

KAM: Revenue recognition

The accounting policies of the group for revenue recognition are set out
in Note B3(p) to the Consolidated Financial Statements. The auditors of
Reliance JioInfocomm Limited (‘RJIL’), a subsidiary of the holding company,
have reported revenue recognition as a KAM due to the high volume of the
transactions, the high degree of IT systems involvement and considering that
accounting for certain tariff schemes involves exercise of judgements and
estimates, thereby affecting occurrence, cut-off and accuracy assertions in
respect of revenue recognition. Reliance Retail Ventures Limited (‘RRVL’), a
subsidiary of the holding company, trades in various consumption baskets on a
principal basis and recognises full value of consideration on transfer of
control of traded goods to the customers which most of the time coincides with
collection of cash or cash equivalent. The auditors of the subsidiary have reported
revenue recognition as a KAM due to the high volume of the transactions and
reconciliation of mode of payments with revenue recognised.

How our audit addressed the KAM

Our audit procedures included and were not limited to the following:

(a) Obtaining and reading the financial statements of RJIL and RRVL to
identify whether the revenue recognition policies are included in the
consolidated financial statement of the group;

(b) In respect of the KAM reported by the auditors of RJIL, we performed
an inquiry of the audit procedures performed by them to address the same. As reported by the subsidiary auditor, the
following procedures have been performed by them:

(i) involvement of IT specialists and testing of the IT environment inter
alia for access controls and change management controls over the subsidiary
company’s billing and other relevant support systems;

(ii) evaluation and testing of the design and operating effectiveness of
the relevant business process controls, inter alia controls over the
capture, measurement and authorisation of revenue transactions and involvement
of IT specialists for testing the automated controls therein;

(iii) evaluation of substantive testing involved, testing collections,
customer ratings for new products and tariffs introduced in the year, testing
the reconciliation between revenue as per the billing system and the financial
records and testing supporting documentation for manual journal entries posted
in revenue to ensure veracity thereof;

(iv) validation of the judgements and estimates exercised by the
management regarding the application of revenue recognition accounting standard
with respect to certain tariff schemes, particularly in view of adoption of
Ind AS 115;

(c) In respect of the KAM reported to us by the auditors of RRVL, we
performed an inquiry of the audit procedure performed by them to address it. As
reported to us by the subsidiary auditor, the following procedure had been
performed by them:

(v) Evaluation of the design, testing of the implementation of internal
controls and review of the operating effectiveness of the controls relating to
reconciliation of consideration with store sales by selection of samples from
different stores and dates throughout the period of audit and re-performance of
the reconciliation between store sales and the mode of payment collection
report.

KAM: Inventory

The auditors of Reliance Retail Ventures Limited (‘RRVL’), a subsidiary
of the holding company, have reported existence of inventory as a KAM due to
involvement of high risk on the basis of and the nature of the retail industry
wherein value per unit is relatively insignificant but high volumes are
involved which are dispersed across different points of sale and warehouses.
Refer Note B.3(i) to the Consolidated Financial Statements of the group.

How our audit addressed the KAM

Our audit procedures included and were not limited to the following:

In respect of the KAM reported to us by the auditors of RRVL, we
performed an inquiry of the audit procedures performed by them to address the
same. As reported to us by the subsidiary auditor, the following procedures
have been performed by them:

(I) Evaluation of the design and testing of the implementation of
internal controls relating to physical inventory counts on a test basis;

(II) Performance of test of controls over verification of documentary
evidence of controls including the calculation of shrinkages;

(III) Performance of test of details through sample selection of stores
as part of the inventory verification programme, including verification of
inventory from floor to documentary evidence and vice versa and
verification of shrinkage.

KAM: Transfer of the fibre undertakings

Pursuant to a Composite Scheme of Arrangement between Reliance
JioInfocomm Ltd. (RJIL), Jio Digital Fibre Private Limited (JDFPL) and Reliance
JioInfratel Private Limited (RJIPL) (the Scheme), RJIL has demerged its optic
fibre cable undertaking to JDFPL upon the scheme becoming effective on 31^st
March, 2019. As per the scheme, RJIL transferred the undertaking to JDFPL at
book value and adjusted the carrying amount of net assets in reserves. Further,
JDFPL applied the purchase method of accounting in accordance with Ind AS 103
as mentioned in the scheme and recorded assets and liabilities of the
undertaking at their respective fair values and issued equity shares of Rs. 3
crores (fair value Rs. 497 crores) and optionally convertible preference shares
with surplus rights (OCPS) of Rs. 544 crores (fair value Rs. 77,701 crores) to
the company, being the shareholders of RJIL. Pursuant to the receipt of these
equity shares and OCPS, the holding company in its standalone financial
statements (SFS) has allocated its cost of investments in RJIL to RJIL and JDFPL
and elected to value its investment in OCPS at fair value through other
comprehensive income (FVTOCI).

Subsequently, the holding company sold its controlling equity stake in
JDFPL to Digital Fibre Infrastructure Trust resulting in a gain of Rs. 246
crores recognised in the consolidated statement of profit and loss. The
management has determined that the holding company has no control or
significant influence over JDFPL post the controlling stake sale. Further, the
remaining equity investment in JDFPL is measured at FVTPL and OCPS is measured
at FVTOCI in the Consolidated Financial Statements (Refer Note 2.2 of the
same). The auditors of RJIL have also reported a KAM in respect of the
accounting treatment applied for the scheme in its financial statements. The
above is considered as a KAM as the same has been reported as a significant
transaction that occurred during the current year which involves exercise of
judgement and interpretation of the relevant Indian Accounting Standards and
applicable tax and other statutes / regulations.

How our audit addressed the KAM

Our audit procedures included and were not limited to the following:

(i) Obtaining and reading the composite scheme of arrangement for
demerger of the optic fibre cable undertaking;

(ii) Obtaining the memo prepared by the holding company in consultation
with external experts (including related assumptions and accounting policy
choice) on the accounting treatment to be applied in the financial statements;

(iii) Evaluating whether the accounting treatment of the said
transaction is in line with the applicable Indian Accounting Standards;

(iv) Performing substantive testing procedures, including involvement of
valuation specialists for testing of the valuation reports provided by the
management for appropriateness of assumptions involved and testing of the
computation;

(v) Assessing whether the accounting entries recorded in the books are
in line with the accounting treatment assessed above, including the
arithmetical accuracy of the same;

(vi) In respect of the KAM reported by the auditors of RJIL, we
performed inquiry of the audit procedures performed by them to address the
same.

As reported by the subsidiary auditor, the following procedures have
been performed by them:

(I) Evaluation and testing of the internal controls over the
management’s assessment of the accounting treatment of the said transaction in
terms of the applicable Indian Accounting Standards and applicable tax and
other statutes / regulations, identification of assets and liabilities related
to each of the two undertakings;

(II) Substantive testing procedures including involvement of tax
specialists to validate the management position on tax implications of the
transaction and testing of tax computation for appropriate application of tax
laws, involvement of valuation specialists for testing of the valuation reports
provided by the management for appropriateness of assumptions involved and
testing of the computation, accounting of the transactions and the disclosures
for compliance with the requirements of the applicable accounting standards.

KAM: Impairment of assets of subsidiaries of
Reliance Industrial Investments and Holding Limited

The auditors of Reliance Industrial Investments and Holdings Limited (‘RIIHL’),
a subsidiary of the holding company, have reported a KAM on the impairment of
investment and loans given to subsidiaries as the recoverability assessment
involves significant management judgement and estimates (Refer Note B.3 [j] of
the Consolidated Financial Statements). Though these investments and loans are
eliminated at the consolidated level, the assets of the RIIHL subsidiaries are
included on a line-by-line basis in the Consolidated Financial Statements.
Accordingly, the impairment of these assets is considered to be a KAM.

How our audit addressed the KAM

Our audit procedures included and were not limited to the following:

(a) Obtaining and reading the financial statements of RIIHL and its
subsidiaries to identify whether any impairment has been recorded in the
current year;

(b) In respect of the KAM reported to us by the
auditors of RIIHL, we performed an inquiry of the audit procedures performed by
them to address the KAM. As reported to us by the subsidiary auditor, the
following procedures have been performed by them for material subsidiaries:

(i) Assessment of
the net worth of RIIHL subsidiaries / associates on the basis of latest
available financial statements;

(ii) Assessment of the methodologies applied to
ascertain the fair value or, as the case may be, value in use of the assets of
the subsidiaries / associates, where the net worth was negative;

(iii) Assessment of the accuracy and reasonableness
of the input data and assumptions used to determine the fair value of
subsidiaries’ assets, cash flow estimates, including sensitivity analysis of
key assumptions used.

BCAJ Admin

Allied Laws

25.
Hindu law — Joint family property – Co-sharer can only alienate to the
extent before partition which is the undivided interest of the coparceners in
the joint property – Sale of specific portion of property can only be done
after partition has been effected

Parmal Singh and Ors. vs. Ghanshyam and
Ors. AIR 2019 Madhya Pradesh 131

The plaintiffs had filed a suit against the
defendants for declaration of title and permanent injunction against the sale
of a specific part of the joint family property. A sale deed was executed by
defendant No. 1 in favour of defendant No. 2 and, thereafter, by defendant No.
2 in favour of defendant No. 3. Defendant No. 3 has purchased the land in
dispute from defendant No. 2 by registered sale deed dated 21^st
August, 1997 after making payment of the entire consideration amount and he has
also been placed in possession.

The question that arose was whether specific
portion of the land could be sold without partition or not?

It was held that when the property in
dispute is joint in nature, then although the co-sharer can sell the property
to the extent of his share, he cannot sell the specific piece of land. All that
a co-sharer purchases at the execution of sale is the undivided interest of the
coparcener in the joint property. No title to any defined share in the property
was acquired and hence was not entitled to joint possession from the date of
his purchase. The rights could only be worked out by a suit for partition and
his right to possession would date from the period when a specific allotment
was made in his favour. Accordingly, it was directed that in case if the
defendant Nos. 1, 2 and 3 file a suit for partition within a period of three
months, then the purchaser shall continue to remain in possession of the land
purchased by him till the actual partition is done. The specific piece of land
would be decided only after the partition is done.

26.
Limitation – Alienation of property by natural guardian – Prayer to set
aside such alienation to be within 3 years by minor / legal representative
[Hindu Minority and Guardianship Act, 1956, S. 8; Limitation Act, 1965, Art.
60]

Murugan and Ors. vs. Kesava Gounder (Dead)
thr. L.Rs. and Ors. AIR 2019 Supreme Court 2696

Mr. B executed a sale deed on behalf of his
minor son P. The plaintiffs were cousins of Mr. B. Their case was that Mr. B
had no authority to execute a sale deed on behalf of his minor son P and that
the same was voidable and prayed that the plaintiffs were entitled for
declaration and possession of the properties from the defendants. The issue was
whether the sale deed executed could be set aside even after a lapse of three
years from the date of death of the minor?

The Appellate Court held that since the
minor son P died in 1986, the suit to set aside sale deeds and for possession
should have been filed within three years of his death. The suit filed in 1992
was barred by limitation. For this, the Appellate Court relied on article 60 of
Limitation Act.

The plaintiffs filed a second appeal in the
High Court. The Court held that the alienations made by Mr. B could be
construed only as voidable alienations and not void alienations. The High Court
held that the Plaintiffs’ suit ought to have been filed within three years as
per article 60 of the Limitation Act. The Court dismissed the second appeal.
Aggrieved by the judgement, an appeal was filed in the Supreme Court.

The Supreme Court held that the first
Appellate Court and the High Court had rightly held that limitation for the
suit was governed by article 60 and the suit was clearly barred by time.

The Court observed that in case of
alienation by natural guardian in contravention of section 8 of the Hindu
Minority and Guardianship Act, 1956 a sale deed was voidable. Alienations,
which were voidable, at the instance of a minor or on his behalf, were required
to be set aside before relief for possession could be claimed by the
plaintiffs. The suit filed on behalf of the plaintiffs without seeking a prayer
for setting aside the sale deed was, thus, not properly framed and could not
have been decreed. When a registered sale deed was voidable, it was valid till
it was avoided in accordance with the law. Rights conferred by a registered
sale deed were good enough against the whole world and the sale could be
avoided in case property sold was of a minor by a natural guardian at the
instance of the minor or any person claiming under him. A document which was
voidable had to be actually set aside before taking its legal effect.

In the present case, it was necessary for a
person claiming through the minor to bring an action within the period of
limitation, i.e., within three years from the date of death of the minor, to
get the sale deed executed by Mr. B set aside. The sale deed executed by Mr. B
was not repudiated or avoided within the period of limitation as prescribed by
the law. Accordingly, the appeal filed by the plaintiffs was dismissed.

27.
Partition – Deed of partition or a memorandum showing list of past
partition – To be determined with reference to recitals therein and not by its
title for the purpose of determining the applicability of stamp [Indian Stamp
Act, 1899, S. 35]

Koyya Ganga Venkata Satya Bhaskara Rao and
Ors. vs. Koyya Rama Krishnudu and Ors. AIR 2019 Andhra Pradesh

An issue arose when a document purported to
be a memorandum of past partition was attached as an annexure to the plaint by
the plaintiff. The defendants objected to the tendering of a deed of partition
as evidence since the said document was not stamped and registered and hence
inadmissible in evidence. The AR for the plaintiffs argued that the document
was a mere memorandum of past partition and not a deed of partition, hence no
registration or stamp was required due to which the said document should have
been admissible.

The trial Court, having referred to the
contents of the document as well as the precedents cited before it, upheld the
objection of the defendants and recorded a finding that the document in
question was a deed of partition and was liable to be charged with required
stamp duty. The aggrieved plaintiffs preferred revision.

The short question was whether the document
in question was a deed of partition chargeable with duty or a memorandum of
partition, or a partition list evidencing a transaction of past partition?

It was observed that the nature of a
document had to be determined with reference to the recitals therein and the
substance of the transaction embodied in the instrument and not with reference
to the title, caption or name given to the instrument. The name or the caption
given to the document is not determinative and the nature or character or the
substance of the transaction contained in the document is the only determinative
factor.

From the perusal of the said document, it
was understood that the recitals therein made it manifest that under the very
document the immovable properties were permanently partitioned once and for
all.

It was held that the said document was a
Deed of Partition and not a Memorandum of Partition showing a list of past
partition. Accordingly, it was held that since the document was not stamped, it
could not be admitted even for collateral purpose unless the required stamp
duty and penalty collectable on the instrument were paid and collected.

28.
Recusal – Litigant cannot insist on a judge to not hear the case – Judge
can recuse himself by choice but not at the request of the litigant

Seema Sapra
vs. Court on its own motion [2019]; Writ Petition No. 13 of 2018; Dated: 14^th
August, 2019

During the course of the hearing, the
appellant-in-person made an oral request that the bench ought to recuse from
hearing the matter which fact was noted. While dealing with the gravamen of the
apprehension of the appellant as to why she has insisted for recusal of one of
the judges, the Court observed that the apprehension of the appellant is
founded on the allegation that she may not get justice from the bench as one of
the judges was well acquainted with the advocates who incidentally are members
of the Supreme Court Bar Association against whom personal allegations have
been made by her in the accompanying writ petition.

In respect of the limited point of recusal,
the Court held that indubitably it is always open for a judge to recuse at his
own volition from a case entrusted to him by the Chief justice. But recusing at
the asking of a litigant party cannot be countenanced unless it deserves due
consideration and is justified. It was further mentioned that ‘it must be never
forgotten that an impartial judge is the quintessence for a fair trial and one
should not hesitate to recuse if there are just and reasonable grounds. At the
same time, one cannot be oblivious of the duties of a judge which is to
discharge his responsibility with absolute earnestness, sincerity and being
true to the oath of his / her office. After perusal of the assertions made in
the I.A.s, we have no hesitation in holding that the same are devoid of merit
and without any substance.’

29.
Hindu Law – Female Hindu – Property held by male governed by any school
of Hindu law other than Dayabhaga dies, his widow shall have the same right in
the property as the deceased had – Accordingly, property possessed by female
Hindu whether acquired before or after the commencement of the Hindu Succession
Act, shall be held by her as the full owner thereof and not as a limited owner
[Hindu Succession Act, 1956, S.14; Hindu Women’s Right to Property Act, 1937,
S.3]

Jagannath Waman Undre vs. Yamunabai Sitaram
Kadam AIR 2019 Bombay 143

The plaintiff (sister) filed a suit for
declaration of her rights in the suit property. The defendant was the
plaintiff’s brother whose name alone was entered in the records of rights of
the suit property after their mother’s death. The district court reversed the
order of the trial court and passed the order in favour of the plaintiff. The
appellant-defendant is in appeal before the high court.

The learned trial court held that under the
coparcenary law a wife or a widow or a daughter though a member of Joint Hindu
Family, was not entitled to any share or interest in the coparcenary property
of that joint family, except to the extent of the right of maintenance and
residence or marriage expenses. The trial court thus held that a woman, whether
wife or widow or daughter, could not claim share separately. On this ground
alone, the suit was dismissed.

The Appellate Court held that under sub-section
(2) of section 3 of the Hindu Women’s Right to Property Act, 1937 when a Hindu
governed by any school of Hindu law other than Dayabhaga dies having at the
time of his death interest in Hindu joint family property, his widow shall have
the same right in the property as the deceased. However, such interest shall be
limited interest known as Hindu woman’s estate.

Further, in
view of the provisions of section 14 of the Hindu Succession Act, 1956 the
mother of the plaintiff and the defendant became absolute owners of their share
in the suit property which was the limited interest or Hindu woman’s estate.
Accordingly, the mother’s interest in the property would devolve as per the
scheme in terms of section 15 of the Hindu Succession Act, 1956. Thus, her property
will devolve upon her sons, daughters and husband and not only on the son as
seen in the present case.

BCAJ Admin

FROM THE PRESIDENT

Dear Members,

It has
been just a month since I communicated with you, but the events that have
unfolded in the last 30 days make it appear as if a long period of time has
elapsed. There have been some major developments (both positive and negative)
in the socio-economic and political landscape of our country that would have a
significant impact on our future. Beginning with the successful launch of the
Chandrayaan 2 mission to the moon, the scrapping of Article 370 of the
Constitution which provides a special status to the state of Jammu and Kashmir,
the passing of the Triple Talaq – Muslim Women (Protection of Rights on
Marriage) Bill, 2019, the floods situation across many states, the enactment of
the Companies (Amendment) Act, 2019, re-emergence of the Direct Tax Code and,
above all, the Prime Minister’s meetings with the Finance Minister and the
industry leaders on the state of the economy.

I was
recently reading a report which points out that the just-concluded budget
session of Parliament was the most productive in decades. It was one of the
busiest sessions in the past 20 years, both the houses spent nearly half their
time on legislative business, passing 30 bills and working more than 70 hours
extra. As citizens of the country we feel proud of this but, at the same time,
also hope that a healthy debate has taken place before any enactment and that
the Government has taken all the stakeholders on board.

Is it
fair?

The
Companies (Amendment) Act, 2019 received the assent of the President on 31^st
July, 2019; this has made a U-turn on certain provisions relating to Corporate
Social Responsibility (CSR) spending by companies. Initially, when CSR was
introduced in the Companies Act, 2013 it was purely voluntary and without any
penal provisions. However, the said Amendment Act introduces provisions like
deposition of funds for mandatory CSR expenditure for a given fiscal in an
escrow account in case of certain ongoing projects and transfer of unspent
funds (within three years) to the National CSR Fund. Further, if a company does
not have an ongoing project that requires funding in stages, then such a
company will be required to transfer unused CSR funds to the National CSR Fund.
For the first time, non-compliance would attract a fine and imprisonment for
the officer in default. We need to ask the question: ‘Is it fair to all
concerned? Are such provisions aiding in the Government’s efforts of “Ease of
doing business in India”?’

It
gives me immense pleasure to inform you that we had made a joint representation
to the Hon’ble Union Minister of State for Finance and Corporate Affairs who
gave us a personal hearing; a number of major points causing difficulties to
tax payers and professionals were explained to the Minister. Both direct and
indirect tax issues were brought to the table and explained in detail. He was
appreciative of the various issues raised by us and we hope that, as in the
past, many of our suggestions would be accepted and concrete corrective action
would be taken in time.

The
Consumer Confidence Survey of the Reserve Bank of India indicates that not only
was the sentiment negative for three of the five parameters in the month of
July, but it was expected to deteriorate further compared to two months ago. We
are witnessing a weak consumer sentiment which is also reflecting in the
business sentiment, with businesses being less upbeat about production, order
books and capacity utilisation. The good news is that the Government is aware
of the overall slowdown in the economy and might take corrective action very soon.
This, coupled with the upcoming festival season following a healthy monsoon, is
expected to bring cheer to the stressed sectors of the economy in the second
half of the fiscal.

Fortunately,
soon after I penned the above thoughts, the Finance Minister announced a
recovery package to provide immediate succour to some of the worst pain points
of the economy in the hope of effecting a turnaround – including a rollback of
CSR violations being treated as a criminal offence!

Wishing
all of you all the best for the upcoming busy September tax audit season.

With
Best Regards,

CA
Manish Sampat

President

BCAJ Admin

FINANCIAL REPORTING DOSSIER

This article provides key recent updates in
financial reporting in the global space that could soon permeate into Indian
financial reporting; insights into an Ind AS accounting topic, viz., other
comprehensive income, tracing its roots, developments and relevance; compliance
aspects of capital disclosures under Ind AS; and a peek at an international
reporting practice in audit committee reports

1. KEY RECENT UPDATES

1.1 From disclosing ‘significant accounting
policies’ to disclosing ‘material accounting policies’

The IASB on 1^st
August, 2019, proposed amendments to IAS 1 Presentation of Financial
Statements and IFRS Practice Statement 2 Making Materiality Judgements.
A threshold for disclosing accounting policies is clarified by replacing the
requirement to disclose ‘significant’ accounting policies with ‘material’
accounting policies. Materiality in this context is a threshold that can
influence users’ decisions based on the financial statements.

1.2 Exception to recognising deferred tax upon
first-time recognition of assets or liabilities

The IASB has
proposed amendments to IAS 12 Income Taxes on 17^th July, 2019
clarifying accounting for deferred tax on leases and decommissioning
obligations. IAS 12 exempts recognising deferred tax upon recognition of assets
or liabilities for the first time. As per the exposure draft, this exemption
would not apply to leases and decommissioning obligations – transactions for which
companies would recognise both an asset and a liability. Recognition of
deferred tax on such transactions would therefore be required.

1.3 Useful information on ECL estimation for Ind
AS stakeholders

The FASB has issued
a Staff Q&A on Developing an Estimate of Expected Credit Losses on
Financial Assets. Akin to IFRS 9, USGAAP requires financial assets held at
amortised cost to be subject to impairment testing using the ECL approach. This
approach requires an entity to consider historical experience, current
conditions and reasonable and supportable forecasts. The Q&A issued on 17^th
July, 2019 provides guidance in this area.

1.4 Revisions to the international code of ethics
for professional accountants

The IESBA issued an
Exposure Draft on 31^st July, 2019, Proposed Revisions to Promote
the Role and Mindset Expected of Professional Accountants that inter
alia enhances robustness of the fundamental principles of integrity,
objectivity and professional behaviour.

2. RESEARCHING – OTHER
COMPREHENSIVE INCOME (OCI)

2.1 Introduction

Comprehensive
income as a reported accounting measure is new in the Indian context. The
notion of income is wider under comprehensive income in comparison with a
narrower income statement (profit and loss) concept.

2.2 Setting the context

Analysis of three
sample companies’ total comprehensive income (TCI) dissecting their composition
and growth in terms of profit after tax (PAT) and other comprehensive income
(OCI) is provided below:

Company 1 – Walt Disney, US listed (Dow
Index Component)

2017
($ MN)

2016
($ MN)

2017 (%)

2016 (%)

Growth %

PAT

9,366

9,790

96%

120%

(4.3)%

OCI

426

(1,656)

(20%)

TCI

9,792

8,134

100%

20.4%

Company 2 – Power Finance Corporation,
India listed, NBFC

2019
(Rs. cr)

2018
(Rs. cr)

2019 (%)

2018 (%)

Growth %

PAT

6,953

4,387

103%

108%

58.5%

OCI

(207)

(324)

(3%)

(8%)

TCI

6,746

4,063

100%

66.0%

Company 3 – British Petroleum, US and UK
Listed
(Dow Index Component)

2018
($ MN)

2017
($ MN)

2018 (%)

2017 (%)

Growth %

PAT

9,578

3,468

126%

41%

176.2%

OCI

(1,980)

5,016

(26%)

59%

TCI

7,598

8,484

100%

(10.4%)

As can be seen from
the table above, Company 1 reported an increase of 20.4% at the TCI layer,
while the PAT witnessed a ‘de-growth’ of 4.3%.

Volatility in OCI could
amplify or mask total comprehensive income. Do investors focus on PAT or TCI as
a measure of financial performance? Is TCI an important measure for investors?

In this section an
attempt is made to address the following questions:

Is the concept of OCI new under Ind AS or did it exist under
AS?

Was IFRS the first GAAP to introduce this concept?

Did OCI develop as an accounting concept or as a practice?

What have been the historical and current developments?

Is OCI relevant to investors?

2.3 The current position in India

Other Comprehensive
Income (OCI) as an accounting concept and a reporting measure made its way into
India Inc.’s corporate balance sheets with the introduction of Ind AS. OCI
comprises items of income and expenses that are not recognised in profit or
loss as required or permitted by other Ind ASs.

Ind AS 1 Presentation
of Financial Statements lists the components of OCI that inter alia
include changes in revaluation surplus of items of property, plant and
equipment, gains and losses arising from translating the financial statements
of a foreign operation, gains and losses from investments in equity instruments
designated at FVTOCI, gains and losses on financial assets measured at FVTOCI,
re-measurement of defined benefit plans and the effective portion of gains and
losses on hedging instruments in a cash flow hedge.

Schedule III to the
Companies Act requires Ind AS companies to report other comprehensive income in
the statement of profit and loss as a separate measure. Investors are provided
in a single statement the accounting measures of profit for the period, other
comprehensive income and total comprehensive income.

2.4 Background

2.4.1 India

In the Indian GAAP
(AS) dispensation, revaluation of fixed assets was permitted and the process of
consolidating a foreign subsidiary generated a resulting foreign currency
translation reserve (FCTR). These two line items have been taken up for the
purpose of this discussion.

AS 10 Accounting
for Fixed Assets before it made its way to AS 10 Property, plant and
equipment, permitted an increase in net book value arising on revaluation
of fixed assets to be credited directly to owner’s interests under the head of
revaluation reserve (paragraph 30).

AS 11 the
Effects of changes in Foreign Exchange Rates requires a non-integral
foreign operation to use translation procedures whereby the resulting exchange
differences should be accumulated in an FCTR until disposal of the investment
(paragraph 24).

The concept of
OCI is new in India despite the fact that items like revaluation surplus and
FCTR were also accounted under AS. The AS treatment
for these items bypassed income and had direct entry to the balance sheet,
whereas converged Ind AS does not permit direct entry to the balance sheet.

2.4.2 The United
States

IFRS (IAS in its
previous avatar) was not the first GAAP to introduce the concept of
comprehensive income.

Comprehensive
income was defined for the first time in USGAAP in 1980. Although the term was
defined, reporting standards for the same did not evolve for a considerable
period of time.

The origin of other
comprehensive income reporting in global accounting literature can be traced to
a 1997 USGAAP Statement of Financial Accounting Standard (FAS) – Reporting
Comprehensive Income. This statement issued by the Financial Accounting
Standards Board (FASB) established standards for reporting and presenting
comprehensive income and its components.

The relevant
concepts surrounding how globally accounting income reporting was historically
characterised in terms of a contrast between a ‘dirty surplus’ and a ‘clean
surplus’ income concept is highlighted in the table below:

Current operating performance income
concept

All-inclusive income concept

Dirty Surplus in Accounting Theory

Clean Surplus in Accounting Theory

Current operating performance income
concept

All-inclusive income concept

Extraordinary and non-recurring gains
and losses are excluded from income

All revenues, expenses, gains and losses
recognised during the period are included in income regardless of whether
they are considered to be results of operations of the period

Until 1997, the
FASB followed the all-inclusive income concept but it did make exceptions by
requiring that certain changes in assets and liabilities not be reported in the
income statement but instead be included in balances within a separate
component of equity in the balance sheet. Some examples include foreign
currency translation, accounting for certain investments in debt and equity
securities akin to Indian GAAP ‘AS’ revaluation gains (AS 10, now replaced) and FCTR treatment (AS 11).

In 1997, as a step
in implementing the concept of comprehensive income, the FASB required that
changes in the balances of items that were reported directly in a separate
component of equity in the balance sheet be reported in a financial statement
that is displayed as prominently as other financial statements, viz.,
‘Comprehensive Income’.

The purpose of
reporting comprehensive income is to report a measure of all changes in equity
of an entity that result from recognised transactions and other economic events
of the period other than transactions with owners in their capacity as owners.

OCI and TCI reporting developed more as a practice
than a concept. Further developments and improvements are expected both under
USGAAP and IFRS.

2.4.3 The United
Kingdom

In 1992, the UK Accounting Standards Board issued a financial reporting
standard – Reporting Financial Performance. It introduced a ‘Statement
of Total Recognised Gains and Losses’ financial statement component that was
analogous to the US comprehensive income.

2.4.4 IFRS

OCI and
Comprehensive income reporting was introduced in IFRS in 2007 with a revision
to IAS 1 Presentation of Financial Statements requiring inter alia
components of OCI to be displayed in the statement of comprehensive income and
total comprehensive income to be presented in the financial statements.

2.5 Recent
developments

The IFRS Conceptual
Summary revised by the IASB in 2018 lends relatively more clarity to the
distinction between net profit and OCI. In the development of standards, the
IASB may now decide in exceptional circumstances that income or expenses
arising from a change in the current value of an asset / liability be included
in OCI when it results in the statement of profit or loss providing more
relevant information or a more faithful representation of financial
performance.

In December,
2018, the ICAI issued an Exposure Draft of AS 1 – Presentation of Financial
Statements, to replace the extant AS 1 – Disclosure of Accounting
Policies. The wider income concepts of OCI and comprehensive income have
been introduced in this IGAAP exposure draft.

2.6 Is OCI relevant to investors?

The IASBs-IFRS
Conceptual Framework (2018 revised) states that an understanding of financial
performance requires analysis of all recognised income and expenses, i.e., PAT
and OCI. The expected focus is therefore on TCI.

Net earnings for
the period as reported by the measure PAT lends itself to assessment of
forecast cash flows from a dividend distribution perspective.

The ground reality
globally is that Alternate Performance Measures (APMs) are fast becoming
mainstream. Progressive companies continue to strive to provide insights into
real value creation using measures that are alternates to accounting measures,
including TCI.

3.
COMPLIANCE: CAPITAL DISCLOSURES (Ind AS)

Capital
disclosures

This Ind AS
disclosure requirement ensures that users of financial statements are provided
useful information about entity-specific capital strategies.

This disclosure in the notes is mandatory for all entities and, moreover
is in addition to other disclosures related to equity and reserves. The
disclosure requirements are contained in Ind AS 1 Presentation of Financial
Statements (paragraphs 134 to 136). A reporting entity also needs to
consider paragraphs 44A to 44E of Ind AS 7 Statement of Cash Flows
(Changes in Liabilities Arising from Financing Activities) to comply with Ind
AS 1 capital disclosure requirements.

The capital
disclosures are applicable to all companies and not only to companies that are subject
to externally imposed capital requirements like banks / NBFCs.

An entity is required to disclose information that enables users of its
financial statements to evaluate its objectives, policies and processes for
managing capital. In complying with this, qualitative and quantitative
disclosures are required.

Qualitative disclosures

Quantitative disclosures

Description of what an entity manages as
capital

Summary quantitative data about what it
manages as capital

How it is meeting its objectives for
managing capital

For entities subject to externally
imposed capital requirements, the nature of those requirements and how the
same is incorporated into capital management

Capital for the
purpose of this disclosure has to be understood the way it is considered as
part of corporate financial management text / practices. Capital is not just
share capital or equity but includes liability components, too.

Capital
disclosures should be based on the information provided internally to key
management personnel (KMPs). For instance, some
entities may consider lease liabilities and / or overdrafts as components of
capital for capital management, while others may not.

4.
GLOBAL ANNUAL REPORT EXTRACTS: AUDIT COMMMITTEE REPORT

Extracts from ‘Audit Committee Report’
Section of Annual Report

Company: BAE Systems PLC (2018
revenues GBP 16.8 billion)

The Audit
Committee reviews all significant issues concerning the financial
statements. The principal matters it considered concerning the 2018
financial statements were (see table below):

Principal matters considered by Audit
Committee

Taxation

Computation
of the group’s tax expense and liability, the provisioning for potential tax
liabilities and the level of deferred tax asset recognition are underpinned
by management judgement and estimation of the amounts that could be payable

Whilst
tax policy is ultimately a matter for the Board’s determination, we reviewed
the group’s tax strategy. Twice during the year, we (‘the
Audit Committee’)¹ reviewed the group’s tax charge, tax
provisions and the basis of recoverability of the deferred tax asset
relating to the group’s pension deficit

Pensions

Accounting
for pensions and other post-retirement benefits involves making estimates when
measuring the group’s retirement benefit obligations. These estimates require
assumptions to be made about uncertain events such as discount rates
and longevity

Recognising
the scale of the group’s pension obligation, we (‘the Audit
Committee’)¹ reviewed the key assumptions supporting the
valuation of the retirement benefit obligation. This included a
comparison of the discount and inflation rates used against externally
derived data. We also considered the adequacy of disclosures in respect
of the sensitivity of the deficit to changes in these key assumptions

5. FROM THE PAST – ‘IMPROVED OUTSIDE AUDITING
IN THE FINANCIAL REPORTING BUSINESS’

The Former
Securities Exchange Commission’s Chairman, Mr. Arthur Levitt’s 1998 remarks (NYU
Center for Law and Business) are relevant even today. Extracts of the same
are reproduced below:

‘As I look at
some of the failures today, I can’t help but wonder if the staff in the
trenches of the profession have the training and supervision they need to
ensure that audits are being done right. We cannot permit thorough audits to
be sacrificed for re-engineered approaches that are efficient, but less
effective.

Numbers in the abstract are just that – numbers. But
relying on the numbers in a financial report are livelihoods, interests and,
ultimately, stories: a single mother who works two jobs so she can save
enough to give her kids a good education; a father who laboured at the same
company for his entire adult life and now just wants to enjoy time with his
grandchildren; a young couple who dreams of starting their own business.

These are the stories of American investors. Our
mandate and our obligations are clear. We must re-dedicate ourselves to a
fundamental principle: markets exist through the grace of investors.’

BCAJ Admin

ETHICS AND U

Arjun : (Chanting) Hare Rama Hare Krishna…

Shrikrishna : Arjun, I am sure you are praying for extension of due date.

Arjun : Oh, Lord, I didn’t notice when you arrived.

Shrikrishna : I am omnipresent.

Arjun : Yes, you guessed correctly what I was thinking about. September is
really a nightmare for all of us. It is a yearly phenomenon.

Shrikrishna : All these years, I used to feel that the fault lies with you CAs only.
But over the years I realised that it is a problem of the system. It has become
a chronic issue.

Arjun : You said it! Actually, our time and energy is lost in the relatively
unproductive exercise of filing smaller returns. Government also may not be
getting substantial revenue from it.

Shrikrishna : But you get 2 full months after 31^st of July.

Arjun : Agreed. But this year, even that date was extended up to 31^st
of August. It was followed by Shree Ganesh festival.

Shrikrishna : But Ganesh festival is only in a few states.

Arjun : What you say is right. But Mumbai is the financial capital. So the
social life of Mumbai has to be considered by the government. And there were
disastrous floods in Maharashtra. This year, there was a record rainfall.

Shrikrishna : Why don’t you tell all this to the government?

Arjun : Further, all our experienced CA trainees are on exam leave in
September. Government – especially bureaucrats – are least bothered about our
problems.

Shrikrishna : This would be the problem of all seasonal businesses and professions.

Arjun : And all compliances almost coincide with each other. Tax audits, tax
returns, GST, company law compliances, AGM – everything simultaneously. How can
we cope up with all these?

Shrikrishna : But your clients also have to take it seriously. Don’t they co-operate?

Arjun : That is another hazard! All clients appear at the 11^th hour
only. Each one is under the sweet impression that he is our only client. They
are relaxed when we are slogging day and night for them! They feel that we are
doing all these compliances for our own sake only! They have nothing to do with
any paper work. Accounting Standards, Auditing Standards and other regulations…

Shrikrishna : Then let them suffer penalties.

Arjun : That is true! But again they blame us! And the present-day tax
terrorism is depressing. For every small default, there is disproportionate
penalty and even prosecution.

Shrikrishna : Why don’t you employ more qualified staff?

Arjun : Bhagwan, in today’s grave recession, we find it difficult to pay
salaries to even the existing staff. Again, newly-passed CAs do not wish to
enter this profession. I am told, even the number of new students joining the
course has reduced by more than half.

Shrikrishna : But I know that you have a common practice of backdating the signatures!

Arjun : Ha! Ha! Ha! But now, that is also restricted. We need to generate ‘UDIN’.

Shrikrishna : What is that?

Arjun : Unique Document Identification Number. Actually, it is in our interest
only as there were many instances of forgery of CAs’ signatures on financial
statements. Now, after signing the audit, we have to generate our UDIN for each
document within 15 days.

Shrikrishna : That means, from all angles, you are trapped. That should curb many unethical
practices.

Arjun : Bhagwan, finally all our discussions turn to the topic of
ethics. For your information, non-generation of UDIN is also now regarded as a
professional misconduct.

Shrikrishna : Then you need to be extra careful. In a hurry and confusion, you may
forget to do so in a few cases! I suggest you better establish a proper system
of recording the dates of signatures and creation of UDIN. The best way is not
to sign any document without UDIN.

Arjun : Bhagwan, it is an ideal or dream situation! Never possible in a
typical CA’s office. The pressure of
uploading is too acute – rather, suffocating.

Shrikrishna : Then really, all of you should come together; and think of a real
solution to this perpetual, never-ending problem. You only take a lead and God
will support you!

Arjun : Yes, My Lord! I will do it next year!

Om Shanti.

(This dialogue is based on the yearly
problem of tax compliances in CAs’ offices and the requirement of UDIN in Code
of Ethics)

BCAJ Admin

FROM PUBLISHED ACCOUNTS

ILLUSTRATION
OF AUDIT REPORT WITH QUALIFIED OPINION AND KEY AUDIT MATTERS (WHERE THE
PREDECESSOR AUDITOR HAD ALSO ISSUED AUDIT OPINION WITH QUALIFICATIONS ON
CERTAIN MATTERS)

FORTIS HEALTHCARE LTD.
(31^stMarch, 2019)

From
Auditors’ Report

BASIS
FOR QUALIFIED OPINION

(a) The matters stated below were also subject
matter of qualification in predecessor auditor’s audit opinion on the
consolidated financial statements as at 31^st March, 2018:

(i) As explained in Note 31 of the consolidated
financial statements, pursuant to certain events / transactions, the erstwhile
Audit and Risk Management Committee (ARMC) of the company had initiated an
independent investigation by an external legal firm and special audits by
professional firms on matters relating to systematic lapses / override of
internal controls as described in Note 31 of the consolidated financial
statements. The report has since been submitted and is subject to the limitations
on the information available to the external legal firm and their
qualifications and disclaimers as described in their investigation report.

Additionally, different
regulatory authorities are currently undertaking their own investigations,
details of which are described in Note 31 and Note 32 of the consolidated
financial statements and are stated below:

SEBI has initiated an
investigation in respect of the various issues. On 17^th October,
2018, 21^st December, 2018, and 19^th March, 2019, SEBI
passed orders (orders) and further investigation by regulatory authorities is
continuing. In its orders, SEBI observed that certain inter-corporate deposits
(ICDs) made by Fortis Hospitals Limited (FHsL), a wholly-owned subsidiary of
the company, with certain identified entities were so structured that they seem
to be prima facie fictitious and fraudulent in nature resulting inter
alia in diversion of funds from the group for the ultimate benefit of the
erstwhile promoters (and certain entities controlled by them) resulting in a
misrepresentation in the financial statements of the group in earlier period.
Further, SEBI issued certain directions inter alia directing the company
and FHsL to take all necessary steps to recover Rs. 40,300 lakhs along with the
due interest from the erstwhile promoters and various other entities as
mentioned in the orders. It has also directed the erstwhile promoters and the
said entities to repay the sums due. The aforesaid ICDs were fully provided for
in the books as at 31^st March, 2018. SEBI, in its orders, also
directed the erstwhile promoters and the said entities that pending completion
of investigation and till further order, they shall not dispose of or alienate
any of their assets or divert any funds, except for the purpose of meeting
expenses of day-to-day business operations, without the prior permission of
SEBI. Erstwhile promoters have also been directed not to associate themselves
with the affairs of the company in any manner whatsoever till further
directions. The initial directions issued by SEBI have been confirmed by SEBI
in their order dated 19^th March, 2019.

The Serious Fraud Investigation
Office (SFIO), Ministry of Corporate Affairs, u/s 217(1)(a) of the Companies
Act, 2013, inter alia, has initiated an investigation and has been
seeking information in relation to the company, its material subsidiaries,
joint ventures and associates to which, as informed to us, the company has
responded.

Since the investigation and
inquiries carried out by regulators as aforesaid are currently ongoing, the
need for additional procedures / inquiries, if any, and an overall assessment
of the impact of the investigations on the financial statements is yet to be
concluded.

Based on investigations carried
out by an external legal firm, orders by SEBI and other information available
currently, as per the management all identified / required adjustments /
disclosures arising from the findings in the investigation report and the
orders by SEBI, were made in the consolidated financial statements for the year
ended 31^st March, 2018.

Matters included in the
investigation report (but not limited to) and highlighted by the predecessor
auditor in their audit report for the year ended 31^st March, 2018,
are as below:

Provisions against the
outstanding ICDs amounting to Rs. 44,503 lakhs (including interest accrued
thereon of Rs. 4,260 lakhs), provision of Rs. 5,519 lakhs towards amounts paid
as security deposit, advances towards lease of office space and expenditure
incurred towards capital work in progress and Rs. 2,549 lakhs towards property
advance (including interest accrued thereon of Rs. 174 lakhs) due to
uncertainty of recovery of these balances (refer to Note 29 and Note 30 of the
consolidated financial statements).

The company through its overseas
subsidiaries sold its investment held in a fund at a discount (money was
received on 23^rdApril 2018) which was recorded as a loss in the
consolidated financial statements for the year ended 31^st March,
2018. In the absence of sufficient information available, the rationale to
demonstrate the reasonability of the discount was not established [refer to
Note 30(c) and 31(b) of the consolidated financial statements].

Certain past transactions as
mentioned in Note 31 of the consolidated financial statements may have been
prejudicial to the group.

No additional adjustments /
disclosures were required to be made in the consolidated financial statements
for the year 31^st March, 2019 in respect of the above.

As explained
in Note 9(5) and Note 31(e) of the consolidated financial statements, related
party relationships prior to loss of control of erstwhile promoters / directors
in the year ended 31^st March, 2018 were identified by the management
taking into account the information available with the management and including
the findings and limitations in the investigation reports. In this regard,
specific declarations from the erstwhile directors / promoters, especially
considering the substance of the relationship rather than the legal form, were
not available. Therefore, the possibility cannot be ruled out that there may be
additional related parties of erstwhile promoters / directors whose
relationships may not have been disclosed to the group and, hence, not known to
the management.

Further, as
explained in Note 14 of the consolidated financial statements, a civil suit was
filed by a third party against various entities including the company relating
to ‘Fortis, SRL and La-Femme’ brands. The company has received four demand
notices aggregating to Rs. 25,344 lakhs in respect of this civil suit. The
allegations made by the third party have been duly responded to by the company,
denying (i) execution of any binding agreement with the third party; and (ii)
liability of any kind whatsoever. Based on legal advice of the external legal
counsel, the management believes that the claims are without legal basis and
not tenable. The matter is currently subjudice.

Due to the
ongoing nature of the various regulatory inquiries / investigations, we are
unable to comment on the adjustments / disclosures which may become necessary
as a result of further findings of the ongoing regulatory investigations on the
consolidated financial statements, including completeness / accuracy of the
related party transactions which relate to or which originated before 31^st
March, 2018, the regulatory non-compliances, if any, and the consequential
impact, if any, on the consolidated financial statements.

(ii) As explained in Note 29 and Note 30, during
the year ended 31^st March, 2018 interest income of Rs. 4,434 lakhs
comprising Rs. 4,260 lakhs (on the outstanding ICDs given) and Rs. 174 lakhs
(relating to property advance) had been recognised. A provision was, however,
created against the entire amount in the year ended 31^st March, 2018
and the provision was disclosed as an exceptional item. The recognition of the
aforesaid interest income as at 31^st March, 2018 on doubtful ICDs
and property advance is not in compliance with Ind AS 18 ‘Revenue’ (as it does
not meet the recognition criteria) and consequently interest income and the
provision for doubtful interest disclosed as exceptional items (net) are
overstated to that extent. It had no impact on loss for the year ended 31^st
March, 2018.

(iii) As explained in Note 34 of the consolidated
financial statements, during the year ended 31^st March, 2018, the
company having considered all necessary facts and taking into account external
legal advice, concluded that it had paid amount aggregating to Rs. 2,002 lakhs
to the erstwhile Executive Chairman during his tenure (ended during the year
ended 31^st March, 2018) in excess of the amounts approved by the
Central Government u/s 197 of the Companies Act, 2013 for his remuneration and
other reimbursements. This is accordingly a non-compliance with
the provisions of section 197 of the Companies Act, 2013. In the current year,
the company has taken requisite actions to
recover this amount. Due to the uncertainty involved in recoverability of the
said amounts, a provision for this amount has also been recorded.

(b) The
group has recorded a cumulative financial liability as at 31^st
March, 2019 of Rs. 118,000 lakhs (included under ‘other current financial
liabilities’) by debiting ‘other equity’ in respect of put option available
with certain non-controlling shareholders of SRL Limited [refer to Note 12(b)
of the consolidated financial statements]. The group has not quantified the
liability relating to previous periods and, therefore, we are unable to comment
on the impact of such liability for previous periods.

We conducted
our audit in accordance with the Standards on Auditing (SAs) specified u/s
143(10) of the Act. Our responsibilities under those SAs are further described
in the Auditor’s Responsibilities for the Audit of the Consolidated
Financial Statements section of our report. We are independent of the group
in accordance with the Code of Ethics issued by the Institute of Chartered
Accountants of India and we have fulfilled our other ethical responsibilities
in accordance with the provisions of the Act. We believe that the audit
evidence we have obtained is sufficient and appropriate to provide a basis for
our qualified opinion.

EMPHASIS OF MATTER

We draw
attention to the following matters in the Notes forming part of the
consolidated financial statements:

(a) Note
14(II) relating to outcome of income tax assessments in respect of Escorts
Heart Institute and Research Centre Limited (EHIRCL), one of the subsidiaries
in the group, regarding amalgamation of two societies and its subsequent
conversion to EHIRCL;

(b) Note
14(II) relating to the outcome of the civil suit / arbitrations with regard to
termination of certain land leases allotted by Delhi Development Authority
(DDA) and the matter related to non-compliance with the order of the Honourable
High Court of Delhi in relation to provision of free treatment / beds to the
poor by EHIRCL;

(c) Note
14(III) regarding matter relating to termination of hospital lease agreement of
Hiranandani Healthcare Private Limited, one of the subsidiaries in the group,
by Navi Mumbai Municipal Corporation (NMMC) vide order dated 18^th
January, 2018.

Based on the
advice given by external legal counsel, the likelihood of outflow in the above
litigations is remote and accordingly no provision / adjustment has been
considered necessary by the management with respect to the above matters in the
consolidated financial statements.

Our opinion
is not modified in respect of these matters.

KEY AUDIT MATTERS

Key audit
matters are those matters that, in our professional judgement, were of most
significance in our audit of the consolidated financial statements of the
current period. These matters were addressed in the context of our audit of the
consolidated financial statements as a whole, and in forming our opinion
thereon, and we do not provide a separate opinion on these matters.

In addition
to the matters described in the ‘Basis for Qualified Opinion’ paragraphs, we
have determined that the following are the key audit matters:

The key audit matter	How the matter was addressed in our audit
Accounting for acquisitions
As explained in Note 26 of the consolidated financial statements, the group acquired business of RHT Health Trust (formerly known as Religare Health Trust) for a consideration of Rs. 466,630 lakhs and on the basis of the preliminary purchase price allocation recorded goodwill of Rs. 180,070 lakhs The contractual arrangements for such transactions can be complex and require management to apply judgement in determining whether a transaction represents an acquisition of an asset or a business combination and there are estimates and judgements made in any such purchase price allocation	In view of the significance of the matter we evaluated the accounting for the acquisition, including: Assessed the judgements applied in determining whether this acquisition represented an acquisition of an asset or a business combination. This involved assessing whether or not the entities and the assets acquired constitute the carrying on of a business, i.e., whether there are inputs and processes applied to those inputs that have the ability to create outputs; Inspected the agreements to determine whether the appropriate intangible assets (including termination of pre-existing relationship) have been identified and that no unusual terms exist that have not been accounted for; The audit procedures in relation to consideration payable, accounting of fair valuation of the separately identifiable acquired assets and assumed liabilities; and
	Tested the valuation assumptions such as projected cash flows growth, discount and tax rates by reviewing assumptions used in such calculations and recalculating on sample basis In doing so we have involved independent valuation specialists to assist us in carrying out the aforesaid procedures as considered appropriate We have also evaluated the accounting and respective disclosures made in the consolidated financial statements
Goodwill and investment
As set out in Note 6(ii) and 6(iv), the group carries goodwill of Rs. 372,076 lakhs and investments in associates and joint ventures of Rs. 19,031 lakhs. Management performs an annual impairment review of goodwill as at 31^st March. Investments are tested for impairment in case an indicator of potential impairment is identified There are judgements used in this, such as forecast cash flows, discount rates and growth rates	We have assessed the group’s current and forecast performance and considered whether any other factors exist that would suggest that the goodwill / investment is impaired. We have performed the following procedures: Challenged management’s identification of Cash Generating Units (CGUs) against our understanding of the business and the definition as set out in the accounting standards; Assessed the appropriateness of the calculation of the value in use of each CGU and the associated headroom, performing recalculations to test the mechanical accuracy of those amounts; Forecast inputs and growth assumptions were compared against historical trends to assess the reliability of management’s forecast, in addition to comparing forecast assumptions to external market analysis; With the assistance of specialists, we compared the discount rate applied to the future cash flows and benchmarked it against other companies in the industry; and Performed sensitivity analysis In doing so we have involved our valuation specialists to assist us in carrying out aforesaid procedures as considered appropriate We have also evaluated the accounting and respective disclosures made in the consolidated financial statements
Legal matters
There are a number of threatened and actual legal, regulatory and tax cases against the group. These include those relating to land and related commitments, tax matters, claims made by or against the group on account of medical matters and other civil suits, etc. There is a high level of judgement required in assessing consequential impact and disclosures thereof on the consolidated financial statements Refer to Note 3 – Critical estimates and judgements; Note 6(xx) – Provisions; and Note 13 – Contingent liabilities and legal proceedings	Our procedures included the following: Testing key controls surrounding litigation, regulatory and tax cases; External legal opinions obtained by management and independent confirmations obtained by us; Reading correspondences including those of subsequent period; Discussing open matters with the management including, but not limited to, company legal counsel, tax teams, regional and financial teams; and Assessing and challenging management’s conclusions through understanding precedents set in similar cases Based on the evidence obtained, management’s assessment of such legal, regulatory and tax matters, the provision carried in the books of accounts in respect of such matters as on 31^st March, 2019 (while noting the inherent uncertainty of such matters) and related disclosures seem to be reasonable

The
key audit matter

How
the matter was addressed in our audit

Accounting for
acquisitions

As explained in Note 26
of the consolidated financial statements, the group acquired business of RHT
Health Trust (formerly known as Religare Health Trust) for a consideration of
Rs. 466,630 lakhs and on the basis of the preliminary purchase price
allocation recorded
goodwill of Rs. 180,070 lakhs

The contractual
arrangements for such transactions can be complex and require management to
apply judgement in determining whether a transaction represents an
acquisition of an asset or a business combination and there are estimates and
judgements made in any such purchase price allocation

In view of the
significance of the matter we evaluated the accounting for the acquisition,
including:

Assessed
the judgements applied in determining whether this acquisition represented an
acquisition of an asset or a business combination. This involved assessing
whether or not the entities and the assets acquired constitute the carrying
on of a business, i.e., whether there are inputs and processes applied to
those inputs that have the ability to create outputs;

Inspected the
agreements to determine whether the appropriate intangible assets (including
termination of pre-existing relationship) have been identified and that no
unusual terms exist that have not been accounted for;

The audit procedures in
relation to consideration payable, accounting of fair valuation of the
separately identifiable acquired assets and assumed liabilities; and

Tested the valuation
assumptions such as projected cash flows growth, discount and tax rates by
reviewing assumptions used in such calculations and recalculating on sample
basis

In doing so we have
involved independent valuation specialists to assist us in carrying out the
aforesaid procedures as considered appropriate

We have also evaluated
the accounting and respective disclosures made in the consolidated financial
statements

Goodwill and
investment

As set out in Note
6(ii) and 6(iv), the group carries goodwill of Rs. 372,076 lakhs and
investments in associates and joint ventures of Rs. 19,031 lakhs. Management
performs an annual impairment review of goodwill as at 31^st March.
Investments are tested for impairment in case an indicator of potential
impairment is identified

There are judgements
used in this, such as forecast cash flows, discount rates and growth rates

We have assessed the
group’s current and forecast performance and considered whether any other
factors exist that would suggest that the goodwill / investment is impaired.
We have performed the
following procedures:

Challenged management’s
identification of Cash Generating Units (CGUs) against our understanding of
the business and the definition as set out in the accounting standards;

Assessed the
appropriateness of the calculation of the value in use of each CGU and the
associated headroom, performing recalculations to test the mechanical
accuracy of those amounts;

Forecast inputs and
growth assumptions were compared against historical trends to assess the
reliability of management’s forecast, in addition to comparing forecast
assumptions to external market analysis;

With the assistance of
specialists, we compared the discount rate applied to the future cash flows
and benchmarked it against other companies in the industry; and

Performed sensitivity
analysis

In doing so we have
involved our valuation specialists to assist us in carrying out aforesaid
procedures as considered appropriate

We have also evaluated
the accounting and respective disclosures made in the consolidated financial
statements

Legal matters

There are a number of
threatened and actual legal, regulatory and tax cases against the group.
These include those relating to land and related commitments, tax matters,
claims made by or against the group on account of medical matters and other
civil suits, etc. There is a high level of judgement required in assessing
consequential impact and disclosures thereof on the consolidated financial
statements

Refer to Note 3 –
Critical estimates and judgements; Note 6(xx) – Provisions; and Note 13 –
Contingent liabilities and legal proceedings

Our procedures included
the following:

Testing key controls
surrounding litigation, regulatory and tax cases;

External legal opinions
obtained by management and independent confirmations obtained by us;

Reading correspondences
including those of subsequent period;

Discussing open matters
with the management including, but not limited to, company legal counsel, tax
teams, regional and financial teams; and

Assessing and
challenging management’s conclusions through understanding precedents set in
similar cases

Based on the evidence
obtained, management’s assessment of such legal, regulatory and tax matters,
the provision carried in the books of accounts in respect of such matters as
on 31^st March, 2019 (while noting the inherent uncertainty of such
matters) and related disclosures seem to be reasonable

Report on Other
Legal and Regulatory Requirements

1. As regards the matters to be
inquired by the auditors in terms of section 143(1) of the Act, we report, to
the extent applicable, as follows:

(a) As explained in Note 29 and
Note 31(d)(i) of the consolidated financial statements, FHsL, a wholly-owned
subsidiary of the company, has granted loans in the form of ICDs to three
borrower companies which were stated to have been secured at the time of grant
on 1^st July, 2017. However, it has been noted in the investigation
report that:

(i) there were certain systemic
lapses and override of internal controls including shortcomings in executing
documents and creating a security charge. The charge was later on created in
February, 2018 for the ICDs granted on 1^st July, 2017 while the
company / FHsL was under financial stress; and

(ii) there were certain systemic
lapses in respect of the assignment of the ICDs and subsequent termination of
the arrangement, viz., no diligence was undertaken in relation to assignment,
it was not approved by the Treasury Committee, and was antedated. The Board of
the subsidiary took note of the same only in February, 2018.

Further, we note from the
investigation report that the external legal firm was unable to assess as to
whether the security (charge) is realisable considering the nature of assets
held by the borrower companies.

In view of the above, we are
unable to comment whether aforesaid loans and advances made by the wholly-owned
subsidiary on the basis of security have been properly secured or whether they
are prejudicial to the interests of the group.

(b) In respect of the ICDs placed,
the investigation report has stated that a roll-over mechanism was devised
whereby the ICDs were repaid by cheque by the borrower companies at the end of
each quarter and fresh ICDs were released at the start of succeeding quarter
under separately executed ICD agreements. Further, in respect of the roll-overs
of ICDs placed on 1^st July 2017 with the borrower companies, FHsL
utilised the funds received from the company for the purposes of effecting
roll-over. We are unable to determine whether these transactions in substance
represent book entries or whether they are prejudicial to the interests of the
group as these were simultaneously debited and credited to the bank statement.

However, as explained in Note 29
to the consolidated financial statements, the company’s management has fully
provided for the outstanding balance of the ICDs and the interest accrued
thereon as at 31^st March, 2018.

(c) As explained in Note
31(d)(iv), during the year, the company through its subsidiary (i.e., Escorts
Heart Institute and Research Centre Limited or EHIRCL), acquired 71% equity
interest in Fortis Healthstaff Limited at an aggregate consideration of Rs.
3.46 lakhs. Subsequently, EHIRCL advanced a loan to Fortis Healthstaff Limited,
which was used to repay the outstanding unsecured loan amount of Rs. 794.50
lakhs to a promoter group company. Certain documents suggest that the loan
repayment by Fortis Healthstaff Limited and some other payments to the promoter
group company were ultimately routed through various intermediary companies and
used for repayment of the ICDs / vendor advance to FHsL / company.

Further as explained in Note
31(i), the company through its subsidiary (FHsL) acquired equity interest in
Fortis Emergency Services Limited from a promoter group company. On the day of
the share purchase transaction, FHsL advanced a loan to Fortis Emergency
Services Limited which was used to repay an outstanding unsecured loan amount
to the said promoter group company. It may be possible that the loan repayment
by Fortis Emergency Services Limited to the said promoter group company was
ultimately routed through various intermediary companies and was used for
repayment of the ICDs / vendor advance to FHsL.

With regard to the above
acquisitions, we are informed that pre-approval from the Audit Committee was
obtained for acquiring the equity interest, but not for advancing the loans to
these subsidiaries. Further, we understand that the aggregate of the amounts
paid towards acquisition of shares and the loans given were substantially
higher than the enterprise value of these companies at the time of acquisition,
as determined by the group.

In view of the above, we are
unable to determine whether these transactions are prejudicial to the interests
of
the group.

……

3. With respect to the other
matters to be included in the Auditor’s Report in accordance with Rule 11 of
the Companies (Audit and Auditor’s) Rules, 2014, in our opinion and to the best
of our information and according to the explanations given to us and based on
the consideration of the reports of the other auditors on separate financial
statements of the subsidiaries, associates and joint ventures, as noted in the
‘other matters’ paragraph:

(a) Except for the effects /
possible effects of matters described in paragraph (a)(i) of the ‘Basis for
Qualified Opinion’ section above, the consolidated financial statements
disclose the impact of pending litigations as at 31st March, 2019 on the
consolidated financial position of the group, its associates and joint ventures.
Refer Note 13 to the consolidated financial statements.

(b) Except for effects / possible
effects of the matters described in paragraph (a) of the ‘Basis for Qualified
Opinion’ section above, provision has been made in the consolidated financial
statements, as required under the applicable law or Ind AS, for material
foreseeable losses, if any, on long-term contracts including derivative
contracts. Refer Note 12(b), 6(xx) and 12(d) to the consolidated financial
statements.

(c) There were no amounts which
were required to be transferred to the investor education and protection fund
by the group. Refer Note 12(e) of the consolidated financial statements.

(d) The
disclosures in the consolidated financial statements regarding holdings as well
as dealings in specified bank notes during the period from 8^th
November, 2016 to 30^th December, 2016 have not been made in the
financial statements since they do not pertain to the financial year ended 31^stMarch, 2019.

From
Notes to Accounts

31. Investigation initiated by
the erstwhile Audit and Risk Management Committee:

(a) During the previous year
there were reports in the media and inquiries from, inter alia, the
stock exchanges received by the company about certain inter-corporate loans
(ICDs) given by a wholly-owned subsidiary of the company. The erstwhile Audit
and Risk Management Committee of the company in its meeting on 13^thFebruary,
2018 decided to carry out an independent investigation through an external
legal firm on this matter;

(b) The
terms of reference of the investigation, comprised: (i) ICDs amounting to a
total of Rs. 49,414 lakhs (principal), placed by the company’s wholly-owned
subsidiary, FHsL, with three borrowing companies as on 1^st July,
2017 (refer Note 29 above); (ii) the assignment of these ICDs to a third party
and the subsequent cancellation thereof as well as evaluation of legal notice
(now a civil suit) received from such third party (refer Notes 14I and 29
above); (iii) review of intra-group transactions for the period commencing FY
2014-15 and ending on 31^stDecember, 2017; (iv) investments made in
certain overseas funds by the overseas subsidiaries of the company [i.e.,
Fortis Asia Healthcare Pte. Ltd, Singapore and Fortis Global Healthcare
(Mauritius) Limited] {refer Note 30(c) above}; (v) certain other transactions
involving acquisition of Fortis Healthstaff Limited (Fortis Healthstaff) from
an erstwhile promoter group company, and subsequent repayment of loan by said
subsidiary to the erstwhile promoter group company;

(d) The re-constituted Board
discussed and considered the investigation report and noted certain significant
findings of the external legal firm, which are subject to the limitations on
the information available to the external legal firm and their qualifications
and disclaimers as described in their investigation report:

(i) While the investigation
report did not conclude on utilisation of funds by the borrower companies,
there are findings in the report to suggest that the ICDs were utilised by the
borrower companies for granting / repayment of loans to certain additional
entities including those whose current and / or past promoters / directors are
known to / connected with the erstwhile promoters of the company;

(ii) In terms of the relationship with the
borrower companies, there was no direct relationship between the borrower
companies and the company and / or its subsidiaries during the period December,
2011 to 14^th December, 2017 (these borrower companies became related
parties from 15^th December, 2017). The investigation report has made
observations where erstwhile promoters were evaluating certain transactions
concerning certain assets owned by them for the settlement of ICDs, thereby
indirectly implying some sort of affiliation with the borrower companies. The
investigation report has observed that the borrower companies could possibly
qualify as related parties of the company and / or FHsL, given the substance of
the relationship. In this regard, reference was made to Indian Accounting
Standards dealing with related party disclosures, which states that for
considering each possible related party relationship, attention is to be
directed to the substance of the relationship and not merely the legal form;

Objections on record indicate
that management personnel and other persons involved were forced into
undertaking the ICD transactions under the repeated assurance of due repayment
and it could not be said that the management was in collusion with the
erstwhile promoters to give ICDs to the borrower companies. Relevant documents
/ information and interviews also indicate that the management’s objections
were overruled. However, the former Executive Chairman of the company, in his
written responses, has denied any wrongdoing, including override of controls in
connection with grant of the ICDs;

(iii) Separately, it was also noted in the Investigation Report that the
aforesaid third party to whom the ICDs were assigned has also initiated legal
action against the company. (Refer Note 29). Whilst the matter was included as
part of the terms of reference of the investigation, the merits of the case
cannot be reported since the matter was subjudice;

(iv) During the previous year ended 31^st March, 2018, the
company through its subsidiary (Escorts Heart Institute and Research Centre
Limited or EHIRCL), acquired 71% equity interest in Fortis Healthstaff Limited
at an aggregate consideration of Rs. 3.46 lakhs. Subsequently, EHIRCL advanced
a loan to Fortis Healthstaff Limited which was used to repay the outstanding
unsecured loan amount of Rs. 794.50 lakhs to an erstwhile promoter group
company. Certain documents suggest that the loan repayment by Fortis
Healthstaff Limited and some other payments to the erstwhile promoter group
company may have been ultimately routed through various intermediary companies
and used for repayment of the ICDs / vendor advance to FHsL / EHIRCL. Further,
the said loan advanced by EHIRCL to Fortis Healthstaff Limited was impaired in
the books of accounts of EHIRCL due to anticipated chances of non-recovery
during the year ended 31^st March, 2019;

(v) The investigation did not cover all related party transactions
during the period under investigation and focused on identifying undisclosed
parties having direct / indirect relationship with the erstwhile promoter
group, if any. In this regard, it was observed in internal correspondence
within the company that transactions with certain other entities have been
referred to as related party transactions. However, no further conclusions have
been made in this regard;

(vi) Additionally, it was observed in the investigation report that
there were significant fluctuations in the NAV of the investments in overseas
funds by the overseas subsidiaries during a short span of time. Further, like
the paragraph above, in the internal correspondence within the company,
investments in the overseas funds have been referred to as related party
transactions. During the year ended 31^st March, 2018 investments
held in the Global Dynamic Opportunity Fund were sold at a discount of 10% with
no loss in the principal value of investments.

OTHER
MATTERS

(e) Related party relationships
as required under Ind AS 24 Related Party Disclosures and the Companies
Act, 2013 were as identified by the management taking into account the findings
and limitations in the investigation report [Refer Notes 31(d)(i), (ii) and
(vi) above] and the information available with the management. In this regard,
in the absence of specific declarations from the erstwhile directors on their
compliance with disclosures of related parties, especially considering the
substance of the relationship rather than the legal form, the related parties
were identified based on the declarations by the erstwhile directors and the
information available through the known shareholding pattern in the entities up
to 31^st March, 2018. Therefore, the possibility cannot be ruled out
that there may have been additional related parties whose relationship may not
have been disclosed to the group and, hence, not known to the management;

(f) With respect to the other
matters identified in the investigation report, the Board initiated specific
improvement projects to strengthen the process and control environment. The
projects included revision of authority levels, both operational and financial
and oversight of the Board, review of financial reporting processes, assessment
of secretarial documentation w.r.t. compliance with regulatory requirements and
systems design and control enhancement. The assessment work has been done and
corrective action plans have been implemented. The Board, however, continues to
evaluate other areas to strengthen processes and build a robust governance
framework. Towards this end, it is also evaluating internal organisational
structure and reporting lines, the roles of authorised representatives and
terms of reference of executive committees and their functional role. The
company’s Board of Directors has also initiated an inquiry of the management of
certain entities in the group that were impacted in respect of the matters
investigated by the external legal firm;

(g) It is in the above backdrop
that it is pertinent to mention that during the previous year the company
received a communication dated 16^th February, 2018 from the
Securities and Exchange Board of India (SEBI), confirming that an investigation
has been instituted by SEBI in the matter of the company. In the aforesaid
letter, SEBI required the company u/s 11C(3) of the SEBI Act, 1992 to furnish
by 26^thFebruary, 2018 certain information and documents relating to
the short-term investments of Rs. 473 crores reported in the media. SEBI had
appointed forensic auditors to conduct a forensic audit, and of collating
information from the company and certain of its subsidiaries. The company / its
subsidiaries furnished all requisite information and documents requested by
SEBI.

In
furtherance of the above, on 17^th October, 2018 SEBI passed an ex-parte
interim order whereby it observed that certain transactions were structured by
some identified entities over a certain duration, and undertaken through the
company, which were prima facie fictitious and fraudulent in nature and
which resulted in inter alia diversion of funds from the company for the
ultimate benefit of erstwhile promoters (and certain entities controlled by
them) and misrepresentation in financial statements of the company. Further, it
issued certain interim directions that inter alia directed the company
to take all necessary steps to recover Rs. 40,300 lakhs along with due interest
from erstwhile promoters and various other entities, as mentioned in the order.
More importantly, the said entities had also been directed to jointly and severally
repay Rs. 40,300 lakhs (approximately) along with due interest to the company
within three months of the order. Incidentally, the order also included FHsL as
one of the entities directed to repay the due sums. Pursuant to this, FHsL’s
beneficial owner account had been suspended for debits by the National
Securities Depository Limited and Central Depository Services (India) Limited.
Further, SEBI had also directed the said entities that pending completion of
investigation and till further order, they shall not dispose of or alienate any
of their assets or divert any funds, except for the purposes of meeting
expenses of day-to-day business operations, without the prior permission of
SEBI. The erstwhile promoters have also been directed not to associate themselves
with the affairs of the company in any manner whatsoever till further
directions. Parties named in the order had been granted opportunity for filing
their respective replies / objections within 21 days.

The company and its wholly-owned
subsidiary, Fortis Hospitals Limited (FHsL), had then filed applications for
modification of the order, for deletion of the name of FHsL from the list of
entities against whom the directions were issued. Pursuant to this, SEBI, vide
order dated 21^st December, 2018, modified its previous order dated
17^th October, 2018 deleting FHsL from the list of entities against
whom the order was directed. Pursuant to this, the suspension order by National
Securities Depository Limited for debits in beneficial owner account of FHsL was
accordingly removed. Vide an order dated 19^th March, 2019 SEBI has
confirmed the directions issued vide ad interim ex-parte order dated 17^th
October, 2018 read with order dated 21^stDecember, 2018 till further
orders. SEBI also directed the company and FHsL to take all necessary steps to
recover Rs. 40,300 lakhs along with due interest from the erstwhile promoters
and various other entities, as mentioned in the order.

The company and FHsL have filed
all necessary applications in this regard including an application with the
Recovery Officer, SEBI, u/s 28A of the Securities and Exchange Board of India
Act, 1992 for the recovery of the amounts owed by the erstwhile promoters and
various other entities to the company and FHsL.

The matter before SEBI is subjudice
and the investigation is ongoing, inasmuch as it has observed that a detailed
investigation would be undertaken to ascertain the role of each entity in the
alleged diversion and routing of funds. The Board of Directors is committed to
fully co-operating with the relevant regulatory authorities to enable them to
make a determination on these matters and to undertake remedial action, as may
be required, and to ensure compliance with applicable laws and regulations. In
the aforesaid context, proper and sufficient care has been taken for the
maintenance of adequate accounting records in accordance with the provisions of
the Act for safeguarding the assets of the company and for preventing and detecting fraud and other irregularities.

(h) As per the assessment of the
Board, based on the investigation carried out through the external legal firm,
the SEBI order and the information available at this stage, all identified /
required adjustments / disclosures arising from the findings in the
investigation report were made in the consolidated financial statements for the
year ended 31^stMarch, 2018.

No further adjustments have been
required to be made in consolidated financial statements for the year ended 31^st
March, 2019. Any further adjustments / disclosures, if required, would be made
in the books of accounts as and when the outcome of the above is known.

(i) In the backdrop of the
investigation, the management has reviewed some of the past information /
documents in connection with transactions undertaken by the company and certain
subsidiaries. It has been noted that the company through its subsidiary Fortis
Hospitals Limited (FHsL) acquired equity interest in Fortis Emergency Services
Limited from a promoter group company. On the day of the share purchase
transaction, FHsL advanced a loan to Fortis Emergency Services Limited, which
was used to repay an outstanding unsecured loan amount to the said promoter
group company. It may be possible that the loan repayment by Fortis Emergency
Services Limited to the said promoter group company was ultimately routed
through various intermediary companies and was used for repayment of the ICDs /
vendor advance to FHsL.

From
Directors’ Report

QUALIFIED
OPINION

We have audited the consolidated
financial statements of Fortis Healthcare Limited (hereinafter referred to as
the ‘company’ or ‘holding company’) and its subsidiaries (holding company and
its subsidiaries together referred to as ‘the group’), its associates and its
joint ventures, which comprise the consolidated balance sheet as at 31^st
March, 2019, the consolidated statement of profit and loss (including other
comprehensive income), consolidated statement of change in equity and
consolidated cash flow statement for the year then ended, and notes to the
consolidated financial statements, including a summary of significant
accounting policies and other explanatory information (hereinafter referred to
as ‘the consolidated financial statements’).

In our opinion and to the best of
our information and according to the explanations given to us, and based on the
consideration of the reports of auditors on separate financial statements of
such subsidiaries, associates and joint ventures as were audited by other
auditors, except for the effects / possible effects, if any, of the matters
described in the ‘Basis for Qualified Opinion’ paragraphs of our report , the
aforesaid consolidated financial statements give the information required by
the Companies Act, 2013 (the ‘Act’) in the manner so required and give a true
and fair view in conformity with the accounting principles generally accepted
in India, of the consolidated state of affairs of the group, its associates and
joint ventures as at 31^st March, 2019, of its consolidated profit
and other comprehensive income, consolidated statement of changes in equity and
consolidated cash flows for the year ended on that date.

Basis for
Qualified Opinion

(a) The matters
stated below were also subject matter of qualification in predecessor auditor’s
audit opinion on the consolidated financial statements as at 31^stMarch,
2018:

(i) As
explained in Note 31 of the consolidated financial statements, pursuant to
certain events / transactions, the erstwhile Audit and Risk Management
Committee (ARMC) of the company had initiated an independent investigation by
an external legal firm and special audits by professional firms on matters
relating to systematic lapses / override of internal controls as described in
Note 31 of the consolidated financial statements. The report has since been
submitted and is subject to the limitations on the information available to the
external legal firm and their qualifications and disclaimers as described in
their investigation report. Additionally, different regulatory authorities are
currently undertaking their own investigations, details of which are described
in Note 31 and Note 32 of the consolidated financial statements and are stated
below:

* SEBI has initiated an
investigation in respect of the various issues. On 17^th October,
2018, 21^st December, 2018 and
19^th March, 2019, SEBI passed orders and further investigations by
regulatory authorities is continuing. In its orders, SEBI observed that certain
inter-corporate deposits (ICDs) made by Fortis Hospitals Limited (FHsL), a
wholly-owned subsidiary of the company, with certain identified entities were
so structured that they seem to be prima facie fictitious and fraudulent
in nature resulting inter alia in diversion of funds from the group for
the ultimate benefit of erstwhile promoters (and certain entities controlled by
them) resulting in a misrepresentation in the financial statements of the group
in the earlier period. Further, SEBI issued certain directions inter alia
directing the company and FHsL to take all necessary steps to recover Rs.
40,300 lakhs along with the due interest from the erstwhile promoters and
various other entities, as mentioned in the orders. It has also directed the
erstwhile promoter and the said entities to repay the sums due. The aforesaid
ICDs were fully provided for in the books as at 31^st March, 2018.
SEBI in its orders also directed the erstwhile promoters and the said entities
that pending completion of investigation and till further order, they shall not
dispose of or alienate any of their assets or divert any funds, except for the
purposes of meeting expenses of the day-to-day business operations, without the
prior permission of SEBI. The erstwhile promoters have also been directed not
to associate themselves with the affairs of the company in any manner
whatsoever till further directions. The initial directions issued by SEBI have
been confirmed by SEBI in their order dated 19^thMarch, 2019.

* Serious Fraud Investigation
Office (SFIO), Ministry of Corporate Affairs, u/s 217(1)(a) of the Companies
Act, 2013, inter alia, has initiated an investigation and has been
seeking information in relation to the company, its material subsidiaries,
joint ventures and associates to which, as informed to us, the company has
responded.

Since the investigation and
inquiries carried out by the regulators as aforesaid are currently ongoing, the
need for additional procedures / inquiries, if any, and an overall assessment
of the impact of the investigations on the financial statements is yet to be
concluded.

Matters
included in the investigation report (but not limited to) and highlighted by
the predecessor auditor in their audit report for the year ended 31^st
March, 2018 are as below:

* Provisions
against the outstanding ICDs amounting to Rs. 44,503 lakhs (including interest
accrued thereon of Rs. 4,260 lakhs), provision of Rs. 5,519 lakhs towards
amounts paid as security deposit, advances towards lease of office space and
expenditure incurred towards capital work in progress and Rs. 2,549 lakhs
towards property advance (including interest accrued thereon of Rs. 174 lakhs)
due to uncertainty of recovery of these balances (refer to Note 29 and 30 of
the of the consolidated financial statements).

* The company through its
overseas subsidiaries sold its investment held in a fund at a discount (money
was received on 23^rdApril, 2018) which was recorded as a loss in
the consolidated financial statements for the year ended 31^st March,
2018. In absence of sufficient information available, rationale to demonstrate
the reasonability of the discount was not established [refer to Note 30(c) and
31(b) of the consolidated financial statements].

* Certain past transactions as
mentioned in the Note 31 of the consolidated financial statements which may
have been prejudicial to the group.

No additional adjustments /
disclosures were required to be made in the consolidated financial statements
for the year 31^st March, 2019 in respect of the above.

As explained in Note 9(5) and
Note 31(e) of the consolidated financial statements, related party
relationships prior to loss of control of erstwhile promoters / directors in
the year ended 31^st March, 2018 were identified by the management
taking into account the information available with the management and including
the findings and limitations in the investigation reports. In this regard,
specific declarations from the erstwhile directors / promoters, especially
considering the substance of the relationship rather than the legal form, were
not available. Therefore, the possibility cannot be ruled out that there may be
additional related parties of the erstwhile promoters / directors whose
relationships may not have been disclosed to the group and, hence, not known to
the management.

Further, as explained in Note 14
of the consolidated financial statements, a civil suit was filed by a third
party against various entities including the company relating to ‘Fortis, SRL
and La-Femme’ brands. The company has received four demand notices aggregating
to Rs. 25,344 lakhs in respect to this civil suit. Allegations made by third
party have been duly responded to by the company denying (i) execution of any
binding agreement with the third party; and (ii) liability of any kind
whatsoever. Based on legal advice of the external legal counsel, the management
believes that the claims are without legal basis and not tenable. The matter is
currently subjudice.

Due to the ongoing nature of the
various regulatory inquiries / investigations, we are unable to comment on the
adjustments / disclosures which may become necessary as a result of further
findings of the ongoing regulatory investigations on the consolidated financial
statements including completeness / accuracy of the related party transactions
which relate to or which originated before 31^st March, 2018, the
regulatory non-compliances, if any, and the consequential impact, if any, on
the consolidated financial statements.

(ii) As explained in Note 29 and
Note 30 during the year ended 31^st March, 2018 interest income of
Rs. 4,434 lakhs comprising Rs. 4,260 lakhs (on the outstanding ICDs given) and
Rs. 174 lakhs (relating to property advance) had been recognised. A provision
was, however, created against the entire amount in the year ended 31^st
March, 2018 and the provision was disclosed as an exceptional item. The
recognition of aforesaid interest income as at 31^st March, 2018 on
doubtful ICDs and property advance is not in compliance with Ind AS 18
‘Revenue’ (as it does not meet the recognition criteria) and consequently
interest income and the provision for doubtful interest disclosed as
exceptional items (net) are overstated to that extent. It had no impact on loss
for the year ended 31^stMarch, 2018.

(iii) As explained in Note 34 of
the consolidated financial statements, during the year ended 31^st
March, 2018, the company having considered all necessary facts and taking into
account external legal advice, concluded that it had paid an amount aggregating
to Rs. 2,002 lakhs to the erstwhile Executive Chairman during his tenure (ended
during the year ended 31^stMarch, 2018) in excess of the amounts
approved by the Central Government u/s 197 of the Companies Act, 2013 for his
remuneration and other reimbursements. This is accordingly a non-compliance
with the provisions of section 197 of the Companies Act, 2013. In the current
year, the company has taken requisite actions to recover this amount. Due to
the uncertainty involved in recoverability of the said amounts, a provision for
this amount has also been recorded.

(b) The group has recorded a
cumulative financial liability as at 31^st March, 2019 of Rs. 118,000
lakhs (included under ‘other current financial liabilities’) by debiting ‘other
equity’ in respect of put option available with certain non-controlling
shareholders of SRL Limited [refer to Note 12(b) of the consolidated financial
statements]. The group has not quantified the liability relating to previous
periods and, therefore, we are unable to comment on the impact of such
liability on previous periods.

DIRECTOR’S
RESPONSE TO COMMENTS OF THE STATUTORY AUDITORS IN THE AUDIT REPORT:

(i) With regard to the comments
of the statutory auditors in paragraph a(i) of the ‘Basis for Qualified Opinion
of Audit Report’, pertaining to the investigation report, it is submitted that,
based on the investigation carried out by the external legal firm, SEBI interim
orders dated 17^thOctober, 2018 and 21^st December, 2018
and confirmed vide order dated 19^th March, 2019 and the information
available at this stage, all identified / required adjustments / disclosures
arising from the findings in the investigation report, were made in the
previous year. Further, the Board initiated specific improvement projects
during current year to strengthen the process and control environment. The
Board continues to evaluate other areas to strengthen processes. Further,
investigations by various regulatory authorities are yet to be completed. With
regard to other comments, all identified adjustments / disclosures have been
made. For more details please refer to Notes 14, 29, 30, 31, 21 to financial
statements;

(ii) With regard to the comments of the statutory auditors in
paragraph a(ii) of the ‘Basis for Qualified Opinion of Audit Report’, there was
no impact on the net income for the previous year;

(iii) With regard to the comments of the statutory auditors in paragraph
a(iii) of the ‘Basis for Qualified Opinion of Audit Report’, pertaining to the
LoA issued to the erstwhile Executive Chairman, the company, having considered
all necessary facts, has decided to treat as non-est the LoA issued to
the erstwhile Executive Chairman and is taking suitable legal measures to
recover the payments made to him under the LoA as well as all the company’s
assets in his possession. For more details, please refer to Note 34 to
financial statements.

(iv) With regard to the comments of the statutory auditors in paragraph
b, of the ‘Basis for Qualified Opinion of Audit Report’ in relation to put
options granted to certain non-controlling shareholders of the subsidiary, due
to contractual agreement, facts and circumstances of the case at that time, the
group considered not to recognise this liability in the previous year.

The statement on Impact of Audit
Qualifications as stipulated in regulation 33(3)(d) is placed below:

Qualifications
in the Auditor’s Report

The Board of Fortis Healthcare
Limited has dealt with the matters stated in the qualifications in statutory
auditor’s report on the consolidated financial results of Fortis Healthcare
Limited (the ‘parent’ or ‘the company’) and its subsidiaries (the parent /
company and its subsidiaries together referred to as ‘the group’) and its share
of profit / (Loss) of its joint ventures and associates for the year ended 31^st
March, 2019 (the consolidated annual results) included in the statement of
consolidated financial results (the consolidated statement) to the extent
information was available with them.

(Rs. in lakhs)
1	Turnover / total income	456,176	Not determinable
2	Total expenditure	478,547	—Do—
3	Net profit/ (loss)	(22,371)	—Do—
4	Earnings per share	(3.70)	—Do—
5	Total assets	1,195,127	—Do—
6	Total liabilities	483,878	—Do—
7	Net worth	711,249	—Do—
8	Any other financial item(s) [as felt appropriate by the management]	–	–

(Rs.
in lakhs)

Sl.
No.

Particulars

Audited
figures (as reported before adjusting for qualifications)

Adjusted
figures (audited figures after adjusting for qualifications)^$

Turnover
/ total income

456,176

Not
determinable

Total
expenditure

478,547

—Do—

Net
profit/ (loss)

(22,371)

—Do—

Earnings
per share

(3.70)

—Do—

Total
assets

1,195,127

—Do—

Total
liabilities

483,878

—Do—

Net
worth

711,249

—Do—

Any
other financial item(s) [as felt appropriate by the management]

–

“$” for
Qualifications a to b of the Auditor’s Report

QUALIFICATION 1
OF THE AUDITOR’S REPORT

1. Details of audit
qualification:

As explained in basis of
qualification a(i) above;

2. Type of audit
qualification:

Qualified opinion;

3. Frequency of qualification:

Second time;

4. For Audit qualification(s) where
the impact is quantified by the auditor, management’s views:

Not applicable;

5. For audit qualification(s)
where the impact is not quantified by the auditor:

(i) Management’s estimation on
the impact of audit qualification: Not quantifiable;

(ii) If management is unable
to estimate the impact, reasons for the same:

Please refer point No. (i) above
of Director’s response to comments of the statutory auditors in the Audit
Report;

(iii) Auditors’ comments on
(i) or (ii) above:

Due to the nature of various
regulatory inquiries / investigations, the consequential impact, if any, cannot
be ascertained.

QUALIFICATION 2
OF THE AUDITOR’S REPORT

1. Details of audit
qualification:

As explained in basis of
qualification a(ii);

2. Type of audit
qualification:

Qualified opinion;

3. Frequency of qualification:

Second time;

4. For Audit qualification(s)
where the impact is quantified by the auditor, management’s views:

Please refer point No. (ii) above
of Director’s response to comments of the statutory auditors in the Audit
Report.

5. For audit qualification(s)
where the impact is not quantified by the auditor:

(i) Management’s estimation on
the impact of audit qualification:

No impact in the current year
2018-19;

(ii) If management is unable
to estimate the impact, reasons for the same:

Not applicable;

(iii) Auditors’ comments on
(i) or (ii) above:

Not applicable.

QUALIFICATION 3
OF THE AUDITOR’S REPORT

1. Details of audit
qualification:

As explained in the basis of
qualification a(iii) above;

2. Type of audit
qualification:

Qualified opinion;

3. Frequency of qualification:

Second time;

4. For audit qualification(s)
where the impact is quantified by the auditor, management’s views:

Not applicable;

5. For audit qualification(s)
where the impact is not quantified by the auditor:

(i) Management’s estimation on
the impact of audit qualification:

Not quantifiable;

(ii) If management is unable
to estimate the impact, reasons for the same:

Please refer point No. (iii)
above of Director’s response to comments of the statutory auditors in the Audit
Report;

(iii) Auditors’ comments on
(i) or (ii) above:

A continuing qualification from
previous year as non-compliance with section 197 of the Companies Act, 2013 is
pending to be regularised.

QUALIFICATION 4
OF THE AUDITOR’S REPORT

1. Details of audit
qualification:

As explained in basis of
qualification (b) above;

2. Type of audit
qualification:

Qualified opinion

3. Frequency of qualification:

First time;

4. For audit qualification(s)
where the impact is quantified by the auditor, management’s views:

Not applicable;

5. For audit qualification(s)
where the impact is not quantified by the auditor:

(i) Management’s estimation on
the impact of audit qualification:

Not quantifiable;

(ii) If management is unable
to estimate the impact, reasons for the same:

Please refer point No. (iv) above
of Director’s response to comments of the statutory auditors in the
Audit Report;

(iii) Auditors’ Comments on
(i) or (ii) above:

In our view, based on contractual
agreement and facts available, the group is required to recognise liability of
this put option in earlier years.

BCAJ Admin

FROM THE PRESIDENT

Dear Members,

Welcome back after a long and
exhausting tax audit filing season and the refreshing Diwali break.

As per the 2020 edition of World
Bank’s Ease of Doing Business ranking, India jumped 14 places to 63 in the
overall ranking, riding on the sustained business and economic reforms
undertaken by the government over the past several years. India has climbed 79
positions in the last five years and has been among the top ten performers for
the third year running. According to reports, India improved its ranking on
seven out of ten indicators tracked by the World Bank with the highest 56-place
jump to 52 in resolving insolvency. The lowest gain was with regard to starting
a business. PM Narendra Modi had, in 2014, set a target of breaking into the
top 50 by 2020. We are hopeful and confident that this will indeed be achieved.
This will help us in attracting foreign investment, boosting the sluggish
economy and thereby enhancing the country’s overall competitiveness.

On a different note, I also came
across another world ranking on a diverse parameter. According to the Global
Hunger Index 2019 Report, India ranked 102 out of 117 countries in the Global
Hunger Index (GHI) 2019, placed below its South Asian neighbours such as Nepal,
Bangladesh and Pakistan. This report suggests, ‘India is suffering from a
serious hunger problem’. In 2014, India’s ranking was 55 out of 76 countries,
which has worsened in 2019 to 102 out of 117. It is ironical that we are making
all-out efforts on the economic fronts but are lagging behind in taking care of
the basic necessity of life, i.e., food. I am sure the government has taken
cognisance and will take all the necessary corrective steps for the well-being
of our fellow countrymen.

Recently, the ICAI announced that it
had come to its notice that certain members in practice were listing their
services with certain online application-based service provider aggregators,
wherein other business persons, technicians, maintenance workers, event
organisers, etc. were also listed. ICAI cited that subject to fulfilment of
certain conditions and guidelines, publication of name or firm name by
Chartered Accountants in the telephone or other such directories published by
telephone authorities or private bodies is permissible. However,
application-based service provider aggregators are not covered in this
category. Therefore, it is not permissible for members to list themselves with
such aggregators. Members are advised not to be tempted by any such offers and
refrain from listing their or their firm’s name or services on such websites or
mobile applications.

Our society has announced two marquee
events which are open for enrolment. The first-ever Internal Audit Residential
Refresher Course (RRC) is planned for 21^st and 22^nd
November at Lonavala with the theme ‘Let’s Converge’. It’s for the first time
that such an event is being organised specifically for internal audit
professionals; we have a galaxy of distinguished paper writers on various
topics, which would help them to become better internal auditors. The flagship
53^rd RRC has also been announced. It will be held in Tirupati
between 9^th and 12^th January, 2020. Its theme is
‘Emerging Areas of Practice’, apart from routine papers on direct tax and a
multi-disciplinary panel discussion. Refer to the website and event
announcements for other details. Members are requested to enrol for these
events, which also provide an excellent networking opportunity.

On 21^st October, 2019 our
Society lost one of its most respected and illustrious Past Presidents, Kahan
Chand Narang, or Narang Saheb as he was popularly called. He was the President
in 1992-93, but his association with and contributions to its activities go
back decades before that. Apart from other Committees, he was an integral part
of the Accounting & Auditing and Journal Committees to which his
contributions have been invaluable. His ideas and suggestions have also been
vital for the Editorial Board of the BCAJ, of which he was a member for
more than two decades. He was a thorough professional and a perfectionist. A
man ahead of his times, he had a passion for reading and research. He always
had the interest of the Society and inspired many young members to take up
leadership positions. On a personal front, I was very fortunate to have known
and worked with Narang Saheb for almost 25 years; in fact, he was the person
who introduced me to this wonderful organisation. May his soul rest in eternal
peace. We will deeply miss you, Sir.

With Best Regards,

CA Manish Sampat

President

BCAJ Admin

GLIMPSES OF SUPREME COURT RULINGS

2. Commissioner of Income Tax vs. Laxman Das
Khandelwal (2019) 416 ITR 485 (SC)

Assessment – Entire
assessment proceedings stand vitiated as the AO lacks jurisdiction in absence
of notice u/s 143(2) of the Act – The scope of the provision of section 292BB
is to make service of notice having certain infirmities to be proper and valid
if there was requisite participation on part of the assessee but the section
does not save complete absence of notice

The assessee, an
individual, was carrying on a business of brokerage. Search and seizure operation
was conducted u/s 132 of the Act on 11^th March, 2010 at his
residential premises. The assessee submitted return of income on 24^th
August, 2011, declaring total income of Rs. 9,35,130. The assessment was
completed u/s 143(3) read with section 153(D) of the Act. A sum of Rs. 9,09,110
was added on account of unexplained cash u/s 69 of the 1961 Act. Another sum of
Rs. 15,09,672 was added on account of unexplained jewellery; Rs.45,00,000 was
added on account of unexplained hundies; and Rs. 29,53,631 was added on
account of unexplained cash receipts.

Aggrieved, the assessee
filed an appeal before the Commissioner of Income Tax (Appeals). The CIT(A)
deleted an amount of Rs. 7,48,463 holding that jewellery found in locker
weighing 686.4 grams stood explained in view of Circular No. 1916 and further
deleted the addition of Rs. 29,23,98,117 out of Rs. 29,53,52,631 holding that
the correct approach would be to apply the peak formula to determine in such
transaction which comes to Rs. 29,54,514 as on 5^th March, 2010.

Aggrieved, Revenue filed
an appeal. The assessee filed cross-objection on the ground of jurisdiction of
the AO regarding non-issue of notice u/s 143(2) of the Act. The Tribunal upheld
the cross-objection and quashed the entire reassessment proceedings on the
finding that the same stood vitiated as the AO lacked jurisdiction in absence
of notice u/s 143(2) of the Act.

In an appeal arising
from the decision of the Tribunal, the issue that arose before the High Court
was the effect of absence of notice u/s 143(2) of the Act. The assessee relied
upon the decision of the Supreme Court in Assistant Commissioner of
Income Tax and Anr. vs. Hotel Blue Moon (2010) 321 ITR 362 (SC). On the
other hand, reliance was placed by the Revenue on the provisions of section
292BB of the Act to submit that the respondent having participated in the
proceedings, the defect, if any, stood completely cured.

The
High Court dismissed the appeal in view of the decision of the Supreme Court in
Hotel Blue Moon (Supra).

According to the Supreme
Court, the law on the point as regards applicability of the requirement of
notice u/s 143(2) of the Act was quite clear from the decision in the Blue
Moon case. However, the issue that needed to be considered was the
impact of section 292BB of the Act.

The Supreme Court
observed that according to section 292BB of the Act, if the assessee had
participated in the proceedings, by way of legal fiction, notice would be
deemed to be valid even if there be infractions as detailed in the said
section. The scope of the provision is to make service of notice having certain
infirmities to be proper and valid if there was requisite participation on part
of the assessee. According to the Supreme Court, the section does not save
complete absence of notice. For section 292BB to apply, the notice must have
emanated from the Department. It is only the infirmities in the manner of
service of notice that the section seeks to cure. The section is not intended
to cure complete absence of notice itself.

The
Supreme Court held that since the facts on record were clear that no notice u/s
143(2) of the Act was ever issued by the Department, the findings rendered by
the High Court and the Tribunal and the conclusion arrived at were correct.
Therefore, there was no reason to take a different view in the matter. The
appeal was, therefore, dismissed.

3. Prashanti Medical
Services and Research Foundation vs. Union of India (UOI) and Others (2019) 416
ITR 485 (SC)

Business Expenditure –
Donations to notified eligible projects and schemes – Neither the appellant nor
the assessee has any right to set up a plea of promissory estoppel
against the exercise of legislative power such as the one exercised while
inserting sub-section (7) in section 35AC of the Act, more so when it was made
applicable uniformly to all alike the appellant prospectively – No deduction
could be allowed to an assessee either for the period 2017-2018 or for any
subsequent period for any amount received by the appellant from such assessee
for their project

The appellant is a
charitable trust registered under the provisions of the Bombay Public Trust
Act, 1950. It set up a heart hospital in Ahmedabad. The project began in the
year 2014 (on 5^th May, 2014).

On
27^th September, 2014, the appellant filed an application u/s 35AC of
the Act before the National Committee for Promotion of Social and Economic
Welfare, Department of Revenue, North Block, New Delhi (‘the Committee’) for
grant of approval to their hospital project as specified in section 35AC of the
Act so as to enable any ‘assessee’ to incur expenditure by way of making
payment of any amount to the appellant for construction of their approved
hospital project and accordingly claim appropriate deduction of such payment
from their total income during the previous year. Like the appellant, several
persons, as specified in section 35AC of the Act, also made applications to the
Committee for grant of approval to their hospital projects.

A notification was
issued by the Government of India on 7^th December, 2015 mentioning
therein that the Committee has approved 28 projects as ‘eligible projects’ u/s
35AC of the Act. The name of the appellant appeared at serial No. 10 in the
said notification.

According to the
appellant, they received amounts by way of donation from several assessees
during the years 2015-2016, 2016-2017 and 2017-18. These assessees then claimed
deduction of the amounts, which they had donated for the hospital project, from
their total income.

The benefit of claiming
deduction was, however, discontinued from the assessment year 2018-2019 by
insertion of sub-section (7) in section 35AC of the Act by the Finance Act,
2016 with effect from 1^st April, 2017.

The appellant in the petition
questioned the constitutional validity of sub-section (7) of section 35AC of
the Act inter alia on the ground that once the Committee granted
approval to the appellant’s hospital project for a period of three financial years,
the same could not be withdrawn qua the appellant on the strength of
insertion of sub-section (7) in section 35AC of the Act. In other words, the
challenge was on the ground that sub-section (7) of section 35AC was
essentially prospective in nature and, therefore, it would have no application
to those projects which were approved by the Committee prior to insertion of
sub-section (7), i.e., 1^st April, 2017. The challenge was also on
the ground that the Revenue could not apply sub-section (7) retrospectively and
withdraw the benefits, whether fully or partially, which were approved to the
appellant. It was, therefore, contended that the appellant and the assessees
should be held entitled to avail the full benefit for the three financial years
in terms of the notification dated 7^th December, 2015.

The High Court, in the
impugned order, repelled the challenge and while upholding the pleas raised by
the respondent (Revenue) dismissed the appellant’s petition, which gave rise to
filing of the appeal before the Supreme Court by the appellant after obtaining
special leave from the Court.

The Supreme Court noted
that one of the main objects for which section 35AC was enacted was to allow
the assessees to claim deduction of the amount paid by them to the appellant
for their project. It observed that none of the assessees (donees), who claimed
to have paid amounts to any eligible projects, came forward complaining that
despite their donating the amount to the appellant for his project they were
denied the benefit of claiming deduction of such amount from their total income
by virtue of sub-section (7) of section 35AC of the Act during the financial
year 2017-2018.

The Supreme Court noted
that the benefit of the deduction available u/s 35AC of the Act was duly
availed of by all the assessees for two financial years, namely, 2015-2016 and
2016-2017. The dispute was confined only to the third financial year, i.e.,
2017-2018, because for that year, the assessees were not allowed to claim
deduction of the amount paid by them to the appellant on account of insertion
of sub-section (7) in section 35AC of the Act with effect from 1^st
April, 2017.

The Court was of the
view that sub-section (7) was prospective in its operation and, therefore, all
the assessees were rightly allowed to claim deduction of the amount paid by
them to eligible projects from their total income during two financial years,
namely, 2015-2016 and 2016-2017. If sub-section (7) had been retrospective in
its operation then the deduction for 2015-2016 and 2016-2017, too, would have
been disallowed.

The Supreme Court held
that a plea of promissory estoppel is not available to an assessee
against the exercise of legislative power, nor any vested right accrues to an
assessee in the matter of grant of any tax concession to him. In other words,
neither the appellant nor the assessee has any right to set up a plea of
promissory estoppel against the exercise of legislative power such as
the one exercised while inserting sub-section (7) in section 35AC of the Act,
more so when it was made applicable uniformly to all alike the appellant
prospectively.

According to the Supreme
Court no deduction could be allowed to an assessee either for the period
2017-2018 or for any subsequent period for any amount received by the appellant
from such assessee for their project.

The
Supreme Court observed that in a taxing statute, a plea based on equity or /
and hardship is not legally sustainable. The constitutional validity of any
provision and especially taxing provision cannot be struck down on such
reasoning.

The Supreme Court
dismissed the appeal finding it to be without any merit.

BCAJ Admin

FROM THE PRESIDENT

Dear Members,

General Elections are just
around the corner. The role of elections in ensuring a vibrant democracy and a
progressing nation cannot be underplayed. For the incumbent government,
elections present an opportunity to showcase their achievements and also promise
a path of continuity of policies. For the opposition, elections present an
opportunity to highlight the shortcomings of the incumbent government and offer
an alternative narrative towards various policies. In a sense, the elections
have the potential of acting as a reality check. As citizens, we regularly
voice our support or concerns to various initiatives (or the lack of them!) of
the government. At times, we feel frustrated that our voices go unheard. To
citizens, elections present a once in five years (subject to certain
exceptions!) opportunity to make their voices heard. How can we miss this
opportunity? Actually, it is not just an opportunity, it is our duty towards
the nation.

In a crowd of conflicting
noises and opinions, it is easy to get disillusioned, either due to
disagreement with policies or inability to see immediate outcome of the
policies. At the same time, not having many superlative alternatives may also
make one think whether there is really a choice and whether one vote matters?
Having an election day near a weekend may entice one to make simple choice of
enjoying a vacation. For the sceptics who believe that one vote may not matter,
let me remind them that each drop builds up the ocean. As accountants, we like
numbers. So let me draw up some eye-opening statistics from the General
Elections 2014 – in a whopping 524 constituencies, the vote margin of the
winning candidate was less than number of voters who did not turn up for
voting. While it is too ambitious to assume that everyone from the nation would
vote, even if 50% of the non-voters would have additionally voted over and
above those who actually voted, 427 constituencies could have reported a
different scenario since the vote margins there were less than even 50% of the
non-voters. Dilute this to 25% additional turnout of non-voters, one would
still see 240 impacted constituencies. In the past, we have seen political
parties with less than these many numbers calling the roost with other
coalition partners. In my view, these are eye opening numbers to suggest that
the biggest damage is done to the nation by voter apathy. The sum and substance
of the message is very clear – Come what may, Vote we must.

Closer to our profession,
the BCAS had the opportunity of an interaction with the newly elected
torch-bearers of the Institute-President Shri Prafulla Chajjed, Vice President
Shri Atul Kumar Gupta and Chairperson of WIRC Smt. Priti Savla. The meeting was
very fruitful and many issues of topical interest were discussed. BCAS
congratulates all of them and reiterates its commitment to complement the
efforts of the Institute towards long term development of the profession.

The month of March
witnessed varied activities and events at the Society–starting with an RRC on
Ind As, followed by two lecture meetings covering recent decisions in direct
taxes and Banning of Unregulated Deposits Scheme respectively, a series of
study circle meetings and workshops, a four-day intensive study course on FEMA,
two-day Company Law Conclave and a full-day Tech Summit were events cherished
by the members at large. The Society also felicitated rank holders and new
entrants to the profession. Acknowledging its responsibility towards the
Society, a Blood Donation Camp was organised, which also received good response.
The Journal Committee celebrated the occasion of completing 50 years of the
BCAJ with a bang and felicitated various feature writers and editors.

Though the financial year
has come to a close, the activities at BCAS continue unfettered. The JOSH is
high – the organising teams have planned the GST RRC at Vadodara, the Youth RRC
is also announced and the preparation for the annual student event Tarang is in
its final stages. It is the members’ enthusiasm and whole hearted participation
which motivates the organising teams of the volunteers to devote their time,
effort and energy to make each event more memorable than the earlier one. I
would urge all of you to participate in these events and contribute towards the
collective growth of the profession.

The membership for the
Society was due for renewal by 31^st March and reminders were sent a
couple of months ago. In your busy schedule, if you have missed out on your
renewals, I would request you to kindly renew the membership at the earliest.

Please
feel free to write to me at president@bcasonline.org

Regards

CA.
Sunil Gabhawalla

President

BCAJ Admin

CORPORATE LAW CORNER

Ramco Systems Ltd. vs. SpiceJet Ltd.

[2019] 105 taxmann.com 175 (NCLAT)

Company Appeal (AT) (Insolvency) No.
31
of 2018
Date of order: 8^th May, 2019

Section 9 of the Insolvency and Bankruptcy Code, 2016 – When
Operational creditor could not establish that invoices in respect of debt due
and payable were actually forwarded to the corporate debtor and received by it,
claim u/s. 9 could not be maintained for want of consistency and clear
documentation of debt due

FACTS

R Co entered into “Aviation Software Solutions Agreements”
dated 13.05.2013 consisting of four agreements, all of even date, with S Co.
There were certain amendments made on 01.07.2014 which reduced the number of
authorised licences, amongst others.

By an email sent on 19.01.2016, R Co submitted that an amount
of Rs. 62.89 lakhs was payable and an invoice of the same was intimated to S Co
by email on that day. The invoices relate to documents dated 30.05.2013 and
23.07.2014. S Co, on the other hand, submitted that all the claims depended on
invoices raised in the year 2013-14 and were barred by limitation.

Next, R Co issued a demand notice u/s. 8(1) on 24.04.2017
without attaching the invoices relating to the debt which was payable. S Co, on
the other hand, claimed that it never received the invoices in question.

R Co filed an application with the NCLT u/s. 9 of the Code.
NCLT dismissed the said petition on the grounds of inconsistency in the overall
payments and the non-compliance with the provisions of section 9(3)(c) by the
“Operational Creditor”. NCLT further observed that S Co had made certain
payments to R Co. R Co then filed an appeal before the NCLAT.

HELD

The Appellate Tribunal held that there was no record to show
that invoices dated 23.07.2014 were received or forwarded to S Co. Therefore,
the demand notice issued on 24.04.2017 as related to invoice dated 23.07.2014,
though it cannot be held to be barred by limitation, but in absence of specific
evidence relating to invoices actually forwarded by R CO and there being a
doubt, it was held that the NCLT had rightly refused to entertain the
application u/s. 9 which required strict proof of debt and default.

It was further held that this order would not come in the way
of R Co to move before a court of competent jurisdiction for appropriate
relief.

JK Jute Mill Mazdoor Morcha vs.
Juggilal Kamlapat Jute Mills Company Ltd.

[2019] 105 taxmann.com 1 (SC)

Civil Appeal No. 20978 of 2017

Date of order: 30^th
April, 2019

Section 5(20) of the Insolvency and Bankruptcy Code, 2016
– Registered trade unions qualify as “person” within the meaning of section
3(23) – The statement that there were no services rendered by them to the
corporate debtor was of no significance – Registered trade unions represent
their members who are workers, to whom dues may be owed by the employer –
Registered trade unions can thus qualify as operational creditors that are
capable of filing and maintaining a petition on behalf of their members

FACTS

J Co was a jute mill that was closed and reopened several
times until, finally, it was closed for good on 07.03.2014. Proceedings were
pending under the Sick Industrial Companies (Special Provisions) Act, 1985. On
14.03.2017, JM being the trade union of J Co, issued a demand notice on behalf
of roughly 3,000 workers u/s. 8 of the Insolvency and Bankruptcy Code, 2016
(“the Code”) for outstanding dues of workers. J Co replied to the same on
31.03.2017. The National Company Law Tribunal (“NCLT”) dismissed the petition
filed by JM on the grounds that a trade union was not an operational creditor.
On 12.09.2017, the National Company Law Appellate Tribunal (“NCLAT”) followed
suit and dismissed the appeal filed by JM.

Aggrieved, JM filed an
appeal before the Supreme Court. It was their contention that a trade union
being a person would qualify as an operational creditor within the meaning of
the Code. If a purposive interpretation is given to the provisions of the Code,
the same would result in maintenance of the application. J Co argued that there
were no services rendered by the registered trade union to it to claim any dues
which could be termed as debt, and as such the trade unions would not come
within the definition of operational creditors. That apart, each claim of each
workman was a separate cause of action in law and, therefore, there are
separate dates of default of each debt. That being so, a collective application
under the rubric of a registered trade union would not be maintainable.

HELD

The Supreme Court examined
the provisions of sections 5(20), 5(21), 3(23) of the Code; Rule 6 of the
Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016
(“the Rules”); as well as the provisions of the Trade Unions Act.

The Court observed that a
trade union was an entity established under a statute – namely, the Trade
Unions Act, and would therefore fall within the definition of
“person” u/s. 3(23) of the Code. Thus, a claim in respect of
employment could certainly be made by a person duly authorised to make such
claim on behalf of a workman. Rule 6 of the Rules also recognises the fact that
claims may be made not only in an individual capacity but also conjointly.

It was further held that a
trade union, like a company, trust, partnership, or limited liability
partnership, when registered under the Trade Union Act, would be
“established” under that Act in the sense of being governed by that
Act.

Also, it was observed that
instead of one consolidated petition by a trade union representing a number of
workmen, filing individual petitions would be burdensome as each workman would
thereafter have to pay insolvency resolution process costs, costs of the
interim resolution professional, costs of appointing valuers, etc., under the
provisions of the Code read with Regulations 31 and 33 of the Insolvency and
Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons)
Regulations, 2016.

A registered trade union which is formed for the purpose of
regulating the relations between workmen and their employer can maintain a
petition as an operational creditor on behalf of its members. The Supreme Court
further observed that procedure was a handmaid of justice, and is meant to
serve the justice.

The Court held that NCLAT was incorrect in not going into
whether a trade union was a person or not as well as holding that a trade union
would not be an operational creditor as no services are rendered by the trade
union to J Co. It was also observed that if one were to state that for each
workman there would be a separate cause of action, a separate claim and a
separate date of default, this would ignore the fact that a joint petition
could be filed under Rule 6 read with Form 5 of the Rules.

The judgement of NCLAT was set aside and the appeal was
allowed with a direction to NCLAT to decide the appeal on merits expeditiously.

Serious Fraud
Investigation Office vs. Rahul Modi

[2019] 103 taxmann.com 408
(SC)

Criminal Appeal Nos. 538,
539 of 2019

Date of order: 27^th
March, 2019

CL: Prescription of period within which a report has to be
submitted to Central Government under sub-section (3) of section 212 is purely
directory – Even after expiry of such stipulated period, mandate in favour of
Serious Fraud Investigation Officer (SFIO) and the assignment of investigation
under s/s. (1) would not come to an end – The only logical end as contemplated
is after completion of investigation when a final report or “investigation
report” is submitted in terms of sub-section (12) of section 212

FACTS

The investigation was assigned to SFIO vide order dated
20.06.2018. The order stipulated that the inspectors should complete their
investigation and submit their report to the Central Government within three
months. The period of three months expired on 19.09.2018. The proposal to
arrest three accused persons was placed before the Director, SFIO and approval
was granted by him on 10.12.2018. After they were arrested, the accused were
produced before the Judicial Magistrate, who by his order dated 11.12.2018
remanded them to custody till 14.12.2018, to be produced before the Special
Court on that day. On 13.12.2018 extension of time for completing investigation
of the case was preferred by the SFIO which was accepted on 14.12.2018,
granting an extension up to 30.06.2019.

On 14.12.2018 the Special
Court, Gurugram, remanded the accused to custody till 18.12. 2018. On
17.12.2018, the accused (respondents herein) preferred Writ Petitions which
came up for hearing for the first time before the High Court of Delhi on
18.12.2018. On that day itself, the accused were further remanded to police
custody till 21.12.2018. On 20.12.2018 the Writ Petitions were entertained and
the order which is under appeal was passed. Pursuant to the said order, the
original writ petitioners (the respondents herein) were released on bail.

The principal issues which arise in the matter are whether
the High Court was right and justified in entertaining the petition and in
passing the order of release under appeal?

HELD

The Supreme Court (SC) examined the provisions related to
SFIO in detail as under:

1. Section 212 empowers the Central Government to assign the
investigation into the affairs of a company to SFIO. Upon such assignment the
Director, SFIO may designate such number of inspectors under sub-section (1)
and shall cause the affairs of the company to be investigated by an
Investigating Officer under s/s.(4).

2. The expression used in s/s. (1) is “assign the
investigation”. S/s. (2) incorporates an important principle that upon such
assignment by the Central Government to SFIO, no other investigating agency of
the Central Government or any State Government can proceed with investigation
in respect of any offence punishable under the 2013 Act and is bound to
transfer the documents and records in respect of such offence under the 2013
Act to the SFIO.

3. Under s/s. (3) where the investigation is so assigned by
the Central Government to the SFIO, the investigation must be conducted and a
report has to be submitted to the Central Government within such period as may
be specified.

4. The subsequent provisions then contemplate various stages
of investigation including arrest under s/s. (8) and that SFIO is to submit an
interim report to the Central Government, if it is so directed under s/s.
(11). Further, according to sub-section (12), on completion of the
investigation, SFIO is to submit the “investigation report” to the
Central Government. Under s/s. (14) on receipt of said “investigation report”
the Central Government may direct SFIO to initiate prosecution against
the company.

5. The “investigation report” under s/s. (12) is to be
submitted on completion of the investigation, whereas report under s/s. (11) is
in the nature of an interim report and is to be submitted if the Central Government
so directs.

6. In the backdrop of these provisions the Supreme Court had
to consider whether the period within which a report is contemplated to be
submitted to the Central Government under s/s. (3) is mandatory.

The Supreme Court, on the basis of an analysis of the above
provisions, concluded as under:

Section 212(3) of the 2013 Act
by itself does not lay down any fixed period within which the report has to be
submitted. Even under s/s. (12) which is regarding “investigation report”,
again, there is no stipulation of any period. In fact, such a report under s/s.
(12) is to be submitted “on completion of the investigation”. There is no
stipulation of any fixed period for completion of investigation which is
consistent with normal principles under the general law.

Again, sub-section (2) of
section 212 of the 2013 Act does not speak of any re-transfer of the relevant
documents and records from SFIO back to the said investigating agencies after
any period or occurrence of an event. For example, u/s. 6 of the National
Investigation Agency Act, 2008 (“NIA Act” for short) the Agency (NIA) can be
directed by the Central Government to investigate the scheduled offence under
the NIA Act and where such direction is given, the State Government is not to proceed
with any pending investigation and must forthwith transmit the relevant
documents and records to the Agency (NIA). But u/s. 7 of the NIA Act, the
Agency may, with previous approval, transfer the case to the State Government
for investigation and trial of the offence.

The very expression “assign” in
section 212(3) of the 2013 Act contemplates transfer of investigation for all
purposes where after the original Investigating Agencies of the Central
Government or any State Government are completely divested of any power to
conduct and complete the investigation in respect of the offences contemplated
therein. The transfer under sub-section (2) of section 212 would not stand
revoked or recalled in any contingency. If a time limit is construed and
contemplated within which the investigation must be completed then logically,
the provisions would have dealt with as to what must happen if the time limit
is not adhered to.

The statute must also have
contemplated a situation that a valid investigation undertaken by any
investigating agency of the Central Government or State Government which was
transferred to SFIO must then be re-transferred to the said investigating
agencies. But the statute does not contemplate that. The transfer is
irrevocable and cannot be recalled in any manner. Once assigned, SFIO continues
to have the power to conduct and complete investigation. The statute has not
prescribed any period for completion of investigation. The prescription in the
instant case came in the order of 20.06.2018. Whether such prescription in the
order could be taken as curtailing the powers of the SFIO is the issue.

It is well settled that while
laying down a particular procedure if no negative or adverse consequences
are contemplated for non-adherence to such procedure, the relevant provision is
normally not taken to be mandatory and is considered to be purely directory.
Furthermore, the provision has to be seen in the context in which it occurs in
the statute. There are three basic features which are present in this matter:

1. Absolute transfer of investigation in terms of section
212(2) of the 2013 Act in favour of SFIO and upon such transfer all documents
and records are required to be transferred to SFIO by every other investigating
agency.

2. For completion of investigation, sub-section (12) of
section 212 does not contemplate any period.

3. Under sub-section (11) of section 212 there could be
interim reports as and when directed.

In the face of these three
salient features, the Supreme Court held that the prescription of period within
which a report is to be submitted by SFIO under sub-section (3) of section 212
is for completion of period of investigation and on the expiry of that period
the mandate in favour of SFIO must come to an end. If it was to come to an
end, the legislation would have contemplated certain results including
re-transfer of investigation back to the original investigating agencies which
were directed to transfer the entire record under sub-section (2) of section
212.

In the absence of any clear
stipulation, the Supreme Court further held that an interpretation that with
the expiry of the period, the mandate in favour of SFIO must come to an end
will cause great violence to the scheme of legislation. If such interpretation
is accepted, with the transfer of investigation in terms of sub-section (2) of
section 212 the original investigating agencies would be divested of power to
investigate and with the expiry of mandate, SFIO would also be powerless which
would lead to an incongruous situation that serious frauds would remain beyond
investigation.

The only construction which is,
possible therefore, is that the prescription of period within which a report
has to be submitted to the Central Government under sub-section (3) of section
212 is purely directory. Even after the expiry of such stipulated
period, the mandate in favour of the SFIO and the assignment of investigation
under s/s. (1) would not come to an end. The only logical end as contemplated is
after completion of investigation when a final report or “investigation report”
is submitted in terms of sub-section (12) of section 212.

It cannot, therefore, be said
that in the case discussed above the mandate came to an end on 19.09.2018 and
the arrest effected on 10.12.2018 under the orders passed by Director, SFIO was
in any way illegal or unauthorised by law. In any case, extension was granted
in the present case by the Central Government on 14.12.2018. But that is
completely besides the point since the original arrest itself was not in any
way illegal.

The Supreme Court accordingly concluded that the High Court
had completely erred in proceeding on that premise and in passing the order of
release of the respondents herein.

BCAJ Admin

ALLIED LAWS

Agricultural Land –
Preferential rights of heirs over immovable property applies to agricultural
properties also [Hindu Succession Act, 1956, Sections 4, 14, 22]

Babu Ram vs. Santokh
Singh (deceased) through his L.R.s and Ors. AIR 2019, Supreme Court 1506

A dispute arose over the
question whether one of the heirs would have a preferential right over the
intestate property devolved upon them at the time of transferring such
property. Whether section 22 of the Hindu Succession Act, 1956 applies to
agricultural lands also?

Section 22 of the Act
provides that any immovable property of an intestate person, or any business
carried on by him or her, whether solely or in conjunction with others,
devolves upon two or more heirs specified in Class I of the Schedule, and if
any one of such heirs proposes to transfer his or her interest in the property
or business, the other heirs shall have a preferential right to acquire the
interest proposed to be transferred. However, the Act does not say anything in
the case of agricultural land.

It was observed that when
the Parliament thought of conferring the rights of succession in respect of
various properties, including agricultural holdings, it put a qualification on
the right to transfer to an outsider and gave preferential rights to the other
heirs with a designed object. Under the Shastric Law, the interest of a
coparcener would devolve by principles of survivorship to which an exception
was made by virtue of section 6 of the Act. If the conditions stipulated
therein were satisfied, the devolution of such interest of the deceased would
not go by survivorship but in accordance with the provisions of the Act. Since
the right itself in certain cases was created for the first time by the
provisions of the Act, it was thought fit to put a qualification so that the
properties belonging to the family would be held within the family, to the
extent possible, and no outsider would easily be planted in the family
properties. It is with this objective that a preferential right was conferred
upon the remaining heirs in case any of the heirs was desirous of transferring
his interest in the property that he received by way of succession under the Act.

In view of the above, it
was held that the preferential right given to an heir of a Hindu u/s. 22 of the
Act is applicable even if the property in question is agricultural land.

Co-operative Society – Premium for Transfer –
Supreme Court upholds the direction of the State Government putting a ceiling
limit of Rs. 25,000 on the premium charged by a society on transfer of a
property by a society’s member [Maharashtra Co-operative Societies Act, 1960;
Section 79A]

The New India
Co-operative Housing Society Ltd. vs. the State of Maharashtra and Anr., WP No.
4567 of 2007 (HC)(Bom), Dated: 01.02.2013

The New India
Co-operative Housing Society Ltd. vs. the State of Maharashtra and Anr., Civil
Appeal No. 10683/2017 (SC), Dated: 23.04.2019

The main ground in the
challenge was whether rejection of application of respondent No. 2 was valid on
the premise of non-payment of Rs. 2 crore as demanded by the society for the
purpose of transferring the property.

The said applications,
undisputedly, were made in the requisite form annexed to the Maharashtra
Cooperative Societies Rules, 1961, along with a demand draft of Rs. 25,000. It
was informed that on the face of it the application was not acceptable since
the transfer fee offered of Rs. 25,000 was inadequate in view of regulation 6A
of the society and the amount demanded was Rs. 2 crore.

The Hon’ble High Court in the case of Mont Blanc
Co-operative Housing Society Limited vs. State of Maharashtra, 2007 (2) Bom.
C.R. 533 considered the validity of a similar government notification
dated 1^st August, 2001 issued u/s. 79A of the said Act thereby
imposing a ceiling of 10% of non-occupation charges. The Court observed that
they were satisfied that the notification was issued to secure the proper management
of the business of the co-operative housing societies in general and for
preventing the affairs of such societies being conducted in a manner
detrimental to the interests of the members of such societies. The order does
not suffer from the vice of arbitrariness and it cannot be termed as an unfair
or unjust act by the state government so as to deprive the societies of their
legal, just and proper levies. It is a bona fide exercise by the state
to avoid litigations / disputes and to bring in a uniform levy of
non-occupancy and to prevent the exploitation of minority members. To bring in
an orderly situation, the government stepped in and exercised its statutory
powers u/s. 79A by issuing directions to levy non-occupancy charges at 10% of
the service charges.

The Court observed that in
the present case also, the government vide notification dated 9^th
August, 2001 has directed uniform rates to be charged for effecting transfer of
the tenements / flats. Insofar as municipal corporations are concerned, the
premium has been determined as Rs. 25,000. It is to be noted that clause (2) of
the said notification specifically provides that the said charges are towards
transfer of a member’s tenement / flat and his share and rights in the share
capital / property in the said society. The perusal of the said notification
would reveal that it is applicable to all co-operative housing societies. In
order to grab exorbitant sums of money from the new members who are trying to
become members of the society, they are being subjected to exploitation at the
hands of the society.

The Court held that the
petitioner was bound to comply with the directions issued by the state
government u/s. 79A of the said Act and could not have charged premium higher
than Rs. 25,000.

Environment – Duty of State as well as the
Citizens to prevent pollution and improve the environment [Constitution of
India; Article 21, 51-A]

Rajesh Madhukar Pandit
and Ors. vs. the Nashik Municipal Corporation and Ors. AIR 2019 (NOC)129 (Bom)

A PIL was filed concerning pollution of the Godavari
which is the second longest river in India after the Ganges. The Godavari is
one of the main sources of water supply to the city of Nashik. Several steps
are required to be taken for rejuvenation of the river and for preventing
pollution of the said river.

It was observed that the
scope of Article 21 of the Constitution of India gives a right to live in a
clean and pollution-free environment. Moreover, the right to have clean
drinking water is also a fundamental right guaranteed by Article 21. This is in
the context of the fact that the Godavari is a source of water supply to the
said corporation area and nearby villages. The right to live a dignified and
meaningful life is also an essential part of the bundle of rights guaranteed by
Article 21. If the rivers are polluted and pollution is created in and around
the rivers, the fundamental right of living a dignified and meaningful life of
the citizens is defeated. The fundamental right to live in a pollution-free atmosphere
is also violated.

Article 48A of the
Constitution of India is a Directive Principle of State Policy which enjoins
the State to protect and improve the environment. Clause (g) of Article 51A
casts a duty on the citizens to protect and improve the natural environment,
including forests, lakes, rivers and wild life, and to have compassion for
living creatures.

In view of the above, the
Court held that for protecting the fundamental rights of citizens under Article
21, the State is duty-bound to take all steps to prevent pollution of rivers
and to initiate measures for cleaning and rejuvenation of the rivers. It is the
obligation of the State to keep rivers clean and free from pollution. The
citizens owe a duty to protect and improve the environment, including rivers.

Notice – Service of notice
by ordinary Post – Dispatch register does not prove fact of service of notice
[General Clauses Act 1897, Section 27]

Agrofab vs. State of Rajasthan and Ors. AIR 2019 Rajasthan 34

The petitioner firm
contended that the showcause notice was never received by it.

The Court observed that the
respondents by way of additional affidavit tried to justify the service of the
said notice by producing a photocopy of the dispatch register and postage
register on record.

It was held that sending of
notice by showing any dispatch register through ordinary post does not prove
the fact of service of such notice on the petitioner firm. Further, it was held
that since the terms of the contract provided that rate contract and supply
orders and any discrepancy with regard to the conditions, specifications,
nomenclature, delivery period, etc., if the same were not as per the agreed
terms, conditions and specifications, such letter to the Direct Demanding
Officer and Chief Engineer was to be sent by registered post / AD. Hence, when
the communication is required to be made by the parties by way of registered
post / AD, the plea of the respondents that the showcause notice was sent by
ordinary post is not to be believed by the Court.

Will or Codicil attested
by a legatee as a witness – Examination of the legatee alone not valid [Indian
Succession Act, 1925, Sections 63, 67; Transfer of Property Act, 1882, Section
3; Indian Evidence Act, 1872, Section 68]

Raveendran Nair vs.
Raman Nair, AIR 2019 Kerala 91

The dispute concerned a
Will and its genuineness. There were two attesting witnesses to the Will. One
of the witnesses is the first defendant. The Will was executed in favour of the
children of the first defendant by giving a major portion of the property to
them and only a minor portion was given to other legatees.

The questions which arose
in the course of hearing were regarding the legal effect of an unprivileged
Will attested by the legatees alone left out by a Hindu. Whether the
examination of a legatee under a Will who is an attesting witness to the Will
or Codicil would be a sufficient compliance of the requirement as mandated u/s.
68 of the Indian Evidence Act?

The Court observed that
though there is no prohibition in the Act to stand as an attesting witness by a
legatee, the mandate both u/s. 63 of the Indian Succession Act and section 68
of Indian Evidence Act would convey the meaning that what is required is the
attestation by two or more witnesses, since the question of genuineness of
execution of a Will or Codicil would arise only after the death of the
testator. The attesting witness must have and should have the necessary animus
testandi or intention to attest the Will or Codicil. The word “attesting”
stands for something more than mere signing of a document as a witness.
Attestation means signing of a document with the intent and purpose to testify
the signature of the executant rather than mere witnessing the affixing of
signature by the executant or its due execution. Necessarily, the attesting
witness must display the necessary competence and the quality of an independent
witness. The word “attested” is defined u/s. 3 of the Transfer of Property Act
which is exactly pari materia with that of the third requirement as
enumerated in clause (c) of section 63 of the Indian Succession Act.

The Court held that a Will
or Codicil attested by legatees alone or the person interested with the
legatees who holds a fiduciary relationship with the legatee / legatees would
itself amount to suspicious circumstance attached to its execution. The absence
of an independent attesting witness to the document is fatal to the bequest
under the document. It would destroy the legislative intention demanding compliance
of mandate incorporated both u/s. 68 of the Indian Evidence Act and section 63
of the Indian Succession Act. The evidence or attestation of such witness would
stand as self-serving, though there is no provision debarring attestation by a
legatee as far as an unprivileged Will of a Hindu is concerned. At least one of
the attesting witness should be an independent witness and his examination
cannot be avoided if he is capable of giving evidence and amenable to the
process of the Court for proving the Will or Codicil in accordance with the
mandate u/s. 68 of the Evidence Act.

In short, a legatee under the Will or a person who is
interested in the bequest cannot be an independent witness for the purpose of
attestation to a last testament either as a Will or Codicil; and hence mere
examination of a legatee who stands as one of the attesting witness would not
be a sufficient compliance of the mandate u/s. 68 of the Evidence Act.

BCAJ Admin

BOOK REVIEW

“CRASH –
Lessons from the Entry and Exit of CEOs” by R. Gopalakrishnan

Mr. R.
Gopalakrishnan is a well-known corporate leader, management author and adviser
who needs no introduction. However, a few words about him will be useful to the
young reader.

He is the
author of best-selling books such as The Case of the Bonsai Manager, When
the Penny Drops: Learning What’s Not Taught and A Biography of Innovations:
From Birth to Maturity.

Interestingly,
Mr. Gopalakrishnan
studied physics at the University of Kolkata and Engineering at IIT Kharagpur.
He also completed an Advanced Management Programme at Harvard Business School.
Apart from serving as Chairman of Unilever Arabia, M.D. of Brooke Bond Lipton
and Vice-Chairman of Hindustan Lever, he has been Executive Director of Tata
Sons and several Tata group companies. At present he is Corporate Adviser, the
Mindworks, and is actively engaged in both instructional and inspirational
speaking.

While many
people talk about the path to the top of organisations, very few are honest
about how difficult it is to stay at that position. Mr. Gopalakrishnan
analyses the ‘software’ challenges which leaders confront every day and shares
the insights he has gained while developing, managing, investing in and
supervising a variety of companies. He points out that great leaders continue
to excel not just because of their skills and intelligence, but also by
connecting with others using emotional competencies like empathy and
self-awareness.

The book is
divided into two parts. In Part One, which has five chapters, the author
explores some pertinent questions: Is company performance a surrogate for
leadership and CEO performance? If a company falters, is it related purely to
the CEO’s performance? Conversely, if a company does well, does it redound to
the credit of the leader?

Mr.
Gopalakrishnan
observes that to be successful, a CEO requires cognitive intelligence as well
as intuitive emotional intelligence – which means that he or she must possess a
responsive sense of empathy for the views of various stakeholders. In his
experience, once a person gets into a leadership role, there are forces that
cause his or her emotional intelligence or sense of empathy to shrink. This
poses a real and hidden challenge to the leader, a challenge for which he or
she is unprepared. The power of a leader ‘damages’ his / her brain. This damage
cannot be totally avoided, but its pernicious effects can be mitigated.

He then goes on
to examine why power causes this kind of brain damage. He asks: What brings out
the best in a person? Perhaps a need to challenge one’s capability? He opines:
When leaders feel that their intelligence is being tested rather than being merely
incentivised through money, their motivation is triggered. Money helps, but
ambition is aroused by internal drives and challenges. This is what people in
leadership positions experience when they assume a bigger responsibility.

The author
further observes that power causes a significant behavioural change in leaders.
Leaders tend to be self assured; but they need to be so if they have to lead
their people; however, the line that divides self-assuredness and
over-confidence is a thin one. The leader’s confidence can be rooted in logic
and data, or it can be rooted in feelings and emotions. If his / her confidence
is based on the best available data, then the leader comes across as authentic.
This is a positive form of self-confidence. If the leader’s confidence is not
data-based, he / she may seem impetuous or someone who is not rooted in
reality. This is a negative form of self-confidence.

How and why
does power damage the leader’s brain? What happens in cases of behavioural
change? Does the person change because of power, or because of being placed in
a radically different context? Or is it that the people around view him / her
through a separate set of lenses? The author puts it simply, and shorn of
jargon – that leaders loose a bit of their emotional capacities, those very
emotional capacities that were essential to their rise. That holding power
changes the way they process their world. They became impulsive, less
risk-aware and less adept at seeing things from other people’s perspective. In
other words, power blinds the leader to others’ perspectives, power turns the
leader into an abstract thinker, power leads to unrealistic optimism about
goals and power leads to the view of the world in terms of goals already set.

Mr.
Gopalakrishnan concludes
that power intoxicates and it impairs human judgement: in short, the
acquisition of power causes ‘brain damage’. Every leader, whether in politics,
in society or business, is vulnerable to this danger. Several leaders learn to
cope with the inevitable threats and dangers, but many fail. They become
victims of the affliction.

Thus, in Part
One of the book the author examines the above questions and issues on the basis
of his extensive study of the available literature on the subject, and his long
years in business in leadership positions.

Part Two of the
book, divided into 15 chapters, tells similar stories of various well-known
business leaders, such as Carly Fiorina at HP; Jamie Dimon at JPMorgan Chase;
Vikram Pandit at Citigroup; John R. Walter at AT&T; Lee Iacocca and Mark
Fields at Ford Motors; Michael Ovitz at Walt Disney Company; G. Richard Thoman
at Xerox; Jim Donald at Starbucks; Travis Kalanick at Uber; Chris Viehbacher at
Sanofi; Ramesh Sarin at Voltas India; Klaus Kleinfeld at Arconic; Anshu Jain at
Deutsche Bank; and Vishal Sikka at Infosys.

In the
Epilogue, the author quotes Thomas Middelhoff, a top-notch, famous executive in
Germany, CEO of the German media giant Bertelsmann, later found guilty of
misusing corporate funds and sentenced to three years in jail on charges of
embezzlement and related tax frauds. After his release from jail and in an
interview to Financial Times in May, 2018 he said, “I was out of touch
with reality and thought that certain rules did not apply to me.

Ability brings
you to the top, but character keeps you there”. He admitted that a key flaw in
his character was constantly craving public attention and affirmation. Over the
years, he felt that he had been carried away by narcissism and hedonism.

The book is
based on the author’s extensive study and research on the subject, which is
borne out by the copious notes at the end of the book running into about 30
pages wherein he has given references to all his sources.

Filled with
anecdotes and analysis of various situations CEOs may find themselves in, and
unconventional advice to help them, Crash: Lessons from the Entry and Exit
of CEOs is for veteran leaders as well as for those who aspire to start
their own ventures. The book is useful not only to CEOs and other senior
management executives, but also to every person who is running even a small or
medium-sized organisation.

BCAJ Admin

Allied Laws

20.
Appeal pending – Till order of court is varied or modified, it remains
valid and subsisting and has to be complied with [West Bengal Municipal Act,
1993, S.96]

Subrata Sen vs. The Kolkata Municipal
Corporation and Ors. AIR 2019 Calcutta 32

The issue before the court was whether an
appropriate writ in the nature of mandamus could be issued against the order of
the municipal assessment tribunal, when a revision application had been filed
against such order.

It was held by the court that it was a
well-settled law that till an order passed by a competent court or forum is set
aside and / or stayed and / or varied and / or modified, the said order remains
valid and subsisting and is required to be complied with, both in law and in
spirit. If a stand is taken by any person that he / she is unable to comply
with a valid and subsisting order simply because an appeal is pending before a
higher forum, it would render the concept of adherence to due process of law to
a state of absolute farce. This is neither desirable nor acceptable, nor
permissible.

If one has to accept the stand taken on
behalf of the Kolkata Municipal Corporation, it would mean that no order passed
by any competent legal forum will ever be complied with till the person
aggrieved by the said order has exhausted all further remedies even if such
remedies are essentially discretionary in nature. This is certainly not in
conformity with the scheme for rendering effective justice in the matter.

Accordingly, it was decided that the order
of the Municipal Assessment Tribunal would be implemented and the same shall
not cause any prejudice to the rights of the Kolkata Municipal Corporation in
respect of the revision application, which shall be decided on its own merit
without being influenced in any manner by any observation
made herein.

21.
Dishonour of cheque – Prosecution launched against directors quashed by
High Court set aside – Court would have to look into whether directors had any
role in the business activities of the company [Negotiable Instruments Act,
1881, S.138, 141, 482]

A.R. Radha Krishna vs. Dasari Deepthi and
Ors. AIR 2019 Supreme Court 2518

The appellant had entered into an investment
agreement with accused No. 1, i.e., the company on the basis of representations
made by the directors of the company. Later, the company agreed to repay the
amount invested by issue of seven cheques. The cheques were returned
dishonoured as ‘payment stopped by drawer’.

Consequently, proceedings were initiated u/s
138 and 141 of the Negotiable Instruments Act. During the pendency of the
proceedings, the directors filed an application before the High Court for
quashing of the proceedings initiated against them. The High Court allowed the
criminal petitions filed by the directors and quashed the proceedings against
them. Aggrieved by the same, the appellant approached the Supreme Court.

The complaint specifically mentioned that
the directors, who actively participated in the day-to-day affairs, in active
connivance, intentionally issued cheques and later issued instructions to the
bank to stop the payment.

But it was contended on behalf of the
directors that both the respondents / directors were non-executive directors of
the company, neither playing any role in the day-to-day activities of the
business nor in charge of the affairs of
the company.

It was observed that the High Court, in
deciding a quashing petition u/s 482, Code of Criminal Procedure, must consider
whether the averment made in the complaint is sufficient or if some
unimpeachable evidence has been brought on record which leads to the conclusion
that the director could never have been in charge of and responsible for the
conduct of the business of the company at the relevant time. While the role of
a director in a company is ultimately a question of fact, and no definite
formula can be fixed for the same, the High Court must exercise its power u/s
482, Code of Criminal Procedure when it is convinced from the material on
record that allowing the proceedings to continue would be an abuse of process
of the Court.

In the present
case, the appellant had specifically averred in his complaint that the
directors were actively participating in the day-to-day affairs of the company.
The complaint also specified that all the accused, in active connivance,
mischievously and intentionally issued the cheques in favour of the appellant and
later issued instructions to the bank to ‘Stop Payment’. No evidence of
unimpeachable quality had been brought on record by the directors to indicate
that allowing the proceedings to continue would be an abuse of the process of
the Court. In view of the same, the appeals were allowed and the order passed
by the High Court was set aside and that of the trial court restored.

22.
Mahommedan Law – Bequest of property can only be done after taking
consent of all heirs [Mulla’s Principles of Mahommedan Law, S.117]

Ayyub and Ors. vs. Llahi Baksh and Ors. AIR
2019 Chhattisgarh 113

A property was
bequeathed to one heir without consent of the other heirs who were the
respondents / plaintiffs. Accordingly, a suit was filed by the latter for
declaring the Will void.

It was held by
the Court that section 117 of Mulla’s Principles of Mahommedan Law deals with
bequest to an heir and provides that a bequest to an heir is not valid unless
the other heirs consent to the bequest after the death of the testator. Any
single heir may consent so as to bind his own share. Accordingly, the verdict
of the trial court that the Will was void ab initio and illegal was
affirmed.

23.
Service of notice to employee – Employee holding the seal of the company
must be taken to be duly authorised by the company to receive summons on behalf
of the company [Code of Civil Procedure; Order 29, Rule 2]

Frost International Ltd. vs. Five Star
Vanijya Pvt. Ltd. AIR 2019 (NOC) 325 Calcutta

An application
was filed for recalling an ex parte order. It was stated that the reason
for non-appearance before the court by the applicant was that there was no
proper service of notice on the company. It was argued that the applicant’s
office was totally closed. The applicant did not have any employee by the name
of Manab Basu who accepted the service of the writ of summons on behalf of the
defendant. If anything was received on behalf of the defendant, the same could
not reach the defendant and as a result the writ of summons cannot be treated
to have been served upon the applicant company. The applicant further mentioned
that it had an excellent defence on merits.

It was submitted on behalf of the
respondents that the application for recalling the order was barred by
limitation. It was further contended that there was a document which showed
receipt of the writ of summons by one Manab Basu on behalf of the defendant and
the defendant’s official seal was there next to the signature of Manab Basu.

The court observed that the said Manab Basu
while acknowledging receipt of the writ of summons put the defendant company’s
seal next to his signature. An employee of a limited company who has in his
custody the company’s seal must be deemed to be authorised by the company to
accept service of notices, summons etc. Order 29 Rule 2 of the CPC provides
that an employee of a corporation / company holding the seal of the company
must be taken to be duly authorised by the company to receive summons on behalf
of the company.

In view of the above, the court dismissed
the application for recalling the ex parte order.

24. Unpublished public records – The citizens
have a right to demand information even in respect of matters such as security
of the country and matters relating to relations with a foreign state where
proper reasons are established [Right To Information Act, 2005, S.24, 123;
Evidence Act, 1872, S.124; Official Secrets Act, 1923, S.3, 5]

Yashwant Sinha and Ors. vs. CBI and Ors.
2019 (25) G.S.T.L. 161 Supreme Court

Reliance was placed on three additional
documents unauthorisedly removed from the office of the Ministry of Defence,
Government of India, that had been appended to the review petition and relied
upon by the review petitioners. The main contention was whether such documents,
being covered u/s 124 of the Indian Evidence Act, 1872 which states that no
public officer shall be compelled to disclose communications made to him in
official confidence, when he considers that the public interests would suffer
by the disclosure, could be placed in the open.

It was argued that u/s 8(1)(a) of the Right
to Information Act, information, the disclosure of which will prejudicially
affect the sovereignty and integrity of India, the security and strategic
security and strategic scientific or economic interests of the state, relations
with a foreign state or information leading to incitement of an offence, are
ordinarily exempt from the obligation of disclosure.

It was held by the Court that even in
respect of matters relating to state or other prohibited information, Parliament
has advanced the law in a manner which can only be described as dramatic by
giving recognition to the principle that disclosure of information could be
refused only on the foundation of public interest being jeopardised. Section
8(2) recognises that there cannot be absolutism even in the matter of certain
values which were formerly considered to provide unquestionable foundations for
the power to withhold information. The RTI Act through section 8(2) has
conferred upon the citizens a priceless right by clothing them with the right
to demand information even in respect of such matters as security of the
country and matters relating to relations with a foreign state. No doubt,
information cannot be given for the mere asking. The applicant must establish
that withholding of such information produces greater harm than disclosing it.

BCAJ Admin

STATISTICALLY SPEAKING

BCAJ Admin

LETTERS FROM THE READERS

Dear Mr President,

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

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

Yatendra Goyal.

Dear Raman,

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

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

Such thoughts should be
widely shared to beat the pessimism. In case you are not doing so yet, suggest
you send such editorials to a couple of conscious newspapers.

These are my personal
thoughts.

Swati Kapadia

BCAJ Admin

SOCIETY NEWS

Full day Seminar on “Capital Gains and Income from Other Sources” held on 18th January 2019 at BCAS Conference Hall

The Taxation Committee organised a full day Seminar on Capital gains and Income from other Sources on 18th January, 2019 at BCAS Conference Hall, with distinguished speakers sharing their in-depth knowledge on the subject. The event garnered overwhelming response and saw an attendance of 104 participants which also included outstation participants from 6 cities. President CA. Sunil Gabhawalla gave the opening remarks.

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

Certain Fundamental Concepts Governing Capital Gain on Immovable Property	Adv. Vipul Joshi
Overview of provisions of capital gains from transfer of shares and securities – issues in long term capital gains on listed shares – applicability of grand fathering clause – derivatives – business income v/s capital gains	CA. Gautam Nayak
Income from Other sources – transfer of shares between relatives and non-relatives including minor – issues in section 56(2) – sale of shares of distressed companies – intergroup transfer and restructuring – recent judicial decisions.	CA. (Dr.) Anup Shah
Brain Trust Questions – Capital Gains Issues Short term – long term – sections 45 & 48 – sections 54, 54EC and 54F – section 47: transfers not liable to tax – clubbing of income – exempt income – winnings from lotteries, prizes etc.	CA. Rajan Vora, CA. Anil Sathe & CA. Radhakishan Rawal

Adv. Vipul Joshi started the first session highlighting the fundamental concepts on taxation of Income from Capital gains. He concentrated on various issues arising from Capital Gains on Immovable Property and cited relevant case laws on various issues.

CA. Gautam Nayak explained to the participants about Taxability on Transfer of Shares & Securities. He discussed and explained the basis on which the income should be categorised as Capital Gains or Business income. He gave his insights on taxation of transactions in derivatives. Participants also had the benefit of knowing Mr Nayaks’ views on Capital Gains on listed Equity Shares and EOMFs as amended vide the Finance Act 2018.

CA. (Dr.) Anup Shah spoke on issues under section 56(2) and business restructuring. He covered almost all the issues and gave the recent jurisprudence on the said issues. He also gave his insights on newly inserted section 56(2)(x) and the controversy surrounding Angel Tax. He explained business restructuring in detail including merger, demerger, takeover, slump sale etc.

CA. Rajan Vora, CA. Anil Sathe and CA. Radhakishan Rawal were the trustees for the last session of Brains Trust. All of them were given six questions each to address. CA. Rajan Vora gave his views and answers to questions relating to sections 45(3), 50C, 56 (2) (x), 68, 54, 54F etc. CA Anil Sathe answered questions largely concerning Capital Gains and Income from other sources from transfer of Immovable Property. He also addressed participants on issues concerning joint development agreements between landowners and the developer. CA. Radhakishan Rawal gave his insights on questions relating to taxability from transfer of securities and ESOPs with examples.
The sessions were interactive and the speakers shared their insights on the subject. The participants benefited immensely from the guidance and practical views on various issues by the faculties.

Suburban Study Circle Meeting on “FEMA – Liberalised Remittance Scheme (‘LRS’) and Overseas Direct Investment (‘ODI’)” held on 24th January, 2019

The Suburban Study Circle organised a meeting on “FEMA – Liberalised Remittance Scheme (‘LRS’) and Overseas Direct Investment (‘ODI’)” on 24th January, 2019 at Bathiya & Associates, LLP, Andheri East, which was addressed by CA. Rutvik Sanghvi.

The speaker made a detailed presentation on (i) FEMA vs. FERA (ii) Liberalised Remittance Scheme (iii) Overseas Direct Investment (iv) Investment in Real Estate outside India and (v) FEMA Compliance related to LRS and ODI. He further presented the brief about the FEMA law and how FEMA replaced FERA and also lucidly explained the rules and regulations related to LRS and ODI provisions citing practical examples that helped the participants in understanding the FEMA regulations. The participants benefited from the presentation shared by the speaker.

DIRECT TAX LAWS STUDY CIRCLE

Study Circle Meeting on “Issues under section 56(2) (x) of the Income-tax Act, 1961” held on 31st January 2019 at BCAS Conference Hall

Direct Tax Laws Study Circle organised the captioned meeting on 31st January, 2019 at BCAS Conference Hall. The Chairman of the session, CA. Anil Sathe gave his opening remarks. The Group leader, CA. Navin Gandhi gave a brief overview of the gift tax regime and its back door entry into the Income-tax Act, 1961. Thereafter, the group leader briefly explained the underlying principle and the scope of section 56(2)(x) of the Act. Subsequently, the group leader discussed in detail various issues relating to consideration, exception of ‘relatives’, valuation requirements for the said section and transfer of immovable property being covered under the ambit of section 56(2)(x). Also, the interplay between gift tax provisions and the Act was discussed. The session was quite interactive and participants got highly enriched with the rich experience of the Group Leader.

FEMA STUDY CIRCLE

Meeting on “External Commercial Borrowing- Recent Amendments” held on 5th February 2019 at BCAS Conference Hall

A FEMA Study Circle Meeting was held on 5th February, 2019 at BCAS Conference Hall where CA. Niki Shah led the discussion on the topic of “External Commercial Borrowing – Recent Amendments”. The Group leader discussed a new ECB framework which is divided into two parts now viz. foreign currency denominated ECB and Indian Rupees Denominated ECB. He also deliberated on the expanded list of eligible borrowers, recognised lenders, end use restriction, ECB Liability Equity Ratio, Limit and Leverages, Hedging provision, procedure and reporting requirements etc. The Speaker further elaborated as to whether LLP can take ECB and whether late submission fees is to be paid for each form and under what circumstances. The participants appreciated and benefitted immensely from the efforts put in by the group leaders who made the discussion very live.

“17th Residential Retreat” held on 8th, 9th and 10th February, 2019

Human Resource Development Committee organised 17th Residential Retreat on 8th, 9th and 10th February 2019 which was attended by 28 delegates including 8 couples. The theme of the Programme was ‘Principle Centred Leadership Spectrum’ at picturesque, serene and beautiful Rambhau Mhalgi Prabodhini, Keshav Shrushti, Bhayander West. Senior Mentor Mr. Gopal Sehjpal, ACC (ICF), an International Trainer in Behavioural and Leadership/Management facilitated as trainer.

President CA. Sunil Gabhawalla shared his views on leadership in his inaugural address. He touched upon the important qualities of a good leader i.e. Integrity, Positivity, Understanding, Listening and Smile. He also emphasized the significance of Clarity of purpose, building and grooming the team.
CA. Rajesh Muni, Chairman of HRD Committee, briefed the participants about various activities of the committee and shared details of the past 16 Residential Retreat Programs.

1) Trainer Mr. Gopal Sehjpal had various interactive sessions with the participants and shared the key points such as Principle, Centre and Leadership as under:
(a) Principles are Natural Laws that govern us. They are, never changing, operating everywhere at all time and virtues are personal choices. (b) Important qualities of a leader are passion, courage, humility and love. Love is treating others more than self. (c) Spiritual Quotient is more important than Intellectual and Emotional Quotient. (d) People live their life keeping in centre money, work, pleasure, health, self-image, friend, family, spouse, enemy, religion, etc. The right way is to have “Principles” as centre. (e) Success is optimization of efficiency (speed) and effectiveness (direction).

2) The Speaker also discussed that Spectrum signifies acronym VIBGYOR. (Vision, Introspection, Blue Print for success, Governance, Y Factor, Organisation, Relationship) and explained each characteristic of VIBGYOR as under:

Vision and mission

Organisation or family must evaluate its Strengths and Opportunities. Vision helps to visualise the unknown future and identify the potential obstacles and therefore enables one to come up with possible solutions to overcome them. It also brings enthusiasm in attaining the Goal and to move forward despite obstacles. It provides focus, clarity and a sense of purpose. It should be made in the context of Strength, Weakness, Opportunities and Threats. One must be aware of 35 time wasters categorised in seven areas (Planning, organising, staffing, Leading, Controlling, Communicating and decision making), introspect and overcome such obstacles.

Blue print for success:
It is a process of setting Goals and drawing action plans aligned with the Vision and Mission Statements.

Governance:
Governance relates to the tone at the top. It provides clarity on important parameters like Time, Cost and Resource Allocation, Statutory Compliance, Corporate Social Responsibility, Ethics and Values.

Y Factor: On a graph, Y axis represent results and X axis is for input and resources. It is an exercise of plotting inputs to evaluate productivity, proficiency and efficiency.

Organisation: Structure of reporting relationships vertically and horizontally to provide clarity on accountability.
Relationship: Intrapersonal and Interpersonal relationships have to be appropriate and conducive for synergy.

3) Important 8 Quality Management Principles are:

(i) Customer Focus (ii) Leadership (iii) Involvement of People (iv) Process Approach (v) System approach to management (vi) Continuous improvement (vii) Factual approach to decision making and (viii) Mutual beneficial supplier relationship.

4) Guide to break 12 Ineffective Habits

(i) Reluctance to claim your achievements (ii) Expecting others to spontaneously notice and reward your contribution (iii) Overvaluing expertise (iv) Building rather than leveraging relationship (v) Failing to enlist allies from day one (vi) Putting your Job before your carrier (vii) The Perfection Gap (viii) The Disease to Please (ix) Minimizing (x) Too Much (xi) Ruminating and (xii) Letting your radar distract you.

In the concluding session, on 8th February, a small clip of 10 minutes titled ‘Down the memory lane’, was screened. It took the participants down the memory lane, recounting the experiences of previous camps. It was a tribute to Late Shri Pradeepbhai. The regular participants who were emotionally connected with him were moved as they reminisced the experiences shared with Pradeepbhai. New participants had a very heart-warming experience too. On 9th February, participants enjoyed a campfire in the late evening with some dancing and singing. On 10th February, participants returned with some beautiful memories of the camp. The participants got highly enlightened and refreshed their memories of the past Residential Retreats.

International Taxation Committee

Half Day Seminar on “Selective Issue under FEMA” held on 9th February 2019 at BCAS Conference Hall

A half day seminar was organised by the International taxation committee on 9th February 2019 in the form of a panel discussion. The focus of the seminar was to discuss difficulties being faced in FEMA regulations.

The panellists comprised of senior ex-RBI executives – Mr. G Padmanabhan (Ex-Executive Director), Mr. Himansu Mohanty (ex-General Manager) and Dr. M. K. Singh (ex-Assistant General Manager, New Delhi). The session was chaired and moderated by CA. Rashmin Sanghvi. It was discussed that administration has been delegated to the banks. Different banks take different views. One is not able to clarify matters with RBI as it insists on approaching the banks first. This is causing tremendous difficulties. There were several interpretation issues. Panellists gave the background of the issues and agreed that these issues need to be resolved. One should make representations to RBI so as to bring about clarity. Some of the issues are explained below:

One was the need to have clarity on family Trusts. Today there are rich families with members in India and abroad. They wish to form trusts for succession planning. There is no clarity in case of trusts which is required. It was discussed that people also misuse the laws. In case of Trusts, it should not amount to a situation where non-resident beneficiaries can remit more funds out of India than what they can do without a family trust. The panellists suggested that one may write to RBI and request for a clarification by way of FAQ. As long as remittance of funds does not exceed that which is possible without a trust, it should be all right to create a trust.

Another issue was that there are several proposals from non-residents to purchase real estate and lease the same. RBI has permitted lease of the premises. However, is it possible for Indian entities with FDI to “buy and lease the premises”, or should the Indian entity “construct and lease the premises”? It was discussed that it is safer to take a conservative view. If the entity constructs the premises, it can lease it.

Overall the seminar brought out the issues under FEMA and that one should err on the safer side. Aggressive views can cause difficulties. The Seminar was a huge takeaway for the participants.

HRD STUDY CIRCLE

Study Circle meeting on “Management and Life Lessons from Mt. Everest” held on 12th February, 2019 at BCAS Conference Hall

HRD Study Circle of BCAS organised a meeting on 12th February, 2019 at BCAS Conference Hall which was addressed by Mr. Venkatesh Maheshwari. The Speaker spoke about the mountains calling him. It was his childhood dream to climb the mountain and reach the top. He followed the dream by research, intensive physical and climbing training, educating himself, getting physically and mentally fit etc. It was a tremendous effort.

He had to face fears and prepared himself that there are no short cuts to the top. When you do not prepare well, you will never get the mental strength. Self Belief, patience, commitment, effort, perseverance, honesty were among the many needed traits that helped him achieve his target of being on top of Mt. Everest.

He learnt many lessons in the process like in-resource management and planning every move, facing fear, do not do what you think you cannot do, need to stop and rest when you cannot make it. There is no need to push yourself to do something when you cannot. You have to be focussed and stay focussed to achieve, ask help when you need, team work, to name a few. The Speaker also mentioned that there are passions in life which we need to pursue and achieve satisfaction and fulfilment in life. The participants found the session very inspiring and interesting to emulate the achievers.

Suburban Study Circle Meeting on “GST – Recent Amendments, Notifications and Circulars” held on 15th February, 2019

The Suburban Study Circle had organised a meeting on “GST – Recent Amendments, Notifications and Circulars” on 15th February, 2019 at Bathiya & Associates, Andheri East which was addressed by CA. Jignesh Kansara. The speaker made a detailed presentation on the following amendments and notifications on Goods & Service Tax Act:

(a) GST Amendment Act 2018 (b) 31st GST Council Meeting (c) 32nd GST Council Meeting (d) Removal of Difficulties Orders (e) Recent Circulars and Notifications. The speaker had presented all the amendments highlighting the provisions applicable before the amendments. The practical examples and tabular formats helped the participants in understanding the impact of the changes. The participants benefited from the presentation shared by the speaker.

BCAS IN THE PRINT MEDIA

As always, the Bombay Chartered Accountants’ Society was in the news this last month with its Presidents, both present and past, being sought and quoted on several key issues.

It all started with the report in a leading city newspaper which said that tax officials, with a view to meet steep revenue targets, had started issuing prosecution notices to the directors of several multinationals (Economic Times, January 16, 2019). Among the MNCs issued such notices were Google, Facebook, Samsonite and KraftHeinz.

The report stated that the use of prosecution notices was tantamount to making these cases equivalent to criminal offences and gave the IT officers additional powers just like those with the police. As a result, relief in such cases would only be available from a magistrate’s court.

BCAS President CA. Sunil Gabhawalla was quoted in the report as saying, “Last year and this year, several notices have been issued across the board to several individuals and Indian and multinational companies, which is creating a lot of legal issues for them”.

For its part, the Indian Merchants’ Chamber told the Central Board of Direct Taxes (CBDT) that “these notices project a wrong image of the Indian government… It is driving them (MNCs) away by initiating criminal proceedings on a mechanical basis…” Such notices had previously been used only when concealment of black money or similar wrongdoing was suspected.

However, some prosecution notices had been issued even for cases involving small amounts. Besides, notices had been issued to two directors in each MNC; even directors not based in India had not been spared; in some cases, even companies that had failed to deduct paltry sums like Rs. 1,000 on an employee’s salary had received notices.

Apart from the BCAS and the IMC, the Chartered Accountants’ Association of Ahmedabad (CAA) had also questioned these developments, with the BCAS and the CAA sending a representation to the CBDT in the matter.

The newspaper stated that this development had stemmed from a “quota” that the CBDT had given to the tax officials because of a shortfall in collections. “CBDT imposing a ‘quota’ for assessing officers to file prosecution leads to such a grave situation, said Dilip Lakhani, a senior Chartered Accountant, who added that the attempt to raise revenue by forcing assessees to opt for payment of compounding fees to avoid criminal proceedings could only be termed as arm-twisting.

According to a statement by a senior official, tax officers had been asked to issue about 2,00,000 notices during the financial year. While the actual number of notices could not be confirmed, some sources said that in the case of MNCs at least 500 had been served notice.

In another report published in The Times of India on January 20, 2019, Mr. Sushil Chandra, CBDT Chairman, was said to have issued a circular on January 6 asking his cadre to send prosecution notices to those wilfully evading payment of outstanding taxes and also for substantial defaults in remitting TDS to the government.

The report quoted Mr. Ameet Patel, CA and Chairperson of the Taxation Committee and Past President of the BCAS, as saying that “for the smallest defaults like late payment of TDS; of self-assessment tax; delayed or non-filing of tax returns (including TDS); taxpayers are issued show-cause notices asking why prosecution proceedings should not be launched against them. Even a mere non-filing of appeal against any addition to income or disallowance of expenditure made during assessment is a ground for launching prosecution. Further, tax-payers are given a very short period within which to respond.” The BCAS, the IMC, the CAA and other associations of CAs all over India had filed a representation with Revenue Secretary Ajay Bhushan Pandey protesting against the use of prosecution provisions in a mechanical manner, with minor mistakes being treated as major offences at par with large-scale evasion.

The representation pointed out that such action (prosecution notices) vitiated the promise of a non-adversarial tax regime. Even as many other steps (e-assessment and speedy refunds) had been taken to benefit tax-payers, the spate of prosecution notices sent a bad signal, it added.

BCAJ Admin

MISCELLANEA

Miscellanea was started by Narayan Varma
and Ajay Thakkar in 1984. A number of people compiled it for few years
including Rashmin Sanghvi, Uday Chitale, Ashutosh Pednekar, etc. Rajesh Muni
and Raman Jokhakar manned it between 1999-2000 to 2004-05. Tarun Singhal joined
in 2005 and continued with Raman till 2017. Present contributors Jhankhana
Thakkar joined in
2016-17 and Chirag Chauhan in January, 2018.

The
aim of this column was to bring out relevant and useful news and views ‘in
short’.

1. Technology

11. Apple’s
AirPower wireless charger may already be in production – and shipping soon

In September 2017, Apple
announced it would ship its AirPower product by the end of 2018. Expectations
grew with each passing quarter last year that the charging pad would finally
arrive. But Apple missed its own deadline and pundits surmised the company was
struggling with technical issues, such as how to regulate different charging
requirements on a single pad using the Qi wireless charging specification.

After failing to meet its
own shipping timeline in 2018, Apple is now thought to have two manufacturers
ramping up production of its AirPower wireless charging pad, according to a
Hong Kong-based website that specialises in device charging news. While there
may be more than a dozen multi-device wireless chargers technically available
now, but none have introduced a product that can handle all three of Apple’s
products: smartphone, watch and earbuds.

(Source:
www.itworld.com)

12. Facebook
testing stories feature that will encourage your friends to join you at parties

Facebook
wants to make invitation a simpler process. The social media company is
bringing a new Stories feature that will encourage your friends to join you at
events. The company announced that it will test a new feature that lets users
share events that they are interested in attending in to their Story and then
plan meet ups with friends who are also interested in attending the same.

So how
will the feature work? You will see a new option “Share to your
story” when you visit any event’s page on Facebook. Tech Crunch explains
that your friends will see a tappable sticker when you share the event to your
story. The sticker would include details of the event and your friends can
directly reply from the Story if they are “interested” in going.

Facebook
announces the new feature at the time when the company is losing its young
users at a faster pace. The eMarketer’s report from 2018 shows reveals that
last year less than half internet users in the US aged between 12- 7 used
Facebook at least once a month. The feature aims to attract younger users as
many of them have now moved to Instagram and prefer the app over Facebook for
posting photos and Stories.

(Source:
www.indiatoday.in)

13. Google
removes thousands of malicious Android apps and millions of fake reviews on
Play store

It’s high time, Google
scales up the security to ensure shady apps don’t enter Play store.

In the past few years,
Google, despite taking stringent measure to screen malicious apps creeping into
the Play, has been unable to control them. Now, the company in a massive
cleanup drive has removed millions of fake reviews and thousands of bad apps.

Recently, Google received
complaints from concerned app developers that the Play store rating systems are
being rigged with fake reviews affecting their rankings, which apparently
driving the consumers away. Taking the cognisance of the issue, Google studied
the pattern and found several targeted false reviews, the presence of profane
language to downgrade an app and also incentivised (paid) top ratings to
boosting rankings of the app.

During the screen, the
company unearthed thousands of shady apps with malicious features and has
removed them in addition to weeding out millions of fake reviews from the Play
store in just one week.

The
company has also urged Android app developers not to indulge in shady review
tactics by offering incentives such as free in-app purchases or gifts to lure
their users to write fake ratings or else risk getting banned from Play store.

Over the last one month,
Google has weeded out close to 35 apps from the Play store over fake ads.
Detailed investigations revealed that the apps were riddled with malicious
codes to create fake click impressions via users to generate ad revenue. Also,
some were found to steal financial information from the Android phone.

There were just two of the
techniques, app developers had several other methods and did them without
obtaining the user consent

(Source:
International Business Times)

2. Environment

14. Antarctica ice melting increased by 280% in
last 16 years, study says

Yearly loss of ice from
Antarctica has increased by an alarming rate of 280 per cent between 2001 and
2017, according to a study which showed that accelerated melting caused global
sea levels to rise more than half an inch in the last four decades.

The researchers,
including those from Nasa’s Jet Propulsion Laboratory (JPL) and Utrecht
University in the Netherlands, were able to discern that between 1979 and 1990,
Antarctica shed an average of 40 gigatonnes of ice mass annually From 2009 to
2017, about 252 gigatonnes per year were lost. The pace of melting rose
dramatically over the four-decade period. From 1979 to 2001, it was an average
of 48 gigatonnes annually per decade. The rate jumped 280 per cent to 134
gigatonnes for 2001 to 2017.

For
the study published in journal Proceedings of the National Academy of Sciences,
researchers conducted the longest-ever assessment of remaining Antarctic ice
mass. Spanning four decades, the project was also geographically comprehensive;
the research team examined 18 regions encompassing 176 basins, as well as
surrounding islands. As climate warming and ozone depletion send more ocean
heat toward those sectors, they will continue to contribute to sea level rise
from Antarctica in decades to come

(Source: www.economictimes.com)

3. World News

15. China
to cut taxes, keep policy flexible to counter slowdown

China plans to slash taxes,
step up spending and provide ample financing to private and small enterprises
to help counter the country’s worst slowdown since the global financial crisis
and the impact of a bruising trade war with the U.S. The People’s Bank of China
is confident it can keep the value of China’s currency, the yuan, steady while
maintaining a stable but flexible monetary policy

The plans for 2019 outlined
included specific measures such as raising the maximum income levels for tax
exempt companies and individuals and reducing the tax rate. The government
plans to begin construction of major projects and promote settlement of rural
migrants in cities, slash bureaucratic and anti-competitive red tape, cut
energy consumption and open more business areas to foreign investment, said
Lian Weiliang, vice chairman of the National Development and Reform Commission,
China’s planning agency.

(Source: economictimes.com)

16. Big
Four face major overhaul in U.K.

The Big
Four accounting firms may have to split their operations into separate U.K.
business units as part of a sweeping overhaul of the industry proposed by
regulators that stopped short of the measures sought by some critics. The
Competition and Markets Authority (CMA) said audit work should be split from
the much larger consulting business at an operational level, but held off on
recommending a full structural breakup or a cap on auditor’s market share. A
further report said the U.K. needed a tough new watchdog to prevent the
failings of the past.

Stung by a
string of scandals at prominent British firms including Carillion Plc, the
government demanded regulators set out reforms to roll back the dominance of
the largest accounting firms. The industry has had a turbulent year, with
record fines and reprimands in the U.K.

Separately
the U.K. government said it agreed with a new report that the country’s heavily
criticised Financial Reporting Council should be abolished and replaced with a
new accounting regulator. The new watchdog, the Audit, Reporting and Governance
Authority, would have powers to investigate companies, their accounts and
governance.

The FRC
was accused of being to be too close to the firms it oversaw, especially
Deloitte, KPMG, EY and PricewaterhouseCoopers. “I have sympathy with the
view that the FRC has tended overall to take too consensual an approach to its
work,” said John Kingman, who led a review of the regulator.

To
encourage more competition, the CMA said it currently preferred to have the
largest companies require joint reviews with two audit firms signing off on the
accounts rather than a market share cap on the auditors.

(Source:
www.accountingtoday.com)

4. Startups

17. Kochi
gets the biggest startup incubator in India

Kerala Chief Minister Pinarayi Vijayan on Sunday inaugurated India’s
biggest startup incubator at Kochi. The startup incubator- the Integrated
Startup Complex– which is housed inside a 1.8-lakh square-feet facility at the
Technology Innovation Zone (TIZ) in Kochi, is the home to host of segments that
cater to the modern technology.

The startup incubator, which has been setup under the watchful guidance
of the Kerala Startup Mission (KSUM), houses a number of modern facilities such
as the Maker Village that promotes hardware startups, the Bionest that promotes
medical technologies, BRINC which is India’s first international accelerator
for hardware startups, BRIC which aids developing solutions for cancer
diagnosis and care, and a Centre of Excellence, that has been backed by some of
the prominent tech companies that operate in India. Apart from boosting the
startup ecosystem, the state government is also planning to give 2.5 lakh
direct jobs in IT with an aim of fostering social development in Kerala.

(Source:
www.indiatoday.in)

18. Books
to help a busy entrepreneur like you avoid burnout this year

Books are
wisdom in refined, concentrated form. In that spirit, I’d can recommend several
books to buoy busy, frenetic or otherwise on-the-verge-of-burning-out
entrepreneurs. Some are new. Some are old. Some tackle the problem of burnout
head on, while others do so indirectly. Either way, I’m confident that each of
the below can increase your inspiration this year, and well beyond.

1. Log
Off: How to Stay Connected After Disconnecting– Blake Snow.

Snow, a
seasoned journalist, gives us this quick-read, which explains how to live large
on low-caloric technology, to increase face time with actual people, outperform
workaholics in half the time and increase our productivity with fewer online
distractions. Snow also does more than just throwing a lot of alarming
statistics and life-changing recommendations at the reader. Rather, he weaves
both into his own decade-long story, making his advice easier to follow and
remember. The concepts he gives names to, like the King Complex, the Rule of
Thirds, Reformed Luddism and the Four Burners Theory, are sure to spike your
productivity. Bonus points for being the shortest book on my list.

2. The
Last Place on Earth — Roland Huntford

Roland
Huntford’s account of this legendary tale of the 1911 South Pole race between
Roald Amundsen and Robert Scott is well researched and full of proven business
insights. While both men were incredibly brave, their individual approaches to
preparedness, forecasting and strategy for reaching the South Pole first were
strikingly different.

This was
so much so that after reading this book, you’ll probably take greater care in
leaving nothing to chance. You’ll also finish this book with a greater
appreciation for early explorers and how you might adopt similar success
strategies in your admittedly less dangerous existence. It’s crazy to think
this story still hasn’t caught Hollywood’s attention.

3. Console
Wars: Sega, Nintendo, and the Battle that Defined a Generation — Blake Harris

Looking
for a fun read? Need a fresh perspective before planning your next marketing
campaign? Look no further than Harris’s riveting account of one of the ‘90s
greatest rivalries. “There was no such thing as a magic touch,” writes Harris.
“The only thing it takes to sell toys, vitamins, magazines (or anything) is the
power of story. That was the secret. That was the whole trick: to recognize
that the world is nothing but chaos, and the only thing holding it (and us)
together are stories.” Console Wars is as good as (if not better than) David
Sheff’s seminal Game Over: How Nintendo Conquered The World.

4. A Short
History of Nearly Everything — Bill Bryson

Bryson is
one of the most beloved non-fiction writers today. And, here, he impressively,
humorously and succinctly summarises how we “big banged” from nothing to get
where we are today as a species. To accomplish this, Bryson spent three years
researching the world’s greatest scientific discoveries and interviewing the
people who know them best.

Simply
put, the result is awe-inspiring. “It has been suggested that there isn’t a
single bit of any of us — not so much as a stray molecule — that was part of
us nine years ago,” Bryson writes. “It may not feel like it, but at the
cellular level we are all youngsters.”

5. Peak
Performance: Elevate Your Game and Avoid Burnout with the New Science of
Success –Brad Stulberg and Steve Magness

What would happen if a successful management consultant and Olympic
coach teamed up to study and distill the secret of top performers? Thankfully,
they have. This new book is the result and covers how anyone can achieve his or
her best. “Whether someone is trying to qualify for the Olympics, break ground
in mathematical theory, or craft an artistic masterpiece, many of the practices
that lead to great success are the same,” the authors assert.

For
example, “stress plus rest equals growth” means you get better
results when you design and live a routine-filled day; and having a greater
purpose keeps you focused and motivated.

6.
Thinking Fast and Slow — Daniel Kahneman

The better you understand the human mind, the wiser you’ll know how to
use, master, and leverage it. That’s why everyone — entrepreneurs very much
included — should read this breakthrough book by Nobel Prize-winning
behavioral scientist Kahneman. After decades of research, Kahneman was the
first to discover that the brain makes decisions in two ways. The first is
“fast thinking,” which makes everyday, mostly involuntary and largely gut-based
decision-making possible. This means decisions like eat this, pick up that,
move out of the way and stay alive.

“Slow
thinking,” on the other hand, means slow to engage and deliberate, even lazy,
because this kind of thinking requires significantly more energy. The trick to
being a better thinker, therefore, lies in knowing and understanding how to
trigger your “slow thinking” more often. This book shows you how.

(Source:
www.entrepreneur.com)

BCAJ Admin

BOOK REVIEW

“CRASH –
Lessons from the entry and exit of CEOs” by Shri R. Gopalkrishnan

Shri R. Gopalkrishnan is a
well known Corporate Leader and Management Author and Advisor and needs no
Introduction. However, a few words of Introduction will be useful to a Young
reader.

He studied physics at
University of Kolkata, Engineering at IIT Kharagpur. He has attended advanced
Management Program at Harvard Business School. He has served as the Chairman of
“Unilever Arabia, M.D. of Brooke Bond Lipton, Vice Chairman of Hindustan Lever,
and as the Executive Director of Tata Sons and several Tata Group Companies.
Presently, he is a Corporate Advisor. He is actively engaged in both
Instructional and Inspirational Speaking. He is the author of bestselling books
such as The Case of the Bonsai Manager, When the Penny Drops: Learning
What’s Not Taught, and A Biography of Innovations: From Birth to Maturity.

While many people talk
about the path to the top of organisations, very few are honest about how
difficult it is to stay at that position. Shri R. Gopalakrishnan
analyses the ‘software’ challenges, which leaders confront every day, and
shares the insights he has gained developing, managing, investing in and
supervising a variety of companies. The author shows that great leaders
continue to excel not just because of their skills and intelligence but also by
connecting with others using emotional competencies like empathy and
self-awareness.

The book is divided into 2
parts- Part One has 5 chapters and Part 2 has 15 Chapters.

In part One of the book,
the Author explores many pertinent questions: Is company performance a
surrogate for leadership and CEO Performance? If a company falters, is it
purely related to CEO performance? Conversely, if a company does well, is it a
definite credit to the leader?

The Author observes that to
be successful, a CEO requires cognitive intelligence as well as an intuitive
emotional intelligence – which means he or she must have a responsive sense of
empathy for the views of various stakeholders. In his experience, once a person
gets into a leadership role, there are forces that cause his or her emotional
intelligence or sense of empathy to shrink, This poses the real and hidden
challenge to the leader, a challenge he or she is unprepared for. The power of
a leader damages his/her brain. The damage cannot be totally avoided, but its
pernicious effects can be mitigated.

The Author then goes to
examine why power causes brain damage. He examines: What brings out the
best in a person? Perhaps a need to challenge one’s capability? He
opines: when leaders feel that their intelligence is being tested rather than
being merely incentivised through money their motivation is triggered. Money
helps, but ambition is aroused of internal drives and challenges. This is what
people in Leadership positions experience when they assume a bigger
responsibility.

The Author observes that
power causes a significant behavioural change in leaders. Leaders tend to be
self assured, they need to be so if they have to lead their people and the line
that divides self-assuredness and over confidence is a thin one. The leader’s
confidence can be rooted in logic and data, or it can be rooted in feelings and
emotions. If his /her confidence is based on the best available data, then the
leader comes across as authentic. It is a positive form of self confidence. If
the leader’s confidence is not data based, the leader may seem impetuous or
someone who is not rooted in reality. This is negative form of self confidence.

The author
goes on to examine how and why power damages the leader’s brain. What happens
in cases of behavioural change? Does the person change because of power or
because of being placed in a radically different context? Or do the people
around the new leader view him/her through a separate set of lenses?
The Author puts it simply, and shorn of jargon, that Leaders loose a bit of
their emotional capacities, those very emotional capacities that were essential
to their rise. That holding power change the way leaders process their world.
They became impulsive, less risk–aware and less adept at seeing things from
other people’s perspective. That power blinds the leader to others’
perspectives, power turned the leader into an abstract thinker, power leads to
unrealistic optimism about goals and power leads to the view of the world in
terms of goals already set.

The Author concludes that
power intoxicates and it impairs human judgement-in short the acquisition of
power causes brain damage. Every leader whether in politics or society or
business is vulnerable to this danger. Several leaders learn to cope with the
inevitable threats and dangers, but many fail. They become victims of
the affliction.

Thus, in Part One of the
Book the Author examines the above questions and issues on the basis of his
extensive study and review of the available literature on the subject, and his
long years in business in leadership positions.

In part Two of the book,
divided into 15 chapters, it tells similar stories of various well known
business leaders who exited from their CEO positions for one reason or
another : Carly Fiorina HP at HP, Jamie Dimon at Citibank, Vikram Pandit at
Citigroup, John R. Walter at AT&T, Lee Iacocca & Mark Fields at Ford
Motors, Michael Ovitz at Walt Disney Company, G.Richard Thoman at Xerox, Jim
Donald at Starbucks, Travis Kalanick at Uber, Chris Viehbacher at Sanofi,
Ramesh Sarin at Voltas India, Klaus Kleinfeld at Arconic, Anshu Jain at
Deutsche Bank, Vishal Sikka at Infosys. It is pertinent to note that none of
the aforesaid leaders had to exit either due to moral turpitude or financial
misdemeanour.

The Author narrates an
incident involving a heated exchange between J.R.D. Tata and a Senior Director,
A.D. Shroff, who sent his resignation from the Tata Group. The matter was
patched up by J.R.D with a great sense of egalitarianism and humility,
in his letter to A.D. Shroff, dated 23.08.1951:

“I was surprised and
upset at receiving your letter. I do not remember exactly the words I used
during the somewhat heated exchange at the agents’ meeting but my complaint to
you was merely that an argument you used to score a debating point over me was
not an honest one. That is surely a far cry from questioning your honesty and I
am surprised that you interpreted it in that way.

You have a
right to resent my speaking angrily or showing your discourtesy as a result,
and for that I sincerely apologize, but if friends and associates decided to
part every time they had an argument, life would become
very difficult.”

In the
Epilogue, the Author quotes Thomas Middelhoff, a top–notch and famous executive
in Germany, CEO of the German media giant- Bertelsmann, later on found guilty
of misusing corporate funds and sentenced to 3 years in jail on charges of
embezzlement and related tax frauds, after his release from the jail from an
interview by Financial Times in May 2018, “I was out of touch with reality and
thought that certain rules did not apply to me. Ability brings you to the
top, but character keeps you there.” He admitted that a key flaw in his
character was constantly craving public attention and affirmation. Over the
years, he felt that he had been carried away by narcissism and hedonism.

The book is based on the
Author’s extensively study and research on the subject, which is borne out by
copious notes at the end of the book running in about 30 pages wherein he has
given references to all his sources.

Filled with anecdotes,
analysis of various situations CEOs may find themselves in and unconventional
advice to help them, Crash: Lessons from the Entry and Exit of CEOs
is for veteran leaders as well as for those who aspire to start their own
ventures. This book is useful not only to CEOs and other Senior Management
Executives but also to every person who is running even a small or medium size
Organisation.

BCAJ Admin

RIGHT TO INFORMATION (r2i)

The column r2i was started in November,
2005 by Narayan Varma. The feature aimed to cover changes in the Act, RTI
success stories, current developments/issues and RTI decisions. The idea was to
encourage the members to use the power of RTI and become effective citizens.

Narayanbhai
single handedly wrote it for nearly 15 years till he was joined by 2 young
members. Since his passing away, Jinal Sanghvi has been writing it as the sole
author. When we asked her what keeps her going, she said: “The zeal of my
mentor, Varma sir and his dedication and love towards RTI”

PART A DECISION OF SUPREME COURT

? EVM is ‘information’ under
Right to Information Act, rule Central Information Commission

An Electronic Voting Machine (EVM) is “information” under the Right to
Information Act, the Central Information Commission has ruled.

The Commission was hearing the appeal of an RTI applicant who had asked
the Election Commission for an EVM but was denied.

Chief Information Commissioner (CIC) Sudhir Bhargava ruled that “the EVM
which is available with the respondent [ECI] in a material form and also as
samples … is an information under the RTI Act.”

EVMs have been in the spotlight recently as several Opposition leaders
have raised doubts about the credibility of the machines. They have also
demanded that the ECI cross-check 50% of results with voter-verifiable paper
audit trails (VVPAT) in the upcoming Lok Sabha poll.

Mr. Bhargava noted that the definition of information under Section 2(f)
of the RTI Act includes “any material in any form, including records,
documents, memos, e-mails, opinions, advices, press releases, circulars,
orders, logbooks, contracts, reports, papers, samples, models, data material
held in any electronic form…”

The CIC upheld applicant Razaak K. Haidar’s contention that the terms
“models” and “samples” should apply to an EVM.

ECI Under-Secretary Soumyajit Ghosh admitted that “models/samples of EVM
are available with the ECI, but the same are only kept for training purpose by
the ECI, and not saleable to the general public.”

Fresh argument

Mr. Ghosh also argued that the information was exempted from disclosure
under section 8(1)(d) of the RTI Act as “the software installed in the machines
is an intellectual property of a third party, the disclosure of which would
harm the competitive position of the third party concerned.”

Mr. Bhargava noted this fresh argument, but did not rule on it. Instead,
he directed the ECI to file an appropriate response to the appellant within
four weeks, as it had erroneously denied the information sought, using Section
6(1) of the RTI Act, which does not deal with grounds for exemption.

(Source:https://www.thehindu.com/news/national/evm-is-information-under-right-to-information-act-rule-central-information-commission/article26358323.ece
)

PART B RTI ACT, 2005

? BCAS Right To Information
Clinic

• Year of Commencement: 2006

• Total years the Clinic has
been in operation: A little more than 12 years

• Fees charged: No fees charged
/ Services are provided pro-bono

• Days of operation: 2^nd,
3^rdand 4^th Saturday of every month

• Timing: 11:00 am to 1:00 pm at
BCAS premises

• RTI applications made or
advised provided: Average of 5 per week

n Some Matters dealt under RTI by the clinic:

n State Government, Central Government, MCGM
(BMC), Income Tax, Sales Tax, Gifts Tax, Wealth Tax, Service Tax, Value Added
tax (VAT), GST, Professional Tax, MTNL, BEST, Railways, Excise Duty, Police,
Bank, Bond, Co-op Banks, Co-op Societies, Voter ID Cards, Caste Certificates,
PPF, EPF, Pension, Air India, MHADA amongst many others.

• Objective of the Right to
Information Act: The basic object of the Right to Information Act is to empower
the citizens, promote transparency and accountability in the working of the
Government, contain corruption, and make our democracy work for the people in
real sense. It goes without saying that an informed citizen is better equipped
to keep necessary vigil on the instruments of governance and make the
government more accountable to the governed. The Act is a big step towards
making the citizens informed about the activities of the Government.

• The RTI Act empowers Indians
to do the following:

Request any information from any public office, Take copies of the
documents, Inspect those documents, Inspect the progress of works and, Take
samples of materials used at work sites

PART C IINFORMATION
ON & AROUND

Unaided schools, colleges under RTI ambit
now

Students and their parents running from pillar to post for getting
information from unaided privately managed high schools, secondary schools and
colleges have a reason to cheer as the Chief Information Commission (CIC) has
ruled that all recognised unaided high, secondary schools and colleges fall
under the preview of the Right to Information (RTI) Act.

Consequently,
the Director, Higher Education, has designated all District Education Officers
(DEOs) as Public Information Officers (PIOs) of respective districts for
furnishing relevant information, while the Additional Director or Joint
Director (Administration) will be the first appellate authority under the Act.

The question whether purely private high schools and colleges, not
getting any aid from the government be brought under the preview of the RTI
Act, had been there for quite some time. Following an appeal filed by one
Balbir Singh, the state CIC had issued directions to the Education Department
to appoint the PIOs and an appellate authority for these educational
institutions to facilitate people at large to seek information under the RTI
Act, 2005.

Now, the CIC has passed interim orders in appeals filed against a
senior secondary school in Una district and a high school in upper Shimla,
saying: “Given the definition of ‘information and appropriate government’ in
section 2(f) and section 2(a) of the RTI Act, the information available with
the ‘public authority” (Education Department) under the Right to Education
Act-2009, the HP Private Education Institutions (Regulation) Act-1997 or any
other regulatory mechanism related to any private body which can be accessed by
a ‘public authority’ is covered under ‘information’ and the same has to be
provided by the Education Department.

(Source:https://www.tribuneindia.com/news/himachal/unaided-schools-colleges-under-rti-ambit-now/735081.html)

In RTI Reply To Telangana Voter
Deletions, Poll Commission Admits Lapses

The names of a large number of voters in Telangana were deleted from
electoral rolls without due procedure ahead of last year’s assembly elections,
responses to queries under the Right To Information Act has revealed.

Reports of large-scale voter deletions had sparked anger during the
Telangana elections on December 7. It had been reported how a software that
linked voter IDs with Aadhaar may have played a role in the deletions.
Responses to RTI queries now show there were flaws in the verification process.

A letter dated 8^th August 2015, written by then Chief
Electoral Officer of Telangana, Bhanwar Lal, to Sumit Mukherji, Secretary of
the Election Commission, states “door to door verification not conducted
properly” in 24 assembly seats of the Greater Hyderabad Municipal
Corporation Area and there were “many complaints that BLOs (Booth Level
Officers) have not visited houses”.

Between February and August 2015, the Election Commission had carried
out the National Electoral Roll Purification and Authentication Programme or
NERPAP, as part of which, voter IDs were linked with Aadhaar through a software
to weed out duplicates.

But before someone cane be deleted, the name has to be on electoral
rolls first.

Rules say the Election Commission has to go door-to-door issuing a
notice to each voter. If a house is
locked, the official is supposed to visit two more times and even then if the
voter is not available, he has to paste a sticker asking her to contact the EC.

Replies to the RTI indicate this was not done.

Srinivas Kodali, a cybersecurity researcher who filed the RTI, claims
the Commission is hiding a lot more.

“The Election Commission, UIDAI and Chief Electoral Officer of
Telangana have consistently denied the role of Andhaar and state resident data
hub on voter deletions,” he said, accusing them of hiding facts.

“Even now, we don’t know the details of the pilot projects which
have taken place in Telangana. The Election Commission must answer for this.
They need to delete Aadhaar data with them, voter data with government and give
the lists of deleted voters”.

Rajath Kumar, the current Chief Electoral Officer of Telangana, claims
even if some names were deleted, the Commission has solved the issue by giving
ample opportunity to voters.

“The NERPAP exercise was carried out in 2015 and subsequently
there have been not only the annual revisions in 2016, 2017 and 2018, but we
also had the elections in 2018, during which 26 lakh voters were registered,
both new as well as those who got re-enrolled,” Mr Kumar said.

The commission, he said, has carried out a drive now to prepare the
list with effect from 1^stJanuary in which 17.72 lakh voters have
come in, “so we have given maximum amount of opportunity for those whose
names were deleted at that time”.

“The best that I can do as current CEO is to give them maximum
opportunity to re-enroll themselves,” Mr Kumar added.

(Source:https://www.ndtv.com/telangana-news/in-rti-reply-to-telangana-voter-deletions-poll-commission-admits-lapses-1999191
)

Cryptocurrencies in India legal,
regulation in final stages, reveals RTI query

The Indian government is in the final stages of formulating regulations
on cryptocurrencies, according to an RTI response from the Department of
Economic Affairs.

The response was with regard to the RTI filed by Coin Crunch India on
December 13, 2018, asking whether the panel on cryptocurrency has recommended a
ban on Bitcoin and if they have submitted the report to the Ministry of
Finance.

“The report of the Committee is in the finalisation stage, hence,
prohibited under section 8(3) of RTI Act, 2005,” the ministry said in its
response.

(Source:https://www.moneycontrol.com/news/business/cryptocurrency/indias-cryptocurrency-regulation-in-final-stages-3447481.html)

Pune RTI activist found dead

An RTI activist missing since January 30 was found dead in Pune
district, a police officer said on Tuesday.

Police suspect Vinayak Shirsath, 32, was murdered.

The decomposed body was found near a village on Lavasa Road on Monday
evening, the officer said.

Shirsath, a resident of Pune city, was reported missing on January 31.
His family had registered a police complaint.

“We later registered a kidnapping case on February 5 after his
family raised a suspicion that he might have been abducted as he had raised his
voice under the Right to Information (RTI) Act against illegal construction
work in some parts of the city,” the police officer said.

Shirsath’s family pointed fingers at several people linked to the real
estate sector, but during the probe all of them were found to be close friends
of the deceased, he said.

A case has now been registered under IPC sections 302 (murder) and 201
(causing disappearance of evidence of offence) and a probe is under way, the
police said.

(Source:https://www.telegraphindia.com/india/pune-rti-activist-found-dead/cid/1684353)

RTI Clinic in March 2019: 2^nd, 3^rd, 4^th
Saturday, i.e. 9^th, 16^th and 23^rd 11.00 to 13.00 at BCAS premises.

BCAJ Admin

FROM PUBLISHED ACCOUNTS

This
monthly feature was started in August, 1976 and contained the description
“Notes as appeared in printed balance sheet of various companies regarding
maintenance of proper records of Fixed Asset”. It contained only two pages and
notes were taken from seven companies. No author name was stated.

From
1980-81 N H Kishnadwala wrote the feature till 1986-87. Nayan Parikh took over
from him from 1987-88 till 1994-95 along with other co-authors during that
time. In 1995-96 Ashok Dhere and Himanshu Kishnadwala carried it forward.
Himanshu has been contributing for 24 years now. Many others joined him during
that time for few years. Since 2009-10, Himanshu has been the sole contributor
to this 39-year-old feature.

In the early days, physical annual reports
had to be procured and then reviewed. Many people had to be requested to send
annual reports of companies. While earlier version carried abstracts from
Indian companies, the present feature covers reporting done by foreign
companies too. Feature covers new disclosures and notes, conflicting
disclosures by companies for accounting standards, comments in audit report and
other disclosures.

Limited Review
report containing ‘Qualification’ for potential Inventory losses and ‘Emphasis
of Matter’ for managerial remuneration and other pending inquiries on certain
past transactions and litigation

UNITED SPIRITS LTD (quarter ended 31^st
December, 2018)

From Statutory Auditors’ Limited Review
Report

Basis for Qualified Conclusion

4. We draw your attention to Note 11 to the
Statement, which states that the Company has come across differences in the
process losses and potential resultant differences in the inventory of few
categories of work in progress in certain plants, for which the company is
taking appropriate steps as described in the aforesaid Note. At this stage the
Company is not able to determine the related financial impact, if any, and
consequently we are unable to comment on the impact of this matter on the
Company’s results for the quarter ended 31^st December, 2018, as
reported in the Statement.

Qualified Conclusion

5. Based on our review conducted as above,
except for the matter stated in Basis for Qualified Conclusion in paragraph 4
above, nothing has come to our attention that causes us to believe that the
Statement has not been prepared in all material respects in accordance with the
applicable Accounting Standards prescribed u/s. 133 of the Companies Act, 2013
and other recognised accounting practices and policies, and has not disclosed
the information required to be disclosed in terms of Regulation 33 of the
Listing Regulations, 2015, including the manner in which it is to be disclosed,
or that it contains any material misstatement.

Emphasis of Matter

6. We draw attention to the following matters:

a) As explained in Note 6 (a) to the Statement,
the Managerial remuneration for the year ended 31^st March, 2015
included amounts paid to managerial personnel in excess of the limits
prescribed under the provisions of Schedule V to the Companies Act, 2013 by Rs.
134 million to the former Executive Director and Chief Financial Officer (ED
& CFO). The Company has initiated steps, including by way of filing a suit
for recovery before the jurisdictional court, to recover such excess
remuneration from the former ED&CFO.

b) As explained in Note 3 to the Statement, upon
completion of the Initial Inquiry, which identified references to certain
Additional Parties and certain Additional Matters, the MD & CEO, pursuant
to the direction of the Board of Directors, had carried out an Additional
Inquiry that revealed transactions indicating actual and potential diversion of
funds from the Company and its Indian and overseas subsidiaries to, in most
cases, Indian and overseas entities that appear to be affiliated or associated
with the Company’ erstwhile non-executive Chairman and other potentially
improper transactions. The amounts identified in the Additional Inquiry have
been fully provided for or expensed by the Company or its subsidiaries in
earlier periods. Management is currently unable to estimate the financial
impact on the Company, if any, arising from potential non-compliances with
applicable laws in respect of the above.

c) As explained in Note 4 to the Statement,
pursuant to its strategic objective of divesting non-core assets and
rationalisation of its subsidiaries, the Company has commenced the
rationalisation process and has sought approval of regulatory authorities for
divesting its stake in an overseas subsidiary and liquidating three of its
wholly owned overseas subsidiaries (and three of its wholly owned step-down
overseas subsidiaries). The completion of the above divestment as well as
liquidations by the Company are subject to regulatory and other approvals (in
India and overseas). At this stage, it is not possible for the management to
estimate the financial impact on the Company, if any, arising out of potential
historical non-compliances, if any, with applicable laws, with respect to its
overseas subsidiaries.

d) As explained in Note 8 to the Statement, the
Company is in litigation with a bank (“the Bank”) that continues to
retain the pledge of certain assets of the Company and of the Company’s shares
held by USL Benefit Trust (of which the Company is the sole beneficiary)
despite the Company prepaying the term loan to that bank along with the
prepayment penalty and further depositing an additional sum of Rs. 459 million
demanded by the Bank and as directed by the Hon’ble High Court of Karnataka
(the “Court”). The Court has directed the Bank not to deal with the
pledged assets of the Company (including the shares held by USL Benefit Trust)
as mentioned above till the disposal of the original writ petition filed by the
Company in the Court.

e) Note 7 to the Statement:

i) regarding clarifications sought by
Securities and Exchange Board of India on matters covered by the Company’s
Initial Inquiry and Additional Inquiry and certain aspects of the agreement
entered into by the Company with its erstwhile non-executive Chairman to which
the Company has responded;

ii) regarding various issues raised and show
cause notices issued pursuant to an inspection u/s. 206(5) of the Companies
Act, 2013 by Ministry of Corporate Affairs/ Registrar of Companies, Karnataka,
alleging violation of certain provisions of the Companies Act, 1956 and
Companies Act, 2013, to which the Company had responded. Further, the Company
has received a letter dated 13^th October, 2017 from the Registrar of
Companies, Karnataka (the “Registrar”) inviting the Company’s
attention to the compounding provisions of the Companies Act, 1956 and
Companies Act, 2013 following the aforesaid show cause notices. The Company
thereafter had filed applications for compounding of offences with the
Registrar in relation to three show cause notices, applications for
adjudication with the Registrar in relation to two show cause notices and had
requested the Registrar to drop one show cause notice based on expert legal
advice received, for which response is awaited.

iii) regarding the ongoing investigation by the
Directorate of Enforcement in connection with the agreement entered into by the
Company with its erstwhile nonexecutive Chairman and investigations under the
provisions of Foreign Exchange Management Act, 1999 and Prevention of Money
Laundering Act, 2002 to which the Company had responded; and

iv) regarding clarifications sought by Authorised
Dealer banks in relation to certain queries from the Reserve Bank of India with
regard to remittances made in prior years by the Company to its overseas
subsidiaries, past acquisition of the Whyte and Mackay group, clarifications on
Annual Performance Reports submitted for prior years and clarifications on
compliances relating to the Company’s overseas Branch office, to which the
Company had responded.

Our conclusion is
not modified in respect of the matters described under paragraph 6 above.

From Notes to
Statement of Standalone Unaudited Results

3. Additional Inquiry

As disclosed in the
financial statements for the years ended 31^st March, 2017 and 31^st
March, 2018, upon completion of the Initial Inquiry which identified references
to certain additional parties and certain additional matters, the MD & CEO,
pursuant to the direction of the Board of Directors, had carried out an
additional inquiry into past improper transactions (‘Additional Inquiry’) which
was completed in July 2016 and which, prima facie, identified transactions
indicating actual and potential diversion of funds from the Company and its
Indian and overseas subsidiaries to, in most cases, Indian and overseas
entities that appear to be affiliated or associated with the Company’s former
non-executive Chairman, Dr. Vijay Mallya, and other potentially improper
transactions. All amounts identified in the Additional Inquiry have been
provided for or expensed in the financial statements of the Company or its
subsidiaries in prior periods. At this stage, it is not possible for the
management to estimate the financial impact on the Company, if any, arising out
of potential non-compliances with applicable laws in relation to such fund
diversions.

4. Subsidiaries
Rationalisation

a) In relation to its subsidiaries and pursuant
to its strategic objective of divesting non-core assets which began with the
divestment of Bouvet Ladubay SAS, Chapin Landais SAS and United Spirits Nepal
Pvt Ltd, the Company has reviewed its subsidiaries’ operations, obligations and
compliances, and made plans for their rationalisation through sale, liquidation
or merger (“Rationalisation Process”).

b) During the quarter ended 30^th
September, 2018, the Company entered into an agreement for the sale of its
entire 51% equity holding in Liquidity Inc. and has sought approval of
regulatory authorities for divesting its stake in Liquidity Inc., as well as
for liquidating two of its wholly owned overseas subsidiaries, United Spirits
Trading (Shanghai) Company Limited and Montrose International SA. During the
quarter ended 31^st December, 2018, the Company has also sought
regulatory approval in respect of liquidating its wholly owned subsidiary, USL
Holdings Limited including its three wholly owned step-down overseas
subsidiaries. The completion of the above sale as well as liquidations by the
Company are subject to regulatory and other approvals (in India and overseas).
During this Rationalisation Process, if any historical non-compliances are
established, the Company will consult with its legal advisors, and address any
such issues including, if necessary, considering filing appropriate compounding
applications with the relevant authorities. At this stage, it is not possible
for the management to estimate the financial impact on the Company, if any,
arising out of potential non-compliances if any, with applicable laws.

c) On 16^th January, 2019, the Company
completed the sale of its entire equity shares held by the Company in its
wholly owned subsidiary Four Seasons Wines Limited (FSWL) along with wine
brands and FSWL’s interest in its associate Wine Society of India (WSI), to
Quintella Assets Limited and Grover Zampa Vineyards Limited. The shares were
sold for a total sale consideration of INR 319 million. Following the
completion of this sale, the Company does not hold any shares in FSWL or WSI
and FSWL has ceased to be a subsidiary of the Company. Also refer Note 10.

6. Excess
managerial remuneration

a) The managerial remuneration for the
financial year ended 31^st March, 2015 aggregating Rs. 63 million and
Rs. 153 million to the Managing Director & Chief Executive Officer (‘MD
& CEO’) and the former Executive Director and Chief Financial Officer (‘ED
& CFO’), respectively, was approved by the shareholders at the annual
general meeting of the Company held on 30^th September, 2014. The
aforesaid remuneration includes amounts paid in excess of the limits prescribed
under the provisions of Schedule V to the Companies Act, 2013 by Rs. 51 million
to the MD & CEO and by Rs. 134 million to the former ED & CFO.
Accordingly, the Company applied for the requisite approval from the Central
Government for such excess remuneration. The Central Government, by letters
dated 28^th April, 2016 did not approve the Company’s applications.
On 24^th May, 2016 the Company resubmitted the applications, along
with detailed explanations, requesting the Central Government to reconsider approving
the waiver of excess remuneration paid. In light of the findings from the
Additional Inquiry, by its letter dated 12^th July, 2016, the Company
withdrew its application for approval of excess remuneration paid to the former
ED & CFO and has filed a civil suit before the jurisdictional court to
recover the sums from the former ED & CFO. Consequent to the notification
of section 197(17) of the Companies Act, 2013 effective 12^th
September, 2018, the pending application of MD & CEO resubmitted to the Central
Government seeking approval automatically stands abated. The Company has,
during January 2019, secured the requisite approval from shareholders by way of
postal ballot exercise approving the waiver of excess remuneration paid to MD
& CEO.

b) Certain amendments have been carried out, inter
alia, to section 198 and Schedule V of the Companies Act, 2013
(“Act”) by way of the Companies (Amendment) Act, 2017, which are
effective from 12^th September, 2018 (“Amendments”),
relating to the remuneration payable to directors by a company. The Company has
negative free reserves and accumulated losses of approximately Rs. 26,580
million as of 31^st March, 2018. Pursuant to these Amendments, the
accumulated losses of a company are required to be set off against the profits
in a given financial year while calculating the profit of the Company for such
financial year u/s. 198. Consequent to the aforesaid amendments, the profit of
the Company (calculated in terms of section 198) is expected to be negative for
the financial year ending 31^st March, 2019. As a result,
remuneration paid and payable to Executive Directors may exceed the limits as
per Schedule V read with section 197 of the Act for the year ending 31^st
March, 2019 and remuneration payable to Non-executive Directors is likely to
exceed the limits as per section 197 both read with section 198 as amended.

The Company has,
during January 2019 secured the requisite approval of the shareholders by way
of postal ballot exercise for the remuneration paid/ payable to the Executive
Directors and remuneration payable to Non-executive Directors for the financial
year ending 31^st March, 2019, 31^st March, 2020 and 31^st
March, 2021 or till the end of the Directors tenure of appointment/
reappointment, whichever is earlier, notwithstanding that such remuneration may
exceed the limits specified under section 197 and Schedule V of the Companies
Act, 2013 as amended.

7. Regulatory
notices and communications

The Company has
previously received letters and notices from various regulatory and other
government authorities as follows:

a) as disclosed in the financial statements for
the years ended 31^st March, 2016, 31^st March, 2017 and 31^st
March, 2018, from the Securities Exchange Board of India (‘SEBI’), in relation
to the Initial Inquiry, Additional Inquiry, and matters arising out of the
Agreement dated 25^th February, 2016, entered into by the Company
with Dr. Vijay Mallya to which the Company has responded. No further communications
have been received thereafter;

b) as disclosed in the financial
statements for the years ended 31^st March, 2016, 31^st
March, 2017 and 31^st March, 2018, from the Ministry of Corporate
Affairs (‘MCA’) in relation to its inspection conducted u/s. 206(5) of the
Companies Act, 2013 during the year ended 31^st March, 2016 and
subsequent show cause notices alleging violation of certain provisions of the
Companies Act, 1956 and Companies Act, 2013, to which the Company had
responded. The Company had also received a letter dated 13^th
October, 2017 from the Registrar of Companies, Karnataka (the ‘Registrar’)
inviting the Company’s attention to the compounding provisions of the Companies
Act, 1956 and Companies Act, 2013 following the aforesaid show cause notices.
During the year ended 31^st March, 2018, the Company filed
applications for compounding of offences with the Registrar in relation to
three show cause notices, applications for adjudication with the Registrar in
relation to two show cause notices, and requested the Registrar to drop one
show cause notice based on expert legal advice received. The Company is
awaiting a response from the Registrar to the aforesaid applications. The
management is of the view that the financial impact arising out of compounding/adjudication
of these matters will not be material to the Company’s results;

c) as disclosed in the financial statements for
the years ended 31^st March, 2016, 31^st March, 2017 and 31^st
March, 2018, from the Directorate of Enforcement (‘ED’) in connection with
Agreement dated 25^th February, 2016, entered into by the Company
with Dr. Vijay Mallya and investigations under the Foreign Exchange Management
Act, 1999 and Prevention of Money Laundering Act, 2002, to which the Company
had responded. No further communications have been received thereafter; and

d) as disclosed in the financial statements for
the year ended 31^st March, 2017 and 31^st March, 2018,
from the Company’s authorised dealer banks in relation to certain queries from
the Reserve Bank of India (‘RBI’) with regard to: (i) remittances made in prior
years by the Company to its overseas subsidiaries; (ii) past acquisition of the
Whyte and Mackay group; (iii) clarifications on Annual Performance Reports
(‘APR’) submitted for prior years; and (iv) compliances relating to the
Company’s overseas Branch office, to all of which the Company had duly
responded.

8. Dispute
with a bank

As disclosed in the
financial statements for the years ended 31^st March, 2015, 31^st
March, 2016, 31^st March, 2017 and 31^st March, 2018,
during the year ended 31^st March, 2014, the Company decided to
prepay a term loan taken from a bank in earlier years under a consortium
arrangement, secured by assets of the Company and pledge of shares of the
Company held by the USL Benefit Trust (of which the Company is the sole
beneficiary). The Company deposited a sum of Rs. 6,280 million, including
prepayment penalty of Rs. 40 million, with the bank and instructed the bank to
debit the amount from its cash credit account towards settlement of the loan
and release the assets and shares pledged by the Company. The bank, however,
disputed the prepayment. The Company has disputed the stand taken by the bank
and its writ petition filed on 6^th November, 2013 is pending before
the Hon’ble High Court of Karnataka. In August 2015, the bank obtained an ex
parte injunction in proceedings between the bank and Kingfisher Airlines
Limited (KFA), before the Debt Recovery Tribunal, Bangalore (‘DRT’),
restraining the USL Benefit Trust from disposing of the pledged shares until
further orders. The Company and USL Benefit Trust, upon receiving notice of the
said order, filed their objections against such ex parte order passed in
proceedings in which neither the Company nor the USL Benefit Trust were
enjoined as parties. In February 2016, the Company received a notice from the
bank seeking to recall the loan and demanding a sum of Rs. 459 million.
Pursuant to an application filed by the Company before the Hon’ble High Court
of Karnataka, in the writ proceedings, the Hon’ble High Court of Karnataka
directed that if the Company deposited the sum of Rs. 459 million with the
bank, the bank should hold the same in a suspense account and should not deal
with any of the secured assets including shares pledged with the bank till
disposal of the original writ petition filed by the Company before the Hon’ble
High Court of Karnataka. During the quarter ended 30^th June, 2016,
the Company deposited the said sum and replied to the bank’s various notices in
light of the above. The aforesaid amount has been accounted as other
non-current financial asset. On 19^th January, 2017, the DRT
dismissed the application filed by the bank seeking the attachment of USL
Benefit Trust shares. During the quarter ended 30^th September, 2017,
the bank filed an ex-parte appeal before the Debt Recovery Appellate Tribunal
(‘DRAT’), Chennai against the order of the DRT. During the quarter ended 31^st
December, 2017, the Company has been impleaded in the proceedings subsequent to
the DRAT’s order. The appeal is pending for final hearing. With regard to the
writ petition filed before the Hon’ble High Court of Karnataka, an early
hearing application was allowed and the hearing of the main matter has
commenced during the quarter ended 31^st December, 2018.

11. During
the quarter, the Company has come across potential differences in process
losses and potential resultant differences in the inventory of a few categories
of work in progress in certain plants. The Company is in the process of
undertaking a review in affected plants, with the help of an independent expert
as required, in order to ascertain the actual quantum of differences, if any.
Should the findings establish any differences, the Company will take
appropriate steps to understand the causes and address the same. At this stage,
the Company is unable to determine the related financial impact, if any,
arising from such potential differences. Accordingly, the results for the
quarter and the nine months ended 31^st December, 2018 do not include
any adjustment in respect of the above.

BCAJ Admin

CORPORATE LAW CORNER

Corporate Law Corner started in May,
1988 with Swati Mayekar as the contributor. Anil J Sathe continued with to man
it for 12 years along with Sunil Kothare (7 years), R K Tanna (3 years) and
Jayant Thakur (3 years). Pooja J Punjabi has been carrying the feature since
May, 2017.

The aim of the feature is to digest
decisions given under the Companies Act that are relevant and useful and those
that lay down principals. Since the advent of Insolvency and Bankruptcy Code,
decisions given thereunder are also being covered.

12. Gaurang Balvantlal Shah vs. Union of India [2019] 101 taxmann.com 261 (Gujarat) R/Special Civil Application Nos. 22435 of 2017 And Others Dated: 18^th December, 2018

Section 164 of Companies Act, 2013 – Section 164 is
prospective in application and would cover defaults committed from financial
year 2014-15 and onwards – The section does not apply to filings required to be
made in respect of financial year 2013-14

Section 154 of Companies Act, 2013 – DIN of a director
cannot be deactivated or cancelled merely because one of the companies in which
he is a director was struck off from the register of companies maintained by
ROC – DIN can be cancelled or deactivated only in circumstances specified in
Rule 11 of Companies (Appointment of Directors) Rules, 2014

FACTS

G was a director of K Co, a
private company along with various other companies. After due notice from
Registrar of Companies (“ROC”), name of K Co was struck off from the register
of companies and it was dissolved on 21.06.2017. Ministry of Corporate Affairs
(“MCA”) on 12.09.2017 published a list of directors associated with struck off
companies u/s. 248 of the Companies Act, 2013 (“the Act”) on its
website which inter alia included the name of G as a “disqualified”
director. As a consequence of publication of the above mentioned list,
Directors Identification Number (“DIN”) of G was deactivated. G accordingly
filed a petition before the High Court as a result of inability to file
documents for other non-defaulting companies.

MCA challenged the petition
by submitting that G was disqualified by operation of law and upon fulfilment
of the criteria contained in section 164(2)(a) read with section 167(1)(a) of
the Act.

G on the other hand
submitted that the list published on the website was in violation of principles
of natural justice. Further, section 164 which came into effect on 01.04.2014
could only apply prospectively. Thus, the three financial years beginning from
1.4.2014 would be financial year 2014-15 to 2016-17 and the date for filing
financial statements for the third financial year (1.4.2016 to 31.3.2017) was
30.10.2017 (with regular fees) and 27.07.2018 (with additional fees u/s. 403
which provides for additional period of 270 days). Hence, no default attracting
disqualification u/s. 164(2) could be said to have taken place before the said
dates. Further, disqualification if any, would not affect the right to continue
as directors in other non-defaulting companies.

MCA on the other hand
argued that section 164(2)(a) would cover in its ambit filing of financial
statements and annual returns falling due after 01.04.2014, which would include
annual returns for the year 2013-14 as well. Further, disqualification happens
pursuant to the operation of law and the section only enumerates the
disqualification as a consequence statutorily provided for non-compliance with
section 164. Thus, the vacation of office is by operation of law where no
hearing is contemplated.

HELD

The High Court analysed the
provisions contained in section 164, 167, 92, 96, 137 and 403 of the Act along
with Companies (Appointment of Directors) Rules, 2014 (“the Rules”). It was
observed that section 164(2) speaks about the ineligibility of the director,
who is already working as a director or has worked as a director in the past,
in the company which has committed defaults as mentioned therein, to be
reappointed as a director of that company or appointed in other company. As
such, there was no procedure required to be followed by the respondent
authorities for declaring any person or Director ineligible or disqualified
under the said provision. The ineligibility was incurred by the person/director
by operation of law and not by any order passed by the MCA / ROC and therefore,
adherence of principles of natural justice by MCA / ROC was not warranted.

Further,
High Court held that section 164(2)(a) being prospective in application and
effective with effect from 01.04.2014, the three financial years contemplated
in the said provision would be 2014-15, 2015-16, and 2016-17 only. Application
of the section to financial year 2013-14 would tantamount to giving effect to
the section retrospectively.

In the facts of the present
case, AGM for financial year 2016-17 could be held up to 30.09.2017, and the
annual returns could be filed within 60 days and financial statements within 30
days of holding of such AGM i.e. up to 30^th of November and 30^th
of October 2017 respectively. Under the circumstances, the Director would incur
disqualification or would become ineligible to be reappointed as a Director of
a company or appointed in other company for a period of five years, for the
defaults u/s. 164(2)(a), only after 30^th of October or 30^th
of November, as the case may be, of the year 2017. Hence, the impugned list
dated 12.9.2017 showing G as disqualified for a period of five years from
1.11.2016 to 31.10.2021, was held to be not only premature, but untenable in
law.

With respect to deactivation
of DIN of G by MCA, it was observed that Central Government or Regional
Director or any authorised officer of Regional Director may, on being satisfied
on verification of particulars of documentary proof attached with an
application from any person, cancel or deactivate the DIN on any of the grounds
mentioned in Rule 11. The said Rule 11 did not contemplate any suo motu powers
either with the Central Government or with the authorised officer or Regional
Director to cancel or deactivate the DIN allotted to the Director, nor any of
the clauses mentioned in the said Rule contemplates cancellation or
deactivation of DIN of the director of the “struck off company” or of
the Director having become ineligible u/s. 164 of the Act.

MCA was directed to restore
the DIN of G.

The High Court also
observed that if the company is struck off and stands dissolved u/s. 248 of the
Act, it could still realise the amount due to the company, as also it is
obliged to discharge the liabilities or obligations of the company.

13. Vijay Kumar Jain vs. Standard Chartered Bank [2019] 102 taxmann.com 14 (SC) Civil Appeal No. 8430 of 2018 Writ Petition (Civil) No. 1266 of
2018 Dated : 31^st January, 2019

Section
25 and 31 of the Insolvency and Bankruptcy Code, 2016 read with Regulations 24
and 35 of the Insolvency and Bankruptcy Board of India (Insolvency Resolution
Process for Corporate Person) Regulations, 2016 – Members of the suspended
board of directors have a right to attend the meeting of Committee of Creditors
and have access to documents used for deliberations therein including the
resolution plan

FACTS

R Co, the corporate debtor
was incorporated in the year 1986 and was a profitable company engaged in the
business of processing of oil-seeds and refining crude oil for edible use.
Standard Chartered Bank and DBS Bank Ltd. being the financial creditors of R Co
filed company petitions in December 2017 which were admitted by National
Company Law Tribunal (“NCLT”) and Interim Resolution Professional (“IRP”) was
appointed. V was a member of the suspended Board of directors and in his
capacity as such was permitted to attend the first meeting of Committee of
Creditors (“CoC”) held on 12.01.2018.

V was allegedly denied
participation in subsequent meetings and to challenge the same filed an
application before the NCLT in June 2018. By an order dated 01.08.2018, the
NCLT dismissed the application with liberty to the appellant to attend CoC
meetings but not to insist upon being provided information considered
confidential either by the resolution professional or the CoC. Against this
order, V filed an appeal before the Appellate Tribunal which recognised V’s
right to attend and participate in CoC meetings, but denied V’s prayer to
access certain documents, most particularly, the resolution plans. Thereafter,
an application for modification/clarification of the Appellate Tribunal’s order
was also dismissed.

V even executed a
non-disclosure undertaking whereby he agreed to indemnify the resolution
professional and keep information that is received as to the resolution plan
strictly confidential. However, in order to challenge the order of Appellate
Tribunal, present application was filed before the Supreme Court.

V submitted that they are
“participants” in the meetings of the CoC, albeit without voting
rights, yet, they are persons who, in order to participate effectively, must be
given the necessary documents so that their views can also be considered by the
CoC. On behalf of the resolution professional, it was argued that the terms
“committee” and “participant” are differently defined under
the Regulations and that participants are expressly excluded by Regulation 39
of Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for
Corporate Persons) Regulations, 2016 (“Regulations”).

HELD

Supreme
Court analysed and explained the entire statutory scheme laid down by the Code.
It was observed that though the erstwhile Board of Directors are not members of
the CoC, yet, they have a right to participate in each and every meeting held
by the CoC, and also have a right to discuss along with members of the CoC all
resolution plans that are presented at such meetings u/s. 25(2)(i) of the Code.

Supreme Court relying on Regulations
observed that every participant is entitled to a notice of every meeting of the
CoC. Such notice of meeting must contain an agenda of the meeting, together
with the copies of all documents relevant for matters to be discussed and the
issues to be voted upon at the meeting vide Regulation 21(3)(iii). Obviously,
resolution plans are “matters to be discussed” at such meetings, and
the erstwhile Board of Directors are “participants” who will discuss
these issues. The expression “documents” is a wide expression which
would certainly include resolution plans. Supreme Court upon a combined reading
of the Code as well as the Regulations held that members of the erstwhile Board
of Directors, being vitally interested in resolution plans that may be discussed
at meetings of the CoC, must be given a copy of such plans as part of
“documents” that have to be furnished along with the notice of such
meetings. So far as confidential information was concerned, the resolution
professional can take an undertaking from members of the erstwhile Board of
Directors, as has been taken in the facts of the present case, to maintain
confidentiality.

Resolution Professional was
thus directed to hand over a copy of the resolution plan to the members of the
erstwhile Board and convene a meeting of the CoC within two weeks thereafter,
which will include V and others as participants. The ruling of NCLAT was thus
set aside.

BCAJ Admin

ALLIED LAWS

This
feature was started in April, 1996 with K Shivaram, Advocate and Chetan Karia
as seed contributors. Reepal Tralshawala (4 years), K Gopal (3 years), Ajay R
Singh (9 years) also co-authored it along with Dr Shivaram. Since 2016-17,
Rahul K Hakani and Sashank Dundu joined Dr Shivaram as co-contributors.

The idea of behind the column was to bring
out summary of cases other than on tax law. It normally includes judgments that
are useful to professionals and have an impact on matters handled by them.
Cases generally covered are those under Hindu Succession Act, Registration Act,
Transfer of Property Act, Evidence Act, Stamp Act, Contempt of Courts Act,
General Clauses Act, Motor Vehicles Act all the way up to the Constitution of
India.

25. Gift – Oral gift under
Mohammedan Law is valid – Burden of proof is on the donee. [Mohammedan Law]

Jamila
Begum (D) thr. L.Rs. vs. Shami Mohd. (D) thr. L.Rs. and Ors. AIR 2019 Supreme
Court 72

Case of
Respondent-Plaintiff was that Wali Mohd., father of Respondent No. 1 had
purchased two plots and along with Respondent No. 1 got disputed house
constructed which was gifted to Respondent No. 1 through an oral gift and he
was put in possession.

It was
observed that Under the Mohammedan law, no doubt, making oral gift is
permissible. The conditions for making valid oral gift under the Mohammedan law
are: (i) there should be wish or intention on the part of the donor to gift;
(ii) acceptance by the donee; and (iii) taking possession of the subject matter
of the gift by the donee.

The Apex
Court held that Respondent-Plaintiff claimed right to suit property by virtue
of oral gift in favour of Respondent No. 1. Respondent-Plaintiff had not proved
as to how at time of oral gift, possession was delivered to him. Nothing was
brought on record to show that Respondent No. 1-Shami Mohd. had taken any steps
to get property mutated in his name. Likewise, nothing was brought on record to
show that pursuant to oral gift, Respondent-Plaintiff collected rent from
tenants or paid house tax, water tax, etc. Essential conditions to make a valid
gift under Mohammedan law had not been established by Respondent-Plaintiff to
prove oral gift in his favour. In absence of any proof to show that possession
of suit property was delivered to him, oral gift relied upon by
Respondent-Plaintiff ought not to had been accepted by courts below.

26. HUF – Alienation of
Property of HUF allowed if there is a legal necessity [Hindu Law]

Kehar
Singh (D) thr. L.Rs. and Ors. vs. Nachittar Kaur and Ors. (2018) 14 Supreme
Court Cases 445

The
dispute in this appeal is between the son, father and the purchasers of the
suit land from father. One Pritam Singh (Father – Defendant No. 1) was the
owner of the suit land. He sold the suit land by registered sale deed to Tara
Singh (Purchaser – Defendant No. 2) and Ajit Singh (Purchaser – Defendant No.
3). Both purchasers were placed in possession of the suit land.

Kehar
Singh (Son-Plaintiff) s/o. Pritam Singh (Father-Defendant) filed a civil suit
against the purchasers on the ground that the suit land was and continued to be
an ancestral property of the family of which the Plaintiff is one of its
members along with his father, that the Plaintiff’s family is governed by the
custom, which applies to sale of family property inter se family
members, that the Plaintiff has a share in the suit land along with his father
as one of the coparceners, that his father had no right to sell the suit land
without obtaining the Plaintiff’s consent, which he never gave to his father
for sale of the suit land, that there was no legal necessity of the family
which could permit his father to sell the suit land to the purchasers.

The
question before the Supreme Court for consideration was whether the sale made
by the Father in favour of the purchasers was for legal necessity and, if so,
whether it was legal and valid sale.

It was
observed that the father had taken various loans from the department for
purchase of seeds bag. Rs. 500/- for repair of house and Rs. 2,500/- for
purchasing pumping set. The father had further purchased a Rehri for Rs.
1,025/- from him in the year 1961. The Father had also borrowed a sum of Rs.
3,000/- in the year 1959 by executing a pronote. The father had also performed
marriage of his 5 children. This proved that legal necessity existed.

It was
held that once the factum of existence of legal necessity stood proved, then,
no co-coparcener (son) has a right to challenge the sale made by the Karta of
his family. The Plaintiff being a son was one of the co-coparceners along with
his father. He had no right to challenge such sale in the light of findings of
legal necessity being recorded against him. It was more so when the Plaintiff
failed to prove by any evidence that there was no legal necessity for sale of the
suit land or that the evidence adduced by the Defendants to prove the factum
of existence of legal necessity was either insufficient or irrelevant or no
evidence at all.

27. Right to Information –
Delay in providing information in response to Right to information application
– Strictures against CESTAT – To educate the concerned officials for effective
discharge of its duties and responsibilities. [Right to Information Act, 2005;
Section7(1)]

R.K.
Jain vs. CPIO and Accounts Officer, CESTAT, New Delhi 2018 (10) G.S.T.L. 112
(CIC)

The
complainant, vide his RTI application sought information on a few appeals and
required copies of all order sheets and records of proceedings, vakalatnamas,
miscellaneous applications, after Court cause list and copies of Note sheets
put up by Registry etc.

Dissatisfied
by the response of the CPIO, the Complainant approached the FAA. The FAA, vide
its order, directed the CPIO to provide the information within two weeks to
the Complainant.

It was
argued that the RTI application which was filed on 6-8-2013 was transferred on
8-8-2013 to Asst. Registrar, Service Tax. Subsequently, the Complainant had
sent numerous reminders to the CPIO informing him of his duties as deemed CPIO
to provide information u/s. 7(1) of the RTI Act, 2005 within 30 days. The CPIO
had not responded in the matter at all. The Complainant promptly contested on
the ground that the information pertaining to note sheets had not been provided
till date. Moreover, the Complainant submitted that the CPIO should have acted
on the application within the stipulated time period as envisaged in the RTI
Act, 2005 and demanded initiation of penal proceedings against him in the
matter.

The
Commission observed that there is complete negligence and laxity in the public
authority in dealing with the RTI applications. It is abundantly clear that
such matters are being ignored and set aside without application of mind which
reflects disrespect towards the RTI Act, 2005 itself.

It was
held by the Central Information Commission that the Respondent was supposed to
be cautious to exercise due care in future to ensure that correct and complete
information is furnished timely to the RTI applicant(s) as per provisions of
the Act failing which penal proceedings u/s. 20 shall be initiated. The
Commission also instructed the Respondent Public Authority to convene periodic
conferences/seminars to sensitise, familiarise and educate the concerned
officials about the relevant provisions of the RTI Act, 2005 for effective
discharge of its duties and responsibilities.

28. Trust – Deed of Transfer
– Transfer between two Trustees – Liable to stamp duty as per section 62(e) and
not as a conveyance – Sufficiency of stamp value. [Stamp Act, 1899; Section
62(e)]

The
District Registrar, Registration Department, Madurai South and Ors. vs. M.
Shanmugasundaram AIR 2019 Madras 1

A
transfer of Sri Narayana Guru Industrial Training Institute (hereinafter
referred to as ‘institute’), which is a part of Tamil Nadu Sri Narayana Guru
Trust, had taken place between one Trust named ‘Tamil Nadu Sri Narayana Guru
Trust’ and another Trust named ‘Tamil Nadu Illathu Pillaimar Sangam’, where the
latter Trust was one of the trustees of the former Trust.

It was
observed that the said ‘institute’ were to be transferred to another trustee
which is shown as second party, that is, Tamil Nadu Illathu Pillaimar Sangam.
It is also stated that Sri Narayana Guru Industrial Training Institute had a
debt to the tune of Rs. 4,25,000/- and salary arrears for the employees to the tune
of Rs. 65,000/-. The said transfer has taken place only for the purpose of
discharging the above said two amounts. Therefore, the appellants had treated
the same as deed of conveyance and it is argued that the said deed is executed
in favour of an individual and not a trust.

It was contended that the transfer was between
two trustees and hence it was not a conveyance of the properties.

It was
argued that the question of conveyance would not arise and the stamp duty as
per Article 62(e) of Indian Stamp Act, 1899 would apply which states that
transfer whether with or without consideration between two trustees, the amount
specified therein would apply.

It was
held that when the recitals in the deed of transfer explicitly states that the
transfer is from one trustee to another trustee as per the title deed, the deed
of transfer is not a conveyance but a deed of transfer covered by Article 62 (e)
of the Indian Stamp Act, 1899. Hence the stamp duty applicable in the transfer
of the title deed is only Article 62 (e) of the Indian Stamp Act, 1899.

29. Unregistered Document –
Exchange Deed in respect of immovable property – Inadmissible in evidence
[Evidence Act, 1872; Section 91, 61; Registration Act, 1908; Section 49]

Shyam
Narayan Prasad vs. Krishna Prasad and Ors. AIR 2018 Supreme Court 3152

The issue
before the Court was whether the exchange deed was admissible in evidence or
not when the said exchange deed purports to transfer immovable property without
being registered.

There was
an exchange of business where such business also included an RCC building, the
value of which exceeded Rs. 100. Section 118 of the Transfer of Property Act
defined ‘exchange’ to be a situation where two persons mutually transfer the
ownership of one thing for the ownership of another, neither thing or both
things being money only, the transaction is called an “exchange”.

It was
observed that where either of the properties in exchange are immovable or one
of them is immovable and the value of anyone is Rs. 100/- or more, the
provision of section 54 of the TP Act relating to sale of immovable property
would apply. The mode of transfer in case of exchange is the same as in the
case of sale. It is thus clear that in the case of exchange of property of
value of Rs. 100/- and above, it can be made only by a registered instrument.
In the instant case, the exchange deed has not been registered.

Section
49 of the Registration Act, 1908 provides for the effect of non-registration of
the document which states that such document, which is not registered, cannot
be received as evidence. Further, section 17(i)(b) of the Registration Act
mandates that any document which has the effect of creating and taking away the
rights in respect of an immovable property must be registered and section 49 of
the Registration Act imposes bar on the admissibility of an unregistered
document and deals with the documents that are required to be registered u/s.
17 of the Registration Act.

It was
held that any document which is not registered as required under law, would be
inadmissible in evidence and cannot, therefore, be produced and proved u/s. 91
of the Evidence Act, nor any oral evidence can be given to prove its contents.

BCAJ Admin

GOODS AND SERVICES TAX (GST)

“Indirect Taxes –
Recent Decisions” was started in 2009 by Puloma Dalal and Bakul Mody. C B
Thakar, G G Goyal and Janak Vaghani started to contribute to ‘Part B’
consisting VAT decisions a few years later.

Indirect taxes gathered
momentum as a field of practice especially after the advent of Service tax
(1994) and VAT (2005). This column gave the practitioners and others, vital
decisions on both subjects. Post GST regime, and while decisions under Service Tax
and VAT continue to be given, Part C was added recently to include GST rulings
especially advance rulings. Jayesh and Mandar started contributing after a few
years and Ishaan joined from April, 2018.

I.
High Court

28. 2019 [20] G.S.T.L. 3
(Allahabad) Timexo Fasteners India Pvt. Ltd. vs. State of U.P. dated 22^ndNovember, 2018

Seizure
of goods by incorrectly recording the time of interception and allowing E-way
bill to expire after detention is unjustified

Facts

Petitioner’s goods were in
transit from Delhi to Kanpur and were intercepted at Kanpur. Seizure order was
passed on the ground that E-way bill accompanying the goods had expired.
Petition was filed contending that the vehicle entered Kanpur and was
intercepted at much early time before the expiry of the E-way Bill. The fact to
be noted was that the time of interception of the vehicle mentioned in the
instructions of the Assistant Commissioner did not match with the time
mentioned in the documents produced by him. However, the fact that the vehicle
was intercepted and checked much time before the expiry of the E-way Bill
remained unanswered in the instructions.

Further, the Act and the
Rules do not provide any time limit for the Tax Authorities to issue a seizure
memo of the intercepted goods and the vehicle.

Held

It was held that, the goods
seized on the ground that accompanying E-way bill had expired not justified
rather it was deliberately allowed to expire after the detention of the goods
by incorrectly recording the time of interception.

29. 2019 [20] G.S.T.L. 45 (Mad.) Dev
Indus Paints vs. Commissioner (CT), Commercial Taxes
Department, Puducherry dated 9^th July, 2018

Demand
notice or attachment of bank account cannot be done where no assessment order
has been passed.

Facts

Show Cause Notice and
consequential attachment of the bank account for recovery of tax was challenged
by way of writ petition by the Petitioner Assessee contending that assessment
orders for the same were not passed for the periods under dispute i.e. for the
years from 2015-16 to 2017-18.

Held

The Hon’ble High Court held
that there cannot be a demand notice nor there can be any attachment of the
Petitioner’s bank account. Allowing the writ petition, the court directed the
Respondents to return the cheques collected from the Petitioner. It was also
directed to the Respondents to issue pre-revision notices to the Petitioner for
all the periods under dispute, grant reasonable opportunity to submit
objections, opportunity of personal hearing and complete the assessments in
accordance with the law.

30. 2019 [20] G.S.T.L. 193 (Ker.) Panel
Source LLP vs. Assistant State Tax Officer, Kasaragod dated 16^th
October, 2018

Goods
seized for not uploading Part-B of E-way Bill, released on furnishing bank
guarantee for tax and penalty due and a simple bond without sureties.

Facts

Appellant assessee’s
vehicle was detained for reason of Part-B of E-way Bill not uploaded.
Consequently penalty was imposed. Assessee being aggrieved with the mandatory
condition of payment of penalty or furnishing of security u/s. 129(3) of the
CGST Act preferred writ petition to declare Rule 140 of CGST/ SGST Rules as
violative of Article 301 of Constitution of India. Learned Single Judge of the
Hon’ble High Court dismissed the writ petition, against which assessee
preferred Writ Appeal.

Held

Division bench of the
Hon’ble High Court held that the defect found was that the intercepted vehicle
was carrying an invalid E-way bill. The document was categorised as invalid for
reason of Part-B of the bill having not been uploaded and not accompanying the
goods. Though Part-B of E-way Bill was uploaded by Appellant before the notice
and order but that would not remove the defect pointed out by detaining
officer. Thus, it was directed to release the goods of Appellant on furnishing
a bank guarantee for tax and penalty found due and a simple bond without
sureties for the value of the goods in the form as prescribed under Rule 140(1)
of the CGST Rules.

31. 2019 [20] G.S.T.L. 197 (Ker.) Hotel Harisree vs. Assistant
Commissioner (Assessment), SGST Department, Kolam dated 16^th
November, 2018

Directions
to Departmental Authorities to not take coercive steps for recovery until
disposal of stay application by Appellate Authority.

Facts

Petitioner a registered
dealer under KGST Act was served with the assessment order by the state revenue
authorities. Revenue authorities then initiated coercive steps of recovery
before expiry of its right to prefer appeal and before Appellate Authority could
consider the stay petition filed by Assessee. Aggrieved assessee preferred writ
petition.

Held

The Hon’ble High Court on
believing that assessee exercised its statutory remedy of filing appeal on time
and on appearance that stay petition also being filed by assessee held that
procedural fairness demands that authorities must wait, before taking further
steps until the appellate authority decides on stay petition. Thus, disposed
writ petition directing the Respondent Revenue to defer coercive steps until
the Appellate Authority considers the stay petition with hope that the same
will be disposed expeditiously.

32. [2019-TIOL-40-HC-KAR-GST] Global Associates Association of Persons vs.
Union of India dated 24^th January,
2019

A right
to challenge a legislation or a Notification/Circular will not arise unless the
litigant is affected by the action initiated by the executive in furtherance of
such legislation / administrative Circular/Notification.

Facts

Petitioner involved in
construction activity is aggrieved by the Notification 11/2017-Central Tax
(Rate) and clarification dated 09.01.2018 issued by the respondent-authorities
pursuant to Entry 5(b) of Schedule II to the CGST Act, 2017 which envisages
levy of tax on construction activities and deeming the value of the land at
one-third of the total amount charged. It was argued that irrespective of any
action initiated or not by the respondent-authorities, they are entitled to
challenge the same and hence the writ petition is maintainable.

Held

The Court noted that
enacting a legislation or issuing Notification/Circular could not confer a
right to challenge unless the litigant is affected by the action initiated by
the executive in furtherance of such legislation/administrative Circular /
Notification more particularly, in taxing statutes. Cause of action is sine
qua non for challenging such legislation/Notification/Circular. Thus a Writ
Court cannot adjudicate upon such matters in vacuum and without a cause of
action it would be merely academic, consuming public time. The writ was thus
held premature and therefore dismissed.

II
Authority of Advance Ruling (AAR)

33. [2019-TIOL-17-AAR-GST] Ex-Servicemen Resettlement Society dated 28^th January, 2019

Security services and scavenging services provided to
central government and state government not eligible for exemption under the
GST law.

Facts

Applicant a registered
society provided “Security services” and “Scavenging services” to various
hospitals under the State Government as well as the Central Government – they
sought a ruling as to whether exemption from GST is available in terms of
Notification 12/2017-Central Tax (Rate).

Held

The Authority noted that
the Exemption notification makes it clear that exemption is granted under sr.
no. 3 to ‘pure services’ provided to Central Government/State Government or
Union Territory or local authority or a governmental authority by way of any activity
in relation to a function entrusted to a panchayat under Article 243G or in
relation to any function entrusted to a municipality under Article 243W of the
Constitution. The service is classifiable as ‘pure service’ as they are not
supplying any goods while provisioning the services and the recipient is
government or governmental authority. However, before deciding applicability of
Sl. No. 3 of exemption notification, the functions of a Panchayat or
Municipality under the Constitution needs to be discussed. Reading Article
243G, 243W of the Constitution along with a study of the two functional item
lists placed in the Eleventh Schedule and the Twelfth Schedule of the Indian
Constitution makes it clear that “Security Services” provided to government hospitals
and medical colleges as institutions of Central/State/District/local
authorities are clearly not covered under either of the lists, so also, no
entry includes any of the services the applicant has bundled under the
description of “Scavenging services” i.e cleaning of hospital premises is not
classified under ‘sanitation or similar service’. Therefore, supply of security
services and the bundle of service described as scavenging service is not
entitled for the benefit of exemption.

BCAJ Admin

SOCIETY NEWS

Full Day Seminar on “GAAR and Anti-avoidance Provisions” held on 16th November 2018

The International Taxation Committee organised a one-day Seminar on GAAR and other Anti-Avoidance Provisions at St. Regis, Parel. The seminar was aimed at appraising the participants of the intricacies and issues coming out of these provisions through panel discussions on burning topics related to the subject.

CA. Pinakin Desai provided a thought-provoking Key Note Address which set the tone for the remainder of the day. The session was chaired by CA. Dilip Thakkar who also released the latest publication by BCAS on “GAAR (Including other Anti-Avoidance Provisions) – A Compendium”. The Compendium comprises of 30 articles spread over 2 volumes authored by some of the best minds in the profession.

The book launch was followed by a panel discussion amongst CA. Geeta Jani, CA. Padamchand Khincha and Mr. Kamlesh Varshney which was chaired by CA. Kishor Karia. The panel dealt with various issues related to GAAR, SAAR, JAAR, PPT and their interplay. Mr. Varshney made insightful remarks in to what could be the Revenue’s approach in applying these provisions.

The second panel was chaired by CA. Rashmin Sanghvi and the panellists – CA. Sushil Lakhani, CA. Yogesh Thar and CA. Karishma Phaterphekar who took up various issues surrounding recent domestic anti-avoidance provisions of POEM, Section 56(2) and Section 94B respectively.

The final panel of the day took up Case Studies on a diverse set of topics which would be impacted by GAAR. The panel was chaired by CA T P Ostwal. CA. Pranav Sayta provided insights on Structuring of inbound investments while CA. Ketal Dalal took up issues related to Holding Company Structures. CA Anup Shah provided his views on issues which would affect Restructuring of companies.

All the panellists ably brought out that GAAR and other anti-avoidance provisions are something that every professional dealing with taxation will need to reckon with; and drove home the point that a fresh look will be required – not only for new structures, but even for existing ones. The Chairman, CA. Mayur Nayak ended the day’s proceedings by thanking the faculty and encouraging the participants to take benefit from BCAS’ publication on GAAR. The meeting was a huge takeaway for the participants.

Full Day Seminar on “Burning Issues in Real Estate” held jointly with IMC Chamber of Commerce and Industry on 17th November, 2018

Corporate & Allied Laws Committee of BCAS organised a Full Day Seminar on Burning Issues in Real Estate, jointly with IMC Chamber of Commerce and Industry, on 17th November, 2018 at IMC, Churchgate wherein the key topics on Direct Tax, RERA, Issues and Opportunities in Funding, GST and JV/JD Structuring were discussed by the eminent speakers and Panellists as under:

Direct Tax: Moderated by CA. Chetan Shah and Panelists: CA. Pinakin Desai, CA. Gautam Nayak, CA Uday Ved and Mr. Yasin Virani of K Raheja Corp.

RERA: Moderated by Advocate Sudip Mullick of Khaitan & Co and Panalists: Advocate Parimal Shroff of Parimal K Shroff & Co, Rajan Bandelkar (Naredco) and Mr. Ravi Sinha (Track2Realty)

Issues and Opportunities in Funding: Moderator Amit Goenka (Nisus) and Panelists: Ram Yadav (Edelwiess), Shobhit Agrawal (Anarock) and Sharad Mittal (Motilal Oswal).

GST: Moderated by CA. Sunil Gabhawalla and Panelists: CA. Parind Mehta, Mr. Sajal Gupta (Rustomjee) and Advocate Vikram Nankani.

JV/JD Structuring: Moderator CA. Ketan Dalal and Panelists: CA. Bhairav Dalal, CA. (Dr) Anup Shah, Mr Piyush Vora (Lodha Developers) and CA. Naushad Panjwani.

The meeting was attended by 110 participants who learnt a lot from the rich experience of the speakers and panelists.

“Half Day Workshop on GST Audit” held on 23rd November, 2018 at BCAS Conference Hall

BCAS, as a NACIN accredited training partner has been in the forefront in creating awareness about GST and supported the Government in ushering this reform by organising various lecture meetings, seminars and workshops related to GST. As a part of this endeavour, Indirect Taxation Committee organised a Half Day Workshop on GST Audit on 23rd November, 2018 at BCAS Conference Hall. The workshop was divided into two sessions. The 1st session on “Overview of GST Audit Process, Various Reconciliations involved in GST Audit & Overview of Annual Return and its contents” which was taken up by CA. Udayan Choksi and the 2nd session on “GSTR-9C, Audit Checklist and Issues involved in GST Audit” which was taken up by CA. Jigar Doshi.

On this occasion, BCAS Publication “Concept of Supply under GST Law” was also released. The workshop was very well received and the participants took benefit of the same.

Full day programme on “Accounting and Auditing in SAP – Issues in Process and Controls” held on 24th November, 2018 at BCAS Conference Hall

Technology Initiatives Committee conducted a full day programme on “Accounting and Auditing in SAP – Issues in Process and Controls” on 24th November, 2018 at BCAS Conference Hall. The program was jointly led by CA. Jairam Motwani (who has domain experience in Novereof in solutioning, architecting, customizing, execution and coordinating SAP projects and audits) and CA. Mahesh Ahuja, having extensive experience in Internal Audits, Risk & Controls review, SAP Role based controls and GRC implementation and review.

Both the speakers dealt with the topic by providing a step by step process for Accounting and Auditing in SAP. They also discussed various issues and Control points to mitigate the issues while using the SAP.

The session was very interactive and the participants got enlightened a lot from the discussion.
Training Session for CA Article Students on “GST Annual Return’ and ‘GST Audit from Article’s Perspective” held on 30th November, 2018 at BCAS Conference Hall

The Students Forum under the auspices of HRD Committee organised a Training Session for CA Article Students on the above-mentioned topics on 30th November, 2018 at BCAS Conference Hall.

The first session on GST Annual Return was taken by Student Speaker Ms. Neelam Soneja under the mentorship of CA. Raj Khona followed by a session on GST Audit by CA. Jigar Shah. Mr. Jason Joseph, the student co-ordinator introduced the mentor and speakers for the session. CA. Anand Kothari, the convenor of the HRD Committee spoke about various activities conducted by BCAS Students Forum.

CA. Raj Khona in his opening remarks highlighted few key areas which article students should keep in mind while filing the annual returns. Ms. Neelam Soneja then explained the entire Form GSTR-9 clause by clause and dealt with the various issues / complexities involved in the annual return form. In the 2nd session, CA. Jigar Shah gave a brief insight on various aspects of GST Audit with useful tips on how to effectively conduct GST Audit. The training session was attended by 175+ students. Both the sessions were interactive whereby the speakers answered all the queries raised by the participants.

Suburban Study Circle Meeting on “GST Annual Return – GSTR 9 – Detailed Analysis and Issues in Filing” held on 1st December, 2018

The Suburban Study Circle organised a meeting on “GST Annual Return – GSTR 9 – Detailed Analysis and Issues in Filing” on 1st December, 2018 at Bathiya & Associates, Andheri which was addressed by CA. Chirag Mehta.
The Speaker started the session with statutory background and legal provisions regarding the GST Annual Return – GSTR – 9. He explained in detail the various clauses of GSTR 1 and GSTR 3B and the specific clauses to be considered while consolidating the annual figures. He further explained the structure of GSTR – 9 Annual return and what is expected from the registered dealers in each section.

The detailed analysis of each clause of the GSTR – 9 was done along with explanation on the data to be entered under each clause. CA. Chirag Mehta raised very important issues which the dealers may face while preparing the annual return and also provided his views on the said issues. The speaker highlighted the importance of self study and practical exposure to be the key factors in successful filing of annual returns.

The participants got enlightened from the presentation shared by the speaker.

TECHNOLOGY INITIATIVES STUDY CIRCLE

Technology Initiative Study Circle on “Productivity Apps for Workplaces-Part III” held on 4th December, 2018 at BCAS Conference Hall

Technology Initiatives Committee conducted a Study Circle Meeting on Productivity Apps for Workplaces Part III on 4th December, 2018 at BCAS Conference Hall which was led by CA. Rajesh Pabari who is an HR Consultant by Profession and aspiring management consultant by Passion.

It was the third session on Productivity Apps for Workplaces followed by sessions held on 23rd August 2018 and 21st September 2018. CA. Rajesh Pabari covered effective use of few more Google Chrome Extensions which are extremely helpful but were not covered in earlier sessions. He also demonstrated few tips for more effective Google searches syntax which will help to refine search results like search in title of pages, date wise, file type and specific website etc. He also explained some extremely useful tips for enabling to save time while using laptops/desktop shortcuts on day to day basis.

At this session, the Committee tried to experiment Live session online on Youtube for participants to go online through their Desktop and Smartphones. The video is available on Youtube.
The session was followed by Q&A session where the Speaker thoroughly addressed all the queries of the participants. The study circle was truly enthralling, and the participants appreciated the in-depth insight given by the learned speaker.

Intensive Study Course on “Data Analytics for Internal Audit” held on 7th & 8th December, 2018

The GRC subgroup of the Accounting and Auditing Committee organised a 2-day hands-on workshop on “Data Analytics for Internal Audit – using IDEA”: the workshop, anchored by CA. Deepjee Singhal, was divided into 1-day of seminar sessions, followed by 1-day of hands on training on the IDEA data analytics tool, for which each of the participants was provided a limited period IDEA licence along with data sets to get a feel of different IDEA features that can be effectively used for Internal Audit.

The workshop, inaugurated by president CA. Sunil Gabhawalla, had participants from the CA profession as also from the industry. CA. Deepjee Singhal provided a crisp overview of the Current Trends in Use of Data Analytics, with specific reference to internal Audit. A panel discussion with CA. Amit Pandit, CA. Jyotin Mehta and CA. Satish Shenoy provided insights to the participants as to the way in which data analytics has been integrated with the Governance-Risk-Compliance Advisory over the past decade and what the future may hold.

Mr Jairam Rajshekhar and Mr Saurabh Patkar demonstrated the various features of IDEA tool on day-1 and on day-2, they led the hands-on sessions where the participants got an opportunity to actually use these features on their own computers.

The case study based teaching method adopted for the workshop, with real data, enabled the participants to gain a first-hand experience of using the IDEA tool for data analytics.

The participants expressed deep appreciation for the in-depth and hands-on training provided in the upcoming field of data analytics with a special focus on Internal Audit.

INTENSIVE STUDY GROUP ON GST

Intensive Study Group Meeting on “Goods and Services Tax – Clause by Clause Study and Analysis of GST Act” held on 20th & 21st July, 24th & 25th August, 26th & 27th October, 16th November & 7th December, 2018 at BCAS Conference Hall

After the successful in-depth study and response in Batch-I held during March and April 2018, it was decided to further extend the study for few more months specially for some of the uncovered topics during Batch-I. The Batch-II was planned with 8 sessions (During July to December 2018) on Fridays and Saturdays by Bombay Chartered Accountant’s Society wherein section-wise study of the GST Act was held. There was an in-depth study and all the sessions were quite interactive. Each session was held under the guidance of 2 to 3 mentors who have a great expertise on the subject.

Each session was attended by more than 25 participants. It was highly appreciated by the members who shared their practical experience and got benefited as the coverage of the subject was detailed one.

HUMAN DEVELOPMENT AND TECHNOLOGY INITIATIVES COMMITTEE

Human Development Study Circle on the topic “Building Civic Leaders” held on 11th December, 2018 at BCAS Conference Hall

Human Development Study Circle organised a meeting on the topic “Building Civic Leaders” on 11th December, 2018 at BCAS Conference Hall which was addressed by Ms. Sapna Karim. The Speaker explained that we generally face difficulties in the quality of life in our neighbourhoods, clean surroundings in public places, enough water supply and good roads. She explained that Janaagraha is pursuing efforts to ensure that we as citizens are able to have a good quality of life in our cities through improvements in infrastructure and city administration and importantly demonstrate active citizenship. Janaagraha lives by the principle ‘urgent patience’ which would mean – be patient for change, but make urgent efforts to affect it. Quality of citizenship is not just a means to an end, but an end in itself. She emphasised that citizens must meet regularly to see how they can contribute. ChangeMyCity.com is a site that works for this and also powers the Swachhata app for the national government under the Swachh Bharath Mission. The Speaker mentioned that we do not want sporadic solutions but systematic solutions that take time as it involves changing or evolving new laws, policies, practices within government and enabling good citizenship values and behaviours.
The meeting was very participative and was a huge takeaway for the participants.

FEMA STUDY CIRCLE

FEMA Study Circle Meeting on “Current and Capital Account Transactions-Part II” held on 13th December, 2018 at BCAS Conference Hall

A FEMA Study Circle Meeting was held on 13th December, 2018 at BCAS Conference Hall where CA. Manoj Shah led the discussion on the topic of “Current and Capital Account Transactions-Part II”. He did an in-depth analysis of Section 3 – Dealings in Foreign Exchange and dissected clause (a), (b) and (c) of section 3. He deliberated upon the meaning of “dealing” and discussed when a resident can pay on behalf of non-resident. He also explained couple of high court judgements on the subject of payment by resident on behalf of non-resident. He also pointed out that in one compounding matter, amount of FDI proceeds were received from third party intermediary instead of Authorised Person and penalty was levied therein. The members appreciated the efforts put in by the group leader and benefitted a lot from the session.

The Sixteenth Nani A. Palkhivala Memorial Lecture on “Guardian Angel of Fundamental Rights” held by Nani A. Palkhivala Memorial Trust on 15th December, 2018

The Sixteenth Nani A. Palkhivala Memorial Lecture on the topic “Guardian Angel of Fundamental Rights” was held by Nani A. Palkhivala Memorial Trust on 15th December, 2018, in association with Bombay Bar Association, Bombay Chartered Accountants’ Society, The Bombay Incorporated Law Society and Forum of Free Enterprises, at the Tata Theatre, NCPA, Nariman Point, Mumbai. The proceedings commenced with the performance by students of NCPA Special Music Training Programme. The lecture was delivered by Hon’ble Mr. Justice Rohinton F. Nariman, Judge, Supreme Court of India. The lecture meeting was presided over by Mr. Y. H. Malegam, Chairman, Board of Trustees. The Speaker talked about the achievements of Late Palkhivala in the field of legal profession as well as several publications authored by him. He also discussed about the accolades Mr. Palkhivala earned in the domestic and international sphere and his memorable stint with Tata Group and as President, Forum of Free Enterprise and Founder Chairman, The A. D. Shroff Memorial Trust.
On this occasion, The Nani A. Palkhivala Civil Liberties Awards were also presented.

The meeting was attended by over 145 participants who got inspired and enthused with the well explained facts by the learned Speaker. The meeting concluded with a vote of thanks by the Trustee Mr. Deepak S. Parekh.

Lecture Meeting on “Right to Information vs Privacy” held on 17th December, 2018 at BCAS Conference Hall

A Samvad was organised at the Bombay Chartered Accountants’ Society under auspices of BCAS Foundation on the subject ‘Right to Information (RTI) vs. Privacy’ on 17th December, 2018. Panellists invited were Shri Shailesh Gandhi, Former Central Chief RTI Commissioner, Justice Shri Abhay Thipsay (Retired Judge, Bombay High Court) and Shri V. A. Thorat, former Advocate General Maharashtra. Past President CA. Raman Jokhakar acted as a moderator.

President CA. Sunil Gabhawalla in his opening remarks stressed the need to have such debates and dialogue to bring clarity and consensus on the matters relating to the RTI. This he said was needed to bring transparency in the dealings between government and people to achieve true spirit of democracy.

Shri Shailesh Gandhi said that Right to Information is a fundamental right of citizens under Article 8(1) (a) of the constitution which guarantees freedom of speech and expression subject to Article 19 (2) which restricts it only in the interest of sovereignty, integrity and security of the state, public order, decency or morality, friendly relations with foreign state or in relation to contempt of court or defamation.

He further said that there is an adequate safeguard also prescribed under Section 8 (1) (j) of the RTI Act which exempts only that information which relates to personal information, the disclosure of which has no relationship to any public activity or interest and which would cause unwarranted invasion of the privacy of the individual unless the information officer is satisfied that larger public interest justifies disclosure of such information. However, the proviso under the section amply clarifies the intent that only the information which cannot be denied to Parliament or the State Legislature shall not be denied to any person. “Despite this, information is often denied to people mistakenly classifying it as personal information” said Shailesh Gandhi. He lamented that increasingly some Supreme Court judgments were being cited to call every information as private and having no public interest and thus being denied. Among them were details related to service records and asset records labelling them as information between the employers and employees. “This has effect of completely diluting the fundamental right of RTI given to citizens of India under the constitution by misinterpretation of Section 8(1) (j) of the RTI Act, because they could always qualify for disclosure to the Parliament or State Legislature” he concluded.

Justice Thipsay said that when it comes to assets and service records of public servants, they should be provided under the RTI Act. He however cautioned that one needs to maintain a delicate balance to harmonise the conflict between the RTI and Privacy. He said that good society is not guaranteed by the information alone; one also has to keep check on whether this right is exploited to settle personal score. He opined that this was not a fight to finish but a process of evolution.

Shri V. A. Thorat said that information should be given on case-to-case basis when it comes to assets and details of service records. “Even if the provision for disclosing information exists, it cannot be applied universally without applying mind as to whether it will qualify under Article 19)(2). One has to draw the line between information that is necessary having regard to the facts and one what could be abused for personal gain with no public interest. However, he also said that judgements can’t be read as statutes and one needs to distinguish between public information sought in public interest and use of RTI for frivolous queries.

The two speakers while disagreeing with Shri Shailesh Gandhi about disclosure of information opined that use of discretion on the facts and circumstances of each case was necessary in protecting the right of privacy. However, all agreed that constitution is sovereign and not the provision of legislation. It would be ideal that within the ambit of restrictions laid down by Article 19 (2), the spirit of RTI is truly observed.

The debate was mind churning and intellectually enlightening. CA. Raman Jokhakar asked some poignant questions on the tendency of government officers to shirk their obligation cast under RTI Act and questioned logic of creating controversy. These were appropriately answered by the panellists. A lot many questions from enlightened audience augmented the ethos. Widely attended by cross section of people, it engaged the audience completely and prompted lot of spontaneous responses from them sharing their experiences.

Joint Secretary CA. Mihir Sheth gave a deserving vote of thanks to the panellists.

ITF STUDY CIRCLE

Study Circle Meeting on “Taxation of Profits from Shipping and Aircraft (for Non Residents) under DTAA (Part 2)” held on 18th December, 2018 at BCAS Conference Hall

ITF Study Circle organised a meeting on the captioned subject on 18th December, 2018 at BCAS Conference Hall. The Study circle was led by CA. Sonia Agrawal who explained briefly about Part 1 where the Shipping Business Taxation comes under the purview of Domestic Tax Laws. Various issues with regards to Inland Waterways and Water Transport on the coastal ways, inside India and outside India, High Sea Shipping Cargo were also discussed.

There was a detailed discussion on Article 8 of the Treaty. Case laws on recent amendments were also taken up. The participants could resolve their queries with the group leader. The members of the Study Circle shared their experiences on above mentioned issues and all participants benefitted from the discussion on the subject.

Study Circle Meeting on “Contentious Issues under GST “held on 19th December, 2018 at BCAS Conference Hall

A study circle meeting on the topic Contentious Issues under GST was held under the aegis of Indirect Taxation Committee on 19th December, 2018 at BCAS Conference Hall which was addressed by Sr. Advocate P. K. Sahu, who delivered an in-depth analysis of the issues with reasoning. The meeting was very interactive and the learned speaker dealt with all the issues posted before him in detail.

The meeting was a huge takeaway for the participants.

BCAJ Admin

RIGHT TO INFORMATION (r2i)

PART A DECISION OF SUPREME COURT

u Supreme
Court slams centre for keeping names of applicants for Information
Commissioners’ post secret; asks it to make them public

The Supreme Court (SC) has directed the Centre to publish names,
criteria and other details of search committee’s work so far for appointments
to the Central Information Commission, under the Right to Information (RTI)
Act.

The case pertained to the inordinate delay in filling up the vacancies
of crucial posts of Central Information Commissioners (CICs) and Information
Commissioners (ICs), the SC order is a big boost for activists, who have
campaigned tirelessly for transparency in selection of information
commissioners.

The SC directive follows an affidavit submitted by the central
government in court today. The Government had earlier committed to decide on
vacancies even before a public interest litigation (PIL) for appointment of
Commissioners was filed. It told the SC today that it had received 65
applications for the post of the Chief Central Information Commissioner and 280
applications for the four posts of Information Commissioners. The affidavit
states that the government has shortlisted names for the post of CIC. However,
after the latest SC directive, the government will have to publish these names
on its website, before it selects the chief information commissioner.

As for the eight other States that were also asked to file an affidavit,
the Telangana government has said that it was busy with elections so the SC has
given it two more weeks to file its affidavit. The petitioners bought it to the
notice of the court that there were 10,000 second appeals pending with this
State Commission. The Odisha government’s affidavit states that a selection
committee has been formed to fill up four vacancies for ICs.

It may be recalled that a writ petition was filed by activists Anjali
Bharadwaj, Amrita Johri and Commodore Lokesh Batra (retd). The reason for this
petition was that “under the Right to Information (RTI) Act, the Central
Information Commission (CIC) and State Information Commissions (SIC) have been
created as statutory bodies to decide appeals and complaints against public
authorities, for non-compliance with the RTI law. The proper functioning of
these institutions is essential for effective implementation of the RTI Act.
The RTI law provides that the CIC must consist of a Chief Information
Commissioner and ten information commissioners.”

In an earlier hearing on 27^th July, 2018, the SC had directed
the central government to file an affidavit stating how many posts it proposed
to fill, based on the advertisement issued, the time schedule for filling the
posts, why appointments were not made subsequent to a 2016 advertisement and
measures to ensure transparency in the process of appointment – all this was
highlighted in the PIL. In addition, eight state governments, who are
respondents in the case, were also directed to file affidavits enumerating the
steps they are taking for filling up vacancies, the time frame within which
these will be filled and the procedure of appointment.

Incidentally, Chief
Information Commissioner Radha Krishna Mathur, and three Central Information
Commissioners – Prof. M Sridhar Acharyulu, Yashovardhan Azad and A
Bhattacharyya, retired in the last week of November 2018. That makes for eight
vacancies in the Commission.

Besides the legal intervention sought, former Central Information
Commissioner, Prof Acharyulu too kept up the pressure on government by writing
a letter to the President of India, Ram Nath Kovind, last week regarding the
inordinate delay in appointing information commissioners.

Prof. Acharyulu in his letter stated: “…the Government of India should have
completed process of appointing the Chief Information Commissioner before the
retirement of Shri Radha Krishna Mathur, to be ready to take over the
administration of the Commission without any gap, because the RTI Act has not
envisaged any vacancy in that high position at any point of the time. The
Commission has experienced absence of administration for several months as the
Government did not appoint Chief Information Commissioner, three years ago,
after retirement of the then Chief. Unfortunately now also that position is
left vacant since 22^nd November, 2018. Similarly leaving seven
positions of CICs also will lead to increase in the pendency of second
appeals/complaints. The delay in information amounts to denial of information
and delay in information justice also means its denial.”

During the hearing on the 3^rdDecember, the petitioners had
pointed out that at present there were vacancies in the Central Information
Commission, including that of the Chief and the backlog of appeals/complaints
had risen to more than 26,000. They also pointed out that the advertisement
issued by the central government for the posts of Information Commissioners and
the Chief Information Commissioner did not specify the salary and tenure, even
though these are specifically defined in the RTI Act & therefore, the
advertisements were not in keeping with the RTI law. All previous
advertisements for the posts specified the salary and tenure. Upon being
questioned about the anomaly in the advertisements, the counsel for the central
government stated that the government was intending to amend the RTI Act.

Prof Acharyulu, former Central Information Commissioner has appealed to
President of India for appointment of eminent persons from fields other than
Administration to the CIC. His letter says:

“I would like produce the text of Section 12(5) of RTI Act 2005 for
ready reference, at this juncture:

The Chief Information Commissioner and Information Commissioners shall
be persons of eminence in public life with wide knowledge and experience in
law, science and technology, social service, management, journalism, mass media
or administration and governance.”

“In this context, as a person who worked as Central Information
Commissioner for five years till recently, I request your Excellency to
consider following suggestions:

1. As the Chief Information
Commissioner in all these 13 years was selected from the field of
Administration only, at least, this time an eminent person from the field other
than Administration may be selected; and if for any reason, the Government
decides to select a retired bureaucrat once again, it should ensure that he had
credentials of integrity, commitment towards transparency and has never
supported or promoted any kind of secrecy in administration. The people have a
right to know this kind of background of the Chief and other Commissioners. The
Government should also commit itself to appoint next Chief Information
Commission from other than bureaucrats.

2. As mandated by section 12(5) of the RTI Act,
the Government of India has a statutory duty to select at least one person of
eminence each in public life with wide knowledge and experience from the fields
of (1) law, (2) science, (3) technology, (4) social service, (5) management,
(6) journalism, and (7) mass media. As the Government has already appointed
three eminent persons with experience in administration, who are working now,
the Committee, as a principle, should not consider the persons from this field
for this time.

3. Whenever
the Selection Committee convenes, from now onwards, it shall select one eminent
person of experience each from these fields necessarily for making the Central
Information Commission representative of multiple fields of public activity and
truly democratic. With experts from various fields, there will be no scope for
bureaucratic majority or domination in its administration besides accommodating
different view-points. If the Government selects more number of former
bureaucrats for these posts, it will in breach of letter and spirit of
transparency law and more particularly that of Section 12(5) of RTI Act, which
may not stand the scrutiny by the Judiciary.

4. The Selection Committee should also ensure
that the new Commissioners appointed shall have the complete independence with
regard to the term, status and salary as provided by the RTI Act. Their term,
status and salary shall not be ‘as
prescribed’ by the Central Government’ as contemplated by the present
Government in the proposed Amendment to RTI Act.

5. The
Government shall ensure that it will not interfere in the functioning of
Central Information Commission and also to insulate the office of Chief
Information Commissioner or individual commissioner from direct or indirect
pressures or interferences from any of its offices such as PMO or the Ministry
of DoPT.

6. The
Government shall not introduce the RTI (Amendment) Bill, 2018 and shelve it
permanently, in the interest of transparency of administration and good
governance.

7. Hereafter, the Government shall fill every vacancy promptly so that
a new Chief/Commissioner takes over the charge from the retiring Commissioner
without any gap.

(Source:https://www.moneylife.in/article/sc-slams-centre-for-keeping-names-of-applicants-for-information-commissioners-post-secret-asks-it-to-make-them-public/55914.html
)

PART B RTI ACT, 2005

u
Maharashtra facilitates inspection of files. Here is how to do file inspection
under RTI

Recently, the Maharashtra government took an
important step towards transparency through a government resolution (GR) which
directs every public authority in the state to provide two hours, once a week,
for citizens to walk into the government offices, for inspection of files u/s.
4 of the RTI Act. However, even though citizens can demand to see documents
under this provision, not many know how to go about it.

In order that such a useful and
citizen-friendly initiative is not lost due to citizens’ inhibition or
ignorance, here are some tips on how to be on top of the board.

Just to
reiterate, inspection of files was pioneered in Pune way back in 2005 and
followed thereafter by the Pune Municipal Corporation (PMC) in 2009, directing
its public authorities to keep every Monday, between 3pm and 5pm, open for
citizens to inspect files. At that time, even public information officers
(PIOs) or heads of public authorities were not aware that it is not necessary
for a citizen to write an application for inspection of files u/s. 4 of the RTI
Act.

In fact, I remember when I met the
secretary, environment in the Mantralaya to inspect files regarding Dow
Chemicals in 2010, despite my having sent him an email and an SMS (as I was
coming to Mumbai from Pune), he asked me to write an application.

I convinced him that I was not required to
do so and the following note made by the late Prakash Kardaley and Vijay
Kumbhar came in handy for me. (The secretary, environment then spoke to his
legal cell about this provision in front of me and then asked his executive
director to show me all the files pertaining to Dow Chemicals and directed him
to give me any photo copies that I wanted).

Thus, when any citizen goes for file
inspection, I would suggest you carry the following note which will be an
eye-opener to the PIO, besides arming you with the required ammunition. Here it
is:

1. Your kind attention is drawn to section 4
of the Right to Information Act, 2005 under Chapter II on `Right to Information
and Obligation of Public Authorities’.

2. As
per the provision, it is obligatory for every public authority (including
xxxxxx name the office you would be visiting) to publish certain
categories of documents so as to make voluntary disclosure of information so
that citizens have “minimum resort to the use of this Act to obtain
information.”

3. Information
covered by section 4, in fact, should have been published on 12^th
May, 2005 and disseminated widely in such form and manner which is easily
accessible to the public and should have been updated at regular intervals
later.

4. It
is further explained in the provision that ‘disseminated’ means making known
or communicated the information to the public through notice boards,
newspapers, public announcements, media broadcasts, the internet or any other
means, including “inspection of offices of any public authority. “
I am enclosing here the full text of section 4 as adopted by the Parliament of
India for your reference.

5. I
regret to bring to your notice that no information covered under this section 4
has been disseminated yet by you, a public authority under the state
government, through notice boards, newspapers, public announcements, media
broadcasts and Internet.

6.
Nevertheless, citizens have a right to inspect these documents in the office of
the public authority, including the (xxxx name the office), as
explicitly mentioned in the provision u/s. 4.

7. It
may be noticed that a citizen desiring to inspect the documents containing
information covered u/s. 4 of the Right to Information Act, 2005, need not make
any formal requisition u/s. 6 of the Act because these documents should have
already been published by the public authority (including xxx name the office)
so that citizens have “minimum resort to the use of this Act to obtain
information.”

8.
Implementation of this provision of the Act (u/s. 4) is the direct
responsibility of the head of the public authority. In this specific instance,
it is your direct responsibility as the municipal commissioner and the
administrative head of the Pune Municipal Corporation. Hence this letter is
addressed to you and not to any public information officer (PIO) since no
formal requisition is needed to be filed, please note.

In case the public authority insists on a
formal letter, then write it this way, says RTI activist Vijay Kumbhar:

VERY IMPORTANT NOTE: Intimation of inspection u/s. 4 should be addressed to the top
authority of the government department (meaning the municipal commissioner, if
it is a municipal corporation) unlike an application u/s. 6 which is addressed
to the public information officer (PIO).

Draft of intimation

The Head of the Department

Subject – Intimation for inspection of files
related to xxxxxxxxxx

Dear Mr. Head of the Department

As per the circular sankirn2018/ pra.kra.
45/ karya 6, dated 26/11/2018, the government of Maharashtra has allowed
inspection of files in every department. Please note that as per section 4 of
the RTI act and as per the said circular there is no need to give any
intimation for inspection of files in any public authority. However, being
responsible citizens, we thought it preferable to intimate you beforehand.

I intend to exercise my right as a citizen
to inspect documents related to xxxxxx. I will visit your office on Monday
xx/xx/2018.

Thanking you

With Regards

Citizens must remember they are the
custodian of most government files, except the ones u/s. 8 of the RTI Act, says
Kumbhar and, therefore:

• As these files belongs to citizens and
citizens are owners of these files they should not to feel awkward, guilty or
hesitate to demand a file for inspection

• Remember, once a citizen gives them the
intimation, the citizen should not have to wait for a reply from the
officer, simply because a citizen has
the right to inspect files during the designated working hours of the public
authority. The intimation is just for the purpose of convenience and to avoid
excuses by officials.

• Once citizens have gone through the documents
they can ask for the copies of the inspected documents. To obtain such copies,
u/s. 6 of the RTI Act, one need not give an application. Merely giving a list
of document on plain paper is enough. However, they need to pay the fees
required for photocopying.

Text
of Section 4 of the Right to Information Act, 2005

4. (1)
Every public authority shall

(a)
maintain all its records duly catalogued and indexed in a manner and
form which facilitates the right to information under this Act and ensure that
all records that are appropriate to be computerised are, within a reasonable
time and subject to availability of resources, computerised and connected
through a network all over the country on different systems so that access to
such records is facilitated;

(b)
publish within one hundred and twenty days from the enactment of this
Act,-

(i) the particulars of its organisation,
functions and duties;

(ii) the powers and duties of its officers
and employees;

(iii) the procedure followed in the decision
making process, including channels of supervision and accountability;

(iv) the norms set by it for the discharge
of its functions;

(v) the rules, regulations, instructions,
manuals and records, held by it or under its control or used by its employees
for discharging its functions;

(vi) a statement of the categories of
documents that are held by it or under its control;

(vii) the particulars of any arrangement
that exists for consultation with, or representation by, the members of the
public in relation to the formulation of its policy or implementation thereof;

(viii) a statement of the boards, councils,
committees and other bodies consisting of two or more persons constituted as
its part or for the purpose of its advise, and as to whether meetings of those
boards, councils, committees and other bodies are open to the public, or the
minutes ‘of such meetings are accessible for public;

(ix) a directory of its officers and
employees;

(x) the monthly remuneration received by
each of its officers and employees, including the system of compensation as
provided in its regulations;

(xi) the budget allocated to each of its
agency, indicating the particulars of all plans, proposed expenditures and
reports on disbursements made;

(xii) the manner of execution of subsidy
programmes, including the amounts allocated and the details of beneficiaries of
such programmes;

(xiii) particulars of recipients of
concessions, permits or authorisations granted by it;

(xiv) details in respect of the information,
available to or held by it, reduced in an electronic form;

(xv) the particulars of facilities available
to citizens for obtaining information, including the working hours of a library
or reading room, if maintained for public use;

(xvi) the names, designations and other
particulars of the public information officers;

(xvii) such other information as may be
prescribed; and thereafter update these publications every year;

(d)
provide reasons for its administrative or quasi-judicial decisions to
affected persons;

(2)
It shall be a constant endeavour of every public authority to take steps
in accordance with the requirements of clause (b) of s/s. (1) to provide as
much information suo motu to the public at regular intervals through various
means of communications, including the internet, so that the public have
minimum resort to the use of this Act to obtain information.

(3)
For the purpose of s/s. (1), every piece of information shall be
disseminated widely and in such form and manner which is easily accessible to
the public.

(4)
All materials shall be disseminated taking into consideration the cost,
effectiveness, local language and the most effective method of communication in
that local area and the information should be easily accessible, to the extent
possible in electronic format with the central public information officer, or
state public information officer, as the case may be, available fee or at such
cost of the medium or the print cost price as may be prescribed.

Explanation: For the purposes of s/s. (3)
and (4), “disseminated” means making known or communicated the
information to the public through notice boards,
newspapers, public announcements, media broadcasts, the internet or any other
means, including inspection of offices of any public authority.

(Source:https://www.moneylife.in/article/maharashtra-facilitates-inspection-of-files-here-is-how-to-do-file-inspection-under-rti/55946.html )

PART C INFORMATION ON & AROUND

u 384 tigers killed
in India in last 10 years, reveals RTI

A total of 384 tigers have been killed by
poachers across the country in the last ten years, which translates to over
three a month, a reply under the Right to Information has revealed.

Between 2008 and 2018 (till November), 961
persons have also been arrested for allegedly poaching tigers, it said. The
information was given by the Wildlife Crime Control Bureau or WCCB in response
to a Right to Information (RTI) query filed by Noida-based advocate Ranjan
Tomar.

Tomar also an RTI activist, had asked the
WCCB the number of tigers killed by poachers in the last ten years and the
people arrested and convicted for the same. “As per the data available in
records of the Bureau based on the information received from the State Forest
and Police authorities the total number of tigers killed by poachers in the
last 10 years is 384 and 961 number of poachers arrested in the tiger
cases,” the reply stated. However, the bureau said that no information was
available with it regarding conviction of the accused in these cases.

“The data makes it clear that
successive governments have not been able to check killing of tigers by
poachers and therefore there is a need for a special initiative to conserve
this wild species or make changes in current laws to make them more effective else,”
Tomar said.

For conservation of the country’s national
animal, the government had launched ‘Project Tiger’ in 1973. As per a 2014
assessment, India has the highest number of tigers in the world at 2,226,
according to the website of the Ministry of Environment, Wildlife and Climate
Change.

(Source:https://economictimes.indiatimes.com/news/politics-and-nation/384-tigers-killed-in-india-in-last-10-years-reveals-rti/articleshow/66984490.cms
)

u Mumbai
University examinations in question after they receive 76,828 revaluation
applications

Mumbai University has been infamous for its
mismanagement and inability to cope up with the examinations. In an addition to
the list, Mumbai University has seen a sudden spike in the number of
revaluation applications for the academic year 2017-18. The information was
received after a Right To Information (RTI) application was filed for the same
and therefore, it raises questions against the paper checking process. Revaluation is a facility introduced by the
University for students who are dissatisfied with their score in an examination
or for students who have failed in an examination. However, in order to receive
the benefit of the procedure, the students are obliged to pay a specific amount
of money to the University as ‘Revaluation Fees’, after which the answer sheet
is re-checked by the University. Shoumitkumar Salunkhe had asked for
information of the number of revaluation applications received between June,
2017 and November, 2018. After which, he learned that as compared to the
applications that were received during October, 2017 (60,712 applications), the
applications received during May, 2018 (76,828 applications) had exponentially
increased. And it was crystal clear that the number of applications was growing
every day. However, clarifying on the matter, a University official stated that
the increase in the number of revaluation applications is a result of
University’s decision to reduce the fee to Rs.
250 from Rs. 500. He stated that due to this, the students have been active in
demanding revaluation as the prices are low.

(Source:https://www.mumbailive.com/en/education/more-than-75-thousand-answer-sheet-submitted-for-rechecking-in-mumbai-university-31378 )

u Jammu
& Kashmir (J & K Bank) is now under Right to Information Act

J & K Bank (Jammu & Kashmir Bank)
has been brought under the ambit of the Right to Information Act (RTI) Act,
Chief Vigilance Commissioner (CVC) and the Legislature of the State in Jammu
and Kashmir. The official said on Friday that on Thursday evening under the
chairmanship of Governor of Jammu and Kashmir, Satyapal Malik and State
Administrative Council (SAC), in which the proposal to recognise ‘J & K
Bank’ as Public Sector Undertakings (PSU) has been passed. The SAC approved the
proposal that the Jammu and Kashmir Right to Information Act, 2009 will now be
applied to the Jammu and Kashmir Bank, just like the other banks under the PSU.
He told that besides this, the bank will now have to accept the guidelines of
the CVC.

He said that like the other PSUs of the
state, ‘J & K Bank’ will also be accountable to the state assembly. The
bank’s annual report will be presented in the assembly by the State Finance
Department.

However, Former Chief Minister Mehbooba
Mufti demanded to cancel the decision of the Governor to include Jammu and
Kashmir Bank in the category of PSUs. She said that the involvement of the
Jammu and Kashmir Bank in the category of PSU is a part of the conspiracy to
end the state’s special status.

The state administration has clarified that
there is no intention of interfering in the banking system. The Board of
Director of the Bank is the best and it is his autonomous. RBI will work to
regulate RBI as before. The purpose of the decision of the State
Administrative Council is to bring better governance and transparency in the
functioning of the bank. Applying the Jammu and Kashmir Bank to RTI and
implementing the guidelines of the CVC is just to bring transparency.

The bank will be accountable to the state
assembly and its annual report will be present in the state assembly itself.
The right transparency in the bank will come from the RTI Act. All
administrative and recruitment rules are related to it. Union Minister of
State, Dr. Jitendra Singh said that some families living in the state’s
power have been misusing their bank to understand their estate. The governor’s
decision is in line with the Center’s decision to increase transparency in
financial institutions.

(Source:https://www.newsfolo.com/india/jammu-kashmir-j-k-bank-now-right-information-act/156659/)

u CIC brings
BCCI under Right to Information Act

The worst fears
of an Indian cricket selector are about to come true. BCCI has been brought
under the ambit of the Right to Information Act and faces the direct prospect
of being answerable to the country and its public in the near future. The
Central Information Commission (CIC) — the top appellate body in all matters
related to this 2005 Act of the Parliament of India — has directed the BCCI to
be brought under the RTI Act and put in place, within two weeks starting
Tuesday, online and offline mechanisms to receive applications for information
under the RTI Act. Will a selection committee meeting now be public info? “The
BCCI should be listed as a National Sports Federation (NSF) covered under the
RTI Act. The RTI Act should be made applicable to the BCCI along with its
entire constituent member cricketing associations, provided they fulfil the
criteria applicable to the BCCI, as discussed in the Law Commission’s report,”
CIC Commissioner Sridhar Acharyulu said. Those who oversee the day-today
functioning of the BCCI say they are least bit surprised with the development.
“But there are massive pitfalls associated with this too. All hell will break
loose if details of selection committee meetings are now made available to the
public. Who will want to speak his mind then? Every decision taken inside a
selection committee meeting will become a matter of national debate, leading to
tamasha on prime time television news,” said a senior BCCI member.

Recently, the national women’s team coach was sacked by the BCCI because he —
sources say — was asked to jot down details of team meetings and the cricketers
rejected the idea the moment it was proposed.

(Source:https://timesofindia.indiatimes.com/sports/cricket/news/cic-brings-bcci-under-right-to-information-act/articleshow/66036808.cms)

u Indian
students rushing abroad to study medicine, reveals RTI

There has been an increase in the number of
students willing to study medicine abroad, reveals the reply to an RTI query. The
RTI query was sent to the Medical Council of India (MCI) in October 2018 and
the reply reveals that the number of students who applied for the mandatory
eligibility certificate from MCI to study abroad almost doubled in 2017-18 as
compared to 2016-17.

As per RTI no. MCI- 201 (E-RTI)/ 2018-
Eligi./, the number of applications received was18,383 in 2017-18 as against
10,555 in 2016-17.

Dr. Sylvia Karpagam, a public health doctor
and researcher, said, “The mass migration of doctors has been happening for a
long time and it is not surprising. The entire medical education system, right
from the selection process, the fees and the curriculum are set up as a
commercialised structure, rather than a social commitment. The curriculum
doesn’t focus on the disease that is prevalent in the country. Medical students
are also trained in tertiary care rather than primary healthcare. They are
therefore ill-prepared to work in a primary care setting and definitely not in
a rural care setting.”

As per the information provided in the RTI
communication, MCI issued 8,737 eligibility certificates in 2016-2017 and
14,118 certificates in 2017-18. The eligibility certificates issued also
include pending from previous years, the RTI reply suggested.

Dr. Karpagam said that there is a need to
change the social structure of medical students who get admission to medical
colleges. Investments should be made into government medical colleges to focus
on training students on health issues concerning the country, with the
particular focus on social determinants of health.

The key reason for student migration is the
lack of medical seats in the country, said Mr Saju Bhaskar, president and
founder of an overseas MCI-recognised medical university, Texila American
University. “Information provided in the RTI speaks volumes on the shift in
medical education trends. There are a mere 60,000 medical seats being offered
by both government and private colleges for medical aspirants, who are in
millions.

Apart from this, higher awareness levels of
the overseas colleges, affordable fees compared to Indian private colleges,
curriculum aligned to international standards, better global growth
opportunities etc. are the other reasons why students prefer to study MBBS
abroad,” he said.

(Source:https://www.deccanchronicle.com/nation/current-affairs/201218/indian-students-rushing-abroad-to-study-medicine-reveals-rti.html)

PART D RTI ARTICLE

u India: Copyright and the Right To Information

Can a request for information under the
Right to Information Act, 2005 (“RTI Act”) be denied on grounds of
being the copyright of a third party? This was one of the questions that a two
Judge Bench of the Supreme Court of India recently dealt with. The case related
to the issue of disclosure under the RTI Act, where a person sought information
regarding the plans submitted to public authorities by a real estate developer.

BACKGROUND

The origins of the suit, Ferani Hotels
Pvt. Ltd. vs The State Information Commission, Greater Mumbai (Civil Appeal
Nos.9064-9065 of 2018, decision dated 27^th September, 2018, Supreme
Court of India), lie in a private commercial dispute between a real estate
developer, Ferani Hotels, and Mr Nusli Neville Wadia (see).

In brief, Mr Wadia administered certain
plots of land as the owner of that land, and granted Ferani Hotels the
authority to develop the land through a Power of Attorney. It came to pass that
Mr Wadia wanted information about the building plans. When the developer failed
to provide the information through other means, Mr Wadia applied to the Public
Information Officer (“PIO”), Municipal Corporation of Greater Mumbai,
for this information, which included certified copies of plans, layouts,
development plans (and amendments), submitted by Ferani Hotels, its divisions
or architect.

The request for this information was
declined on various grounds by the PIO, including that no public interest had
been demonstrated in seeking this information, and that it was the copyright of
Ferani Hotels. The latter ground was based on two arguments put forward by
Ferani Hotels: firstly, that the information-seeker was a business competitor
and the disclosure of the information would harm and injure its competitive
position, as well as its intellectual property rights; secondly, that all
rights in respect of the plans, designs, drawings, etc., including intellectual
property rights and in particular copyright, were reserved and vested
exclusively with the developer.

After winding its way through the corridors
of the information commission architecture set up under the RTI Act, the suit
found itself before the Supreme Court. The Court, in this order, dealt with
multiple questions relating to the RTI application, such as what constitutes
public interest, but this note is restricted to understanding the court’s views
on copyright and the RTI Act.

THE RTI ACT AND COPYRIGHT

It is useful to discuss some relevant
provisions of the law at this stage. The RTI Act was created in 2005 to
increase the accountability of government authorities towards the public by
facilitating greater and more effective access to information. Section 6(2) of
the RTI Act says that an applicant does not have to provide any reasons for
requesting the information. In other words, anyone can obtain the information
as long as it is part of the public record of a public authority. The Court
additionally observed that even private documents submitted to public
authorities may, under certain situations, form part of public record.

The right to information is subject to
certain restrictions contained in the law. For example, section 8(1)(d) allows
for information to be denied if it includes “commercial confidence, trade
secrets or intellectual property, the disclosure of which would harm the
competitive position of a third party, unless the competent authority is
satisfied that larger public interest warrants the disclosure of such
information”. Similarly, section 9 allows a competent authority to
“reject a request for information where such a request for providing access
would involve an infringement of copyright subsisting in a person other than
the State.”

In the present case, the information sought
for were, in fact, plans relating to the property in question. These plans are
ordinarily required to be submitted by any person proposing to construct on a
property, to the Commissioner of the Corporation. The general principle, which
the Court has reiterated in multiple pronouncements, is that the “fate of
[the] purchase of land development and investments is a matter of public knowledge
and debate.”

To highlight this principle, the Court made
reference to provisions of the Maharashtra Ownership Flats (Regulation of the
Promotion of Construction, Sale, Management and Transfer) Act, 1963, which
empower purchasers of flats (which are being built by a developer) to obtain
full information of the sanctioned plans. (This law, although relevant for this
case, has since been repealed by Real Estate (Regulation and Development) Act,
2016, which retains the same spirit of positive information disclosure). The
Court made two pertinent observations in this context: firstly, that this right
to obtain information about sanctioned building plans should not be restricted
to flat-buyers, but should also be available to persons who administer the land
as owner, and grant authority for its development. Secondly, the Court noted
that the disclosure of plans, which are already required to be in public domain
under law, cannot possibly be matters of commercial confidence or trade
secrets.

THE COURT’S CONLUSIONS

On the issue of intellectual property and copyright, the Court noted
that even though the preparation of the plan and its designs may give rise to
the copyright in favour of a particular person, the disclosure of that work
would not amount to an infringement. Towards this, it cited section 52(1)(f) of
the Copyright Act, 1957, which specifically provides that there would be no
such infringement if there is reproduction of any work in a certified copy made
or supplied in accordance with any law for the time being in force. This is
what was sought for in the present case.

The other relevant observation pertained to
the implications of the overriding effect clause contained in section 22 of the
RTI Act, which provides for an overriding effect with a notwithstanding clause
with regard to any inconsistency with any other Act. The Court clarified that
this would not imply that a disclosure permissible under the Copyright Act,
1957 is taken away under the provisions of the RTI Act, but rather, if a
disclosure is prescribed under any other Act, the provisions of the RTI Act
would have an overriding effect.

A LEGAL MISADVENTURE

While tackling this case, the Court also
made plain-spoken observations about the nature of the dispute, calling it
“a legal misadventure”, emerging “clearly [from] the private
dispute, rather than any objective consideration qua the issue of
disclosure of information”, and where “the issue in question was ….
really innocuous”. Costs of Rs 2.50 lakhs were imposed on the appellant,
Ferani Hotels, payable to the information-seeker, although the court also noted
that these were hardly the actual expenses!

Article by Sumathi Chandrashekaran

(Source:http://www.mondaq.com/india/x/759832/Trade+Secrets/Copyright+And+The+Right+To+Information )

RTI Clinic in January 2019: 2^nd,
3^rd Saturday, i.e. 12^th, 19^th and February 2^nd11.00 to 13.00 at BCAS premises

BCAJ Admin

GOODS AND SERVICEs TAX (GST)

I. HIGH COURT

14. 2018
[17] G.S.T.L. 191 (All.) VSL Alloys (India) Pvt. Ltd. vs. State of U.P. and
Ors. Date of Order 13^th April, 2018

Mere
non-disclosure of vehicle No. in Part-B of E-way Bill cannot be a ground for
seizure of the goods as well as vehicle.

FACTS

During
the movement of the goods from petitioner’s factory upto the transporter’s
premise for further transportation, the vehicle was intercepted. On perusing
the documents produced, it was found that Part-B of the E-way bill was
incomplete. On finding such irregularity, Order was passed u/s. 129 (1)
detaining the vehicle as well as goods and levying tax liability and penalty.
The Petitioner relying on third proviso of Rule 138(3) of CGST Rules, 2017
contested that the filing of Part B of E-way bill was optional where goods are
transported from place of business of consignor to the place of business of the
transporter for further transportation. The Respondent (Department) though
admitted that all the requisite documents were accompanied the goods when the
vehicle has been intercepted. Aggrieved Petitioner filed writ petition before
the Hon’ble High Court.

HELD

Hon’ble
High Court held that there was no ill intention of the petitioner nor the
petitioner was supposed to fill up Part-B of E-way Bill in light of Rule 138
(3) of CGST Rules, 2017. The order was held illegal and once the Petitioner has
placed the evidence with regard to its claim, it was obligatory on the part of
the Department to consider and pass an appropriate reasoned order. The show
cause notice and impugned seizure order were quashed directing to release goods
as well as vehicle.

15. 2018 (99) Taxmann.Com 218 (Kerala) Saji S vs.
Commissioner, State gst Department (Kerala High Court) Decided on 12^th November, 2018

GST
paid under wrong head by mistake can be adjusted with another head

FACTS

The
petitioner purchased goods from Chennai and transported to Kerala. During
transit, for reasons not germane here, the goods were detained by the Assistant
State Tax Officer (‘ASTO’) thereby demanding applicable tax and penalty by way
of notice. The petitioner paid the same on the directions of ASTO.

The
department then denied to release the goods because the payment so made was
remitted under the head ‘SGST’ instead the head ‘IGST’. The petitioner
contended that statue empowers the authorities to transfer the deposit from one
head to another, i.e. from SGST to IGST. The Respondent submitted that the
petitioner could as well pay the amount under ‘IGST’ and them claim a refund of
‘SGST’ because if authorities goes for an adjustment, it will take more than a
couple of months. Hence, the writ.

HELD

The Hon’ble Kerala High Court while
deciding the matter held that the facts are not in dispute. Further, section 77
of GST Act, 2017 provides for the refund of the tax paid mistakenly taken under
one head instead of another. However, Rule 4 of GST Rules, 2017 provides for
adjustments where the amount of refund is completely adjusted against
outstanding demand under the Act and an order giving details of the adjustment
to be issued in Part A of Form GST RFD – 07. Under these circumstances, there
seemed no difficulty for the authorities to transfer the amount from head
‘SGST’ to ‘IGST’. It may, as the Respondent has submitted, take some time, but
it was inequitable for the authorities to let the Petitioner suffer. Hence, the Hon’ble Court directed Respondent
to release the goods along with vehicle and, then ensure that the tax and
penalty are accordingly transferred from the head ‘SGST’ to ‘IGST’. The writ
petition was accordingly disposed.

16. [2018-TIOL-176-HC-MUM-GST] A-1 Cuisines Pvt.
Ltd vs. Union of India dated 28^th
November, 2018

Shops
located at a domestic Airport or Domestic Security hold area, which are
beforeeven the immigration clearance where the transaction cannot be said to have
taken place in any area beyond the customs frontiers of India or outside India
cannot be considered as a non-taxable supply

FACTS

The Present petition seeks direction to the respondents to
exempt the applicable taxes on sale of cosmetic products, perfumes etc. to the
International passengers and claim refund of any input tax paid on input
supplies and input services from the retail shop which the petitioner intends
to set up at the Domestic Security in the International Airport. It was
submitted that sale of similar products to international passengers are
permitted without levy of Customs duty and applicable taxes under the
CGST/IGST/SGST from the duty free shops located in the arrival and departure
halls of International Airports in India.

HELD

The Court noted that exemption is applicable only in respect
of supplies to or from the duty free shops situated after the passenger crosses
the immigration counter beyond the Customs frontiers, at arrival or departure
hall of International Airport terminals, where the transaction would be said to
have taken place outside India as the same would be a “non-taxable”
supply u/s. 2(78) of the Act and such duty free shops located at the
International Airports would be in “non-taxable” territory as defined
in section 2(79) of the Act. However, to shops located at a domestic Airport or
Domestic Security hold area, which are before even the immigration clearance by
a passenger, where the transaction cannot be said to have taken place in any
area beyond the customs frontiers of India or outside India, no exemption can
apply. It was also noted that a passenger travelling on a domestic flight from
Nagpur may or may not travel abroad and the Customs Authorities would not be
able to have effective check and control to verify whether the goods purchased
from Domestic Airport at Nagpur are actually taken abroad by the passenger.
Accordingly, the petition is dismissed.

II. AUTHORITY OF ADVANCE RULING (AAR)

17. [2018-TIOL-290-AAR-GST] NForce Infrastructure
India Pvt. Ltd dated 28^th
November, 2018

Construction
service of building/civil structure to supplier of development rights (the land
owner) against consideration in the form of transfer of development rights is
liable for GST.

FACTS

Applicant
entered into an agreement for construction and to hand over residential
apartment area, and 8 car parkings on the land belonging to the six persons.
Project was completed post 01.07.2017. Advance ruling was sought on the
question as to whether they were liable to pay GST on the value of building
constructed and handed over to the land owner in terms of the Joint Development
Agreement since there is no monetary consideration involved. Further, whether
the applicant is liable to pay service tax up to 30.06.2017 and GST thereafter.

HELD

The authority noted that the Applicant supplied
construction service of building/civil structure to supplier of development
rights (the land owner) against consideration in the form of transfer of
development rights. Supplier of construction service to the supplier of
development rights is liable to pay GST for the service provided in terms of
notification 4/2018-Central Tax (Rate). Further, value is to be determined in
terms of para 2 of notification 11/2017-Central Tax (Rate). Insofar as
liability to pay service tax up to 30.06.2017 is concerned, it is clearly
evident from section 142(11)(b) that the service tax is liable to be paid,
which is liable under the Finance Act, 1994, on the services provided up to
30.06.2017 and on the services provided after 01.07.2017, GST is liable to be
paid.

18. [2018-TIOL-286-AAR-GST] Ina Bearing India
Pvt. Ltd dated 9^th July, 2018

Sale of goods which are located outside India is not
liable to tax in India u/s. 7(5)(a) of the IGST Act, 2017

FACTS

Sale
of goods which are located outside India to a place outside India i.e. out and
out sale, is a transaction not liable for GST.

HELD

The
Authority held that in case of goods supplied on out and out basis, there is no
levy till the time of their customs clearance in compliance with section 12 of
the Customs Act and section 3 of the
Customs Tariff Act. Imported goods sold from and to a non-taxable territory,
though they are clearly in the nature of inter-state supply would come in the category of ‘exempt
supply’ as no duty is leviable on them except in accordance with proviso to
section 5(1) of the IGST Act. It was further noted that the legal position is
reiterated and confirmed by CBIC Circular 3/1/2018-IGST dated 25.05.2018. Thus
Sale of goods which are located outside India is not liable to tax in India u/s. 7(5)(a) of the IGST Act,
2017.

BCAJ Admin

Service Tax

I.
TRIBUNAL

25. 2018 (18) G.S.T.L 438 (Tri. Mumbai) Matheson
K. Air India Pvt. Ltd. vs. Commissioner of Central Ex. & S.T., Pune
Date of Order: 29^th March, 2017

Service
tax liability under reverse charge mechanism not to arise on rent paid towards
transportation of helium gas by supplier of helium gas from abroad.

FACTS

Issue regarding applicability of service tax arose on the rent paid
towards helium gas tankers used for transportation of helium gas by the
suppliers abroad. Demand was raised on reverse charge basis and later
confirmed. Hence appealed before the Tribunal mentioning that in the identical
issue in their own case, the matter was decided (in citation 2017 (4) G.S.T.L.
379 (Tribunal)) holding in favour of the Appellant that the service tax
liability under reverse charge mechanism would not arise in the case of rent
paid for helium gas tankers for transportation of helium under the category of
‘supply of tangible goods for use’.

HELD

The Hon’ble
Tribunal found that issue arose earlier was identical to the other, and so
respectfully following the same and allowed the appeal.

26. 2018 (18) G.S.T.L 439 (Tri. Chennai)
Microcredit Foundation of India Ltd. vs. Commr. Of S.T., Chennai Date of Order:
9^th November, 2017

Levy of Business Auxiliary Service non sustainable prior to May, 2006 on
Company registered as non-profit organisation, not being a commercial concern.

FACTS

The
liability of service tax under “Business Auxiliary Service” on the appellant, a
company registered u/s. 25 of the Companies Act, 1956 as a non-profit
organisation was made. The definition of ‘Business Auxiliary Service’ as it
stood during the relevant period included only a ‘commercial concern’. The
definition was amended w.e.f. 1.5.2006 to substitute the words “commercial
concern” with “any person”. Since the period involved is prior
to the said date, it was outside the purview of the amended definition.
Decision in the case of Raja Charity Trust vs. CCE & ST Tirunelveli 2017
(4) G.S.T.L. 77 (Tri.-Chennai) was relied upon.

HELD

Tribunal appreciated that prior to 01.05.2006 services rendered to a
client by a commercial concern would only qualify as Business Auxiliary Service
and service rendered to any person would not fall in the ambit of the same. As
clear from the records, the appellant could not be considered as a commercial
concern. Following Raja Charity Trust (supra) allows the appeal the
demand was set aside.

27. 2018 (18) G.S.T.L 460 (Tri. Del.)
Commissioner of Service Tax, Delhi vs. SGC Services P. Ltd. Date of Order: 21^st
January, 2018

FACTS

Respondent
entered into an agreement with Discount City Hotels Ltd., UK (DCH) for
facilitating the working of its back office in India with respect to running
and maintaining online hotel booking. The Respondent also entered into an
Agreement with with Celergo, USA for performing various activities. Department
brought said services under the Business Auxiliary Services, which was
considered as export of services by the Appellate Authority and dropped the
demand. Consequently, the department filed the appeal.

HELD

The Hon’ble
Tribunal held that the issue was squarely covered by the ratio laid down by
Larger Bench in the case of Paul Merchants Ltd. vs. Commissioner – 2013 (29)
S.T.R. 257 (Tri. – Del.) as well as Microsoft Corporation IP Ltd. vs.
Commissioner 2009 (15) S.T.R. 680 (Tri.-Del.) and observed that the Order
was reasonable and required no
interference. Hence, Department’s appeal was rejected.

28. [2018-TIOL-3722-CESTAT-MUM] Pallonji and Co.
Pvt. Ltd vs. Commissioner of CGST & CX, Mumbai Date of Order: 20^th
November, 2018

Excess
payment of service tax consequent upon reduction in rate of contract and
issuance of credit notes thereof, refund claim rejected on the ground of time
bar – however, assessee was entitled to avail CENVAT credit of the excess tax
paid in terms of Rule 6(3) of STR, 1994

FACTS:

Appellant executed certain maintenance, repair and construction through
a work contract agreement. After
completion of the work, the rate was reduced on renegotiation by both the
parties and against which credit notes were raised to the customers for
differential rate in the value of services and service tax component. The
refund claim for excess service tax paid between the period April 2013 to March
2014 was filed on 30.07.2015 and the adjudicating authority rejected the refund
claim filed u/s. 11B on the ground that the same was not filed within the
stipulated time. Time bar issue was not challenged, however a claim to avail
CENVAT credit as per Rule 6(3) of the Service Tax Rules, 1994 was put forth.

HELD

The Hon’ble Tribunal noted that a request for adjustment of excess
payment was made before the Commissioner (Appeals), however the same was
refused as it was not the subject matter of appeal. As per the Tribunal,
section 35A(3) of the Central Excise Act, which is equally applicable to
service tax matters provides that the Commissioner (Appeals) shall make such
further enquiry as may be necessary, pass such order as he thinks just and
proper in confirming, modifying or annulling the decision or order appealed
against. Reliance was placed on the decision of the Apex Court in MIL India
Ltd. vs. CCE 2007 (260) ELT 188 (SC) where it was held that Commissioner
(Appeals) could also act as an adjudicating authority. Tribunal, further
invoked order 7 Rule 7 of the Civil Procedure Code, which empowers a court to
grant such other relief which may always be given, as a court may think just,
to the same extent as if it has been asked for. Thus the Appeal was allowed and
the Appellant was held entitled to avail CENVAT credit for the refused refund
claim.

29. [2018-TIOL-3703-CESTAT-MAD] Hyundai Motor
India Ltd vs. Commissioner of GST & Central Excise Date of Order: 17^th
September, 2018

Only
intellectual property recognised under the Indian law is taxable under the
service category of Intellectual Property Service taxable u/s. 65(105)(zzr) of
the Finance Act, 1994

FACTS

The
Appellant sold their spare part division vide a trademark licensing Agreement.
On audit by the department, it was noted that the buyer had carried out
valuation of their goodwill by an independent valuer. According to the
department, the amount received as consideration for the transfer of the
business included transfer of goodwill also and the said goodwill was an
intangible property & should be classified as intellectual property &
that the transfer of the same would fall u/s. 65(105)(zzr) of the Finance Act,
1994. Further, the Goodwill also valued to a lower amount than the original
one.

HELD

The Tribunal
noted that the mandate of section 65(55b) is that only transfer of intellectual
property recognised under Indian law is taxable. Further, the Karnataka High
Court in Commissioner of Income Tax vs. Associated Electronics and
Electrical Industries (Bangalore) Pvt. Ltd. [2016] 6 ITR-OL 471 (Kar.)
found that trademark & goodwill were distinct concepts. Hence goodwill of
business has no existence except in connection with the continuing business.
Accordingly, it was held that transfer of goodwill would not fall within the
definition of IPR service u/s. 65(55b) of Finance Act, 1994.

30. 2018 (17) GSTL 434 (Tri.-Ahmd.) Transpek
Silox Industries Pvt. Ltd. vs. Commr. Of C. Ex., Vadodara-I Date of Order: 15^thNovember, 2017

Recipient
paid 100% service tax instead of 25% under RCM on Manpower Recruitment or
Supply Agency Service, demand of 75% against service provider held not
sustainable

FACTS

Appellant
availed benefit of “Manpower Recruitment Agency Service”, in terms of
Notification No. 30/2012-S.T. dated 20.06.2012 (which provides for reverse
mechanism and partial reverse mechanism on certain services). But neither
Appellant paid 75% of the service tax nor supplier of service paid remaining
25% of service tax, which they were required to pay. Upon realisation from
Revenue, Appellant paid service tax and in one case the supplier itself has
paid 100% service tax instead of 25% and in that case Appellant did not pay
service tax. Therefore, demand of service tax was confirmed @ 75% of the
service tax on the value of manpower recruitment service received by them.
Aggrieved by the said order, the Appellant preferred appeal before the
Tribunal.

HELD

The Hon’ble
Tribunal held that on pointing out by the revenue the Appellant immediately
paid service tax, therefore demand is not sustainable in this case. For another
invoice on which Appellant did not pay service tax but the service provider
paid 100% of Service Tax, the Appellant was not required to pay 75% of the
service tax in terms of said Notification. The Hon’ble Tribunal also observed
that if payment would have been made by the Appellant, the same would become
double taxation against Appellant which was not permissible in the law.
Therefore, impugned Order was not sustainable in law and therefore set aside.

II HIGH COURT

31. 2018 (18) G.S.T.L 410 (Mad.) 3E Infotech vs.
CESTAT, Chennai
Date of Order: 28^th June, 2018

Tax paid
in excess is liable to be returned irrespective of time limit as prescribed
u/s. 11B of the Central Excise Act, 1944 in light of Article 265 of the
Constitution of India

FACTS

Appellant engaged in the export of services, paid service tax unaware of
the fact that the same was not payable as per Rule 6A of Service Tax Rules,
1994. Upon realisation, made representation before Revenue Department
requesting to refund the excess tax paid. SCN was issued and later order
denying the refund of service tax paid was made on the ground that the said
refund is barred by limitation as per section 11B of Central Excise Act,1944.
Even CESTAT disallowed the claim holding that there was no justification for
condoning the delay in making the application. Aggrieved by the same, the appeal to the High Court was filed.

HELD

Hon’ble High
Court relying on the decision of Hon’ble Supreme Court in the case of Union
of India vs. ITC Ltd. [1993 (7) TMI 75 (SC) held that the provisions of
section 11B of the Central Excise Act, 1944 are not applicable to the claim of
refund and the general provisions under the Limitation Act, 1963 would be
applicable. Further, it was held that the denial of refund of excess amount would
go against the mandate of Article 265 of the Constitution of India, which
provides that no tax shall be levied or collected except by the authority of
law. Thus, claim of refund was decided in favour of assessee.

32. 2018 (18) G.S.T.L 396 (Mad.) Industrial
Mineral Company (IMC). vs. Union of India Date of Order: 22^nd March,
2018

Notwithstanding
availability of alternative remedy, writ jurisdiction invocable when binding
precedent not followed

FACTS

Petitioner,
a registered 100% EOU, manufacturer and exporter had a dispute with the
Department on one customs tariff head of their export consignment. Considering
the dispute, export duty was paid under protest and later refund was applied
for by filing a writ petition. Department contested that claim of petitioner
was yet to be adjudicated and question of refund was premature. The Hon’ble
Court while deciding the writ petition, found the contention technically
correct but in order to render substantial justice, suo moto impleaded the
Adjudicating Authority and directed to pass orders. Meanwhile writ was kept
pending and later submissions were made before the adjudicating authority
relying on the decision of Tribunal in the case of V.V. Minerals vs. CC
Tuticorin Final Order No. 41412 of 2015, similar to their case. However,
the claim was rejected on the ground that the said case was pending before the
Supreme Court, hence could not be relied upon.

HELD

The Hon’ble
Court while deciding the writ petition was of the view that when the order
passed by the Tribunal has not been stayed or set aside by the Hon’ble Supreme
Court, it was the bounden duty of the authority to follow the law laid down by
the Tribunal, which was not followed, so the High Court can interfere
straightaway without relegating the assessee to file an appeal. And thus the
order passed stood quashed with a direction to refund the amount in question
within a period of four weeks from the date of receipt of the copy of this
order.

33. [2018-TIOL-2409-HC-DEL-ST]Vodafone Mobile
Services Ltd vs. CST, Delhi Date of Order: 31^st October, 2018

It is a
settled principle of law that entitlement of CENVAT credit is to be determined
at the time of receipt of the goods. If the goods that are received qualify as
inputs or capital goods, the fact that they are later fixed/fastened to the
earth for use would not make them a non-excisable commodity when received

FACTS

In the
present case, the entire tower and shelter is fabricated in the factories of
the Manufacturers/Appellants and these are supplied in CKD condition. They are
merely fastened to the civil foundation to make it wobble free and ensure
stability. They can be unbolted and reassembled without any damage in a new
location. The larger bench of the Tribunal denied the credit on the premise
that the towers erected result in immovable property. Accordingly ,it was the
case of the Appellants that a machine or apparatus annexed to the earth without
its assimilation by fixing with nuts and bolts on a foundation to provide for
stability and wobble free operation cannot be said to be one permanently
attached to the earth and, therefore, would not constitute an immovable
property. Further it was also argued that the towers and the parts thereon and
the pre-fabricated shelters are inputs, in accordance with the provisions of
Rule 2(k) of the Credit Rules used for the provision of infra-support services.

HELD

The Court primarily noted that clearly goods in question have gone into
the making of such towers which in turn are used for providing infra-support
service/ telecom service. The eligibility of credit must be determined at the
time of receipt of the goods in terms of Rule 4(1) of the Credit Rules. The
fact that such goods are later on fixed/ fastened to the earth for use would
not make them a non-excisable commodity when received. Credit cannot be denied
so as long as the goods are used for the provision of the output service.
Accordingly, the Court held that conclusion of CESTAT, denying the CENVAT
credit on the premise that the towers erected result in immovable property, is
erroneous. The fact that in the intermediate stage, an immovable structure
emerged is of no consequence. It is a settled principle of law that if the
goods that are received qualify as inputs or capital goods, the fact that they
are later fixed/fastened to the earth for use would not make them a
non-excisable commodity when received. Thus, the credit is allowed.

Note: Readers may note that the decision
has examined various decisions inter alia including Bharti Airtel Ltd
[2014-TIOL-1452-HC-MUM-ST], Sold and Correct Engineering Works
[2010-TIOL-25-SC-CX], Vodafone India Ltd [2015-TIOL-2098-HC-MUM-ST], Mundhra
Ports and Special Economic Zone Ltd [2015-TIOL-1288-HC-AHM-ST]

34. [2018-TIOL-2561-HC-AHM-CX] Sheelpa Enterprises
Pvt. Ltd vs. Union of India Date of Order: 30^th November, 2018

Costs
incurred to maintain the factory premises in an eco-friendly matter to
discharge a statutory obligation under the Environmental laws forms a part of
the cost of the final product and is accordingly available as CENVAT credit

FACTS

The
Appellants under the provisions of the Water (Prevention and Control of
Pollution) Act, 1974 was required to maintain a green belt comprising of 1000
trees per acre land. The question was whether the assessee was entitled to
avail the benefit of CENVAT credit with respect to the said maintenance.

HELD

The Tribunal
relying on the decision in the case of Millipore India Pvt. Ltd [2012] STR
514 noted that when the employer spends money to maintain factory premises
in an eco-friendly manner based upon
the directives issued by the Statutory Authorities, the tax paid on such
services would form part of the costs of the final product and the same would
fall within the ambit of ‘input services’ and thus the CENVAT credit should be
available. The appeal was thus allowed.

BCAJ Admin

GLIMPSES OF SUPREME COURT RULINGS

1.
The Peerless General Finance
and Investment Company Ltd. vs. CIT (2019) 416 ITR 1 (SC)

Capital or revenue receipt – Deposits by
way of subscription pursuant to investment schemes made by subscribers which
have never been forfeited are capital receipts – Nature of receipt cannot be
decided only by the treatment of such subscriptions in the accounts of the
assessee

The assessee company had floated various
schemes which required subscribers to deposit certain amounts by way of
subscriptions in its hands and, depending upon the scheme in question, these
subscribed amounts at the end of the scheme were ultimately repaid with
interest. The schemes also contained forfeiture clauses as a result of which
if, midway, a certain amount was forfeited, then the said amount would
immediately become income in the hands of the assessee.

For the assessment years 1985-86 and
1986-87, the AO treated these amounts as income inasmuch as under the
accounting system followed by the assessee, these amounts were credited to the
profit and loss account for the years in question as income. The Commissioner
of Income Tax (Appeals) dismissed the appeal from the original assessment
orders and confirmed the same. The Income Tax Appellate Tribunal, on the other
hand, allowed the appeals by relying upon the judgement of this Court in Peerless
General Finance and Investment Co. Limited and Anr. vs. Reserve Bank of India,
(1992) 2 SCC 343 in which, according to the Appellate Tribunal, the
Supreme Court finally decided the question in the assessee’s own case stating
that such amounts cannot be treated to be income but are in the nature of
capital receipts. This was not only because of the interpretation of an RBI
circular of 1987, but also because, on general principles, such amounts must be
treated to be capital receipts or otherwise they would violate the provisions
of the Companies Act.

It further went through the various clauses
contained in the scheme and found that in point of fact no subscription
certificate had, in fact, been forfeited as a result of which it was clear that
there would be no income in the hands of the assessee for these two years. It
also dealt with certificates that were surrendered prior to the stated time and
stated that in such cases whatever would remain as surplus in the hands of the
assessee would be treated as income. It went on to state that there would be no
estoppel in law against the assessee making a claim that these amounts
were in the nature of capital receipts and not income, and also relied upon
certain judgements of the Supreme Court to buttress the proposition that the
Supreme Court had also held that what is the true position in law cannot be
deflected by what the assessee may or may not do in its treatment of the matter
at hand in its accounts. The appeal against the order of the Commissioner of
Income Tax (Appeals) was allowed by the Income Tax Appellate Tribunal.

In the first round, the High Court, by its
judgement dated 9^th September, 1999 stated that since no question of
law arose, the reference applications before it were dismissed.

The Supreme Court, by an order dated 3^rd
December, 2002 set aside the High Court judgement and referred the questions of
law to the High Court.

On remand, the High Court, by the impugned
judgement dated 6^th October, 2005, allowed the appeal against the
Appellate Tribunal holding that a perusal of the subscription scheme of the
company showed that since forfeiture of the amounts deposited was possible,
this amount should be treated as income and not as a capital receipt. Further,
it relied heavily upon the fact that the assessee had itself treated such amounts
as income and credited them to its profit and loss account for the years in
question and would, therefore, be estopped by the same. Referring to the
judgement of the Supreme Court in Peerless General Finance and Investment
Co. Limited (Supra), it went on to state that since the said judgement
dealt with an RBI circular of 1987, which itself was only prospective, any law
declared as to the effect of clause 12 of that circular would be prospective in
nature and would, therefore, not apply to the assessment years in question.

On an appeal by the assessee company, the
Supreme Court observed that the question raised in the appeal was as to whether
receipts of subscriptions in the hands of the assessee company for the previous
years relevant to the assessment years 1985-86 and 1986-87 should be treated as
income and not capital receipts inasmuch as the assessee has in its books of
accounts shown this sum as income.

The Supreme Court noted that the
subscriptions were received in the years in question from the public at large
under a collective investment scheme and these subscriptions were never at any
point of time forfeited. It observed that this being the case and surrendered
certificates not being the subject matter of the appeal before it, it was clear
that even on general principles deposits by way of amounts pursuant to these
investment schemes made by subscribers which have never been forfeited could
only be stated to be capital receipts.

The Supreme
Court held that while it was true that there was no direct focus of the Court
on whether subscriptions so
received were capital or revenue in nature, still the Supreme Court had also,
on general principles, held that such subscriptions would be capital receipts
and if they were treated to be income it would violate the Companies Act. It
was, therefore, incorrect to state, as had been stated by the High Court, that
the decision in Peerless General Finance and Investment Co. Limited
(Supra) must be read as not having laid down any absolute proposition
of law that all receipts of subscription at the hands of the assessee for these
years must be treated as capital receipts.

The Supreme Court reiterated that though its
focus was not directly on this, yet, a pronouncement by the Supreme Court, even
if it could not be strictly called the ratio decidendi of the judgement,
would certainly be binding on the High Court. Even otherwise, it was clear that
on general principles also such subscription could not possibly be treated as
income. In cases of this nature it would not be possible to go only by the
treatment of such subscriptions in the hands of accounts of the assessee itself.

In the circumstances, the Supreme Court set
aside the judgement of the High Court and restored that of the Income Tax
Appellate Tribunal. The appeal was allowed.

BCAJ Admin

FROM THE PRESIDENT

Dear Members,

On October 2, 2019, the
whole world will celebrate the 150^th birth anniversary of the
‘Father of the Nation’ – Mahatma Gandhi. India will mark the event, both
nationally and internationally, by propagating the message of the Mahatma. A
national committee headed by the Prime Minister has been set up for this
purpose. We at BCAS are also making efforts to celebrate this momentous
occasion in a unique way. The October, 2019 issue of the BCAJ carries
special articles and a collage of quotes and thoughts of Gandhiji. We have also
planned an event for members which will include a talk by a senior Gandhian on
the ‘Gandhian’ way of life, some of Gandhiji’s favourite bhajans, a short skit
by members, followed by poetry recitation and exchange of thoughts on
Gandhiji’s principles.

There are many lessons from the Gandhian way of
life that we can adopt in our lives. The one Gandhi thought that has made an
everlasting impression on me is: ‘Service which is rendered without joy helps
neither the servant nor the served’. This is very, very true. I try to practice
this in my personal and professional life. In today’s fast and frenzied age, we
are totally immersed in providing service to our clients or the organization
where we work, but the question we need to ask ourselves is, ‘Are we happy with
what we are doing’? If the work that we are doing gives us pleasure and
satisfaction, that is a big motivating factor which keeps us going. It is
rightly said that ‘all other pleasures and possessions pale into nothingness
before service which is rendered in a spirit of joy’. So let us work with this
mindset of joy and enjoyment for ourselves, motivate our staff and students to
enjoy what they are doing and look forward to another day with anticipation;
let us reach our workplace happily every morning rather than out of compulsion,
without energy or enthusiasm.

On a different note, on August 26, 2019 the RBI
transferred a record Rs. 1.76 lakh crore of its surplus for F.Y. 2018-19 into
the government’s coffers (more than that of the preceding three years). As per
Section 47 of the RBI Act, 1934, the balance of the RBI remaining after making
all required provisions shall be paid to the Central Government. The current
year’s highest-ever transfer was a result of bumper / higher / exponential
surplus and a one-time exceptional transfer from RBI’s Contingency Fund
amounting to Rs. 52,000 crore. Transfer of surplus funds from Central Banks to
their respective governments has always been a topic of debate and discussion
across the world because every government likes to extract the maximum and the
Central Banks want to retain the surplus to make the balance sheet stronger.
The Dr. Bimal Jalan Committee constituted for this purpose recommended that the
equity reserves be in the range of 6.5% to 5.5% of the balance sheet size (it
was 6.8% prior to this transfer). The recommendations of the Committee were
accepted and reserves in excess of the minimum 5.5% (Rs. 52,000 crore) were
allowed to be transferred, thus leaving no buffer for future contingencies.
Further, the transfer came from a bumper profit triggered by interest income
and gains from foreign exchange transactions. Further, as per the
recommendations of the said Committee, the unrealised gains sitting in the
RBI’s balance sheet have remained untouched.

The government has not yet come out clearly about
how and where it intends to use this windfall bonus. Ideally, it should be used
for purposes like recapitalisation of public sector banks, reduce government
borrowing to control the fiscal deficit target, or provide a much-needed
stimulus to a slowing economy, rather than a thoughtless carnival of government
spending. Later, in September, the Finance Minister announced huge direct tax
cuts to boost investments and consumer spending and it appears this revenue
loss will be fully met out of the RBI surplus. Hopefully, this is a one-time
solution and the exception does not become the rule and precedent for future
governments.

Before I sign off,
let me offer my warm wishes to you and your family on the joyous
occasion of Diwali! May this auspicious festival of lights illuminate every
pore of your being by adding sparkling moments of Love, Happiness, Success, Joy
and Good Health.

With Best Regards,

CA Manish Sampat

President

BCAJ Admin

FEMA FOCUS

(i) LIBERALISATION OF THE FDI REGIME

On 28^th August,
2019 the Union Cabinet chaired by the Prime Minister approved several proposals
for review of Foreign Direct Investment in the coal mining, contract
manufacturing and single brand retail trade sectors. A press release stated
that the Cabinet had approved major proposals for relaxation of the existing
Foreign Direct Investment Policy (FDI Policy) in these sectors:

COAL MINING

Proposal

Permit 100% FDI under
automatic route for sale of coal, for coal mining activities, including
associated processing infrastructure, subject to provisions of the Coal Mines
(Special Provisions) Act, 2015 and the Mines and Minerals (Development and
Regulation) Act, 1957 as amended from time to time, and other relevant acts on
the subject. ‘Associated Processing Infrastructure’ would include coal washery,
crushing, coal handling, and separation (magnetic and non-magnetic).

CONTRACT MANUFACTURING

Proposal

The present FDI policy
provides for 100% FDI under automatic route in the manufacturing sector. There
is no specific provision for contract manufacturing in the policy. In order to
provide clarity on contract manufacturing, it has been decided to allow 100% FDI
under automatic route in contract manufacturing in India as well.

Foreign
investment in ‘manufacturing’ sector is under automatic route. Manufacturing
activities may be conducted either by the investee entity or through contract
manufacturing in India under a legally tenable contract, whether on
principal-to-principal or principal-to-agent basis.

Comments

The law proposes to clarify
that manufacturing need not be done by the FDI entity but can also be done by
any other entity. This proposal will set to rest concerns expressed by some
quarters that contract manufacturing is a trading activity because a company
only sells a product after getting it manufactured.

The contract manufacturer
need not be a group company or working exclusively for an FDI entity. Further,
the arrangement can be on principal-to-principal or principal-to-agent basis.
Thus, the policy includes the typical contract manufacturer as also the toll
manufacturer.

A manufacturer is permitted
to sell products manufactured in India through wholesale and / or retail,
including through e-commerce, without government approval.

Thus,
this proposal is likely to open up a number of opportunities for retail trading
and promote label products without inviting extant restrictions applicable to
retail trading.

SINGLE BRAND RETAIL TRADE (SBRT)

Proposal

As per the existing FDI
policy, 100% FDI is allowed under automatic route for SBRT activity. However,
there are various conditions that need to be fulfilled. The government has
relaxed some of these conditions to attract more FDI for SBRT activities in
India.

Local
sourcing norms

The existing FDI policy
provides that in respect of the SBRT entity having more than 51% FDI, the
sourcing of 30% of value of goods purchased must be done from India only. In this
regard, the SBRT entity is permitted to set off its incremental sourcing of
goods (by non-residents undertaking SBRT in India either directly or through
their group companies) from India for global operations against the mandatory
30% local sourcing requirement during the initial five years only. After five
years, the SBRT entity is required to meet the 30% sourcing norms directly
towards its India operations on an annual basis.

With regard to the above,
the government has now proposed to relax these conditions as under:

Local
sourcing for domestic as well as export sales by SBRT entity:
All the procurements made from India by the SBRT entity for the single brand
shall be counted towards local sourcing, irrespective of whether the goods
procured are sold in India or exported, and the same would apply even beyond
the initial five years.

Incremental
sourcing vs. year-on-year sourcing: As per
the extant policy, only that part of the global sourcing is considered for
abovementioned set-off towards local sourcing requirement which is over and
above the previous year’s value, i.e., only incremental sourcing is considered
for set-off against local sourcing requirements. The government has now decided
the entire (and not the incremental) sourcing from India for global operations
shall be considered towards local sourcing requirement.

Direct and indirect sourcing: It has also been decided that the global sourcing would cover sourcing
of goods from India for global operations not only by non-residents undertaking
SBRT in India either directly or through their group companies (resident or
non-resident), but also by an unrelated third party, done at the behest of the
SBRT entity or its group companies under a legally tenable agreement.

E-commerce

As per the existing policy,
an SBRT entity must operate through brick-and-mortar stores before starting
retail trading of that brand through e-commerce. However, the government has
now decided to allow retail trading through online trade prior to opening of
brick-and-mortar stores, subject to the condition that the SBRT entity opens
brick-and-mortar stores within two years from the date of start of online
retail.

DIGITAL MEDIA

Proposal

The
extant FDI policy provides for 49% FDI under approval route in up-linking of
‘News and Current Affairs’ TV channels. It has been decided to permit 26% FDI
under government route for uploading / streaming of news and current affairs
through digital media on the lines of print media.

Comments

(i) This
proposal has given rise to more questions than answers. FDI policy in print
media and broadcasting content service provides for uplinking news and current
affairs TV channels and were defined;

(ii) There
was no clarity in law for FDI in digital media. As per one view, since
uploading / streaming of news and current affairs through digital media is not
covered by sectors or activities listed in Regulation 16 of FEMA 20(R)/2017,
FDI up to 100% was permitted under automatic route;

(iii)
Thus, considering the exponential growth, internet penetration, reducing prices
of smart phones and so on, Indian companies engaged in digital media invited FDI
investments, such as Quint, Dailyhunt, Huffpost, VC Circle, etc. A question
arises on FDI investments made in such companies. Will the law require such
companies to reduce FDI holding?

(iv) In
case of startups engaged in said activities, cap on foreign investment may
hamper future funding as such startups will have to rely on domestic investors
to raise capital;

(v) It is a popular practice for media companies to stream news live on
their apps and websites (e.g., Republic TV, NDTV News, Aaj Tak Live TV, etc.).
Extant FDI policy provides for 49% FDI under approval route in up-linking of
news and current affairs TV channels. Now, the proposal provides 26% limit for
streaming news through digital media. Thus, the issue arises whether differing
FDI threshold will mandate media companies to house digital media in a separate
company and comply with FDI norms. Even if the division is spun off, the
company will be required to give exit to FDI investors which may be a
complicated affair;

(vi)
Further, the proposal brings uploading / streaming of news and current affairs
through digital media under government route. This may result in delays and
mandatory compliance with conditions imposed by ministries concerned;

(vii)
Impact of the above proposal on streaming services offered on social media
platforms such as Facebook and Google is also not clear, or whether foreign
digital news websites that can be accessed in India will continue to be
available or not;

(viii) It
is not clear whether OTT platforms such as Zee5, Hotstar, Voot and others that
have both entertainment and news content would be covered under the 26% or the
49% FDI regime.

Since the
policy announcement is yet to be legislated, one expects that the fears
expressed by the media industry will be adequately clarified.

(ii) ANALYSIS OF RECENT COMPOUNDING
ORDERS

An analysis of some interesting compounding orders passed by the Reserve
Bank of India in the month of August, 2019 and uploaded on the website¹
are given below. The article refers to regulatory provisions as existing at the
time of offence. Changes in regulatory provisions are noted in the comments
section.

_________________________________

1 https://www.rbi.org.in/scripts/Compoundingorders.aspx

FOREIGN DIRECT INVESTMENT (FDI)
COMPOUNDING ORDERS

A. Dharmpal
Agarwal (for self and on behalf of Vineet Agarwal, Chander Agarwal, Urmila
Agarwal, Priyanka Agarwal & Chandrima Agarwal)

Date of order: 19^thJuly, 2019

Regulation: FEMA 3/2000-RB Foreign Exchange Management (borrowing and
lending in foreign exchange)

ISSUE

Availing
of foreign currency loan overseas, for the purpose of purchasing property
abroad

FACTS

(a) The
applicant and the others, resident individuals, jointly acquired a residential
property in Singapore at a total cost of SG$ 3,032,320;

(b) SG$
606,464 was met through remittances under LRS; the remaining amount of SG$
2,425,856 (Rs. 6,78,26,933) was paid by availing a loan from OCBC Bank,
Singapore;

(c) During personal hearing it was submitted that instalments for
repayment of loan and payment of interest (EMIs) with respect to the loan were
met out of the proceeds of lease rental received on the lease of the property;

(d) In the
initial years of loan repayment, reduction in principal amount of loan was
small and the interest component made up a large part of the EMI. Therefore,
considering the total amount paid under EMIs on the loan over the years, the
applicant ended up effectively re-paying more than the amount of loan;

(e) The
applicant and the others have sold the property and repaid the loan. The
applicant submitted that he had not made any gains through availing loans
overseas for acquisition of the property abroad.

Regulatory provisions

Regulation
3 of Notification No. FEMA 3/2000-RB states that, ‘Save as otherwise provided
in the Act, Rules or Regulations made thereunder, no person resident in India
shall borrow or lend in foreign exchange from or to a person resident in or
outside India’.

Contravention

Nature of default

Amount involved
(in Rs.)

Time period of default

Availing of foreign currency
loan overseas, for the purpose of purchasing property abroad

Rs. 6,78,26,933

Nine years and six months
approximately

Compounding
penalty

Compounding
penalty of Rs. 5,58,702 was levied.

Comments

While
remitting money under LRS for purchase of property is permitted, availing of
foreign currency loan overseas for the purposes was not permitted and was in
contravention of Regulation 3 of FEMA 3(R)/2000-R.

Interestingly,
in this case immovable property was leased to earn rental income. In the past,
RBI has taken a view that under LRS route only purchase of immovable property
was permitted and leasing activity was not permitted. However, no such
observations have been made in the instant case. Additionally, it is
interesting to note that under FDI provisions real estate business has been
defined to specifically include earning of rental income from leasing of
property. However, real estate business as defined under ODI regulations does
not include earning of rental income from leasing of property resulting in
dichotomy between real estate business as defined under FDI regulations and the
ODI regulations.

B. Mindtree Limited

Date of
order: 11^th July, 2019

Regulation:
FEMA 20/2000-RB Foreign Exchange Management (transfer or issue of security by a
person resident outside India)

ISSUE

Delay in reporting the issuance of shares under the Employee Stock
Options Plans (ESOP) beyond the stipulated time period; as also delay in
reporting the issuance of bonus shares beyond the stipulated time period.

FACTS

(i) The
applicant is an international information technology consulting and
implementation company that delivers business solutions through global software
development;

(ii) The
applicant company issued shares under ESOP (value – Rs. 1,96,00,000) to foreign
nationals / non-resident Indians (NRIs), but delayed the reporting of the same
beyond the stipulated time period;

(iii)
Besides, the applicant also delayed reporting the issuance of bonus shares
(total value – Rs. 40,12,500) beyond the stipulated time period;

(iv)
During personal hearing it was submitted that the applicant was under inquiry
by the Directorate of Enforcement (DoE) in connection with trade-related
transactions of the company;

(v) RBI,
vide its letter reference No. FED.CO.CEFA/4994/15.20.67/2018-19 dated 21^st
February, 2019, had sought a No-Objection Certificate (NOC) from the DoE to
proceed with the compounding process;

(vi) DoE, vide its letter reference No. RBI/SDE/WR/B-223/2019/335
dated 30^th April, 2019, conveyed
their no objection to compounding of the abovementioned contraventions.

Regulatory Provisions

(a) Regulation 8(3) of Notification No.
FEMA.20/2000-RB, which dealt with ‘Issue of shares under Employees’ Stock Options
Scheme to persons resident outside India’, as then applicable, says, ‘The
issuing company shall furnish to the Reserve Bank, within thirty days from the
date of issue of shares under the scheme, a report…’;

(b) Regulation 6B of the above-mentioned Notification
states ‘A company issuing rights shares or bonus shares or warrants in terms of
these regulations shall report to the Reserve Bank in Form FC-GPR as stipulated
in Paragraph 9(1)(B) of Schedule 1 to these Regulations’.

Contravention

Regulations of FEMA
20/2000-RB

Nature of default

Amount involved
(in rupees)

Time period of default

Regulation 8(3)

Delay in reporting the
issuance of shares under the Employee Stock Options Plans (ESOP)

Rs. 1,96,00,000

7 days

Regulation 6B

Delay in reporting the
issuance of bonus shares

Rs. 40,12,500

8 days

Compounding penalty

Compounding
penalty of Rs. 24,750 was levied.

Comments

(I) The applicant is required to give an
undertaking at the time of filing compounding application that it is not under
any inquiry / investigation / adjudication by any agency such as Directorate of
Enforcement, CBI, etc., as on the date of the application;

(II) This condition results in difficulty in
making compounding application by the applicant who is before ED for any other
violation (e.g., non-receipt of export proceeds within permissible time) or
replies to notice issued by ED, but there is no further correspondence from ED.
Issue arises whether existence of on-going ED proceeding shuts the door for
compounding;

(III) In this order, as also in the case of
Satyanarayan Goel², RBI has taken a practical view by taking an NOC
from the ED and thereafter compounding the offence. Thus, it is advisable for
an applicant to approach the RBI for compounding by disclosing all pending
proceedings before the ED.

OVERSEAS DIRECT INVESTMENT (ODI)
COMPOUNDING ORDERS

C. Tata Chemicals Limited

Date of
order: 10^th July, 2019

Regulation:
FEMA 120/2004-RB – Foreign Exchange Management (transfer or issue of any
foreign security) Regulations, 2004

ISSUE

Extending
loan without any equity contribution to overseas Joint Venture (JV), without
prior approval of the Reserve Bank of India.

FACTS

(i) The applicant is engaged in the business of
manufacturing chemicals and fertilizers;

(ii) The applicant set up an overseas JV, namely,
Grown Energy Zambeze Limitada (GEZ), Mozambique, under overseas direct
investment (ODI) on 22^nd April, 2008;

(iii) The applicant company remitted an amount of
USD 275,000 (Rs. 1,19,15,500) in three tranches between 26^th
February and 26^th September, 2008 as project advance. No shares were
issued against the remittances sent and these remittances were treated as loans
/ advances by the applicant;

(iv) In June, 2009, the applicant decided to quit
the project due to uncertainty around allotment of land. The money has now been
brought back to India and the UIN has been closed on 7^th May, 2019.

Regulatory provisions

Regulation
6(4) of Notification No. FEMA.120/2004-RB, as then applicable, states ‘an
Indian party may extend a loan or a guarantee to or on behalf of the joint
venture / wholly-owned subsidiary abroad, within the permissible financial
commitment, provided that the Indian party has made investment by way of
contribution to the equity capital of the joint venture.’

_________________________

2 CA
No 4910 / 2019

Contravention

The applicant has contravened the provisions of Regulation 6(4) of
Notification No. FEMA 120/2004-RB. The amount of contravention is Rs.
1,19,15,500 and the period of contravention is approximately eleven years.

Compounding penalty

Compounding penalty of Rs. 1,39,366 was levied.

Comments

This order
reflects that conditions prescribed in FEMA 120 of 2004 need to be complied
with strictly. In fact, the amount was disclosed as loans / advances and thus
it resulted in violation of Regulation 6(4) of FEMA 120 of 2004. The provision
does not specify the threshold for investment in equity capital. Thus,
theoretically, a loan based on infusion of nominal equity capital would have
been permissible. Regulation 15(i) obligates an Indian party which has acquired
foreign security to receive a share certificate or other document as evidence
of investment in the foreign entity to the satisfaction of RBI within six
months or such further period as RBI may permit. Flexibility of extended time
limit by RBI is available provided investment is for acquisition of foreign
security. In this case, the amount was stated as loans / advances and, accordingly,
Regulation 15(i) would not apply.

BCAJ Admin

CORPORATE LAW CORNER

1. Shweta
Vishwanath Shirke vs. Committee of Creditors [2019] 109 taxmann.com 30 (NCLAT) Company Appeal (AT) (Insolvency) Nos. 601,
612, 527 of 2019 Date of order: 28^thAugust, 2019

Sections 12A and 29A of Insolvency and
Bankruptcy Code, 2016 – The directors / promoters reached a settlement with the
CoC – More than 90% of voting shares of the CoC approved the withdrawal of
corporate insolvency resolution process – NCLT should have accepted the
application of withdrawal especially when the settlement was being made by
promoters in their individual capacity and not by using the proceeds of crime –
Section 29A would not apply when examining an application u/s 12A

FACTS

About 90% of the Committee of Creditors
(CoC) approved the withdrawal of S Co from the Insolvency Resolution Process
and filed an application u/s 12A of the Code. National Company Law Tribunal
(NCLT) rejected the application on the ground that since the promoter was not
eligible to file a resolution plan u/s 29A it could not have filed an
application for withdrawal u/s 12A of the Code.

Andhra Bank, which was on the CoC, also
challenged the order of NCLT on the ground that section 29A would not apply to
an application filed u/s 12A which has been approved by more than 90% of the
CoC.

The Enforcement Directorate, SEBI and CBI
were also investigating the matter against S Co. The ED submitted that the
assets of S Co were based on the proceeds of crime and, accordingly, they could
not be given to anyone.

The matter for examination before the NCLAT
was whether section 29A of the Code would apply to the applicant, if he intends
to withdraw the petition u/s 7 or 9, if the CoC approves a proposal with 90%
voting share in terms of section 12A.

HELD

NCLAT examined the provisions of section 29A
of the Code which provides for persons not eligible to be resolution
applicants. It was observed that if any person including the ‘Promoter’ /
‘Director’ was ineligible in terms of any one or more clauses of section 29A,
he / she was not entitled to file any ‘resolution plan’ individually or jointly
or in concert with another. Section 12A, on the other hand, dealt with
withdrawal of the application filed by an ‘applicant’ u/s 7 or section 9 of the
Code, if the CoC with more than 90% voting share approved the proposal.

The NCLAT, relying on the observations of
the Supreme Court in the decision of Swiss Ribbons Pvt. Ltd. vs. Union of
India (2019 SCC Online SC 73) held that promoters / shareholders are
entitled to settle the matter in terms of section 12A and in such case, it was
always open to an applicant to withdraw the application under section 9 of the
Code on the basis of which the Corporate Insolvency Resolution Process was initiated.
Thus, section 29A would not apply for entertaining / considering an application
u/s 12A as the applicants are not entitled to file an application u/s 29A as
‘resolution applicant’.

NCLAT held that since the application u/s 7
was filed by Andhra Bank and the application for withdrawal was approved by
more than 90% of voting shares in CoC, it was not in the purview of NCLT to
reject the application for withdrawal. The order of liquidation passed by the
NCLT was, accordingly, set aside.

It was further held that if the ED concludes
that the assets of S Co are based on the proceeds of crime, it could exercise
its powers under the Prevention of Money Laundering Act, 2002 (PMLA) and seize
those assets.

As the
settlement with creditors was to be paid by the directors / shareholders in
their individual capacity, from the funds held in their accounts and not from
proceeds of crime, the application for withdrawal was approved by NCLAT. It was
further held that the order would not amount to interference with any order
passed by the ED with regard to the assets of S Co. Proceedings under PMLA will
continue against S Co in accordance with the law.

It was further directed that the fees of the
liquidator and the resolution professional would be determined and paid by
Andhra Bank on behalf of the CoC and it may adjust the same with the members.

2. State
Bank of India vs. Moser Baer Karamchari Union [2019] 108 taxmann.com 251 (NCLAT New Delhi) Company Appeal (AT) (Insolvency) No. 396 of
2019 Date of order: 19^th August, 2019

Section 36 of
Insolvency and Bankruptcy Code, 2016 – All sums due to an employee or a workman
from the provident fund, pension fund and gratuity fund do not fall in the
ambit of the liquidation assets and accordingly cannot be a part of waterfall /
distribution mechanism laid down u/s 53 of the Code

FACTS

Corporate Insolvency Resolution Process was
initiated against M Co and an order for liquidation was passed on 20^th
September, 2018. Pursuant to the judgement by the National Company Law Tribunal
(NCLT) the workmen stood discharged u/s 33(7) of the Code.

The liquidator, vide email dated 5^th
December, 2018, denied the payment of the gratuity fund, the provident fund and
the pension fund preferentially and included the same for payments under the
waterfall mechanism provided in section 53 of the Code.

In January, 2019 the Moser Baer Karamchari
Union (MBKU) filed a prayer for exclusion of provident fund, pension fund and
gratuity fund from the waterfall mechanism and payment of their dues as they
did not form a part of liquidation estate. NCLT upheld the prayer. SBI, the
secured creditor, filed an appeal to the National Company Law Appellate
Tribunal (NCLAT) against the order passed by the NCLT.

SBI submitted that waterfall mechanism
provided under the Code included the contribution to provident fund. Reliance
was also placed on Explanation below section 53 of the Code which suggested
that the ‘workmen’s dues’ shall have the same meaning as assigned to it in
section 326 of the Companies Act, 2013. MBKU highlighted the provision of
section 36 of the Code which defines liquidation assets. It was submitted that
in terms of section 36(4)(a)(iii), liquidation assets specifically excluded all
sums due to any workman or employee from the provident fund, pension fund and
gratuity fund.

HELD

NCLAT heard counsel for both sides. The
matter for consideration before NCLAT was whether provident fund, pension fund
and gratuity fund come within the meaning of assets of M Co for distribution
u/s 53 of the Code.

NCLAT examined the provisions of sections 36
and 53 of the Code as well as sections 326 and 327 of the Companies Act, 2013.
It was observed that all sums due to any workman or employee from the provident
fund, the pension fund and the gratuity fund shall not be included in the
liquidation estate assets and cannot be used for recovery in the liquidation as
per section 36 of the Code. Further, as the sums mentioned were not a part of
the liquidation estate / liquidation assets, the question of their distribution
in order of priority u/s 53 did not arise at all.

Further, while applying section 53 of the
Code, section 326 of the Companies Act, 2013 is relevant for the limited
purpose of understanding ‘workmen’s dues’ which can be more than provident
fund, pension fund and the gratuity fund kept aside and protected u/s
36(4)(iii).

It was thus held that the provident fund,
gratuity fund and pension fund do not come within the meaning of ‘liquidation estate’ for the purpose of distribution of assets u/s 53.

The NCLAT upheld the order passed by NCLT
and dismissed the appeal.

3. Pioneer
Urban Land & Infrastructure Ltd. vs. Union of India [2019] 108 taxmann.com 147 (SC) Writ Petition (Civil) Nos. 43, 99, 124, 121,
129 of 2019 & Ors. Date of order: 9^th August, 2019

Sections 21(6A)(b), 25A and Explanation to
section 5(8)(f) of the Insolvency and Bankruptcy Code, 2016 – Amendments made
to the Code which deem the allottees of real estate projects to be ‘financial
creditors’ such that it gives them the right to enforce the Code u/s 7 are
constitutionally valid

FACTS

Amendments were carried out to the
Insolvency and Bankruptcy Code, 2016 (the Code) pursuant to a report prepared
by the Insolvency Law Committee dated 26^thMarch, 2018 (Insolvency
Committee Report). The amendments so made deemed allottees of real estate
projects to be ‘financial creditors’ so that they may trigger the Code, u/s 7
thereof, against the real estate developer. In addition, being financial
creditors, they were entitled to be represented in the Committee of Creditors
by authorised representatives.

The Supreme Court in the case of Chitra
Sharma vs. Union of India (Writ Petition [Civil] No. 744 of 2017)
appointed a representative to protect the interest of home buyers on the
Committee of Creditors. The Insolvency Committee Report suggested that
amendments be made in the Code seeking to clarify, as a matter of law, that
allottees of real estate projects are financial creditors. On 17^th
August, 2018, Parliament passed the Insolvency and Bankruptcy Code (Second
Amendment) Act, 2018 (Amendment Act) incorporating the aforesaid amendments as
were provided for by the Amendment Ordinance.

The real estate developers filed a petition
challenging the provisions saying it violates two facets of Article 14. One,
that the amendment is discriminatory inasmuch as it treats unequals equally,
and equals unequally, having no intelligible differentia; and two, that there
is no nexus with the objects sought to be achieved by the Code. The amendments
were alleged to be arbitrary, irrational and without determining principle and
in violation of public interest under Article 19(6). Further, there was a
specific legislation on the subject of real estate, namely, Real Estate
(Regulation and Development) Act, 2016 (RERA) which provides for adjudication
of disputes between allottees and the developer, together with a large number
of safeguards in favour of the allottee.

Reliance was placed on the decision of Swiss
Ribbons vs. Union of India (2019) 4 SCC 17 to drive home the point that
not a single one of several characteristics of financial creditors stated in
that judgement would apply to allottees / home buyers.

HELD

The Supreme Court heard the parties and
observed that the Legislature must be given free play in the joints when it
comes to economic legislation. Apart from the presumption of constitutionality
which arises in such cases, the legislative judgement in economic choices must
be given a certain degree of deference by the courts.

Further, the Supreme Court observed that
from the introduction of the explanation to section 5(8)(f) of the Code, it was
clear that Parliament was aware of RERA and applied some of its definition
provisions so that they could apply when the Code was to be interpreted. The
fact that RERA is in addition to and not in derogation of the provisions of any
other law for the time being in force, also made it clear that the remedies
under RERA to allottees were intended to be additional and not exclusive
remedies. Further, the Code as amended, is later in point of time than RERA and
must be given precedence over RERA in view of section 88 of RERA. Given the
different spheres within which these two enactments operate, different parallel
remedies are given to allottees – under RERA to see that their flat / apartment
is constructed and delivered to them in time, barring which compensation for
the same and / or refund of amounts paid together with interest at the very
least comes their way. If, however, the allottee wants that the corporate
debtor’s management itself be removed and replaced, so that the corporate
debtor can be rehabilitated, he may prefer a section 7 application under the
Code.

As regards unequal treatment afforded, the
Supreme Court observed that home buyers / allottees can be assimilated with
other individual financial creditors like debenture holders and fixed deposit
holders who have advanced certain amounts to the corporate debtor. The Court
gave the example that fixed deposit holders, though financial creditors, would
be like real estate allottees in that they are unsecured creditors. Financial
contracts in the case of these individuals need not involve large sums of money.
Debenture holders and fixed deposit holders, unlike real estate holders, are
involved in seeing that they recover the amounts that are lent and are thus not
directly involved or interested in assessing the viability of the corporate
debtors. Though not having the expertise or information to be in a position to
evaluate the feasibility and viability of resolution plans, such individuals,
by virtue of being financial creditors, have a right to be on the Committee of
Creditors to safeguard their interest. The allottees, being individual
financial creditors like debenture holders and fixed deposit holders and
classified as such, show that they were within the larger class of financial
creditors and there was infraction of Article 14.

It was held that home buyers / allottees
give advances to the real estate developer and thereby finance the real estate
project at hand (and) qualified as financial creditors.

The Code was observed to be a beneficial
legislation which can be triggered to put the corporate debtor back on its feet
in the interest of unsecured creditors like allottees, who are vitally
interested in the financial health of the corporate debtor, so that a replaced
management may then carry out the real estate project as originally envisaged
and deliver the flat / apartment as soon as possible and / or pay compensation
in the event of late delivery, or non-delivery, or refund amounts advanced
together with interest. It could not be said that amendment to section
5(8) was therefore manifestly arbitrary, i.e., excessive, disproportionate or
without adequate determining principle.

The Supreme Court also turned down the
argument of the petitioners that allottees be treated as operational creditors.
It was further held that all persons who have advanced monies to the corporate
debtor, like other financial creditors, be they banks and financial
institutions, or other individuals, should have the right to be on the
Committee of Creditors. Even though allottees were unsecured creditors, but
they did have a vital interest in amounts that were advanced for completion of
the project, maybe to the extent of 100% of the project being funded by them
alone.

The Court held that section 5(8) would
subsume within it amounts raised under transactions which are not necessarily
loan transactions, so long as they have the commercial effect of a borrowing.
Amounts raised from allottees under real estate projects would, thus, be
subsumed within section 5(8)(f) of the Code.

The Supreme Court thus held that:

(i) The Amendment Act to the Code does
not infringe Articles 14, 19(1)(g) read with Article 19(6), or 300-A of the
Constitution of India.

(ii) The RERA is to be read harmoniously
with the Code, as amended by the Amendment Act. It is only in the event of
conflict that the Code will prevail over the RERA. Remedies that are given to
allottees of flats / apartments are therefore concurrent remedies, such
allottees of flats / apartments being in a position to avail of remedies under
the Consumer Protection Act, 1986, RERA as well as the triggering of the Code.

(iii) Section 5(8)(f) as it originally
appeared in the Code being a residuary provision, always subsumed within it
allottees of flats / apartments. The explanation together with the deeming
fiction added by the Amendment Act is only clarificatory of this position in
law.

BCAJ Admin

BOOK REVIEW

‘PRINCIPLES’ – by Ray Dalio

Ray Dalio, one
of the world’s most successful investors and entrepreneurs, shares the
unconventional principles that he has developed, refined and used over the past
40 years to create unique results in both life and business – and which any
person or organisation can adopt to achieve their goals.

In 1975 he
founded an investment firm, Bridgewater Associates. Forty years later,
Bridgewater has made more money for its clients than any other hedge fund in
history and grown into the fifth most important private company in the US,
according to Fortune magazine. Dalio has been named in Time
magazine’s list of the 100 most influential people in the world. Along the way,
he discovered a set of unique principles that have led to Bridgewater’s
exceptionally effective culture, which he describes as ‘an idea meritocracy
that strives to achieve meaningful work and meaningful relationships through
radical transparency.’ It is these principles, and not anything special about
Dalio, that he believes are the reason behind his success.

In the book,
Dalio shares what he has learned over the course of his remarkable career. He
argues that life, management, economics and investing can all be systemised
into rules and understood like machines. The book has hundreds of practical
lessons built around his cornerstones of ‘radical truth’ and ‘radical
transparency’; these include the most effective ways for individuals and
organisations to make decisions, approach challenges and build strong teams. He
also describes the innovative tools the firm uses to bring an ‘idea
meritocracy’ to life, such as creating ‘baseball cards’ for all employees that
distil their strengths and weaknesses and employing computerised
decision-making systems to make believability-weighted decisions. While the
book brims with novel ideas for organisations and institutions, Principles
also offers a clear, straightforward approach to decision-making that Dalio
believes anyone can apply, no matter what they’re seeking to achieve.

Here, from a
man who has been called both ‘the Steve Jobs of investing’ and ‘the philosopher
king of the financial universe’ (CIO magazine), is a rare opportunity to
gain proven advice unlike anything you’ll find in the conventional business
press. He kicks off by explaining that ‘Good principles are effective ways of
dealing with reality’ and that ‘To learn my own, I spend a lot of time
reflecting.’

The book
consists of three parts. In the first, titled ‘Where I’m coming from’, Dalio
looks back at his career and the founding of Bridgewater. ‘Life Principles’ is
the name of the second part and covers Dalio’s approach to life’s challenges
and opportunities. And part three covers Dalio’s ‘Work Principles’.

Let me share my
key takeaways from Principles, starting with Dalio’s Life
Principles:

Embrace reality
and deal with it –
Dalio shares an important equation which in his view makes for a successful
life: Dreams + Reality + Determination = A Successful Life. For the
‘reality’ component of this equation to work, Dalio encourages readers to be
radically open-minded and radically transparent.

Pain +
Reflection = Progress
– One can see how someone like Dalio has gone through his own share of pain to
get to where he has reached.

Using the
5-step process to get what you want out of life – Start with having clear goals (step 1),
followed by identifying but not tolerating the problems that stand in
the way of your achieving those goals (step 2), then you accurately diagnose
the problems to get at their root causes (step 3), design plans that
will get you around them (step 4) and, finally, do what’s necessary to
push these designs through to results (step 5). Dalio depicts this as a
continuous process and readers can benefit from applying this model to achieve
their goals.

Understand
that people are wired very differently – Dalio stresses the fact that all people are
wired differently and zooms in on the differences between left and
right-brained thinking.

Dalio’s Work
Principles are dominated by the concept of an Idea Meritocracy –
i.e., a system that brings together smart, independent thinkers and has them
productively disagree to come up with the best possible collective thinking and
resolve their disagreements in a believability-weighted way. He successfully
implemented an ‘Idea Meritocracy’ at Bridgewater and shares the components of
such a system in his book:

Idea
Meritocracy = Radical Truth + Radical Transparency + Believability – Weighted
Decision-Making

Radical
Truth – Talking openly
about our issues and have paths for working through them.

Radical Transparency – Giving everyone the ability to see
everything. Radical transparency reduces harmful office politics and the risks
of bad behaviour because bad behaviour is more likely to take place behind
closed doors than out in the open.

Believability – Dalio defines believable people as
‘those who have repeatedly and successfully accomplished the thing in question
– who have a strong track record with at least three successes – and have great
explanations of their approach when probed.’

Thoughtful
Disagreement – The
concept of Believability is closely linked to the art of Thoughtful
Disagreement; the process of having a quality back-and-forth in an open-minded
and assertive way to see things through each other’s eyes.

Weighted
Decision-Making – At
Bridgewater, employees have different believability weightings for
different qualities, like expertise in a particular subject, creativity,
ability to synthesise, etc. Dalio explains that in order to have a true Idea
Meritocracy one needs to understand the merit of each person’s ideas.

Prerequisites
for an Idea Meritocracy
– To have an Idea Meritocracy three conditions need to be in place.
Firstly, put your honest thoughts on the table. Secondly, have thoughtful
disagreement. Thirdly, abide by agreed-upon ways of getting past disagreement.

Mistakes are
part of the game –
Dalio has a refreshing outlook on the role and value of mistakes, which he
treats as ‘a natural part of the evolutionary process’. It’s important in this
respect to assess whether people recognise and learn from their mistakes. Dalio
distinguishes between people who make mistakes and who are self-reflective and
open to learning from their mistakes, and those who are unable to embrace their
mistakes and learn from them.

Get people
to focus on problems and outcomes – Assign people the job of perceiving problems, give them time to
investigate and make sure they have independent reporting lines so that they
can convey problems without any fear of recrimination. To perceive problems,
compare how the outcomes are lining up with your goals. Dalio also offers some
valuable tips on how to best diagnose problems.

Avoid the
‘Frog in the boiling water’ syndrome – Apparently, if you throw a frog into a pot of
boiling water it will jump out immediately, but if you put it in water at room
temperature and gradually bring it to a boil, it will stay in the pot until it
dies. If one uses this syndrome as a metaphor for professional life, it
signifies people’s tendency to slowly get used to unacceptable things that would
shock them if they see them with fresh eyes.

Don’t just
pay attention to your job – Instead, pay attention to how your job will be done if you’re no
longer around. Dalio talks about the ‘ninja manager’ as ‘somebody who can sit
back and watch beauty happen, i.e., an orchestrator. If you’re always trying to
hire somebody who’s as good as or better than you at your job, that will both
free you up to go on to other things and build your succession pipeline.’

I feel that
Dalio’s principles can provide great direction for all people working in
organisations big or small. His reflections on things such as transparency and
decision-making will be valuable to anyone reading this great book.

The book is
aesthetically beautiful in the design and typography, making it a real treat to
read. I really appreciate the biography section of the book that solely focuses
on Ray Dalio’s life and journey towards where he is today. It offers you a
brief insight into what made him the person he is today. Even very humbling experiences,
such as being the only person left in the company that he built and having to
start all over again.

In Principles: Life and Work,
Dalio shares the principles that have led to his success. Told with honesty and
enlightening examples, Principles is a fascinating look at how
Dalio has created the largest and most successful hedge fund in the world. You
need only read the first few pages to discover the uniqueness of his approach;
he encourages readers to doubt everything, suggesting that radical open-mindedness
is the best way to learn.

BCAJ Admin

Allied Laws

1.
Cross objection to be disposed
of independently on merits [Code of Civil Procedure, 1908 (CPC), Order XLI Rule
22]

Badru (since deceased) through L.R. and
Ors. vs. NTPC Limited and Ors. AIR 2019 Supreme Court 3385

The land in question belonged to the
appellants (landowners). The suit land was acquired by the State for the NTPC
for public purpose. A compensation of Rs. 3,87,383 per bigha was awarded
to the appellants for the land. But the appellants felt aggrieved and
approached the Civil Court for determination of the compensation offered by the
Land Acquisition Officer. The Civil Court partly allowed the reference in
favour of the appellants and enhanced the compensation. The State and the NTPC
felt aggrieved by the award and filed appeals before the High Court. The
appellants instead of filing a regular appeal, filed cross objection under
Order 41 Rule 22 of the CPC and sought enhancement in the compensation awarded.
The High Court dismissed the appeals filed by the NTPC / State and, in
consequence, also dismissed the cross objection filed by the appellants. The
effect of the dismissal of the appeals and cross objection was upholding of the
award passed by the Civil Court. The landowners felt aggrieved by the rejection
of their cross objection and filed the present appeals by way of a special
leave before the Supreme Court.

It was observed by the Supreme Court that
one remedy was by way of appeal and the other remedy was to file cross
objection. In this case, the landowners took recourse to the second remedy of
filing cross objection. The High Court having dismissed the appeals filed by
the State / NTPC was, therefore, required to examine whether any case was made
out by the landowners in their cross objection for enhancement of compensation.
Order 41 Rule 22(4) of the CPC provides that where, in any case in which any
respondent has under this Rule filed a memorandum of objection, the original
appeal is withdrawn or is dismissed for default, the objection so filed may
nevertheless be heard and determined after such notice to the other parties as
the Court thinks fit. Merely because the High Court dismissed the appeals filed
by the respondents herein, though on merits, yet that by itself would not
result in dismissal of the landowners’ cross objection also.

In view of the same, the Supreme Court held
that the cross objection had to be disposed of on its merits notwithstanding
the dismissal of the same by assigning reasons. The case was accordingly
remanded to the High Court for deciding the cross objection filed by the
landowners in accordance with law.

2.
Doctrine of promissory estoppel
– New Package Scheme of Incentives, 1993 – The eligibility for sales-tax
exemption cannot be withdrawn [General Sales Tax (GST), Art. 39(b), 39(c)]

K.M. Refineries and Infraspace Pvt. Ltd.
vs. State of Maharashtra (Bom.) (HC), www.itatonline.org

Under the New Package Scheme of Incentives,
1993, monetary and other incentives in the nature of tax subsidy or tax
exemption at the rate prescribed in the scheme and other benefits were given.
As per the eligibility certificate issued by the competent authority, the
certificate was valid for nine years. The Commissioner of Sales Tax prescribed
the effective date but while doing so, curtailed the validity period by about
three years and incentives given in the Incentive Scheme have been
substantially reduced by a new policy prescribing new tax structure of the
State. The assessee challenged the policy on the ground that the new policy
violates the principle of promissory estoppel.

Allowing the petition, the Court held that
once a promise has been solemnly given by the State with an intention that it
would be acted upon, and which has been indeed acted upon and liabilities
suffered by the promisee, the State cannot be permitted to backtrack on the
promise and change its position so as to cause loss to the promisee. The
eligibility for sales-tax exemption cannot be withdrawn under GST. (W.P. No.
2209 of 2018, dated 16^th July, 2019).

3.
Notional partition – Daughters
entitled to claim a share in the ancestral property after notional partition
between coparceners [Hindu Succession Act, 1956, S. 6]

Gannu Ram and another vs. Dhanmat Bai and
Ors. AIR 2019 Chhattisgarh 148

The case was filed by Dhanmat Bai and Deni
Bai, who were the daughters of Ramai before the trial court where it was held
that the daughters were entitled to a share in the property in a case where the
father had expired prior to the amendment in section 6 of the Hindu Succession
Act. The daughters were born before 2005 and hence, the applicability of the
2005 amendment to them was in question. An appeal was preferred against such
order where the question raised was whether the daughter of a pre-deceased karta
/ coparcener is entitled to have equal share in the ancestral property.

The court held that the daughters were
entitled to a share in the property but only to the extent of the part of the
shares of their father after a notional partition with the appellant since the
appellant was the coparcener in the Hindu Joint Family property along with the
father of the daughters. For passing an effective decree of partition in favour
of the daughters, the trial court was first required to affect a notional
partition between Ramai and his son (coparcener / appellant) allotting them
half share each in the coparcenary property. Thereafter, a further partition is
required to be affected in respect of the half share of the father which would devolve
equally upon the daughters. The appeal was therefore partly allowed.

4.
Partnership property cannot be
a Hindu Joint Family property [Hindu Law]

Aarshiya Gulati and Ors. vs. Kuldeep Singh
Gulati and Ors. AIT 2019 (NOC) 577 (Del.)

While emphasising on the difference between
partnership and a Hindu Joint Family firm, the court referred to Mulla who in
his treatise Hindu Law (21^st edition) has pointed out
the following points of difference between a partnership and a Hindu Joint
Family firm: ‘In a joint family business no member of the family can say that
he is the owner of one-half, one-third or one-fourth. The essence of joint
Hindu family property is unity of ownership and community of interest and the
shares of the members are not defined’.

The court also referred to the case of Nanchand
Gangaram Shetji vs. Mallappa Mahalingappa Sadalge & Ors. where it
was held that in a joint Hindu family business, no member of the family can say
that he is the owner of one-half, one-third or one-fourth. The essence of joint
Hindu family property is unity of ownership and community of interest and the
shares of the members are not defined. Similarly, the pattern of the accounts
of a joint Hindu family business maintained by the karta is different
from those of a partnership. In the case of the former the shares of the
individual members in the profits and losses are not worked out, while they
have to be worked out in the case of partnership accounts.

In view of the same, the court held that a
partnership property cannot be a Hindu Joint Family property.

5.
Tenancy – Prior consent of
creditor to be taken when tenancy created after mortgage of premises to
creditor – If consent not taken, tenant not entitled to temporary injunction
against dispossession by creditor bank. [Securitisation And Reconstruction Of
Financial Assets And Enforcement Of Security Interest Act, 2002, S. 13]

Chief Manager, Bank of Baroda, Dhanbad
branch vs. Amit and Ors. AIR 2019 Jharkhand 122

The brief facts of the case are that the
petitioner bank had sanctioned a loan by keeping the property in question
mortgaged by a collateral security and on having become a non-performing asset,
a notice u/s 13(2) of the Securitisation and Reconstruction of Financial Assets
and Enforcement of Security Interest Act, 2002, was issued, thereafter
resorting to the provision of S. 13(4) of the Act. The respondent No. 1
(tenant) has entered into an agreement of tenancy prior to mortgaging of the
property by the owner. When a notice u/s 13(4) was served on the owner, the
respondent No. 1 filed a suit pleading therein that he is a monthly tenant and
has been paying rent regularly and on time but without any receipt. The bank
(creditor) appeared and filed show cause, disputed the claim of the respondent
No. 1 by stating that the owner is a director of a private limited company and
has got cash credit facility of Rs. 300 lakhs which was sanctioned and secured
by getting a mortgage of the property; when the loanee became irregular and
despite repeated requests and intimations did not pay the loan amount due to
which the loan amount became an NPA; this forced the petitioner bank (creditor)
to file a suit in the Debt Recovery Tribunal.

The tenant also
filed a separate petition for grant of temporary injunction restraining the petitioner
bank (creditor) from taking forceful possession of the tenanted premises.

It was observed by the court that no
borrower shall lease any of the secured assets referred to in the notice
without the prior written consent of the secured creditor and holding therein
that save and except the process of tenancy, there cannot be any eviction of
the tenant.

The court referred to the case of Kalsaria
where the lease has been created after the property had been mortgaged and
therefore, it has been held that before creating tenancy right before the date
of mortgage, consent is required to be taken from the creditors. It is in the
touchstone of this ratio and the definition of mortgage that the case in hand
has been examined by the court.

It was held that since it was nowhere on
record that before creating tenancy by virtue of agreement, prior consent of
the creditor has been taken this fact ought to have been appreciated by the
appellate court but having not done so, the appellate court has committed gross
error.

BCAJ Admin

Society News

SECOND BCAS LONG-DURATION COURSE ON GST

The second BCAS Long-Duration Course
on GST was conducted at the BCAS Hall from 4^th to 19^th
October, 2019. It was held over three consecutive Fridays and Saturdays with
six sessions per day and a total of 36 technical sessions on important areas
under GST. Each technical session was conducted by experienced faculty having
vast experience and knowledge in the area of indirect taxation. The course was
aimed at imparting basic and middle-level knowledge on conceptual aspects of
GST law and procedures which were explained in interactive sessions along with
talks, practical examples and case studies. The last two sessions were combined
and designed as a ‘Brain Trust’ session, moderated by BCAS Immediate
Past President and present Co-Chairman of the IDT Committee, Sunil
Gabhawalla, along with renowned faculties S.S. Gupta and Parind
Mehta as ‘brain trustees’ who answered innumerable questions put to them by
the participants and highlighted various issues in GST.

The course
received very good response. A total of 71 participants enrolled for it; they
came from 12 different cities. The participants were all praise for the course.

Those who
attended at least 75% of the course were presented with participation
certificates by the Society. The overall verdict from the feedback forms
received was encouraging, as almost all participants appreciated the design,
structure, timing, faculties and so on.

HUMAN RESOURCES DEVELOPMENT COMMITTEE

‘Non-violence
is the greatest force at the disposal of mankind. It is mightier than the
mightiest weapon of destruction’, said Mahatma Gandhi.

The HRD Study
Circle organised a talk on ‘Non-Violent Communication’ (NVC) by Ms Leonie
D’Mello at the BCAS Hall on 10^th October, 2019. (Earlier, in
memory of the Mahatma, BCAS organised a special programme ‘Bapu@150’ on
2^nd October, 2019 in its Conference Hall.)

The speaker
made several key points while delivering her talk. Among them were the
following:

‘Non-Violent Communication is a simple
tool to defuse arguments and create compassionate communication with family,
friends, etc. It is an amazingly effective language for saying what is on your
mind and in your heart. It is simple on the surface, challenging to use in the
heat of the moment and powerful in its results.

Non-Violent
Communication is a way of getting things done in the right way with both sides
willing to dialogue and resolve conflicts.

It involves expressing honestly and
receiving emphatically. When we learn to connect our needs with our feelings,
we empathise with ourselves and others. We learn to be compassionate with
ourselves and with others.

NVC shows us
to focus on what we truly want, rather than on what is wrong with others or
ourselves. It gives the tools and understanding to create a more peaceful state
of mind.

NVC is a very interesting way to
communicate effectively.’

Those who attended the talk expressed a
desire to learn even more about non-violent communication – so that they could
communicate with others successfully and more effectively.

LECTURE
MEETING ON ‘RECENT DEVELOPMENTS IN GST’

A lecture meeting on ’Recent Developments in
GST’ was held on 11^th October, 2019 at Bhatia Wadi, near Savarkar
Garden, Borivali (West), on 11^th October, 2019.

Well over a hundred professionals and others
attended this first-of-its-kind meeting. BCAS President Manish Sampat,
in his opening remarks, underlined the objective of this particular lecture. He
said this was the first initiative to reach out to the suburbs for the benefit
of scores of members and others living and / or working in Borivali and nearby
areas.

Immediate Past President Sunil Gabhawalla
explained the various important developments which had taken place due to the
change in the law and also through various notifications and circulars after
its enactment. In a sense, the members were taken on a ‘GST journey’ starting
from inception to execution, the hurdles and hindrances along the way and so
on. The speakers answered all the queries raised from the floor of the house.

The interactive meeting ended with
announcements about future BCAS events and a vote of thanks proposed by Dushyant
Bhatt.

FEMA STUDY CIRCLE MEETING

FEMA Study Circle Conveners Kirit P.
Dedhia, Niki Shah and Parag Kotak joined hands to organise a
very interesting discussion on ‘ODI Contraventions: Reporting and Regulations’
at the BCAS Conference Hall on 15^th October, 2019.

The choice of Ms Aarti Karwande as
Group Leader proved to be a good decision. For, in the course of her
presentation she covered various case laws pertaining to ODI contraventions.
This paved the way for a lively and thought-provoking discussion on the
applicable FEMA regulations. The topic of discussion being so interesting, the
room was packed with professionals with a sprinkling of students.

Ms Karwande pointed out that Overseas Direct
Investment had rapidly evolved over the years. Therefore, it was important to
understand the regulations and the reporting pertaining to the subject –
because any contravention could have several adverse ramifications.

The Study Circle meeting served to clarify
matters and set the professionals on the right track to tackle this key subject
(Overseas Direct Investment).

‘ESTATE
DUTY – A TRIGGER FOR SUCCESSION PLANNING’

The BCAS organised a lecture meeting
addressed by Mr. Ketan Dalal on ‘Estate Duty – a Trigger for Succession
Planning’ on 16^th October, 2019 in the BCAS Conference Hall.

Introducing the subject, President Manish
Sampat pointed out the importance of estate / succession planning all over
the world and in India, too. He stated that in recent times, the focus on
succession planning had increased amongst high net-worth Indian business
families so as to minimise the loss in value while transferring assets /
businesses from one generation to another.

In the last few years, especially during the
time of the presentation of the Union Budget, there had been a great deal of hype
about the re-introduction of estate duty (which had been abolished in 1985).
That had triggered the need for succession planning. People had started looking
beyond wills and probates and were approaching lawyers, chartered accountants
and attorneys for succession planning, the President pointed out.

Mr. Ketan Dalal started the session with a brief history of estate planning all
over the world, especially in countries like the USA where estate duty laws
have been in force for many years. He then explained the earlier estate duty
law in India and its main features, the challenges it faced and the reasons why it was abolished. He gave an overview
of succession planning and how it was a much wider concept than mere mitigation
of estate duty issues.

He stated that succession planning was very
important in India even without any estate duty law being in place. Various
structures were used by people for succession planning; they faced several
issues in doing so and were being made aware of the timelines involved in the
whole succession planning process.

Mr. Dalal
described the integrated approach to be adopted for structuring such planning
and shared his experience on the issues that arose, on the basis of the
innumerable cases handled by him.

He also explained some of the key issues
that one could come up against under various laws in India dealing with trusts,
family settlements and restructuring. He then answered a plethora of questions
from the eager participants on gifts, nominations, wills, probate, etc.

The meeting was
well appreciated as the speaker articulated several aspects of succession
planning very well.

President Manish introduced the
speaker, Vice-President Suhas Paranjpe presented a memento to him and
Convener Hardik Mehta proposed the vote of thanks.

SUBURBAN STUDY CIRCLE

The Suburban Study Circle organised a
meeting on ‘Amendments to Income-tax Act, 1961’ vide an ordinance, the Taxation
Laws (Amendment) Ordinance, 2019, on 18^th October, 2019 which was
addressed by Mr. Milin Bakhai.

The speaker made a detailed presentation on
the amendments and explained each change clause by clause. The group had a
detailed discussion on the possible outcomes of selecting the option u/s
115BAA.

He walked the participants through a
comparison of companies under different tax rates and the various pros and cons
for selection of the new tax rates. He also examined section 115BAB in detail
and the various references which were drawn from different judicial precedents
to explain the same. He gave examples to describe which arrangements would be
considered as reconstruction and / or splitting.

The participants lauded the speaker for his
erudition and his easy-to-understand presentation.

INTERNATIONAL
ECONOMICS STUDY GROUP

The International Economics Study Group held
its meeting on 5^th November, 2019 to discuss ‘Issues &
Implications of Banking & Financial Crisis in India’. CA Harshad Shah
and CA Paresh Budhdev led the discussions and presented their thoughts
on the subject.

They pointed out that Indian banks (mostly
PSUs and some private banks) had been facing serious NPA crises for the last
five years. Besides, many well-known promoters had been facing huge liquidity
challenges and a few of them had filed for bankruptcy themselves or their
lenders had done so. This got further aggravated and spread to NBFCs and
private banks with problems at some well-known ones. Many more lenders were
likely to be added to the list due to stress in the real estate, automobiles,
MSME sectors and the rural and agricultural economy. At the same time, there
were governance issues in small savings funds, EPF and LIC, too.

As per RBI data, the aggregate gross
advances of PSU banks increased from Rs. 11.33 lakh crores as on 31^st
March, 2008 to Rs. 34.03 lakh crores as on 31^st March, 2014 (a
three-fold increase in six years). The primary reasons for the spurt in
stressed assets had been aggressive lending practices, including phone banking,
directed lendings, wilful default / loan frauds / corruption in some cases and
overall economic slowdown.

India’s banks were grappling with roughly $150
billion in stressed assets (Rs. 10 lakh crores); about 85% of these NPAs
were from the loans and advances of PSU banks. In the last decade, the gross
NPAs of banks had increased from 2.3% of total loans (2008) to 9.5% (in 2019),
indicating that an increasing proportion of a bank’s assets had ceased to
generate income for the banks, lowering their profitability and ability to
grant further credit. Bank NPAs were expected to shrink 350 bps over two years
to 8% by March, 2020, compared with the peak of 11.5% in March, 2018.

The International Economics Study Group also
discussed the NBFC crisis and its domino effect on the Indian economy. There
were 11,400+ shadow banking companies (NBFCs) with a combined balance sheet
worth around Rs. 22.1 trillion ($304 billion) and their loan portfolios had
grown at nearly twice the pace of banks. According to RBI data, gross NPAs
(non-performing assets) or bad loans of NBFCs stood at 6.6% at the end of
March, 2019 against 5.3% a year ago. On the other hand, bank lending to NBFCs
had also seen a substantial rise. NBFCs owed an outstanding amount of Rs. 6.4
lakh crores at the end of March, 2019. This was a 22% increase compared with
the previous year when the debt was Rs. 4.9 lakh crores. NBFCs and HFCs had a
balance sheet of Rs. 36 lakh crores as of March, 2019. If the extent of
under-reporting was around 5% of advances, there could be Rs. 1.8 lakh crores
of more bad news yet to be recognised.

The risks of contagion were rising in the
Indian financial sector and any failure of a large shadow lender could lead to
a ‘solvency shock’ to banks. India’s shadow lenders got a substantial part of
their funding from banks – the weaker ones had seen a sharp rise in their
borrowing costs, and a big drop in their equity values. High business risk is
inherent in NBFC business models that rely on short-term market borrowings for
long-term loans. The resulting risk aversion by lenders had landed NBFCs and
HFCs with high asset-liability mismatches in hot water.

The way forward suggested was: (1) Regulators and investors need to recognise that both the ALM
(asset liability mismatch) and liquidity crises are restricted to a handful of
NBFCs / HFCs which require closer regulatory supervision, along with the firms
accessing public deposits or retail NCDs requiring close scrutiny. (2) With
default and the string of credit rating downgrades, which undermined market
confidence in credit ratings and the accounting practices of NBFCs, regulator/s
need to undertake special audits. This is essential to shore up market
confidence in the sector. (3) NBFCs / HFCs with retail participation and good
quality books may need a liquidity lifeline to ward off solvency issues. (4) It
is not the absence of regulations but ineffectual supervision by the regulators
that has left the doors open for the NBFC crises to play out. Hence, instead of
adding to their voluminous regulations, regulators need to deploy additional
manpower and acquire forensic capabilities to more closely monitor the frequent
statutory filings of these firms.

BCAJ Admin

STATISTICALLY SPEAKING

1. Pendency
of time-barring e-assessments

Jurisdiction

Pending %

Delhi

Mumbai

Gujarat

Madhya Pradesh and Chhattisgarh

Pune

Source: Income Tax
Department – MIS Report

2. Ease of doing business

Particulars

Score
2019

Score 2020

Rank 2019

Rank
2020

Starting a business

81.6

137

136

Dealing with construction permits

72.1

78.7

Getting electricity

89.2

89.4

Registering property

47.9

47.6

166

154

Getting credit

80.0

Protecting minority investors

80.0

Paying taxes

65.4

67.6

121

115

Trading across borders

77.5

82.5

Enforcing contracts

41.2

163

Resolving insolvency

40.8

62.0

108

Overall

67.5

71.0

Source: World Bank

3. GDP Growth 2019

Country

GDP growth %

India

7.3%

China

6.3%

Indonesia

5.2%

Pakistan

2.9%

2.3%

Brazil

2.1%

Spain

2.1%

Nigeria

2.1%

Netherlands

1.8%

Saudi

1.8%

Russia

1.6%

Canada

1.5%

France

1.3%

1.2%

South Africa

1.2%

Germany

0.8%

Italy

0.1%

Japan

Turkey

-2.5%

Iran

-6%

Source: IndiaStatistics
twitter – IMF

4. Highlights of e-filing

Source: Income Tax India
e-filing website

5. ITR filing growth between previous FY and
current FY

Source: Income Tax India
e-filing website

6. Share of informal employment
in total employment (%)

Source: International Labour
Organisation

BCAJ Admin

FROM PUBLISHED ACCOUNTS

REVENUE RECOGNITION POLICY FOR A
COMPANY ENGAGED IN THE BUSINESS OF ‘RIDE SHARING’

UBER TECHNOLOGIES, INC.
(31^ST DECEMBER, 2018)

(From Summary of Key Accounting Policies)

Revenue Recognition

The Company recognises
revenue when or as it satisfies its obligation. The Company derives its
revenues principally from Partners’ use of its ‘Core Platform’ and related
services in connection with ride sharing and Uber Eats and from customers’ use
of Other Bets offerings, including Freight and New Mobility.

Core Platform

The Company enters into
Master Services Agreements (“MSA”) with Partners to use the Platform.
The MSA defines the service fee that the company charges the Partners for each
transaction. Upon acceptance of a transaction, the Partner agrees to perform
the ride sharing or Eats services as requested by an end-user. The acceptance
of a transaction request combined with the MSA establishes enforceable rights
and obligations for each transaction. A contract exists between the Company and
a Partner after the Partner accepts a transaction request and the Partner’s
ability to cancel the transaction lapses. End-users access the Platform for
free and the Company has no performance obligation to end-users. As a result,
end-users are not the Company’s customers.

The Company’s Platform and
related service includes on-demand lead generation and related activities,
including facilitating payments from end-users, that enable Partners to seek,
receive and fulfil on-demand requests from end-users seeking ride sharing
services and Eats services. These activities are performed to satisfy the
Company’s sole performance obligation in the transaction, which is to connect
its Partners with end-users to facilitate the completion of a successful
transaction.

Judgement is required in
determining whether the Company is the principal or agent in transactions with
Partners and end-users. The Company evaluates the presentation of revenue on a
gross or net basis based on whether it controls the service provided to the
end-user and is the principal (i.e., “gross”), or the Company
arranges for other parties to provide the service to the end-user and is an
agent (i.e. “net”). For ride sharing and Eats transactions, the
Company’s role is to provide the service to Partners to facilitate a successful
trip or Eats service to end-users. The Company concluded that it does not
control the goods or services provided by Partners to end-users as (i) it does
not pre-purchase or otherwise obtain control of the Partners’ goods or services
prior to its transfer to the end-user; (ii) the Company does not direct
Partners to perform the service on the Company’s behalf, and Partners have the
sole ability to decline a transaction request; and (iii) the Company does not
integrate services provided by Partners with its other services and then
provide them to end-users.

As part of the Company’s
evaluation of control, the Company reviews other specific indicators to assist
in the principal versus agent conclusions. The Company is not primarily
responsible for ride sharing and Eats services provided to end-users, nor does
it have inventory risk related to these services. While the Company facilitates
setting the price for ride sharing and Eats services, the Partner and end-users
have the ultimate discretion in accepting the transaction price and this
indicator alone does not result in the Company controlling the services
provided to end-users.

Partners are the Company’s
customers and pay the Company a service fee for each successfully completed
transaction with end-users. The Company’s obligation in the transaction is
satisfied upon completion by the Partner of a transaction. In the vast majority
of transactions with end-users, the Company acts as an agent by connecting
end-users seeking ride sharing and Eats services with Partners looking to
provide these services. Accordingly, the Company recognises revenue on a net
basis, representing the fee that the Company expects to receive in exchange for
providing the service to Partners. The Company records refunds to end-users
that it recovers from Partners as a reduction to revenue. Refunds to end-users
due to end-user dissatisfaction with the Platform are recorded as marketing
expenses and reduce the accounts receivable amount associated with the
corresponding transaction.

Ride sharing

The Company derives its
ride sharing revenue primarily from service fees paid by Partners for use of
the Platform and related service to connect with riders and successfully
complete a trip via the Platform. The Company recognises revenue when a trip is
complete. There were no unsatisfied performance obligations as of 31^st
December, 2018.

Depending on the market
where the trip is completed, the service fee is either a fixed percentage of
the end-user fare or the difference between the amount paid by an end-user and
the amount earned by a Partner. In markets where the Company earns the difference
between the amount paid by an end-user and the amount earned by a Partner,
end-users are quoted a fixed upfront price for ride sharing services while the
Company pays Partners based on actual time and distance for the ride sharing
services provided. Therefore, the Company can earn a variable amount and may
realise a loss on the transaction. The Company typically receives the service
fee within a short period of time following the completion of a trip and, as
such, Partner contracts do not have a significant financing component.

In addition, end-users in
certain markets have the option to pay cash for trips. On such trips, cash is
paid by end-users to Partners. The Company generally collects its service fee
from Partners for these trips by offsetting against any other amounts due to
Partners, including Partner incentives. As the Company currently has limited
means to collect its service fee for cash trips and cannot control whether
Partners will generate future amounts owed to them for offset, it concluded
collectability of such amounts is not probable until collected. As such,
uncollected service fees for cash trips are not recognised in the consolidated
financial statements until collected from Partners.

Uber Eats

The Company derives its
Uber Eats revenue primarily from service fees paid by Partners for use of the
Platform and related service to successfully complete a meal delivery service
via the Platform. The Company recognises revenue when an Uber Eats transaction
is complete. There were no material unsatisfied performance obligations as of
31^st December, 2018.

The service fee paid by
Restaurant Partners is a fixed percentage of the meal price. The service fee
paid by Delivery Partners is the difference between the delivery fee amount
paid by the end-user and the amount earned by the Delivery Partner. End-users
are quoted a fixed price for the meal delivery while the Company pays Partners
based on actual time and distance for the delivery. Therefore, the Company
earns a variable amount on a transaction and may realise a loss on the
transaction. The Company typically receives the service fee within a short
period of time following the completion of a delivery. As such, Restaurant and
Delivery Partner contracts do not have a significant financing component.

OTHER BETS

Uber Freight

The Company derives its
Uber Freight revenue from freight transportation services provided to Shippers.
Revenue for Uber Freight represents the gross amount of fees charged to
Shippers for these services. Costs incurred with carriers for Uber Freight
transportation are recorded in cost of revenue.

Shippers contract with the
Company to utilise the Company’s network of independent freight carriers to
transport freight. The Company enters into contracts with Shippers that define
the price for each shipment and payment terms. The Company’s acceptance of the
shipment request establishes enforceable rights and obligations for each
contract. By accepting the Shipper’s order, the Company has responsibility for
transportation of the shipment from origin to destination. The Company enters
into separate contracts with independent freight carriers and is responsible
for prompt payment of freight charges to the carrier regardless of payment by
the Shipper. The Company’s sole performance obligation is the transport of
Shipper freight using its network of independent freight carriers. The Company
invoices the Shipper upon satisfaction of the performance obligation.

Judgement is required in
determining whether the Company is the principal or agent in transactions with
Shippers. For each contract entered into with a Shipper, the Company is
responsible for identifying and directing independent freight carriers to
transport the Shipper’s goods. The Company therefore controls the service
before it is transferred to the Shipper. The Company is primarily responsible
for fulfilling the contract with the Shipper, including having discretion in
selecting a qualified independent freight carrier that meets the Shipper’s
specifications. The Company also has pricing discretion and negotiates
separately the price(s) charged to Shippers and amounts paid to carriers.
Accordingly, the Company is the principal in these transactions.

In consideration for the
Company’s Freight services, Shippers pay the Company a fixed amount for each
completed shipment. When the Shipper’s freight reaches its intended
destination, the Company’s performance obligation is complete. The Company
recognises revenue associated with the Company’s performance obligation over
the contract term, which represents its performance over the period of time a
shipment is in transit. While the transit period of the Company’s contracts can
vary based on origin and destination, contracts still in transit at period end
are not material. Payment for the Company’s services is generally due within 30
to 45 days upon delivery of the shipment. As such, the Company does not have
significant financing components in contracts with Shippers.

New Mobility

The Company’s New Mobility
products, including dockless e-bikes, represent its new or emerging offerings
beyond its Core Platform. New Mobility revenues were not material in 2018.

Incentives to Partners

Incentives provided to
Partners are recorded as a reduction of revenue if the Company does not receive
a distinct good or service or cannot reasonably estimate fair value of the good
or service received. Incentives to Partners that are not for a distinct good or
service are evaluated as variable consideration, in the most likely amount to
be earned by the Partner, at the time or as they are earned by the Partner,
depending on the type of incentive. Since incentives are earned over a short
period of time, there is limited uncertainty when estimating variable
consideration.

Incentives earned by Partners for referring new Partners are
paid in exchange for a distinct service and are accounted for as customer
acquisition costs. The Company expenses such referral payments as incurred in
sales and marketing expenses in the consolidated statements of operations. The
Company applied the practical expedient under ASC 340-40-25-4 and expenses
costs to acquire new customer contracts as incurred because the amortisation
period would be one year or less. The amount recorded as an expense is the
lesser of the amount of the incentive paid or the established fair value of the
service received. Fair value of the service is established using amounts paid
to vendors for similar services. The amounts paid to Partners presented as
sales and marketing expenses for the years ended 31^st December,
2016, 2017 and 2018 were $167 million, $199 million, and $136 million,
respectively.

The Company evaluates
whether the cumulative amount of payments, including incentives, to Partners
that are not in exchange for a distinct good or service received from Partners
exceeds the cumulative revenue earned since inception of the Partner
relationships. Any cumulative payments in excess of cumulative revenue are
presented as cost of revenue in the consolidated statements of operations. The
amounts presented as cost of revenue for the years ended 31^stDecember,
2016, 2017 and 2018 were $507 million, $530 million and $837 million,
respectively.

End-User Discounts and Promotions

The Company offers
discounts and promotions to end-users to encourage use of the Company’s
Platform. These are offered in various forms of discounts and promotions and
include:

Targeted end-user
discounts and promotions: These
discounts and promotions are offered to a limited number of end-users in a
market to acquire, re-engage, or generally increase end-users use of the
platform, and are akin to coupon(s). An example is an offer providing a
discount on a limited number of rides or meal deliveries during a limited time
period. The Company records the cost of these discounts and promotions as sales
and marketing expenses at the time they are redeemed by the end-user.

End-user referrals: These referrals are earned when an existing
end-user (the referring end-user) refers a new end-user (the referred end-user)
to the Platform and the new end-user takes his / her first ride on the
Platform. These referrals are typically paid in the form of a credit given to
the referring end-user. These referrals are offered to attract new end-users to
the Platform. The Company records the liability for these referrals and
corresponding expense as sales and marketing expenses at the time the referral
is earned by the referring end-user.

Market-wide promotions: These promotions are pricing
actions in the form of discounts that reduce the end-user fare charged by
Partners to end-users for all or substantially all rides or meal deliveries in
a specific market. Accordingly, the Company records the cost of these promotions
as a reduction of revenue at the time the trip is completed.

Vehicle Solutions Revenues

The Company leases vehicles
to third parties who could potentially use them to provide Core Platform
services. These arrangements are classified as operating leases as defined
within ASC 840, “Leases” (“ASC 840”). The Company
recognises revenue from these arrangements as lease payments are collected.

Other

The Company has elected to
exclude from revenue taxes assessed by a governmental authority that are both
imposed on and are concurrent with specific revenue producing transactions, and
collected from Partners and remitted to governmental authorities. Accordingly,
such amounts are not included as a component of revenue or cost of revenue.

Practical Expedients

The Company has utilised
the practical expedient available under ASC 606-10-50-14 and does not disclose
the value of unsatisfied performance obligations for contracts with an original
expected length of one year or less. The Company has no significant financing
components in its contracts with customers.

BCAJ Admin

GLIMPSES OF SUPREME COURT RULINGS

12. Pr. Commissioner of Income Tax vs. A.A.
Estate Pvt. Ltd. (2019) 413 ITR 438 (SC)

Appeal to the High Court – There is
a distinction between the questions proposed by the appellant for admission of
the appeal and the questions framed by the Court – The questions proposed by
the appellant fall u/s 260-A(2)(c) of the Act, whereas the questions framed by
the High Court fall u/s 260-A(3) of the Act – The appeal is to be heard on
merits only on the questions framed by the High Court under sub-section (3) of
section 260-A of the Act as provided u/s 260-A(4) of the Act – The expression
‘such question’ referred to in sub-section (5) of section 260-A of the Act means
the questions which are framed by the High Court under sub-section (3) of
section 260-A at the time of admission of the appeal and not the one proposed
in section 260-A(2)(c) of the Act by the appellant – The respondent has a right
to argue ‘at the time of hearing’ of the appeal that the questions framed are
not involved in the appeal by taking recourse to sub-section (5) of section
260-A of the Act

In the case of the
respondent-assessee who was engaged in the business of development and building
of properties, the Assessing Officer completed the assessment u/s 143(3) read
with section 153A of the Income Tax Act, 1961 for the assessment year 2008-09
and determined the total income at Rs. 7,77,49,790.

Subsequently, the AO issued a
notice u/s 148 of the Act seeking to reopen the assessment on the basis of
information received from the ADIT (Investigation). By this notice, the AO
proposed to make an addition of Rs. 1,70,94,000 towards unaccounted sale
proceeds alleged to have been made by the assessee on the basis of one
document, which was seized by the Revenue Department in their search operation
carried out on 30^th November, 2007 in the business premises of
another assessee by name M/s Ashok Buildcom Ltd.

The assessee objected to the
issuance of the notice contending inter alia that, first, there was no
factual foundation for issue of notice; second, there was no case for any
‘escaped assessment’; and third, there was no case or ‘reason to believe’.

The AO overruled these objections
and passed a re-assessment order by adding the sum of Rs. 1,70,94,000 in the
total income of the assessee.

Aggrieved at this, the assessee
filed an appeal before the CIT (Appeals). But the appeal was dismissed and the
addition made by the AO was upheld. Still aggrieved, the assessee filed a
second appeal before the ITAT. The Tribunal allowed the appeal and set aside
the order of the CIT (Appeals).

However, the Commissioner of Income
Tax felt aggrieved and filed an appeal before the High Court u/s 260-A of the
Act. By its impugned order, the High Court dismissed the appeal and affirmed
the order of the Tribunal, giving rise to the filing of the special leave to
appeal by the Commissioner of Income Tax in the Supreme Court.

The short question which therefore
arose for consideration before the Supreme Court was whether the High Court was
justified in dismissing the appeal filed by the Commissioner of Income Tax.

According to the Supreme Court, the
case had to be remanded to the High Court for the following reasons:

First, the High Court did not
formulate any substantial question of law as was required to be framed u/s
260-A of the Act.

Second, in para 2 of the impugned
order, the High Court observed that ‘Revenue urges following questions of law
for our consideration’. However, from a reading of para 2, the two questions
set out in it were not the questions framed by the High Court as were required
to be framed u/s 260-A(3) of the Act for hearing the appeal but were the
questions urged by the appellant.

According to the Supreme Court,
there is a distinction between the questions proposed by the appellant for
admission of the appeal and the questions framed by the Court. The questions
proposed by the appellant fall u/s 260-A(2)(c) of the Act, whereas the
questions framed by the High Court fall u/s 260-A(3) of the Act. The appeal is
to be heard on merits only on the questions framed by the High Court under
sub-section (3) of section 260-A of the Act as provided u/s 260-A(4) of the
Act.

Third, if the High Court was of the
view that the appeal did not involve any substantial question of law, it should
have recorded a categorical finding to that effect saying that the questions
proposed by the appellant either do not arise in the case or / and are not
substantial questions of law so as to attract the rigor of section 260-A of the
Act for its admission and, accordingly, should have dismissed the appeal in
limine.

According to the Supreme Court,
this was not done and instead the High Court without admitting the appeal and
framing any question of law had issued notice of appeal to the assessee, heard
both the parties on the questions urged by the appellant and dismissed it.
According to the Supreme Court, the respondent had a right to argue ‘at the
time of hearing’ of the appeal that the questions framed were not involved in
the appeal and this the respondent could urge by taking recourse to sub-section
(5) of section 260-A of the Act. But this stage in this case did not arise
because the High Court neither admitted the appeal nor framed any question as
required under sub-section (3) of section 260-A of the Act. The expression
‘such question’ referred to in sub-section (5) of section 260-A of the Act
means the questions which are framed by the High Court under sub-section (3) of
section 260-A at the time of admission of the appeal and not the ones proposed
in section 260-A(2)(c) of the Act by the appellant.

The Supreme Court, therefore,
concluded that the High Court had not decided the appeal in conformity with the mandatory procedure prescribed in section 260-A of the Act.

Fourth, the High Court should have
seen that the following substantial questions of law did arise in the appeal
for being answered on their respective merits:

(i) Whether the reasons contained
in notice u/s 148 are relevant and sufficient for issuance of the said notice
dated 22^nd September, 2010?

(ii) Whether any case of escaped
assessment within the meaning of section 147 read with section 148 of the Act
for the assessment year in question is made out by the Commissioner of Income
Tax on the basis of the reasons set out in the notice?

(iii) Whether a case of presumption
as contemplated u/s 132(4A) of the Act could be drawn against the assessee on
the basis of a document (Annexure AB-1) which was seized in a search operation
carried out in the business premises of another assessee, M/s Ashok Buildcom,
by adding a sum of Rs. 1,70,94,000 for determining the total tax liability of
the respondent for the year in question as an escaped assessment so as to
enable the Department to issue notice dated 22^ndSeptember, 2010 u/s
148 of the Act to the respondent?

The Supreme Court thus remanded the
case to the High Court for deciding the appeal afresh to answer the questions
framed above on merits in accordance with the law.

13. Pr. Commissioner of Income Tax vs. Ballarpur
Industries Ltd. (2019) 413 ITR 447 (SC)

Appeal to the Appellate Tribunal –
Tribunal is the final fact-finding authority – Inconsistent findings recorded
by the Tribunal – High Court dismissed the appeal – Appeal to the Supreme Court
— Matter remanded for fresh consideration

In the case of the
respondent-assessee, a limited company, which was engaged in the business of
manufacturing of various kinds of papers, a question arose before the AO in the
assessment for assessment year 1993-94 as to what was the true nature of
payment of Rs. 3.25 crores made by the assessee to one Mr. G.R. Hada pursuant
to the compromise arrived at between the assessee company and Mr. Hada in a
civil suit filed by the latter against the company and others.

According to the assessee, Mr. Hada
and the company were the joint promoters of a company called M/s Andhra Pradesh
Rayons Limited in which Mr. Hada was holding 10.25% shares and the remaining
shares were held by other promoter shareholders in different percentages. Since
the dispute arose amongst the promoter shareholders, Mr. Hada filed a civil
suit against the assessee and other promoter shareholders on the basis of an
agreement, which was entered into amongst the promoter shareholders. In the
abovementioned suit, a compromise was arrived at between the assessee and Mr.
Hada. Pursuant to the said compromise, the assessee paid a sum of Rs. 3.25
crores to Mr. Hada.

The assessee claimed a deduction of
Rs. 3.25 crores in the assessment year in question as revenue expenditure
because, according to them, they had paid the said sum to Mr. Hada for running
their business.

The AO examined the claim in the
context of the terms of the agreement and held that the claim could not be
considered as ‘revenue expenditure’. He therefore rejected the claim.

The assessee
felt aggrieved by this order and filed an appeal to the Commissioner of Income
Tax (Appeals). However, the CIT (Appeals) confirmed the addition made by the
AO.

The assessee filed a second appeal
in the Income Tax Appellate Tribunal. The Tribunal examined the question and
allowed the appeal and directed the AO to allow the deduction of Rs. 3.25
crores as claimed by the assessee.

But now the Commissioner of Income
Tax-Revenue felt aggrieved and filed an appeal in the High Court. The High
Court dismissed the appeal, which gave rise to the filing of an appeal by way
of special leave by the Revenue in the Supreme Court.

According to the Supreme Court, the
short question which arose for its consideration was whether the High Court was
justified in dismissing the appeal filed by the Commissioner of Income Tax. The
Court held that the order of the High Court as well as the order of the
Tribunal had to be set aside and the case was required to be remanded to the
Tribunal to decide the appeal filed by the assessee afresh on merits in
accordance with law for the following reasons:

In para 26 of the order, the
Tribunal has recorded a finding, which read as under:

‘…The AO did not dispute the fact
that the expenditure related to the business of the Assessee. The CIT (A),
however, reversed the findings of the AO and held that the expenditure cannot
be considered as business expenditure. A perusal of the CIT (A)’s order can
only lead to a conclusion that the CIT (A) was of the view that the expenditure
in question was not a capital expenditure but of a revenue nature…’

The aforesaid observation of the
Tribunal, on what the AO and the CIT (Appeals) held, was not correct and rather
inconsistent with the finding of the AO. The Tribunal, therefore, had not
correctly appreciated what the AO and the CIT (Appeals) had held and what was
their reasoning which led to their respective conclusions.

Having wrongly observed about their
respective reasoning and the finding, the Tribunal proceeded to examine the
case and eventually reversed the order of CIT (Appeals). The High court did not
notice the aforesaid observation of the Tribunal and upheld the order of the
Tribunal.

According to the Supreme Court, in
such a situation like the one arising in the case and keeping in view the
question involved, the matter deserved to be remanded to the Tribunal for
deciding the appeal filed by the assessee afresh on merits, because the
Tribunal being the last Court of appeal on facts its finding on the question of
facts was of significance.

BCAJ Admin

SERVICE TAX

PART A SERVICE TAX

I.
Tribunal

45. 2019 [20] G.S.T.L. 77 (Tri.-All.)
Commissioner of Service Tax, Noida vs. Meroform (India) Pvt. Ltd. Date of Order: 14^th March, 2018

Hiring of
Office furniture on which VAT was discharged cannot be leviable to service tax.

Facts

The Assessee provided
office furniture on hire for visitors in business exhibitions as per
requirements of the organisers. In the course of audit, it was observed that
income was booked under the head “Hiring of office Furniture”. Show Cause
Notice was issued subsequently on the ground that the said transaction was
service of supply of tangible goods. However, the impugned order was set aside
by the Ld. Commissioner (Appeals). Appeal was filed before the Tribunal by the
revenue.

Held

The
Hon’ble Tribunal held that the facts essential for the levy of service tax on
the said transaction were absent and the Show Cause Notice was ambiguous and
not maintainable. Upholding the order of the Ld. Commissioner, the appeal filed
by the revenue was dismissed.

46. 2019 [20] G.S.T.L. 86
(Tri.-Chennai.) Wheels Tourists Operator vs. Commissioner of GST & Central
Excise, Chennai. Date of Order: 6^th March,
2018

Facts

The
Assessee provided tourist transport services to the travel agencies and
corporate entities and collected hire charges on the same. The vehicles were
engaged by other travel agents mostly for the journey of the foreign and
domestic tourists. Pursuant to the investigation at the premises of the assessee,
Show Cause Notice was issued proposing to levy service tax as Rent-a-cab
service along with interest and penalties. The demand was subsequently
confirmed. Hence, the appeal.

Held

The
Hon’ble Tribunal citing the difference between ‘renting’ and ‘hiring’ and
maintaining other relevant decisions which included R. S. Travels 2015 (38)
STR 3 (Uttarakhand), CIT vs. Sachin Malhotra 2015 (37) STR 684 (Uttarakhand)
and considering that they were later than Commissioner vs. Vijay Travels
2014 (36) STR 513 (Guj) and also following this Bench’s own decision in Om
Shakti Travels vide Final order no.42127/2017 dated 18/09/2017, it was held
that the demand was unsustainable and the impugned orders were set aside and
appeals were allowed with consequential relief.

47. 2019 [20] G.S.T.L. 361 (Tri.- All.)
Saya Buildcon Consortium Pvt. Ltd. vs. Commr. Of C. Ex. & S.T., Noida. Date of Order: 22^nd January,
2018

Security
deposit received by builder from flat owners which would be transferred to
Society or Association of flat owners after completion or handing over, not
leviable to service tax.

Facts

Revenue
raised service tax demand on the amount of security deposit received by the
builder appellant. Contesting same builder appellant stated that said amount is
received by way of security deposit as a trustee of the flat owners, which
would be transferred to Society or Association of flat owners after completion
and handing over the flats. Thus, alleged amount was received as pure agent
and/ or trustees and not towards any service provided.

Held

The
Hon’ble Tribunal after being satisfied with the assessee’s contention held that
the amount in dispute was not towards provision of any service and received by
the builder as a pure agent of the owners, therefore cannot be held liable for
service tax and allowed the appeal.

48. [2019] 101 taxmann.com 461
(Ahmedabad CESTAT) Alembic Ltd. vs. Commissioner of Central Excise &
Service Tax, Vadodara Date of Order: 23^rd October,
2018

The
definition of “exempted services” amended w.e.f. 01.04.2016 to include within
its purview those transactions which do not constitute ‘service’ u/s. 65B(44)
of Finance Act, 1994, has no application on CENVAT credit availed for period
prior to 01.04.2016 and hence reversal of past credits is not required.

Facts

Appellants are engaged in
development of real estate projects. They availed CENVAT credit of service tax
paid on input services used for construction of residential complexes. After
receipt of completion certificate in July 2014 for construction of residential
complex, appellants gave intimation to service tax authorities that they
availed proportionate CENVAT credit on input services received by them after
obtaining completion certificates, on basis of square feet area basis, which
suffered the levy of service tax as compared to the area which was converted
into immovable property and on which no service tax would be paid. Meanwhile,
during the course of CERA Audit, department asked appellants to reverse
proportionate CENVAT credit availed by appellants prior to obtaining Completion
Certificate (i.e. credit availed during the period when entire output service
activity was wholly taxable) on the ground that after receipt of Completion
Certificate, the property had become immovable property and in case of future
sale thereof, no service tax would have been payable. Therefore CENVAT credit
in proportion to “area which is outside the purview of service tax”
compared to the entire property area was computed as qualifying for reversal.
The Appellant made such reversal under protest and subsequently claimed refund
of the same. Refund was rejected.

Thereafter the department
issued SCN demanding 6%/8%/10% amount of sale of immovable property after
obtaining Completion Certificate where no service tax was paid by the Appellants
on the ground that they had availed CENVAT credit and provided taxable as well
as exempt services (sale of immovable property) and they had not maintained
separate accounts. Both the matters i.e. rejection of refund and issue of SCN
were before the Tribunal. The demand was raised to regularise the incorrect
availment of CENVAT credit on the entire project, i.e. credits availed prior to
Completion Certificate and thereafter.

The assessee submitted
prior to 01.04.2016, Rule 6 was not applicable to their case. Consequently, no
reversal of CENVAT credit is required. It also submitted that in terms of
amendment carried out in CENVAT Credit Rules (CCR) vide Notification No.
13/2016-CE (NT) dated 01.03.2016, Explanation 3 was inserted to Rule 6 of the CCR,
2004 to provide that for the first time on prospective basis, the exempted
services defined under Rule 2(e) of the CCR shall include an activity which is
not a service as defined u/s. 65B (44). Such explanation clarified that sale of
immovable property was not covered as “exempt services’ till 01.04.2016 and
only by virtue of the said amendment, Rule 6 of CCR includes sale of property
after receipt of completion certificate in “exempted services” from 01.04.2016
onwards. Appellants submitted that the said Rule 6 deals with only the
prospective credits i.e. the credits availed on and after the output activity
becoming exempt under the said notification and not to input services which
were availed at the time when the output service was wholly taxable in the
hands of the Appellants. On the other hand, revenue contended that the
proportionate credit required to be reversed in respect of non-taxable
transaction will necessarily include the whole of credit availed by the
assessee right from the inception of the project and cannot be taken to be
limited only to the credits availed after receiving the Completion Certificate.
Being aggrieved by rejection of refund claim and another SCN requiring
appellants to reverse proportionate credit in terms of Rule 6 of CCR,
appellants filed present appeal.

Held

The Hon’ble Tribunal noted
that upon receipt of Completion Certificate for the projects, the output
activity of sale of residential units becomes “non-service” u/s. 65B
of Finance Act, 1994 read with definition
of “exempt service”. For invocation of Rule 6, the output service must be
primarily exempt service. Since the deeming fiction that “exempted service”
would also include an activity which is not a ‘service’ as defined u/s. 65B(44)
was inserted w.e.f. 01.04.2016 only, the Tribunal held that prior to
01.04.2016, such an activity cannot be considered as “exempted service” and
would not attract reversal under Rule 6 of the CCR, 2004. Further, the Tribunal
relied upon decision of Hon’ble SC in Dai-Ichi Karkaria Ltd. vs. Union of
India2000 taxmann.com 1350 to hold that CENVAT credit is a vested right of
assessee and once the credit is validly and legally availed by assessee, the
same cannot be denied/recovered subsequently unless provided by specific
provision. Therefore, the Tribunal held that in present case, Rule 3 of CCR, 2004 would apply w.e.f.
01.04.2016 and not for period prior to April 2016.

As regards demand for
reversal of proportionate credit 8%/10%, the Tribunal noted that payment of
8%/10% is only an option or rather a mechanism to seek credit reversal on lump
sum basis, where the assessee cannot maintain separate accounts/reverse
proportionate credit on turnover basis or in cases where the assessee himself
so chooses to follow such option. Tribunal held that since the credits availed
when output service was wholly taxable cannot be called into question, it
cannot be said that such 8%/10% amount of sale of immovable property is to
regularize not only credits availed after Completion Certificate but also availed
during 2010 till the time Completion Certificate was obtained. As regards
services availed after completion certificate, Tribunal noted that the
appellants have availed proportionate credit attributed to the taxable output
service only. Accordingly, Tribunal allowed present appeals by setting aside
impugned SCN and allowing Appellants’ refund claim of reversal made under
protest.

49. [2019] 101 taxmann.com 462 (Mumbai –
CESTAT) – Allied Blenders And Distillers (P.) Ltd vs. Commissioner of Central Excise
& Service Tax, Aurangabad Date of Order: 25^th June,
2018.

The
remuneration paid to whole time directors is not liable to pay tax under
Reverse Charge Mechanism as they are employees of the Company.

Facts

The
department raised demand on the Company under reverse charge mechanism in
respect of remuneration paid by it to its whole time directors, treating the
same as ‘service’.

Held

The
Tribunal noted that, the Appellant has treated the remuneration paid to
directors as salary and Forms 16 are accordingly issued to the directors and
records filed with Provident Fund authorities are also on record. Besides,
records filed with Registrar of Companies also indicate the directors as
executive directors indicating that they are employees of the company. The
Tribunal noted that the Appellant does not pay the director’s sitting fee to
any of the directors. The Tribunal also referred to decision of Hon’ble Supreme
Court in the case of Ram Prasad vs. CIT [1972] 86 ITR 192 (SC) and Employees
State Insurance Corpn. vs. Apex Engg. (P.) Ltd. [1998] 1 SCC 86 which laid
down tests for determining employer-employee relationship. Having regard to the
fact that the directors who are concerned with the management of the company,
were declared to all statutory authorities as employees of the company and
complied with the provisions of the respective Acts, Rules and Regulations
indicating the director as an employee of the company and such authorities have
also treated them likewise, the appeal was allowed.

50. [2019] 101 taxmann.com 196 (New
Delhi – CESTAT) Kafila Hospitality & Travels (P) Ltd. vs. Commissioner of
Service Tax, Delhi Date of Order: 16^th November,
2018

Tribunal
referred the matter to larger bench to decide whether performance-based
incentives given by Airlines to the travel agents can be charged to service tax
as consideration for providing ‘business auxiliary services’.

Facts

The appellant a travel
agent was engaged in providing services of booking of tickets for passengers
travelling by air and other travel related services. The Airlines introduced
target based incentive scheme to General Sales Agents (GSA), who are also IATA agents.
GSA in turn pass on certain percentage of incentives received by them from
Airlines. The Appellant purchases tickets by using the said CRS system from any
of the IATA agents or from Airlines and makes payment of the same through
Billing Settlement Plan of IATA.

For
discharging service tax liability on sale of tickets to customers, appellant
opted Rule 6(7) of the Service Tax Rules, 1994, thereby discharging service tax
liability on basic fare. Further, appellant received incentives from Airlines, which
were recorded in its books as ‘commission’. Department alleged that said
commission would be chargeable to service tax under category of ‘business
auxiliary services’, whereas, the Appellant submitted that Since it has opted
to discharge service tax liability on Basic fares i.e. Commissionable fare, the
value of services rendered by it stands fixed and therefore, any other income
received by it is not taxable. Further, appellant also submitted that
Incentives for appreciable performance cannot be subjected to service tax and
in absence of three parties to the contract, no service tax liability would
arise under category of ‘Business Auxiliary Services’(BAS). Meanwhile, during
the pendency of proceedings, in another case dealing with very same issue i.e. D.
PAULS CONSUMER BENEFIT LTD. vs. CCE [Final order No. 50861/2017, dated
15-2-2017], without considering various judicial precedents on said issue,
it was held that ‘incentives’ would be chargeable to service tax under category
of BAS instead of tour operator services. In light of such divergent judgments
on said issue, appellant filed miscellaneous application to the Hon’ble
Tribunal requesting to refer the matter to Larger bench.

Held

The Hon’ble Tribunal noted
that in terms of decisions rendered by various tribunals, the law has been
settled that incentives on account of appreciable performance cannot be
subjected to Service Tax under provisions of the Act. It is settled position of
law that in absence of specific sub-clause of BAS, under which the activity is
proposed to be taxed, no service tax liability would sustain under category of
BAS. Further, tribunal noted that in order to merit the classification of
activity under BAS, there must be three parties i.e. provider of service/owner
of goods, an intermediary providing goods/services on behalf of client and the
targeted audience/parties. Without presence of these three parties, the
activity cannot be said to fall under any of the sub set of services. Further,
tribunal observed that in appellant’s own case Kafila Hospitality &
Travels Ltd. vs. CST [2015] 58 taxmann.com 348/51 GST 646 (New Delhi – CESTAT),
it was held that service tax demand on ‘incentives’ was set aside in view of
the fact of appellant having exercised option under Rule 6(7) and no appeal had
been filed by revenue against said decision.

As
regards decision in D. Pauls Consumer Benefit Ltd. (Supra), the Tribunal
noted that said order has been passed without considering and discussing any of
the judgments of various Benches on non-taxability of incentives and without
specifying the sub clause of BAS and the targeted audience before whom the
services of other service providers were promoted. The Tribunal held that, it
is cardinal principal that co-ordinate Bench of CESTAT could not have taken a
contrary view to the settled judicial precedents and in case of any difference
of opinion the matter should have been referred to Larger Bench, as also held
in CCE Customs vs. KRAPS Chem (P.) Ltd. [2015] 60 taxmann.com 375/51 GST 872
SC and CCE vs. Mahindra & Mahindra Ltd. [2015] 58 taxmann.com 278/51
GST 712 SC – Para – 4. Accordingly, the Tribunal has referred the matter to
Larger Bench to determine (i) Whether the Incentive received by service
receiver from service provider, on appreciable performance, can be subjected to
service tax, (ii) Whether a demand can be confirmed without specifying the sub
clause of BAS under which the activities are covered, (iii) Whether demand can
be confirmed under the taxable category of BAS in absence of three parties –
service provider, service receiver and targeted audience?, (iv) Whether in
cases where value of service is fixed under an option provided under the Rules,
such option having been exercised and not withdrawn, is it open for the
authorities to demand service tax on other consideration or incentive received,
be taxed under another category?, (Vi) Can service tax liability be fastened
without specifying the consideration for service as provided u/s. 67 of FA,
1994 and (vii) Can service tax liability be fastened in absence of the
relationship of service provider and service receiver. Thereby, tribunal
directed the registry to place records before the Hon’ble President for
constitution of larger bench.

51. [2019-TIOL-360-CESTAT-MUM] Lavgan Dockyard Pvt. Ltd vs. Commissioner of
Central Goods and Services Tax, Kolhapur Date of Order: 9^th July, 2018

Ineligible Credit not utilised for payment of service
tax, interest not liable. Similarly, credits availed reflected in the service
tax return, penalties dropped.

Facts

Appellant engaged in
providing various taxable services availed CENVAT Credit of service tax paid on
various input services including personal insurance of employees and security
service of guest house. during the disputed period. This was disputed by the
department considering that they are not input services and also had no nexus
with the output services.

Held

The Tribunal noted that the
definition of input service contained in Rule 2 (l) of the Rules specifically
excludes life insurance and health insurance service, which are used primarily
for personal use of any employee. Thus, in view of the embargo created in the
definition itself, service tax paid on insurance service for insuring the
employees should not be considered as input service. With regard to security
service, which is located outside the factory, there is no nexus between such
disputed service with the output service provided. Hence service tax paid on
the security service should not be considered as input service. However, it was
noted that irregularly availed credit was not utilised for payment of service
tax. In absence of utilisation, there was loss of revenue to the Government,
which can be compensated by way of payment of interest. Further, since the
CENVAT credit particulars were reflected in the books of accounts and verified by department, there was no
suppression of any material particulars with regard to availment of CENVAT
benefit, penalties were held not sustainable.

52. [2019-TIOL-272-CESTAT-MUM] Hardesh Ores Pvt. Ltd vs.
Commissioner of Customs, Central Excise and Service Tax, Goa Date of Order: 11^th January, 2019

Consideration-monetary
or non-monetary for a service is an essential requirement for charge of service
tax.

Facts

The Appellants deputed
employees temporarily to a group-company. The salary and other compensation was
settled as inter-company dues since employees continued to be on the rolls of
the appellant while operationally deployed in group company. The demand was
confirmed under manpower recruitment or supply service.

Held

The Tribunal noted the
decision of the Supreme Court in the case of Intercontinental Consultants
and Technocrats Pvt. Ltd [2018-TIOL-76-SC-ST] wherein the court held that
the inclusion of value in section 66 imposing the tax on service restricted the
scope of value to the service itself would leads to a further conclusion that
levy of tax is permitted by law contingent upon there being a value inherent as
consideration for the service and not a provision of service gratis to which a
value could be assigned under the relevant Rules. The Court observed that there
is no allegation in the show cause notice, or in the impugned order, that the
appellant retained any amount from out of the payment received from the group
company, thus, discrediting the receipt of any consideration. There is no
provision in the relevant rules for computing the value in the absence of
consideration even though provisions exist for monetising consideration other
than in money. Absence of consideration is not the same as uncountable
consideration requiring rules for conversion. In absence of any consideration,
there is no taxable service and, in the absence of taxable service, leviability
of duty would not arise.

53. [2019-TIOL-286-CESTAT-BANG] Dell International Services India Pvt. Ltd vs. Commissioner of Central Tax Date of Order: 13^th December, 2018

Mandatory
pre-deposit u/s. 35F of the Central Excise Act, 1944 while filing appeal can be
made through the CGST Credit

Facts

In reply to Registry is objection that the appellant has
required to pay 7.5%/10% of the duty/tax and file proof of the same. The
appellant informed that they had already reversed 7.5% of the duty demanded
through Central Goods and Service Tax Credit and indicated the same in Column
4B(2) of GSTR-3B filed for the month of August 2018. Reliance was placed on
Circular No. 58/32/2018-GST dated 04.09.2018 and also Circular No.
42/16/2018-GST dated 13.04.2018 which clearly states that the arrears of
Central Excise duty, Service Tax or wrongly availed CENVAT credit under the
existing law is permissible to be paid through the utilisation of amounts
available in the electronic credit ledger.

Held

The
Tribunal noted appellant’s reversal of 7.5% of the duty through the CGST Credit
and indication of the same in Column 4B(2) of the GSTR-3B for August 2018.
Department accepted this. Accordingly, the Registry was directed to admit the
appeal.

II
High Court

54. 2019 [20] G.S.T.L. 20 (Del.) South India Krishna Oil and Fats
Pvt. Ltd. vs. Commissioner of S.T. Date of Order: 1^st October, 2018

Validity
and vires of the provisions not to be examined which are no longer in
operation.

Facts

Writ petition was filed
challenging the vires and the validity of
Rule 10 of Place of Provision of Service Rules, 2012 being ultra
vires to section 66B read with section 64 and 65B (52) and 66C(1) of the
Finance Act, 1994. Prayer was also made to strike down the section 66B of the
Finance Act, 1994 and paragraph 4 and 4.1 of the TRU circular No. 206/4/2017-ST
dated 13^th April, 2017. The said writ petition was filed after the
cessation of the provisions relating to service tax. It was also noted that no
proceedings were pending against the petitioner.

Held:

The
Hon’ble High Court held that it would be inappropriate to issue notice to
examine the validity and vires of statutory provisions that have already ceased
and no proceedings pending against the petitioner. The petitioner left with an
option to challenge similar provisions in Central Goods and Services Tax Act,
2017. The writ petition was dismissed.

55. 2019 [20] G.S.T.L. 351 (Bom.)
Commissioner of S.T., Mumbai-VI vs. DBOI Global Services P. Ltd.
Date of Order: 28^th November, 2018

To grant
refund of service tax on input services used for export of goods, test of
necessity
not relevant.

Facts

Appellant Revenue appealed
against the order of the Tribunal vide which it held Respondent assessee being
entitled to refund of tax paid on four input services viz. event management
services, pandal or shamiana contractor’s services, Mandap keeper services and
health and fitness services used in exported services. Revenue’s contention was
that all the 4 input services did not have any relation to the export services
done by Respondent and export could have taken place in absence of the claimed
input services even.

Held

The
Hon’ble High Court while deciding the matter held that Tribunal well examined
all 4 services and then came to conclusion that it had been used in providing
output service and so had nexus with output services. Denied Revenue’s
contention that definition of input services under CENVAT Credit Rules, 2004
(CCR) satisfies only when it is shown to be necessary for providing output
services and held it to be not a legitimate mandate. Further, held that the
only requirement under CCR to satisfy the definition on input service is the
use in providing output service, which the Tribunal has rightly seen.
Therefore, held no interference in the Tribunal’s view and consequently
dismissed Revenue’s appeal.

56. [2019] 101 taxmann.com 251 (Bombay
HC) Commissioner of Central Tax, Pune-1 vs. Oerlikon Blazers Coating India (P)
Ltd. Date of Order: 19^th December,
2018

Prior to
amendment w.e.f. 01.04.2016 in Rule 7 of Cenvat Credit Rules, 2004,
distribution of CENVAT credit of common input services by input service
distributor to all units was not mandatory, as the rule used the expression
“may distribute the CENVAT Credit”.

Facts

For the period October 2009
to March 2014, the respondent assessee imported “intellectual property
services” as well as “information technology services”, paid service tax
liability under reverse charge mechanism and took credit of the same. Revenue
alleged that in terms of Rule 7 of CENVAT Credit Rules, 2004,
respondent-assessee should have distributed said CENVAT credit to its various
units situated across the country and should not have availed CENVAT credit
only at one of its unit because such services were used by all the units of the
respondent assessee and not restricted to one particular unit. During the
appeal proceedings, the Hon’ble Tribunal held that the entire exercise would
have been revenue neutral as other units would have taken the credit of RCM
liability paid by them to discharge output service tax liability and thus, set
aside impugned demand. Being aggrieved, revenue filed present appeal.

Held

The Hon’ble High Court
observed that prior to amendment which is effected from 01.04.2016, having
regard to the wordings of erstwhile Rule 7 of CENVAT Credit Rules i.e. “may
distribute the CENVAT credit“, the assessee had an option to
distribute CENVAT credit of input services available to it amongst its other
units which are providing output services. High Court observed that post
amendment 01.04.2016, said wordings of Rule 7 were substituted as “shall
distribute the CENVAT credit“. Therefore, the High Court held that
prior to 01.04.2016, the respondent assessee was entitled to avail and utilise
said credit at one of its unit only instead of distributing the same to other
units. Further, the High Court noted that even otherwise, the Tribunal has
rightly observed that entire exercise would have been revenue neutral as the
distribution of CENVAT credit to the various units would result lesser service
tax being paid by cash on their output services as they would have utilised the
CENVAT credit available for distribution. Consequently, the High Court upheld
decision of the Hon’ble Tribunal and dismissed present appeal.

Note: Readers may note that
as regards the provisions dealing with Input Service Distributor in GST,
section 20(1) of the CGST Act, uses the expression ‘shall’, and section 20(2)
uses the expression ‘may’. Section 20(1) deals with how the ITC of IGST or as
the case may be CGST can be transferred. Whereas section 20(2) deals with
quantification of distribution qua recipient units. Applicability of
this decision of the Hon’ble Bombay High Court in GST regime may therefore need

further examination.

57. [2019-TIOL-153-HC-KOL-ST] Gitanjali Vacationville Pvt. Ltd & ANR vs. Union of India and ANR Date of Order: 15^th January, 2019

On a prima
facie reading of sections 173 and 174 of the GST Act, 2017, it appears that
an enquiry or an investigation or even a legal proceeding under the Act of 1994
is permissible notwithstanding the coming into effect of the Act of 2017.

Facts

The authorities are proposing
to conduct an audit under the provisions of the Chapter V of the Finance Act,
1994. The Petitioner challenges these communications on the ground that they
were issued without jurisdiction as the Central Goods and Services Tax Act,
2017 repeals Chapter V of the Finance Act, 1994. It is challenged that an audit
contemplated under Chapter V of the Finance Act, 1994 is not saved by the
provisions of section 174 of the Act of 2017.

Held

The Court noted that
Chapter V of the Finance Act, 1994 stands omitted by section 173 of the Act of
2017 save as otherwise provided under the Act of 2017 – Therefore, if any
provision of the Act of 2017 allows the applicability of the Chapter V of the
Finance Act, 1994, then notwithstanding the omissions of the said Chapter V
u/s. 173, the same continues to apply – On a prima facie reading of
sections 173 and 174 of the Act of 2017, it appears that an enquiry or an
investigation or even a legal proceeding under the Act of 1994 is permissible
notwithstanding the coming into effect of the Act of 2017. The authorities are
proposing undertaking an audit for the period when the Act of 1994 was
applicable, the authorities are entitled to do so and it was held that no
interim stay can be granted. The case is posted for hearing in March 2019.

Note: Readers
may note a contrary decision on the same issue in the case of Oil Field
Warehouse and Service Ltd vs. Union of India[2018-TIOL-2195-HC-AHM-ST] digest
provided in BCAJ December 2018 issue wherein the Gujarat
High Court granted an interim stay on the proceedings of audit under the Finance
Act, 1994.

58. 2019 [20] G.S.T.L. 333 (All.) R.K.
Distributors vs. Commissioner of Commercial Tax, U.P. Date of Order: 5^th December,
2018

ITC
admissible on excess tax paid on purchase in comparison to tax payable.

Facts

Assessee paid excess tax on
purchase in comparison to the tax payable. Dispute arose when assessee claimed
ITC on the entire tax payable under Uttar Pradesh Value Added Tax Act, 2008
(the Act in short), resulting in refundable amount to assessee. Assessing
Authorities ordered for reversal of ITC to the extent of excess amount paid.
Aggrieved by the decision of Commercial Tax Tribunal, Allahabad which uphold
the order of Assessing Authority of reversal of ITC, Assessee filed revision
petition before the High Court.

Held

The
Hon’ble High Court while deciding the matter held that the fact is undisputed
that the amount with respect to which the ITC claimed was admittedly the amount
paid by the assessee by way of tax on purchase of goods that have given rise to
the dispute. The language of section 13(1)(a) [table entry 1(1)] read with
section 2(p) of the Act, sufficiently clear and provides that the ITC referred
to the entire amount of tax i.e. the aggregate amount of tax paid or payable,
in respect of the purchase of goods. When legislature itself contemplated that
amount paid, may itself give rise to input tax, there remains no room to enter
into any exercise of interpretation to restrict the plain meaning of the word
‘paid’. When sale was made within state, the reasoning of the authorities on
the excess realisation of tax cannot be sustained. Thus, revision allowed in
favour of the assessee.

59. 2019 [20] G.S.T.L. 346 (Bom.) ACG
Associated Capsules P. Ltd. vs. Commissioner of C. Ex., Thane-III Date of Order: 5^th December,
2018

Guest
House whether situated near factory premise or far eligible of input service
credit, if not used for personal use or consumption of employees.

Facts

Appellant
Assessee had its manufacturing unit located at three place in Maharashtra but
its guest houses were situated at various places of country. Assessee claimed
input credit of services related to guest houses maintained by it, which was
objected and denied by the Department holding that the same were not utilised
for the purpose of its manufacturing activity and therefore liable to be
reversed. On further, appealing the order before the Tribunal, it was held that
the credit of guest houses located next to manufacturing unit would be allowed
and the credit in respect of guest houses located away from manufacturing unit
cannot be allowed and remanded the matter to original authority for
determination of credit on this ground. Aggrieved Appellant preferred appeal
before the High Court.

Held

The Hon’ble High Court
while deciding the matter found Tribunal’s formula of allowing benefit of guest
houses situated next to manufacturing unit and denying for the rest, incorrect.
Further, held that the benefit in respect of guest house not situated close to
manufacturing unit, if not used for personal use or consumption of employees
(the case being excluded from the definition of input service) be allowed.

The Hon’ble Court not interfered with the remand order but leaving
open to Assessee to persuade the Assessing Officer in regard to guest houses in
question were not used for personal use or consumption of the employees.

BCAJ Admin

Society News

57TH EDITION OF ‘BCAS REFERENCER’ RELEASED

The BCAS Referencer, one of the eagerly-awaited, landmark publications of the Bombay Chartered Accountants Society, entered its 57th year of continuous publication this year – and also the 22nd year of theme-based issues.

The release programme was organised at the M.C. Ghia Hall on 2nd August, 2019 by the Seminar, Public Relations & Membership Development (SPR&MD) Committee. Following the lighting of the auspicious lamp, there was a selection of short glimpses of India’s classical dance forms which is the theme of this year’s Referencer.

CA Toral Mehta compered the event and introduced the chief guests of the evening, Mr. Sameer and Ms Arsh Tanna, eminent Bollywood choreographers, and the sponsor, CA Kamal Poddar of Choice Connect.

BCAS President CA Manish Sampat noted in his remarks that the publication, which is recognised as the most dependable knowledge resource and an unparalleled repository of various laws, had been the hallmark of BCAS for the last six decades. He acknowledged all the contributors, specially the youth, and the tremendous efforts put in by the Committee for the release of the Referencer immediately after the Union Budget.

The various Indian classical dance forms – whether Bharat Natyam, Odissi, Kucchipudi, Kathakali, Kathak or Manipuri – were performed by the artists who were actually the members and students of the BCAS. They were led by CA Manori Shah under the choreography of Nita Shah and Vishrut Doshi. Other artists who performed included Chirag Bohra, Jitesh Kakad, Hrudyesh Pankhania, Rishikesh Joshi, Vidisha Shah, Disha Unadkat, Tanvi Parekh, Kinjal Bhuta, Rishita Shah, Richa Agrawal and Vidhi Parekh. The rapt audience appreciated and enjoyed all the dances.

In his address, Committee Chairman CA Narayan Pasari appreciated the efforts of all the contributors, editors, proof-readers, and specially CA Pranay Marfatia who had been instrumental in the publication of the Referencer for several years and for organising the release event. The Referencer was released in the presence of a galaxy of personalities, including the contributors, editors and others and was unveiled by the chief guests.

Chief guest Ms Arsh Tanna said she was amazed by the performances of the artists of the BCAS fraternity and expressed her delight at attending the event which was brilliantly correlated with the theme – Indian classical dance and the contents of the Referencer.

Convener CA Manmohan Sharma proposed a hearty vote of thanks to all present, especially to Choice Connect, the sponsors of the Referencer, Finesse, the printers, the BCAS Events staff and the organising team of the Committee who had put in a lot of hard work.

SUBURBAN STUDY CIRCLE

The Suburban Study Circle organised two meetings on ‘15CB Certification – Who, What, When and How?’, on 16th July and 13th August, 2019, which were addressed by CA Rutvik Sanghvi who made a detailed presentation on the following Rules and Regulations:

(i) Who all are covered under the provisions of section 195?
(ii) What transactions are covered?
(iii) When is the taxation to a non-resident applicable?
(iv) How is it to be applied?

Rutvik explained the nuisances and complexities involved in payments to non-residents in a lucid manner. He explained the importance and requirement of tax residency certificate and taxability of various kinds of payments to non-residents like fees for technical services, royalty, etc. It required two sessions to cover the topic in detail.

The participants benefited from the presentation made by him.

HRD STUDY CIRCLE

The HRD Study Circle met on 13th August, 2019 to discuss ‘Modern Techniques in Physiotherapy.’

The presentation was made by Dr. Rupa Mehta and Dr. Kritika Poddar. Dr. Rupa Mehta and her team run Healthspace clinic at Opera House and have 30 years of experience. They have kept themselves updated with the latest techniques in physiotherapy.

The presentation covered:
(a) Diagnosis and treatment of spine (neck and back), shoulder, elbow, hip, knee and ankle joint pains. (Through her presentation, Dr. Rupa Mehta gave members a detailed explanation for the possible reasons for pain in the joints. She showed simple exercises to address the pain in the initial stages and explained that neglecting it can cause further damage and addressing it early can help avoid surgery);
(b) Bad posture can have a deleterious effect on the body;
(c) It is necessary to improve the core muscles.

The latest techniques used in Healthspace are as follows:
(I) The McKenzie Protocol of exercises
(II) The Mulligan Protocol
(III) Neurodynamic solutions
(IV) Taping
(V) Dry needling
(VI) Core muscle strengthening
(VII) Pilates on the reformer and customised exercise.

Dr. Kritika Poddar highlighted the benefits of pilates. She projected ergonomics with visual inputs and stressed on the need for the right posture. Work life ergonomics and exercises shown by her could be beneficial for all chartered accountants and professionals.

However, the most important point was to spread awareness so that people do not injure themselves and adopt a better lifestyle.

INTERNATIONAL ECONOMICS STUDY GROUP

The group held its meeting on 16th August, 2019 to discuss ‘Economic Slowdown and Global Flash Points’. CA Harshad Shah led the discussions and presented his thoughts on the subject.

He said that based on the definition of slowdown and recession, the Indian economy had slowed down and might have entered into a recessionary phase as the GDP had come down from the high of 8.2% in Q1 FY19 to 7.2% in Q2 and in the last quarter dropped to 5.8%. This fulfilled the technical definition of a recession of two consecutive quarters of negative economic growth.

At the macro level, the automobile sector was facing its worst crisis in 20 years with the malaise spreading across much of the industry, both in terms of vehicle type and components as well as geographically in the country’s manufacturing hubs, along with the structural reform of pushing for electric vehicles. The real estate sector had been on a downturn since the demonetisation period, with India’s top 30 cities having 1.28 million unsold housing units as of March, 2019. The health of real estate was a major indicator of the state of the economy. It had links with about 250 ancillary industries – bricks, cement, steel, furniture, electrical products, paints, etc., and affected all of them whether there was a boom or gloom in the sector.

FMCG companies had reported a decline in volume growth due to sluggish rural demand which, in turn, indicated less availability of money in villages. All these factors impacted the unemployment rate which had risen to a 45-year high.

India’s household-sector savings, the biggest source of investment for the economy, had ‘worryingly’ come down to 30.5% (as % to GDP) in 2018 compared to nearly 37% in 2008. Poor savings had been a largely ‘unaddressed’ reason for the country’s continuing slowdown. Retail loans to the sector were growing annually in double digits, pointing to profligate consumption by households with a youthful population (70% of the working-age population being aged between 20 and 40 years) that liked to spend. Many economists widely held that a country’s economic growth should be investment-led rather than being driven by consumption, as had been the case with India.

The NITI Aayog CEO attributed the downshift to a spate of measures (structural reforms) such as GST, RERA and IBC that had led to the current slowdown in the country.

The global economy was bracing for a probable recession in 2020 as nearly half (48%) of CFOs in USA and some prominent economists were also predicting this. One of the indicators, the Yield Curve inversion, had already occurred. An inverted yield curve meant that interest rates had flipped on the US. Treasury with short-term bonds paying more than long-term bonds. This was generally regarded as a warning sign for the economy and the markets.

The global economy was also facing some serious headwinds such as Hard Brexit; US vs. China: From Tariff War to Currency War to Economic War, with USA labelling China as a ‘Currency Manipulator’ for the first time; Argentina’s historic market crash with fears of another default; the Hong Kong protests and probable retaliation by Chinese security forces; and the Iran issue. CA Milan Sanghani and many participants expressed their views on all these issues.

FEMA STUDY CIRCLE

The FEMA Study Circle meeting held on 19th August, 2019 covered the issue of ‘FDI in Trading Sector’.

CA Chintan Shah delved into various facets of the subject, viz., Cash and Carry Wholesale Trading, E-commerce, Single Brand Product Retail Trading, Multi-Brand Product Retail Trading and Duty-Free Shops. The FDI in the above activities was covered from scratch, beginning with sectoral caps applicable to each of them and ending with a healthy discussion on understanding the nuances of their respective definitions, the conditions attached thereto and understanding the manner in which businesses were structured in India. It was indeed a very interesting session given the current business environment in the country in which various multinational companies across the globe were exploring business models to expand their markets here.

4TH NARAYAN VARMA LECTURE

The 4th Narayan Varma Memorial Lecture (and the Narayan Varma Memorial Awards) was organised by the Public Concern for Governance Trust, the Bombay Chartered Accountants Society, the Dharma Bharathi Mission and the Chamber of Tax Consultants at the Indian Merchants Chamber on 23rd August, 2019.

The programme was organised in memory of Narayan Bhai who was closely associated with these organisations, held various posts in them and mentored and nurtured them with his values, ideology and hard work. He left behind an enduring legacy as a great professional, a philanthropist and, above all, a great human being.

The memorial lecture was delivered by Mr. Y.H. Malegam, the well-known CA and a legend in the financial sector who has been honoured with the Padma Shri.

Three distinguished persons from Mumbai were also recognised for their humanitarian service. The DBM NV Memorial Award was given to the Adhyayan Sanstha, the BCAS Narayan Varma Memorial Award went to Mr. Vishwas Gore and the PCGT NV Memorial Award was bestowed on Mr. Shailesh Gandhi.

The programme was very well attended with all top CAs, auditors and people associated with the social sector in attendance. Kudos to all the four other partner organisations for coordinating their efforts to organise the memorable event.

TAXATION COMMITTEE

The Taxation Committee organised a full-day seminar on ‘Tax Audit’ at the BCAS Conference Hall on 23rd
August, 2019.

President Manish Sampat gave the opening remarks. Chairman of the Taxation Committee Ameet Patel gave a brief overview of the seminar and explained the importance of tax audit in the current scenario. He also informed the participants about the onerous responsibility cast on the tax auditor, given that the selection as well as the assessment is now going to be online.

The following topics were taken up by the learned speakers:

Programme	Speakers
Audit aspect of Tax Audit – overview of Tax Audit provisions, reporting requirements, audit quality, verification of documents, documentation in light of ICDS, obtaining and relying on management representation, reliance on test checks, etc.	CA Himanshu Kishnadwala
Issues arising with tax audit of companies following Ind AS reporting in clauses 13 to 17, clause 19 and clause 24	CA Manish Shah
Reporting in Form 3CD – Certain clauses (namely, clauses 20 to 23, clauses 25 to 27, clauses 30A to 30B and clauses 42 to 44)	CA Sonalee Godbole
Reporting in Form 3CD – Certain clauses (namely, clauses 28 to 29B, clause 31, clause 32, clause 34, clause 36 and clause 36A)	CA Jagdish Punjabi

Himanshu Kishnadwala set the ball rolling by highlighting various audit aspects that one should keep in mind while conducting a tax audit. He gave his practical insights pertaining to some of the clauses and stressed on the importance of documentation in tax audit.

Next came Manish Shah who described the impact of ICDS through case studies. He also took the audience through various case studies to explain the impact of Ind AS on various clauses in a tax audit report. Apart from the discussion on ICDS and Ind AS, he also dealt with clauses dealing with presumptive taxation.

Sonalee Godbole made a detailed presentation on clauses relating to secondary adjustment, thin capitalisation, GAAR and CBCR. She explained the concepts in a lucid manner with the help of examples and case studies. She also discussed the requirement of reporting the filing in Form 61A and Form 61B.

The last session was addressed by Jagdish Punjabi who covered a large number of clauses, including those related to TDS. He also discussed the impact of section 56(2) on hybrid instruments issued by the company and its reporting requirement in Form 3CD. Apart from this, he explained the applicability of sections 269SS and 269T to loans by book entry and their reporting requirement in Form 3CD.

All the sessions were interactive, with the speakers sharing their insights on their respective subjects. The participants benefited immensely with the guidance and practical views on various issues.

DIRECT TAX LAWS STUDY CIRCLE

The Direct Tax Laws Study Circle meeting on ‘Income Computation and Disclosure Standards (ICDS)’ was held on 6th September, 2019 at the BCAS Conference Hall. Group leader CA Darshak Shah gave a brief overview of the applicability of ICDS provisions and the corresponding sections in the Income-tax Act, 1961 (Act). He also explained the general approach to resolve conflicts between the provisions of the Act and ICDS.Thereafter, he discussed in detail the ten ICDS with various examples and relevant case laws. The group leader took questions from the participants with respect to the relevant examples. Besides, he touched upon the possibility of double taxation in case of ICDS – X relating to ‘Provisions, Contingent Assets and Contingent Liabilities’ in a certain scenario.The session concluded with a vote of thanks to the speaker, Darshak Shah.

FELICITATION OF FRESH, YOUNG CAS

Talk on ‘Career Planning & Interview Skills for Fresh CAs’ held on 13th September, 2019 at BCAS Conference Hall

Yet another programme organised by the Seminar, Public Relations and Membership Development (SPR&MD) Committee was the felicitation programme for the newly-qualified chartered accountants who had cleared the June, 2019 examination. In fact, within hours of the announcement, the online enrolments crossed the record figure of 300, forcing BCAS to close registrations for this crucial programme.

There was a full house of 160+ participants, including some walk-ins. They were greeted at the registration desk with a copy of the BCA Journal and a membership form.

The evening started with Coordinator CA Preeti Cherian welcoming the participants and giving an overview of the purpose of the event. She was followed by President CA Manish Sampat who took the opportunity to walk down memory lane and recall his early days as a qualified chartered accountant, the sound advice that he had received from his seniors to associate himself with the BCAS, to the present when he had taken over as its President. He described the various initiatives of the Society and particularly dwelt on the 5G Annual Plan.
Chairman CA Narayan Pasari candidly admitted that the Youth or Yuva Shakti was an integral part of the numerous activities organised by the BCAS. He also appealed to the new CAs to become members and play an active role in its various activities. While speaking about the Committee’s initiatives, he talked about the Referencer, the annual RRC and other programmes. He proudly shared that the BCAS was very active on social media and its handle @BCASGlobal had recently crossed the 30K mark.

The speaker for the evening was CA Himani Shah who spoke at length on the various jobs available in the finance industry for chartered accountants. She shared tips on interview skills, including first impressions, what to do before the interview, what to wear, how to prepare, guidelines to answer questions, asking the right questions, etc. She also elaborated on the power of visual communication, business etiquette and communication. That her talk was well received could be judged from the fact that many participants had numerous questions to ask of her in the interactive session that followed.
As part of the felicitation programme, each of the participants was presented a pen with BCAS and the word ‘Achiever’ inscribed on it. The event showcased the vibrancy of the participants, many of whom showed great interest in signing up to be members of the BCAS.
A unique feature of the evening was when one of the participants thanked the speaker for clearing the many doubts that she and her fellow participants harboured. The evening ended with a vote of thanks by Convener CA Mrinal Mehta.

BCAJ Admin

GOODS AND SERVICES TAX (GST)

I. HIGH COURT

1. [2019] (26)
GSTL 449 (Del.) Comnet Vision (India) Pvt. Ltd. vs. Commissioner of Trade and
Taxes Date of order: 28^thMarch,
2019

Rule 97A of
CGST Rules, 2017 allows manual filling of forms when the same could not be
filed electronically due to technical difficulties

FACTS

The petitioner was aggrieved by the technical difficulties faced while
filing and uploading the GST forms online. Vide Notification No. 48/2018 dated
10^th September, 2018 issued by the GST Council, the time limit to
submit the forms online was extended to 31^st March, 2019 because of
technical difficulties faced by the concerned entities / individuals.

HELD

It was held that the GST Council should enable the petitioner to file
the forms online or, where it is not possible within the time prescribed, i.e.,
31^st March, 2019, the Department should entertain the forms manually
as per Rule 97A of CGST Rules, 2017; the writ petition was thus disposed of.

2. [2019] (26) GSTL 334 (Mad.) Ayyan
Firewoks Factory (P) Ltd. vs. Asstt. Commr. (CT)-I (FAC), Sivakasi, Madras High
Court Date of order: 4^th September, 2018

Assessing officer
cannot reopen assessment based on opinion of audit party alone

FACTS

The petitioner had paid the tax without any
default. However, the respondent issued show cause notice dated 12^th
January, 2010 proposing to levy interest u/s 24(3) of TNGST Act for belated
payment on the basis of the report of the audit party.

The grievance of the petitioner was that the opinion of the audit party
cannot constitute information, thus the AO cannot reopen the assessment on the
basis of its report. The petitioner placed reliance on the decision of Punjab
and Haryana High Court in the case of Haryana Co-operative Sugar Mills
Ltd. vs. State of Haryana 107 STC 103, wherein it was
held that ‘the audit note as received by the assessing authority was not
“definite information” as per the meaning of section 31 of the Act.’

HELD

The AO has to independently record his view for reopening if he proposes
to do so. Thereafter, the notice has to be issued to the parties regarding such
reopening. Further, after considering their representations / objections, the
order has to be passed. It was regarded as a clear violation of the principles
of natural justice.

3. [2019] (26) GSTL 16 (All.) Selvel
Media Services Pvt. Ltd. vs. State of U.P. Date of order: 6^th May, 2019

Advertisement
tax cannot be imposed by the municipal authorities after 1^st July,
2017 since it was subsumed under the GST Law

FACTS

The petition was filed by an advertising company aggrieved by the demand
of advertisement tax imposed by the Nagar Nigam, Kanpur on displaying
advertisements through hoardings. Section 172(2)(h) empowering the municipal
corporation to levy advertisement tax had been deleted by virtue of section 173
of the U.P. Goods and Services Tax Act, 2017. The Constitutional provisions empowering
the State to levy advertisement tax also stood deleted by virtue of the
Constitution (101^st Amendment) Act, 2016 with effect from 12^th
September, 2016.

HELD

The High Court held that there was no power left with the State
legislature to legislate with regards to advertisement tax as the empowering
provisions stood deleted. In light of this, the demand to the extent after 1^st
July, 2017
was set aside and the refund of advertisement tax, if any, deposited after 1^st
July, 2017 was directed to be refunded.

4. [2019] (TIOL-1975-HC-AP-GST)
Pandurang Stone Crushers vs. Union of India Date of order: 14^thAugust, 2019

Petitioner
allowed to manually rectify the GSTR3B returns for the months of August and December,
2017 and January and February, 2018

FACTS

The petitioner sought permission to rectify GSTR3B statements for the
months of August and December, 2017 and January and February, 2018 manually
subject to the outcome of the writ petition, pending disposal of W.P. No.
8662/2019 on the file of the High Court.

HELD

The Court noted that the Gujarat High Court in the case of AAP
& Co. [2019] (TIOL-1422-HC-AHM-GST) has held the press release
dated 18^th October, 2018 as illegal to the extent that its para 3
purports to clarify that the last date for availing input tax credit relating
to the invoices issued during the period from July, 2017 to March, 2018 is the
last date for the filing of return in Form GSTR3B. Besides, the Kerala High
Court, [2018] (TIOL-2902-HC-Ker.-GST) had also permitted the
request of transfer of tax liability from the head ‘SGST’ to ‘IGST’
notwithstanding the contention of the Revenue. Prima facie, the Court
held that the case is made out and that as the issues raised in the writ
petition require detailed examination, this is a fit case to grant the interim
order.

As such, petitioner is permitted to rectify GSTR3B statements for the
months of August and December, 2017 and January and February, 2018 manually,
subject to the outcome of the writ petition. The Court also directed that if
the petitioner submits rectified statements for the above purpose, the
respondents shall process the same in accordance with the procedure established
by law.

II. AUTHORITY FOR ADVANCE
RULING (AAR)

5. [2019] (27) GSTL 272 (AAR – GST)
Chowgule Industries Pvt. Ltd., Goa Date of order: 26^th March, 2019

Input Tax
Credit on the motor vehicles purchased for demonstration can be availed as ITC on
capital goods and set off against output tax payable under GST

FACTS

The appellant was an authorised dealer for sale of motor vehicles and
spares. He purchased vehicles against tax invoice and reflected this in the
books of accounts as capital assets. Those vehicles were used as demonstration
cars for providing trial runs to customers as it was an essential part of
marketing and sales promotion. The vehicles were held for two years or 40,000
km, whichever was earlier, and then sold. The applicable GST was paid on the
selling price.

But as per section 17(5) of CGST Act, ITC can only be claimed on motor
vehicles if they were used for taxable supply and for transportation of
passengers or goods or imparting training in driving, flying, navigating such
vehicles or conveniences. The appellant argued that the taxable supply included
further supply of such vehicles and the GST Act did not prescribe the time
limit within which the further supply was to be effected. Hence, section 17(5)
was not applicable in their case. They also argued that since the vehicles were
used in the course of business or furtherance of business, ITC was available as
per section 16(1) of the CGST Act.

HELD

It was held that section 17(5) does not prescribe any time limit for
further supply and in the present case the goods were used for business
purposes as capital goods. Therefore, Input Tax Credit on the motor vehicles
purchased for demonstration purpose was allowed. The authority also prescribed
that the credit availed on such capital goods should be subject to reversal as
per section 18(6) at the time of sale.

BCAJ Admin

Service Tax

I. HIGH COURT

1. [2019]
(27) GSTL 182 (Cal.) Perfect Technologies vs. CESTAT, Kolkata Date of order: 23^rd
April, 2019

Mandatory
pre-deposit @ 7.5% of total tax amount demanded on pending appeals as per section
35F of Central Excise Act, 1944. Appellant directed to deposit 50% of 7.5% in
cash and balance 50% as bank guarantee

FACTS

The appellant was aggrieved that he had to pre-deposit 7.5% of the
amount at the time of filing the appeal. He had to do so as per section 35F of
the Central Excise Act, 1964. But he felt that the order of pre-depositing 7.5%
was too high and harsh.

HELD

The Hon’ble
High Court held that considering the circumstances, relief be given to the
appellant. He was asked to deposit only 50% of the pre-deposit amount in cash
and give a bank guarantee for the balance amount.

2. [2019] (26) GSTL 462 (Kar.)
Praxair India Pvt. Ltd. vs. Commr. of C.Ex. & ST, LTU, Bangalore Date of order: 15^th April, 2019

For sufficient
cause, condonation of delay was allowed on cost

FACTS

The appellant submitted that the Tribunal had dismissed the application
seeking condonation of delay. One of the reasons for delay in filing was
misplacement of the order due to shifting of office. However, the application
for condonation was dismissed and the Tribunal rejected the appeal on the
grounds of delay. The appellant
approached the High Court.

HELD

It was held
that the reason of delay being bona fide, the impugned order be set
aside. The appeal was restored on the payment of cost of Rs. 50,000 with the
Registry.

II. TRIBUNAL

3. [2019] (26) GSTL 116 (Tri. –
Ahmd.) Amar Engineering Co. vs. Commissioner of C.Ex. & ST, Vadodara-I Date of order: 14^th June, 2018

Refund of duty,
interest and penalty cannot be granted where voluntary payment was made by the
assessee during the course of the audit

FACTS

The appellant
had voluntarily made payment towards duty, interest and penalty during the
course of the audit and had requested not to issue show cause notice. The
appellant submitted an undertaking assuring that no refund shall be claimed.
However, the appellant claimed that the said amount was not liable to be paid
and, therefore, the refund claim was filed.

HELD

The Tribunal
observed that there was no dispute that voluntary payment was made by the
appellant on the objection raised by the audit party. Further, it was also
observed that an undertaking was filed by the appellant stating that no refund shall be claimed in the future. Thus, there
was no substance in the refund issue raised by the appellant; therefore, the
Tribunal dismissed the appeal.

4. [2019] (26)
GSTL 104 (Tri. – Del.) Theme Exports Pvt. Ltd. vs. Commissioner of Service Tax,
Delhi Date of order: 9^thApril,
2018

The amount
charged by the foreign bank while remitting export proceeds from the assessee’s
bank cannot be leviable (subjected) to reverse charge in the hands of the
exporter

FACTS

The appellant
was engaged in export of garments. The appellant realised sale proceeds through
approved banking channels. Certain amount was deducted from the sales proceeds
remitted to the appellant’s bank in India either by the foreign bank or the
intermediary bank involved in the transaction.

HELD

The Tribunal, relying on the decision of M/s Dileep Industries
Pvt. Ltd. vs. CCE, Jaipur 2017 (10) TMI 1231-CESTAT, New Delhi wherein,
relying on the case of Greenply Industries Ltd. vs. CCE, Jaipur it
was held that as the amount deducted by the foreign bank while remitting it to
the Indian banks is in turn charged by the Indian bank from the exporter,
therefore, the appellant was not required to pay tax under reverse charge.
Thus, the appeal was allowed in favour of the appellant.

5. [2019]
TIOL-2496-CESTAT-Hyd.] Asmitha Microfin Ltd. vs. Commissioner of Customs, Central Excise and Service Tax Date of order: 17^th June, 2019

Service tax under RCM set aside on the ground of
revenue neutrality and limitation

FACTS

The assessee is
a public limited company registered as a Non-Banking Finance Company u/s 45 IA
of the Reserve Bank of India Act, 1934. They entered into a guarantee fee
agreement with a foreign company. As per the agreement, the foreign company
agreed to provide a guarantee to Standard Chartered Bank, London in relation to
the amount borrowed by the assessee from Standard Chartered Bank, Hyderabad.

Pursuant to an
audit, a SCN was issued covering the period April, 2009 to March, 2012
demanding service tax along with interest on the guarantee fees paid to the
foreign company covered by the definition of Banking and Other Financial
Services under reverse charge mechanism.

HELD

The Tribunal noted that the entire demand is under reverse charge
mechanism and if the appellant had paid the service tax under reverse charge
mechanism, they would have been entitled to CENVAT credit of exactly the same
amount. Therefore, the revenue neutrality in this case is evident. Thus, it was
held that the present demand is hit by limitation and deserves to be set aside
forthwith.

BCAJ Admin

MISCELLANEA

I. Economy

1.
Sweeping and slashing to trap
investments

Finance Minister
Nirmala Sitharaman’s sweeping reforms slashing corporate tax rates to bring
them at par with most South Asian and Southeast Asian nations are expected to
trap investments headed even to low-tax destinations like Bangladesh and
Vietnam.

While markets
saluted the Minister’s sweeping reforms of the corporate tax rates on Friday,
the best is yet to come, according to experts. The tax rates have become
competitive when compared to most other South Asian and even Southeast Asian
investment destinations.

A competitive
environment should help India trap some of the capital fleeing China fearing a
worsening of the US-China trade war and imposition of stiffer sanctions on
Beijing. The tariff war touched off by US President Donald Trump has only
worsened with Chinese President Xi Jinping in no mood to relent. India is
eyeing a major share of the capital moving out of China to boost Prime Minister
Narendra Modi’s ‘Make in India’ initiative, say reports.

India’s effective
rate of 25.17% compares well against China’s 25%. The new rates will make India
a good bargain when compared to Pakistan’s 31%, Sri Lanka’s 28% and even
Bangladesh’s 25%. Among the Southeast Asian economies, India can easily steal a
march over the Philippines which has a 30% rate and Indonesia and South Korea
who maintain a 25% rate and Malaysia with 24%. Thailand and Vietnam offer 20%,
but India could score in terms of technically skilled labour and better
infrastructure. Only Taiwan and Singapore with 17% still have a clear advantage
over India.

The Finance
Ministry, in consultation with the Ministry of Commerce, has been evolving a
strategy to compete with South Asian neighbours like Bangladesh which have
attracted investors because of the cheaper labour and more conducive land
acquisition laws. Indian officials think the country’s reforms will enhance its
ease of doing business rating and make it capable of taking on even Southeast
Asian competitors. Vietnam, which is drawing a lot of investment fleeing
Mainland China, has been on the Indian crosshairs for some time.

Government slashed
the corporate tax rate to 22% from 30% for domestic companies – and proposed a
competitive 15% rate for new investment in manufacturing. The cumulative fiscal
boost emanating from the tax law changes would amount to Rs. 1.45 lakh crores, which
sends a strong signal of the government resolve to revive economic growth, a
report on the The Economic Times website said. To be eligible for the
new concessional tax rates, companies need to forego the existing incentives
and exemptions in force. Even those opting for the status quo, the
minimum alternate tax (MAT) shrinks to 15% from 18.5%. Companies will have the
option of the lower tax rate after the expiry of the tax holidays and
concessions that they enjoy now. Once they choose the new tax rate, they can’t
revert to the concessional regime.

Prime Minister
Modi, bound for the US to address the historic ‘Howdy Modi!’ event along with
President Trump, termed the step to cut corporate tax rate ‘historic’, saying
it ‘will give a great stimulus to “Make in India”, attract private investment
from across the globe and help create more jobs.’

(Source:
International Business Times – By Prathapan Bhaskaran, 21^st
September, 2019)

2.
Recruitment may counter the
slowdown gloom

India’s
second-largest employer, Coal India Limited (CIL), is offering 9,000 openings;
4,000 people will be recruited to fill up executive posts and the rest will be
technical and non-technical staff.

The massive
recruitment drive to fill up about 9,000 openings in the parent company and
subsidiaries amid the gloom of a general economic slowdown and talk of stiff
divestment targets is cheering up the country’s job market, reports say. Of the
vacancies announced, 4,000 will be of executives in the parent company while
the technical hands will be taken in by the company’s eight subsidiaries, said
a report in the Economic Times. CIL sources say this would be the
biggest recruitment drive of the group in a decade.

CIL and its subsidiaries employ about 2,80,000 people, second only to
the Indian Railways, including nearly 18,000 at the executive level. CIL is one
of the public sector undertakings (PSU) that Finance Minister Nirmala
Sitharaman has identified for raising Rs. 3.25 lakh crores through divestment
in the next five years of Prime Minister Narendra Modi’s second stint in
office. The target for the 2019-20 financial year is an estimated Rs. 1.05 lakh
crores.

‘Coal India is
recruiting so many executives in a single year in almost a decade in an effort
to fill up all the vacancies that have been pending for several years. Last
year, we recruited only about 1,200 people,’ the report quotes an unidentified
senior Coal India executive as saying.

‘Of the 4,000
executives Coal India plans to recruit, 900 would be through advertisements and
interviews in the junior category, another 400 would be recruited from campuses
and some 100 would be miscellaneous, such as medical officers, etc. We have
already recruited 400 executives most of whom are doctors. Another 75 have been
recruited and would be joining soon. The company will recruit around 2,200
additional executives through competitive examinations.’

The company’s coal-producing subsidiaries will recruit 5,000 workers and
technical hands, including about 2,300 who will be recruited as part of a
policy of offering jobs to families whose land was acquired for various
projects. Another 2,350 people will be hired on compassionate grounds as part
of the company’s policy of offering a job to one family member of a deceased
employee. About 400 openings will be of a non-technical nature, the report
said.

Set up in 1975, CIL
has been seeing mass retirement of a large number of employees at
superannuation in recent years. The number of employees who have left this way
in the last three years is pegged at more than 12,300. The posts have remained
unfilled because of a general recruitment ban in the government. While not all
posts will be filled up, the group companies need large-scale recruitment over
the next few years to ensure adequate workforce strength, the reports say.

(Source:
International Business Times – By Prathapan Bhaskaran, 18^thSeptember,
2019)

II.
Finance

3.
Credit fairs aka ‘loan melas’

Credit fairs by
public sector banks will bring early festival cheer to consumers as the
corporate tax bonanza will put on steroids PM Modi’s FDI push after ‘Howdy
Modi!’

Finance Minister
Nirmala Sitharaman’s big-ticket reforms are focused on a demand boost for the
revival of the domestic economy. For this, the Ministry has set rolling a
series of steps, apart from the headline reform of corporate tax rates that put
the stock market on steroids. The corporate tax reduction that will entail a
revenue loss of Rs. 1.45 lakh crores to the government is expected to help
Prime Minister Narendra Modi make a big splash at the ‘Howdy Modi!’ event after
which he would be meeting top executives of 16 big US corporate houses in his
foreign direct investments (FDI) campaign.

The major takeaways
from the series of announcements Sitharaman made were:

(i) Credit fairs (loan melas): The public
sector banks (PSBs) will organise fairs for potential borrowers in 400
districts, boosting liquidity and driving demand in the retail sector across
the country. The rural economy survives on retail demand and the increased
liquidity will help drive demand and spending, thus helping the rural revival,
experts believe;

(ii) NBFC role: Sitharaman’s directive to the PSBs
to ensure the participation of NBFCs in the credit fairs will help improve the
liquidity status of the NBFCs. This is particularly important because the
ailing NBFCs have been shown to be behind the economy’s illiquidity, according
to reports;

(iii) Relief for
MSMEs: The injunction on lenders to desist from declaring loans to micro,
medium and small enterprises (MSMEs) as non-performing assets (NPAs) during
this financial year ending on 31^st March, 2020, will help reduce
morbidity in a vital segment of the economy, according to experts. With over 60
million units, the MSME segment is second only to the agriculture sector in
employment generation;

(iv) MSMEs loan restructuring: Banks have been
directed to use the special dispensation that the RBI circular, ‘MSME sector –
Restructuring of Advances’, dated 1^st January, 2019, has made
available. ‘We have also requested that at the branch level banks should make
efforts to sit with such stressed asset accounts of MSMEs to get them out of
the situation,’ Sitharaman said. MSMEs that are unable to repay loans within 90
days of the due date will not be stamped with the NPA tag. The facility will be
available to MSMEs whose aggregate exposure, including non-fund-based
facilities, of banks and NBFCs to the borrower does not exceed Rs. 25 crores as
on 1^stJanuary, 2019;

(v) Spreading liquidity: The Reserve Bank of
India (RBI) has said that there is enough liquidity in the economy after its
fifth successive repo rate cuts. Sitharaman says the credit fairs will ensure
that the liquidity reaches the lowest layer of the economy, driving up
consumption;

(vi) All types of
loans: The credit fairs will be organised as public meetings to be monitored by
Minister of State for Finance Anurag Thakur to ensure that the needy get the
loans;

(vii) The reform
announcements ahead of Prime Minister Modi’s meetings in the US will serve to
send a loud message to industrialists across the world to consider India as a
friendly investment destination, especially when the US-China trade wars are
threatening FDI flow to China.

(Source:
International Business Times – By Prathapan Bhaskaran, 20^th September,
2019)

4.
Just a face to defy the law?

PwC India has been fined more than Rs. 230 crores (£ 26.37 m) by the
Indian Enforcement Department for breaches of the Foreign Exchange Management
Act (FEMA).

The ‘Big Four’ firm
had been accused of receiving large foreign investments from Netherlands-based
PricewaterhouseCoopers Services BV, which allegedly had been disguised as
‘grants’ to avoid FEMA. The legislation requires foreign investments in
financial services to be approved by the Reserve Bank of India.

The Directorate of
Enforcement was brought in by the Indian Supreme Court to investigate PwC’s
affairs following a public interest petition brought by the Centre for Public
Interest Litigation (CPIL), a non-governmental organisation, in 2013.

At the time, CPIL
called for a ruling on whether the ‘Big Four’ in general were operating in
India ‘in violation of law in force in a clandestine manner’, whether effective
steps were being taken to enforce the law and, if this was not happening, what
orders were required to ensure proper enforcement. The Indian government later
backed up the original public interest litigation with a second,
similarly-worded petition.

PwC was used as an example to illustrate in the petitions how global
firms were exploiting the law to build up their presence in India and gain
access to lucrative audit markets.

In February last
year, the Supreme Court ruled that PwC Services BV Netherlands had enabled its
Indian partners to acquire Dalal & Shah, a chartered accountancy firm based
in Mumbai and Kolkata, through a series of interest-free loans to them. This
‘circuitous route’, the judge said, was in violation of the law.

The Dutch firm had also shared profits in the form of licence fees and
network charges and made further investments through grants for enhancement of
skills, he said.

The judge concluded
that while the court could not involve itself with policy-making, it was
entitled to look at the policy framework to find out whether safeguards for
enforcement of fundamental rights had been maintained. ‘In the present context,
having regard to the statutory framework… it may prima facie appear that
there is violation of statutory provisions and policy framework, effective
enforcement of which has to be ensured’.

‘Statutory
regulatory provisions intended to advance the object of law have to be enforced
meaningfully,’ he continued. ‘No vested interest can flout the same by
manifesting compliance only in form. Compliance has to be in substance. The
law-enforcing agencies are expected to see the real situation.’

He said that the
large multinational firms’ compliance was in form, not in substance. ‘Having
got registered partnership firms with the Indian partners, the real
beneficiaries of transacting the business of chartered accountancy remain the
companies of the foreign entities. The partnership firms are merely a face to
defy the law.’

According to
reports, the Enforcement Department found that PwC had received the equivalent
of Rs. 229 crores in US dollars. The agency said that they were received as
grants and used ‘for various business purposes, including acquisition of other
Indian companies and paying non-compete fee’.

(Source:economia.icaew.com/news/september-2019/pwc-india-breached-indian-foreign-exchange-rules)

BCAJ Admin

LETTER TO THE EDITOR

Dear Sir,

Thanks for continuing to bring interesting,
timely, topical and thought-provoking articles month on month.

I write this email regarding the article Banning
the Auditors published in the August, 2019 issue of BCAJ. The
article covered the topical issue exhaustively and I thank the author for
sharing his valuable views and the intricate legal aspects involved.

In Para 1, page 16, he writes,

‘Post-IFRS and Ind AS implementation and
the use of fair values, the “cushion” that was available in
historical cost regime no longer exists. Regulators and other stakeholders need
to accept the fact that these errors in estimates are inherent to the adoption
of fair value accounting.’

While I completely agree that there is more
estimation uncertainty involved under Ind AS, is it a valid expectation to expect regulators/stakeholders to accept
errors in estimates inherent in fair value? If possible, it would be
interesting to understand further the author’s point of view from the legal
defence point, too.

Regards,

Vinayak Pai V.

BCAJ Admin

GLIMPSES OF SUPREME COURT RULINGS

This
feature was launched in April, 2002, to summarise the direct taxes judgments of
the highest court of the country. Although Closements carried analysis of
Supreme Court decisions, this column was started as the number of decisions on
tax matters from the Supreme Court kept increasing. Kishor Karia and Atul
Jasani, the first contributors, continue to digest important cases. The feature
covers judgments other than those covered under Closements.

16.
Ravi Agrawal vs. Union of India (UOI) and Anr. (2019) 410 ITR 399 (SC)

Special Deduction u/s. 80DD in respect of
maintenance including medical treatment of a dependant who is a person with
disability – Supreme Court urged to Union of India to have a relook into this
provision considering the hardships faced by the parent/guardian of the
disabled

A Public Interest Litigation was filed by
the Petitioner in the interest of handicapped children whose parents have taken
Jeevan Aadhar Policy from the Life Insurance Corporation of India (for short,
LIC) for the livelihood of their children.

The Petitioner pointed out that even when
the entire subscription is paid under this policy meant for handicapped
persons, this policy does not have maturity claim. The amount is payable to the
dependant only on the demise of the proposer/life assured. This was in
confirmity with the requirement of section 80DD

It was the submission of the Petitioner that
by incorporating such a provision, the Respondents are denying the benefit of
the insurance to the handicapped persons to get annuity or lump sum amount
during the lifetime of the parent/guardian of such a handicapped person,
whereas the beneficiaries of other life insurance policy are getting annuity
during the lifetime of the person who has taken insurance policy. This,
according to the Petitioner, violates the fundamental right of equality of the
handicapped person enshrined in Article 14 of the Constitution.

According to the Supreme Court, in essence,
the grievance of the Petitioner was that benefit of Jeevan Aadhar policy should
not be deferred till the death of the Assessee/life assured and it should be
allowed to be utilised for the benefit of the disabled person even during the
lifetime of the Assessee.

It was the submission of the Respondent No.
1/Union of India that the aforesaid provision was specifically provided for in
the Act keeping in view the fact that the guardians of children with disability
were always faced with the grim reality about the need for maintenance of the
disabled after the death of the primary care giver, i.e. the parent or the
guardian. Many of them would like to deposit some amount during their lifetime
in some special instrument which would ensure payment of a reasonable sum
regularly to the disabled on their death. Thus, a separate deduction from Gross
Total Income of a specified amount deposited in a year in any scheme of LIC or
any other insurer specifically framed for providing recurring or lump sum
payment for the maintenance and upkeep of a handicapped dependant after the
death of the Assessee and approved by the CBDT in this behalf was incorporated
in the statute. As the scheme was designed to, to a great extent, to assuage
the anxiety in the minds of parents/guardians of handicapped dependants about
the destiny of their wards on their death and, therefore, to allow for annuity
payments to the handicapped dependant under Jeevan Aadhar policy to commence
after a certain age of the subscriber was not possible.

Meeting the argument of the Petitioner based
on Article 14 of the Constitution of India, it is argued that the deduction
u/s. 80DD of the Act had been specifically provided for persons with
disability. This was a valid classification for providing specific regime for
this class of persons.

The Supreme Court observed that section 80DD
of the Act was a provision made by the Parliament under the Act in order to
give incentive to the persons whose dependants were persons with disability.
Incentive was to give such persons concessions in income tax by allowing
deductions of the amount specified in section 80DD of the Act in case such
parents/guardians of dependants with disability take insurance policies of the
nature specified in this provision. Purpose was to encourage these
parents/guardians to make regular payments for the benefit of dependants with
disability. In that sense, the Legislature, in its wisdom thought it
appropriate to allow deductions in respect of such contribution made by the
parent/guardian in the form of premium paid in respect of such insurance
policies. This deduction was admissible only when conditions stipulated therein
are satisfied. Insofar as insurance policy was concerned, it incorporated a condition
(which was impugned in the present writ petition) to the effect that the amount
shall not be given to the handicapped persons during the lifetime of the
parent/guardian/life assured. This was in conformity with section 80DD(2)(b) of
the Act.

According to the Supreme Court, to some
extent, the grievance of the Petitioner was justified in this behalf in the
plea that when there was a need to get these funds for the benefit of
handicapped persons, that would not be given to such a person only because of
the reason that the assured who was a parent/guardian was still alive. This
would happen even when the entire premium towards the said policy has been paid
as the policy did not have maturity claim. Thus, after making the entire
premium for number of years, i.e. during the duration of the policy, the amount
would still remain with the LIC.

However, the Supreme Court noted that the
purpose behind such a policy was altogether different. As noted from the
provisions of section 80DD as well as from the explanatory memorandum of the
Finance Bill, 1998, by which this provision was added, the purpose was to
secure the future of the persons suffering from disability, namely, after the
death of the parent/guardian. The presumption was that during his/her lifetime,
the parent/guardian would take care of his/her handicapped child.

Further, the Supreme Court observed that
such a benefit of deduction from income for the purposes of tax was admissible
subject to the conditions mentioned in section 80DD of the Act. The Legislature
had provided the condition that amount/annuity under the policy was to be
released only after the death of the person assured. This was the legislative
mandate. There was no challenge to this provision. The prayer was that section
80DD of the Act be suitably amended.

According to the Supreme Court, it could not
give a direction to the Parliament to amend or make a statutory provision in a
specified manner. The Court can only determine, in exercise of its power of
judicial review, as to whether such a provision passes the muster of the
Constitutional Scheme. Though, there was no specific prayer in this behalf, but
in the body of writ petition, argument of discrimination was raised. However,
according to the Supreme Court, the Respondents were able to successfully
demonstrate that the main provision was based on reasonable classification,
which had a valid rational behind it and there was a specific objective sought
to be achieved thereby.

The Supreme Court noted that the Petitioner
may be justified in pointing out that there could be harsh cases where
handicapped persons may need the payment on annuity or lump sum basis even
during the lifetime of their parents/guardians. For example, where guardian has
become very old but is still alive, though he may not able to earn any longer
or he may be a person who was in service and has retired from the said service
and is not having any source of income. In such cases, it may be difficult for
such a parent/guardian to take care of the medical needs of his/her disabled
child. Even when he/she has paid full premium, the handicapped person is not
able to receive any annuity only because the parent/guardian of such
handicapped person is still alive. There may be many other such situations.

However, it is for the Legislature to take
care of these aspects and to provide suitable provision by making necessary
amendments in section 80DD of the Act. In fact, the Chief Commissioner for
Persons with Disabilities has also felt that like other policy holders, Jeevan
Aadhar policy should also be allowed to mature after 55 years of age of the
proposer and the annuity amount should be disbursed through the LLCs or
National Trust.

In the aforesaid circumstances, the Supreme
Court disposed of this writ petition by urging upon Respondent No. 1 to have a
relook into this provision by taking into consideration all the aspects,
including those highlighted by it in the judgment, and explore the possibility
of making suitable amendments.

17. Commissioner of Income-tax (Exemptions) vs.
Progressive Education Society (2019) 410 ITR 370 (SC)

Appeal to the High Court – Condonation of delay – Delay of 362 days –
Delay owing to difference of opinion between two officers – Appeal filed after
taking legal oinion – Delay condoned subject to payment of costs

The Supreme Court found that the High Court
had dismissed the appeal preferred by the Appellant on the ground of delay. The
delay was of 362 days. As per the High Court, the delay was not satisfactorily
explained. The Supreme Court noted that the main cause of the delay was
difference of opinion between the two Officers and ultimately legal opinion was
taken and it was decided to file the appeal.

According to the Supreme Court, having
regard to the importance of the matter, the High Court should hear the appeal
on merits. The Supreme Court set aside the impugned order condoning the delay
in filing the appeal in the High Court subject to payment of costs of rupees
one lakh to be paid the respondent within a period of four weeks.

The Supreme Court remitted the matter to the
High Court with a direction that it shall decide the appeal on merits.

18. CIT (LTU) vs. Reliance Industries Ltd (2019) 410 ITR 466 (SC)

Business expenditure – Interest on borrowed
capital – The finding that the interest free funds available to the assessee
were sufficient to meet its investment was a finding of fact

The Supreme Court noted that the appeals
before it arose from the judgment of the Bombay High Court dated 22 and 23
August, 2017 for Assessment Years 2003-04, 2004-05, 2005-06 and 2006-07. The
High Court had passed a common order for all the Assessment Years. The appeals
by the Revenue raised the following questions:

1. Whether the High
Court is correct in holding that interest amount being interest referable to
funds given to subsidiaries is allowable as deduction u/s. 36(1)(iii) of the
Income Tax Act, 1961 (for short the Act’) when the interest would not have been
payable to banks, if funds were not provided to subsidiaries;

2. Whether on the
facts and in the circumstances of the case and in law, the High Court is
correct in upholding the Tribunal’s view that prior to insertion of
Explanation-5 to section 32 of the Act, the claim of depreciation was optional
and could not be thrust on the assessee, if it had not claimed it;

3. Whether on the
facts and in the circumstances of the case and in law, the High Court is
correct in upholding the Tribunal’s view that pre-operative expenses incurred
in connection with creation of plant & machinery in units which have not
commenced production, are revenue in nature;

4. Whether on the
facts and in the circumstances of the case and in law, the High Court is
correct in upholding the Tribunal’s view that expenditure on estimated basis
cannot be reduced from dividends for deduction u/s. 80M of the Act; and

5. Whether on the
facts and in the circumstances of the case and in law, the High Court is
correct in upholding the Tribunal’s view in sustaining the deletion of the
Transfer Pricing adjustment made to consultancy charges, especially when the
TPO had adopted the same mark up in relation to its European associate, what
the assessee itself had adopted in relation to its USA associate.

The Supreme Court held that insofar as the
first question was concerned, the issue raised was a pure question of fact. The
High Court had noted the finding of the Tribunal that the interest free funds
available to the assessee were sufficient to meet its investment. Hence, it
could be presumed that the investments were made from the interest free funds
available with the assessee. The Tribunal has also followed its own order for
Assessment Year 2002-03. In view of the above findings, the Supreme Court found
no reason to interfere with the judgment of the High Court in regard to the
first question. Accordingly, the appeals were dismissed in regard to the first
question.

The Supreme Court held that insofar as the
second question was concerned, the issue, was governed by the decision of this
Court in Plastiblends India Limited vs. Additional Commissioner of Income
Tax, Mumbai and Another (2017) 398 ITR 568 (SC). The High Court did not
have the benefit of this decision. Hence, it was appropriate that the issue be
remanded for fresh decision by the High Court bearing in mind the law laid down
in the above case. The Supreme Court kept open all the rights and contentions
of the Revenue and the assessee in regard to the applicability of the provision
for the relevant Assessment Years.

As regards, the third question pertaining to
pre- operative expenses; the fourth question pertaining to the deduction u/s.
80M of the Act; and the fifth question pertaining to transfer pricing, the
Supreme Court found that the High Court has failed to independently evaluate
the merits of the departmental appeals. Hence, the Supreme Court was of the opinion that it would be appropriate that the aforesaid
questions were considered afresh by the
High Court.

In order to facilitate a fresh exercise
being conducted in relation to the aforesaid four questions (Question Nos.2, 3,
4 and 5), the Supreme Court allowed the appeals and set aside the impugned
judgment of the High Court. The appeals were restored to the file of the High
Court for that purpose.

These appeals were accordingly disposed of.

BCAJ Admin

FROM THE PRESIDENT

Dear Members,

I am extremely honoured to be elected as the
President of our Society and to lead an organisation that has contributed so
much to my own career and personal growth. I became a member of our Society
about two decades ago and along the way I have been mentored by stalwarts and
have also formed several close friendships. I would like to thank all of you,
in particular the Past Presidents of our Society, for bestowing this honour on
me, showing confidence in my capabilities and considering me worthy of this
position. I am looking forward to an eventful and exciting year ahead along
with all of you.

Today, our Society is considered as a
leading voluntary organisation of Chartered Accountants in India and enjoys a
very high level of credibility amongst its members and in the profession. It is
known for its value systems, ethics and innovativeness. The quality of its
programmes and publications set a bench-mark for others, and its journal is
probably the best in the profession. However, we are today living in a
disruptive and challenging age. The environment around us is changing
constantly and the needs, preferences and profiles of our members are also
changing at a rapid pace. New and emerging areas of practice are gaining in
importance, technology is also changing the way we approach our work. In such a
situation, if our Society has to maintain its prime position then it needs to
constantly innovate and adapt to cater to the changing needs and aspirations of
its members. I realise the importance of this fact and will always strive to
not only fulfil your expectations but also anticipate them. The Annual Plan for
the year 2019-20, including the thrust areas, is reproduced elsewhere in this
Journal.

Over the past seven decades of existence,
our Society has been liaising and collaborating with the various regulators and
government departments by sending representations for rationalisation and
improvement in laws, administration and governance. Recently, on 16^th
July, 2019 we submitted a written representation to the Hon’ble Finance
Minister relating to the hardships caused to the tax payers while filing
returns of income for A.Y. 2019-20 due to delay and constant tinkering of the
ITR forms and other such matters. This representation received a lot of
attention in the social, digital and print media. I hope this initiative will
have a positive impact and corrective action will be taken to provide relief to
the taxpayer as well as the tax practitioner.

The English cricket team might have won the
Trophy at the recently concluded World Cup, but the New Zealand (losing
finalist) team touched so many hearts of fans around the world and won their
love and respect. That Final will remain one of the most exciting,
controversial and perhaps most-talked-about matches for a long time to come.
The New Zealanders were so gracious in their defeat and, despite being at the
wrong end of a bizarre rule, they accepted the final verdict without any
complaint or fuss. They really proved that ‘Cricket is indeed a gentleman’s
game’. The final also gave us many important lessons of life: You will
always have a second chance in life; never give up till the last ball is
bowled; luck and labour go together; and finally, always be graceful in your
defeat.

The month of August will witness the
declaration of the results for the CA Final examinations held in June, 2019.
This was the first examination wherein the question paper pattern of the
theoretical papers had 30% objective questions. This was done by the ICAI to
strengthen conceptual clarity among the students. These results will decide the
fate of thousands of students taking the exams and I wish them all the very
best to be successful and to pass with flying colours. They will be the future
torch-bearers of our profession.

United States President Ronald Reagan had
once said: ‘The greatest leader is not necessarily the one who does the greatest
things. He is the one that gets the people to do the greatest things’.
Similarly, our Society is a collective organisation of volunteers and only one
person gets a chance to lead it for one year, so I cannot do anything alone and
it will only be a team effort throughout the year. I look forward to your love,
support and encouragement throughout the coming year. Please feel free to
connect with me on any matter.

Wish you all a very Happy Independence Day,
a day on which we celebrate the indomitable spirit of those brave hearts who
gave us this gift of freedom.

With Best Regards,

CA Manish
Sampat

President

BCAJ Admin

MISCELLANEA

I. Technology

5. Opposition
to data localisation may come down after international tax law

Opposition
to India’s data localisation move from overseas companies may go down once a
globally accepted framework of taxing big technology and digital companies
comes into existence, a senior IT Ministry official has said.

Mr. S.
Gopalakrishnan, Joint Secretary in the Ministry of Electronics and IT, said
that he was referring to a recent proposal by the Organisation for Economic
Co-operation and Development (OECD) to expand government rights to tax
multinationals, especially big internet firms, by releasing a methodology for
such taxation.

He said
that according to the draft personal data protection (PDP) bill, the law would
only set up the framework regarding necessarily localising ‘critical data’ only
in India without a copy of it being elsewhere.

But ‘there
will be a lag between the coming of the law and the implementation since the
regulator would then work out the nitty-gritty of what comprises critical data
and thus needs to be stored only in the country,’ he said, adding that the
entire process would take all the stakeholders into consideration.

The
officer further clarified that even then, the law would allow the Indian
government in the meanwhile to strike bilateral data treaties with other
countries wherein companies from the partner countries could even store the
critical data overseas.

Mr.
Gopalakrishnan was chairing a session on ‘Data Localisation and Global India’.
His comments came during a panel discussion on how some big technology giants
were opposed to the Indian government’s proposed data localisation rules as
outlined in the draft PDP bill which, he said, could soon be tabled in the
Parliament.

Speaking
on the opposition from big technology firms on proposed Indian laws around
privacy and security, he added ‘the global tech companies have so far operated
in a regime without specific privacy laws in the U.S. but are now facing a
situation where there are six states that have come out with privacy laws and a
Federal privacy law is expected. Under such circumstances, legislation of a
privacy law in India should not come as a surprise or a shock to them’.

(Source:
economictimes.indiatimes.com)

6. Now,
ask Alexa to pay utility bills as Amazon adds voice-based feature

In yet
another step towards making online buying and other services completely
voice-based and hinged on its virtual assistant Alexa, Amazon announced that
users in India can now pay their utility bills with Amazon Pay just by voice
commands.

This new
Alexa feature supports payment of bills across categories such as electricity,
water, post-paid mobile, cooking gas, broadband and DTH among others. ‘Users of
Amazon Echo, Fire TV Stick and other devices with Alexa built-in can just say
commands such as “Alexa, pay my mobile bill” or “Alexa, pay my electricity
bill” to get started,’ the company said.

‘This new
integration of Amazon Pay with Alexa will help reduce both time and effort for
customers who use Amazon Pay for bill payments and repeat similar transactions
every month. We are also excited to share that this is an India-first feature
which Alexa customers in India can enjoy before any other international
customers,’ Puneesh Kumar, Country Manager for Alexa Experiences and Devices,
Amazon India, said.

The
company last month announced that Alexa can now speak in Hindi. Going forward,
it is planning to launch its voice assistant in a host of other Indian
languages. Taking the competition to Google Assistant, Amazon is ramping up the
usage of Alexa in India by tying up with speaker manufacturers and mobile phone
companies to make Alexa the primary voice assistant on devices. At the moment
Alexa knows 500 skills in Hindi. In English, Alexa can perform over 30,000
tasks.

(Source:
www.business-standard.com)

II. world news

7. Ex-PCAOB
leader gets prison time for role in KPMG scandal

Former
Public Company Accounting Oversight Board Inspections Leader Jeffrey Wada has
been sentenced to nine months in prison for his role central to the
long-running KPMG inspections scandal.

Wada was
convicted of one count of conspiracy to commit wire fraud and two counts of
wire fraud in March, 2019 for providing KPMG employees with confidential
information on certain of the PCAOB’s 2016 inspection selections in an effort
to cheat the system. In addition to his jail time, he received a three-year
sentence of supervised release.

‘Jeffrey
Wada violated not just the terms of his employment with the PCAOB but also the
law when he provided confidential information about upcoming audit reviews to
co-conspirators at KPMG,’ said U.S. Attorney Geoffrey Berman in a statement.
‘Wada hoped to secure a job at KPMG. What he got was a nine-month prison
sentence.’

Wada is
the third figure in the KPMG scandal to receive jail time for his actions. In
September, David Middendorf, former national managing partner for audit quality
and professional practice at KPMG and the individual found by Berman to be ‘at
the top of a chain of corruption,’ was sentenced to one year and one day in
Federal prison and three years of supervised release. Cynthia Holder, another
ex-KPMG and PCAOB employee to whom Wada provided the confidential information,
was sentenced to eight months in Federal prison and two years of supervised
release in August.

Wada
joined the scheme in the fall of 2015 when he first provided confidential
information to Holder and repeated the crime in January, 2017 after being
passed over for a promotion at the PCAOB. Referring to the confidential
information as the ‘grocery list’ in a voicemail, he again went to Holder in
2017, but this time provided his resume and asked for assistance in gaining
employment at KPMG.

Prior to
the scheme, KPMG fared poorly in PCAOB inspections and in 2014 received
approximately twice as many comments as its competitor firms. The cheating
scandal is documented as having taken place from 2015 to 2017.

In June,
the SEC settled charges related to the scandal with KPMG for $50 million, in addition
to revealing allegations of cheating on internal exams that were also covered
in the settlement.

(Source:
www.complianceweek.com)

8. Can
a new apple take over the world?

When you hear that a new variety of apple is being launched with a
multi-million-dollar marketing campaign, you might wonder if you weren’t
listening properly and that the product is actually an Apple iPhone.

But now, starting to hit grocery shelves in the U.S. and then overseas
early in 2020, is a new American-born apple that its backers are convinced will
become the new global bestseller – the ‘Cosmic Crisp’.

‘The stars are aligning for this apple,’ says Kathryn Grandy, Marketing
Director of U.S. fruit firm Proprietary Variety Management (PVM), the company
handling the $10m (£7.9m) launch of the new variety.

A cross-breed between two existing varieties (the Honeycrisp and the
Enterprise), advocates of the Crisp describe it as some sort of apple holy
grail. It is said to be sweet, crisp and juicy. But as importantly, it is said
to have a previously unheralded shelf life, staying fresh for up to a year if
kept chilled.

You might think that this all sounds like hyperbole, but hundreds of
apple growers in the Crisp’s home state have bet $40m that it is going to be a
hit.

The story of the Crisp began back in 1987 when its breeding programme
started at Washington State University. The idea was to develop a new variety
of apple to help Washington’s then beleaguered apple farmers.

First made available for commercial planting in 2017, Washington’s apple
farmers had long heard of just how good the new variety was supposed to be. So
much so that demand for the Crisp was so high that farmers had to enter a
lottery to be able to get their hands on the first seedlings. Their names were
randomly drawn by a computer programme. Sales of Crisp seedlings subsequently
boomed. Today, more than 12 million Crisp trees are growing across Washington,
with orchards covering some 12,000 acres.

With the first apples now on the shelves, it is estimated that this
giant planting scheme – said to be the biggest and fastest in world apple
history – has cost the growers a combined $30m.

In return for this confidence, the Washington farmers have been given the
exclusive rights to grow and sell the Crisp worldwide until 2027. And as the
Crisp is being marketed as a premium variety, its price reflects this.

The first apples are now on sale in the U.S. for $5 per pound (454
grams), which is more than three times the cost of standard varieties. For
every 40-lb box sold, a royalty of 4.75% is shared between Washington State
University and its commercial partner, the previously mentioned PVM.

More than 467,000 40-lb boxes are now projected to be shipped before the
end of this year, rising to two million in 2020 and 5.6 million by 2021. The
apple even has a trademarked slogan – ‘Imagine the possibilities’.

‘The rate at which Cosmic Crisp is poised to come into the US market in
the next five to eight years is unprecedented,’ says James Luby, a Professor of
Horticultural Science at the University of Minnesota-Twin Cities. ‘If you look
at the past 30 years of apple consumption in the U.S., it’s all flat. And the
profit margins are thin,’ says Prof. Rickard who is an expert in the
agricultural and food sectors. ‘The Cosmic Crisp could increase per capita
consumption of apples in the U.S.’

(Source:
www.bbc.com)

III. Health

9. Kids
and sugary drinks: How clever packaging can deceive parents

Though science has shown that sugary drinks are not healthy for
children, fruit drinks and similar beverages accounted for more than half of
all children’s drink sales in 2018, according to a new report.

Fruit drinks and flavoured waters with added sugars made up 62% of the
year’s $2.2 billion children’s drink sales. Healthier drinks, such as water or
juices made from 100% juice, made up 38% of sales during the same year. Many
sweetened drinks have packaging that highlight fresh fruit, when they only
contain 5% actual fruit juice. Experts say children should mainly be given milk
and water to avoid too much sugar.

And plenty of money was spent on advertising these beverages. Companies
spent $20.7 million to advertise children’s drinks that contained added sugars.
Children aged 2 to 11 saw more than twice as many TV ads for sweetened drinks
than for drinks without added sweeteners.

‘Beverage
companies have said they want to be part of the solution to childhood obesity,
but they continue to market sugar-sweetened children’s drinks directly to young
children on TV and through packages designed to get their attention in the
store,’ said Jennifer L. Harris, PhD, MBA, lead study author and the Rudd
Center’s Director of Marketing Initiatives. ‘Parents may be surprised to know
that paediatricians, dentists and other nutrition experts recommend against
serving any of these drinks to children.’

Dr.
Harris’s team evaluated 67 drinks to see the differences between sweetened
drinks and beverages without added sweeteners.

Experts say that juice and water blends without added sweeteners have
started to hit the market, but the nutrition claims and images can make it
difficult for parents to pinpoint which drinks are healthier.

Sugar-sweetened
fruit drinks marketed to children typically included 5% juice or less, but 80%
of those packages portrayed images of fruit and 60% claimed to have ‘less’ or
‘low’ sugar or ‘no high fructose corn syrup,’ the report said.

(Source:
www.healthline.com)

BCAJ Admin

NAMASKAAR

‘Namaskaar’ means a formal expression of
greeting when we meet someone. It is the beginning of a conversation. A speaker
on the dais starts his speech by saying ‘Namaskaar’. An anchor or a newsreader
says ‘Namaskaar’ and then begins his programme. This happens almost
mechanically in Indian culture. However, the dictionary meaning of the word is ‘bowing
down before somebody with reverence or respect’. It is a ‘pranaam’. That is
why we offer ‘Namaskaar’ to God, to our parents and to the elderly, or to some
great or noble person. In today’s world, finding such great or noble persons is
very difficult. Such persons need not be great heroes who perform some
super-human feats. If we look around us with open eyes, we do come across
people who are highly principled, dedicated to some constructive task, working
untiringly and relentlessly for some positive purpose, and hence respectable.

The reason for
discussing this concept of ‘Namaskaar’ is that we at BCAS are fortunate
to have had such great leaders who dedicated their lives to the noble cause of
spreading knowledge among CA professionals through the activities of the BCAS.
They brought glory to this institution.

One such person was Mr. K.C. Narang who
departed for his heavenly abode only a few weeks ago. I remember him especially
since he was looking after the quality of the BCAS Journal in general
and the feature ‘Namaskaar’ in particular, till he breathed his last.

Just to
recapitulate its history, the late Narayanbhai Varma conceptualised this
feature, the late Pradeepbhai Shah nurtured it by his regular contributions and
the late Narang Saheb looked after it passionately. Two features were very
close to his heart, ‘Is it fair?” and ‘Namaskaar’, and I had the good fortune
of working in close association with him on both these features for a number of
years. Even after crossing the age of 85 there was not even the slightest
reduction in his sincerity and discipline. He used to be simply pushing
everyone to write some quality material. He himself wrote quite a few articles
for this feature. Another amazing quality of Narang Saheb was the promptness of
his response, despite his age and ill-health. This quality was common in all
three leaders. True professionalism!

Actually, he retired from active practice
quite some time ago. But at every journal committee meeting he used to furnish
his written comments on the contents of that month’s issue of the Journal.

The passing away of Narang Saheb is indeed a
great loss to the organisation and the journal, and particularly to this
thought-provoking feature, ‘Namaskaar’.

On this
occasion, let us offer our Namaskaars (in the true sense of the term) to
all these three stalwarts. Taking forward features like ‘Is it fair?’ and ‘Namaskaar’
would indeed be an apt shraddhaanjali (tribute) to Narang Saheb.

BCAJ Admin

Service Tax

I. TRIBUNAL

13. [2019-TIOL-3177-CESTAT-Kol.] M/s. Amit Metaliks Ltd. vs.
Commissioner, CGST Date of order: 25^th October,
2019

Development
of land is a benefit arising out of land and not a service. Compensation
received by way of settlement for revoking development agreement is not a
service, hence not even declared service u/s 66E(e) of the Finance Act, 1994
dealing with toleration of an Act, etc. Further, ‘taxable event’ was time of
entering development agreement and settlement agreement and not date of payment

FACTS

The appellant had entered
into an agreement in May, 2010 as developer with 31 different
landowner-companies whereunder he was to develop the land. However, pieces of
land owned by the landowners did not make up one piece of land for development.
Hence, the landowners assured the appellant that the remaining intermittent
pieces of land would be acquired by them in a specific time frame and would be
handed over to the developer-appellant to make a contiguous piece of land for
development. Since the landowners could not provide this, the appellant became
entitled to compensation as per the said agreement. The landowners eventually
terminated all the development agreements by May, 2012 and agreed for a full
and final settlement for a sum payable by each individual owner of land.

The issue therefore arose
as to whether the compensation received against the settlement amounted to
consideration for any service provided chargeable u/s 65B(44) and it was paid
in lieu of admission of any party’s liability and therefore a declared service
as per section 66E(e), viz., ‘agreeing to obligation to refrain from an act
or to tolerate an act or a situation or to do an act’. The Department,
while alleging this, also scrutinised ST-3 returns and accounts of the
appellant in addition to the development agreement and the settlement
agreement, including compensation reflected in the books.

The Department’s case that
it is a declared service inter alia relied on Rule 5 of the Point of
Taxation Rules, 2011 stating that the date of receipt of money for compensation
in January, 2013 was the time of provision of a new service and the fact was
that the development agreement and the settlement agreement were not registered
and hence could not be relied upon. The Department also advanced the argument
that under the current GST law, liquidated damages attract GST and relied on
AAAR’s ruling in the case of GST Maharashtra State Power Generation Co.
Ltd. [2018 (17) GSTL 451 (APP-AAR-GST)].

The appellant, on the other
hand, pleaded inter alia that:

(a) the compensation was
not against any service by the appellant as cancellation of development
agreement did not amount to service; nor was it a declared service u/s 66E(e)
of the Finance Act, 1994;

(b) further, the agreements
were made in the period prior to 1^st July, 2012, the date of
introduction of declared service and therefore the taxable event, if any, was
rendition of service and which took place prior to this date. In this context,
reliance was placed on Vistar Construction P Ltd. vs. UOI [2013 (31) STR
129 (Del.)]. Thus the date of payment of receipt did not determine the
taxable event.

(c) Relying on the decision
in DLF Commercial Projects Corporation (DCPC) Gurugram, Haryana vs. CST
2019-TIOL-1514-CESTAT-Chd., it was prayed by the appellant that development
of land does not amount to service.

In response to rival
claims, the Bench examined the definition of ‘service’ in the Finance Act, 1994
vis-à-vis the clauses in the development agreement and also the settlement
agreement and examined the decision in DCPC (Supra) and noted, inter
alia, the decision in the case of Premium Real Estate Developers vs.
CST 2019-TIOL-725-CESTAT-Del. which was relied upon in the case of DCPC
(Supra).

HELD

Development
right is not a service but it is a benefit arising out of immovable property.
Compensation received out of settlement claim is not liable for service tax. It
was further noted that compensation received by the appellant was the debt in
present and future for the landowners which, as per Transfer of Property Act,
is in the nature of actionable claim while placing reliance after a detailed
examination of the decision of Kesoram Industries & Cotton Mills Ltd.
vs. CWT 2002-TIOL-1062-SC-IT-LB and Sunrise Associates vs. Govt.
of NCT of Delhi 2006-TIOL-40-SC-CT-LB.

Citing the settlement
agreement, it was also observed that the landowners paid an ascertained amount
to resolve the entire claim of settlement and thus the said settlement
agreement resulted in creation of a debt and so would be in the scope of
actionable claim in terms of section 3 of the Transfer of Property Act, 1892,
and hence not liable for service tax under the 1994 Act, it being beyond
section 65B(44)(iii) of the Finance Act. It was further held that when the
development agreement, settlement agreement and the compensation were outside
the scope of service under the Finance Act, section 66E(e) could not be
applied.

Lastly, it was also noted
that the Revenue’s contention that liquidated damages were liable for CGST as
held as per AAR in the case of Maharashtra State Power General Company
(Supra) as Finance Act and CGST Act are different enactments, besides
the distinguishable fact that in that case, the issue related to performance of
service agreement and not development of land as per development agreement, and
thus the appeal was dismissed.

14. [2019-TIOL-3147-CESTAT-Del.] M/s. Manan Infra Development Pvt. Ltd. vs. Commissioner of Central
Goods and Services Tax, Custom and Central Excise Date of order: 13^th May, 2019

Show
cause notice has not invoked section 73(1) and there is no such proviso u/s 75
and hence the notice is defective and no amount could be recovered

FACTS

The appellant deposited
service tax quarterly and filed the returns with the Department. Subsequently,
while scrutinising them and the documents evidencing the payment of service
tax, it appeared that since it was a private limited company, it was required
to deposit service tax on monthly basis. Thus, on re-calculation on monthly
basis, interest was payable. Show cause notice dated 16^th
January, 2015 was issued for the period
October, 2011 to March, 2013 invoking extended period of limitation demanding
interest u/s 75 of the Act for delay in deposit of service tax. Further, a
penalty was also proposed.

It was primarily argued
that the show cause notice has not invoked section 73(1) and there is no such
proviso u/s 75 and hence the show cause notice is defective and no amount could
be recovered.

HELD

The Tribunal held that the
show cause notice was bad, both for invocation of extended period of limitation
and also for non-invocation or non-mentioning of proper section 73(1) with
proviso. Accordingly, the show cause notice was held to be non-maintainable.
The appeal was allowed.

15. [2019-TIOL-3185-CESTAT-All.] Commissioner of Central Tax vs. Viami Business Solution Pvt. Ltd. Date of order: 22^nd April, 2019

Service
tax demanded under reverse charge available as CENVAT credit leads to a
revenue-neutral situation and therefore the demand is set aside

FACTS

The assessee has failed to
discharge tax under reverse charge mechanism which is available as CENVAT
credit against their output services. Revenue contends that it is a statutory
requirement to first discharge the said service tax on reverse charge basis.
Without payment of service tax, they were not in a position to avail CENVAT
credit. Since the Commissioner (Appeals) set aside the demand on the ground of
Revenue neutrality, the Revenue is in appeal.

HELD

The Tribunal primarily
noted that the service tax required to be paid by the assessee was available to
them as credit. During the period they paid service tax on output services by
way of cash. Had they paid service tax on the input services received by them,
they could have taken the credit and utilised that credit for payment of duty,
instead of paying service tax in cash. Thus, there definitely exists a case of
Revenue neutrality. Further, the Tribunal noted that the reliance placed on the
decision in the case of Jet Airways (I) Ltd. vs. Commissioner of Service
Tax, Mumbai 2016 (44) S.T.R. 465 (Tri.-Mum.) [2016-TIOL-2072-CESTAT-Mum.]
is also upheld by the Supreme Court and thus the appeal of the Revenue
is rejected.

BCAJ Admin

RIGHT TO INFORMATION (r2i)

PART A DECISIONS OF SUPREME COURT

Non-governmental
organisations substantially financed by the appropriate government fall within
the ambit of ‘public authority’ under section 2(h) of the Right to Information
Act, 2005

A civil appeal was filed by D.A.V. College
Trust and Management Society and Ors. stating that it couldn’t be treated as a
public authority. A Division Bench comprising Justice Deepak Gupta and Justice
Aniruddha Bose heard the pleas filed by the appellant on 17^th
September, 2019.

In the Apex Court, Hon’ble Justice Deepak
Gupta, while providing a judgement on Civil Appeal No. 9828 of 2013 stated:

‘In our view, “substantial” means a large
portion. It does not necessarily have to mean a major portion or more than 50%.
No hard and fast rule can be laid down in this regard. Substantial financing
can be both direct and indirect. To give an example, if a land in a city is
given free of cost or on heavy discount to hospitals, educational institutions
or such other body, this in itself could also be substantial financing. The
very establishment of such an institution, if it is dependent on the largesse
of the State in getting the land at a cheap price, would mean that it is
substantially financed. Merely because financial contribution of the State
comes down during the actual funding, will not by itself mean that the indirect
finance given is not to be taken into consideration. The value of the land will
have to be evaluated not only on the date of allotment but even on the date
when the question arises as to whether the said body or NGO is substantially
financed.

Whether an NGO or body is substantially
financed by the government is a question of fact which has to be determined on
the facts of each case. There may be cases where the finance is more than 50%
but still may not be called substantially financed. Supposing a small NGO which
has a total capital of Rs. 10,000 gets a grant of Rs. 5,000 from the
Government; though this grant may be 50%, it cannot be termed to be substantial
contribution. On the other hand, if a body or an NGO gets hundreds of crores of
rupees as grant but that amount is less than 50%, the same can still be termed
to be substantially financed. Another aspect for determining substantial
finance is whether the body, authority or NGO can carry on its activities
effectively without getting finance from the Government. If its functioning is
dependent on the finances of the Government then there can be no manner of
doubt that it has to be termed as substantially financed. While interpreting
the provisions of the Act and while deciding what is substantial finance one
has to keep in mind the provisions of the Act. This Act was enacted with the
purpose of bringing transparency in public dealings and probity in public life.
If NGOs or other bodies get substantial finance from the Government, we find no
reason why any citizen cannot ask for information to find out whether his / her
money which has been given to an NGO or any other body is being used for the
requisite purpose or not.’

[Civil Appeal. No. 9828 of 2013, dated 17^th
September, 2019]

Chief Justice of India’s
office under RTI Act, but conditions apply

A Constitution Bench of the Supreme Court
comprising the Chief Justice of India (CJI) Ranjan Gogoi, Justices N.V. Ramana,
D.Y. Chandrachud, Deepak Gupta and Sanjiv Khanna on 13^th November,
2019 gave a judgement on
the applicability of the Right to Information (RTI) Act, 2005 to itself.

It has been hailed as a landmark judgement
by most people based on the understanding that it was only about accepting that
RTI applies to the office of the CJI. There were actually three petitions which
were decided. Subhash Chandra Agarwal had sought the information in 2007 and
2009.

Justice Chandrachud has acknowledged: ‘Failure
to bring about accountability reforms would erode trust in the courts’
impartiality, harming core judicial functions. Further, it also harms the
broader accountability function that the judiciary is entrusted with in
democratic systems including upholding citizens’ rights and sanctioning
representatives of other branches when they act in contravention of the law.
Transparency and the right to information are crucially linked to the rule of
law itself. There is a fallacy about the postulate that independence and
accountability are conflicting values.’

However, after accepting the right of citizens
to get information from the office of the CJI, the Court has ruled that the
exemption of section 8(1)(j) covers all personal information.

The Supreme Court said that confidentiality
and right to privacy have to be maintained and added that RTI can’t be used as
a tool of surveillance. It also said only names of judges recommended by the
Collegium can be disclosed, not the reasons.

The Bench, headed by the Chief Justice of
India, wrapped up the hearing saying nobody wants a ‘system of opaqueness’,
but the judiciary cannot be destroyed in the name of transparency. ‘Nobody
wants to remain in the state of darkness or keep anybody in the state of
darkness,’ it had said. ‘The question is drawing a line. In the name of
transparency, you can’t destroy the institution.’

[Civil
Appeal No.10044 of 2010 and Civil Appeal No. 2683 of 2010 dated 13^th
November, 2019]

PART B RTI ACT, 2005

Suo motu disclosures

Suo motu, meaning ‘on its own motion’, is a Latin word used mainly as
legalese.

The basic principle
of the RTI Act is the idea that the individual national is a sovereign in her
own particular right and is the proprietor of the government. The textbook
definition of democracy is exemplified by the expression ‘for the people, of
the people and by the people’. In reality, the information provided to the
public is power given in the hands of the citizens. The most important thing
that will be looked after by this is transparency, corruption and arbitrariness
in the governance within an institution.

Certain instructions
have been drawn up by the government to make sure that the public departments /
ministries make suo motu disclosure of information. These instructions
are based on the suggestions of the Task Force set up by the government for
strengthening compliance with provisions for suo motu disclosure u/s 4
of the RTI Act, 2005. The members of civil society, Central Government
Ministries / Departments and the State Governments are prominent members of
this force.

The guidelines have
been based on the following points:

(a) Suo motu
disclosure of more details u/s 4 – This includes detailed instructions on
proactive disclosure of information related to public / private partnerships,
transfer policy and transfer orders, procurement, RTI applications received and
their responses, CAG and PAC paras, citizens’ charter and discretionary and
non-discretionary grants;

(b) Instructions
for digital publication of active disclosure of details to ensure that the
government websites disclose details completely so as to be easily available to
the citizens without any discrepancies;

(c) Detailing of
few sub-clauses of section 4(1)(b) of the RTI Act regarding publishing of
information by the public authority: ‘the procedure followed in the
decision-making process’, ‘norms set by the public authority for the discharge
of its functions’, ‘the budget allocated to each of its agency’ and ‘details in
respect of information, available to or held by it, reduced in an electronic
form’.

The compliance
mechanism for suo motu disclosure under the RTI Act includes yearly
audit of proactive disclosures made by the Ministry / Department by a third
party, examination of such audit report and offering advice / recommendation by
the Central Information Commission and inclusion of compliance details in the
annual report of the Ministry / Department.

Section 4 of the
RTI Act lays down the information which should be disclosed by public
authorities on a suo motu or proactive basis. The main aim of suo
motu disclosure is to retract all the necessary details in public domain on
a proactive basis so that the functioning of the public authorities becomes
more transparent and the need of filing individual RTI applications goes down.

Since the
promulgation of the Act in 2005, large volumes of information relating to
functioning of the government is being put in the public domain. However, the
quality and quantity of proactive disclosures are not being raised to the
desired level. There have been complaints regarding the backlog of cases in the
commissions but it is rarely accepted that mere compliance by the authorities
by providing the necessary information as mandated by the Act would result in a
steep decrease in the number of appeals filed.

It has been
observed that information seekers face problems in making use of the Act and
the officers of the public authorities face problems in implementing its
provisions. Keeping this in mind, Rajasthan has launched the Jan Soochna
portal which will display all information that ought to be voluntarily
disclosed by public authorities under the RTI Act.

The information
will be open to public scrutiny at the click of a mouse and without having to
file an RTI application. It will display issues related to 13 departments
covering around 30 government schemes. These include public distribution and
ration; farm loans; pensions; beneficiaries of Mahatma Gandhi National Rural
Employment Guarantee Act (MNREGA); food grain distribution; government-run
medical and health insurance schemes; and land extracts.

The home page of
the portal http://jansoochna.rajasthan.gov.in/ states: ‘The Government
of Rajasthan is proud to launch the Jan Soochna portal, conceptualised
in collaboration with peoples’ campaigns of Rajasthan’. This is the first
public portal of its kind in the country aimed at disclosing information on a suo
motu basis as required u/s 4(2) of the RTI Act.

The
day every state government follows Rajasthan’s example, the antagonistic
effects of the RTI Amendments, 2019 would be nullified. We appreciate and
congratulate the Rajasthan Government for this citizen-friendly venture, where
governance becomes pro-active and transparent.

PART C INFORMATION ON AND AROUND

RTI reveals Kolhapur floods
caused by tampering with technically established flood-lines to please builders

The flood havoc in
Kolhapur and Sangli districts resulted in the deaths of 54 people and of
thousands of heads of cattle, apart from causing colossal loss to property,
farmlands and standing crops.

Was it the ferocity of nature that caused such a great calamity, or did
human interference aggravate the situation? Right to Information (RTI)
documents reveal that tampering with the red and blue line demarcation of the
Panchganga river in the Kolhapur Development Plan, due to the pressure of the
builder lobby through the Confederation of Real Estate Developers’ Associations
of India (CREDAI), to which the Chief Minister’s Office responded
affirmatively, resulted in turning 1,250 acres of flood-line area, prohibited
for any construction, into a concrete maze.

As per the RTI
documents procured from the Kolhapur Municipal Corporation, the CREDAI,
Kolhapur wrote a letter to Chief Minister Devendra Fadnavis on 9^th
October, 2018 casting doubts about the Water Conservation Department’s red
flood-line report of the Panchganga, whetted by IIT, Mumbai, on new
flood-lines.

The letter claimed
that the new flood-lines may cause confusion and fear-mongering as most of the
areas under the new flood-lines fall under the residential zone and a large
number of structures have been constructed on it. They also claimed that there
is public unrest over drawing the new flood-lines. Hence, the letter urged that
the old flood-lines which were existing (which had no scientific base and were
marked haphazardly) in the Development Plan be maintained.

Further, the Water
Resources Department submitted a technical note on 5^th March, 2019
to the Kolhapur Municipal Corporation. It stated that the flood level has risen
above the present blue line (shown in the Kolhapur Development Plan, which the
builders want to maintain) on ten occasions and above the present red line on
six occasions over the past 30 years. It warned that the Kolhapur Municipal
Corporation and the local administration would have to be on alert during the monsoons
if the old flood-lines are retained.

(Source:https://www.moneylife.in/article/rti-reveals-kolhapur-floods-caused-by-tampering-with-technically-established-flood-lines-to-please-builders/57983.html)

Mumbai police hits record
high in traffic penalties, reveals RTI

The Mumbai Traffic
Police collected record fines totalling nearly Rs. 139 crores in 2018 for
violations of traffic rules, according to an RTI filing. This figure is much
higher compared to the Rs. 8.6 crores collected in 2017, said RTI activist
Jeetendra Ghadge, and the credit for this goes to the ‘e-challan’ system
implemented by the Mumbai Traffic Police in a big way.

‘This technology –
whereby an officer can simply issue an e-challan from his mobile phone – has
not only reduced corruption on the roads, but resulted in a massive collection
of fines for the government coffers,’ Ghadge told IANS.

Interestingly, the
RTI filing also revealed that the number of drunk-driving cases has
considerably decreased over the last three years. While there were 20,768 such
cases in 2016, they came down to 18,056 in 2017 and 11,711
in 2018.

Shockingly, in the
same period, the number of teenagers caught in drunk-driving cases was 1,854;
and 367 women were among those nabbed for drunk driving.

‘The figures
clearly reveal that Mumbaikars are quite an indisciplined lot while driving on
roads and even hefty fines / penalties don’t act as a deterrent. Since time is
more valuable than money for Mumbaikars, brief periods of detention (jail) or
community service, as prevalent in some advanced countries, could teach them a
lesson,’ Ghadge said.

(Source:https://www.moneylife.in/article/mumbai-police-hits-record-high-in-traffic-penalties-reveals-rti/58026.html)

Bharat Electronics
demands fee for information on EVMs under RTI; later says it has no information

Bharat Electronics Ltd. (BEL) and Electronics Corporation of India Ltd.
(ECIL) are manufacturers of electronic voting machines (EVMs), voter-verified
paper trail (VVPAT) units and symbol loading units (SLUs) which have been under
the watchful eye of RTI activists against the backdrop of alleged tampering of
EVMs in the 2019 Lok Sabha elections.

Venkatesh Nayak,
research scholar and programme co-ordinator of the Commonwealth Human Rights
Initiative (CHRI), filed RTI applications to both the organisations, seeking
identical information.

The Central Public
Information Officer (CPIO) of BEL promptly replied in June, 2019 that
information could be supplied at a cost of Rs. 1,434 for the photocopying of
pages. However, a month later, BEL did a complete somersault stating that it
did not hold most of the information and also rejected one of the queries
(pertaining to names of engineers) stating that disclosure would endanger the
life of its engineers and even returned the bank draft that Mr. Nayak had sent
as the fee.

(Source:https://www.moneylife.in/article/bharat-electronics-demands-fee-for-info-on-evms-under-rti-later-says-it-has-no-info/58150.html)

Frauds worth Rs. 32,000
crores rattle 18 public sector banks within three months, reveals RTI

A total of 2,480
cases of fraud involving a huge sum of Rs. 31,898.63 crores rattled 18 public
sector banks between April and June this year, an RTI query has revealed.

The country’s
largest lender, State Bank of India (SBI), remained the biggest prey to frauds
with a 38% share, Neemuch-based activist Chandrashekhar Gaur told PTI, quoting
an official of the RBI who furnished replies to his RTI application. As many as
1,197 cases of cheating involving Rs 12,012.77 crores were detected in SBI in
the first quarter.

After SBI,
Allahabad Bank faced the heat with 381 cheating cases involving Rs. 2,855.46
crores. Punjab National Bank stood third in the list with 99 fraud cases worth
Rs. 2,526.55 crores.

However, the
information provided by the RBI does not give specific details of the nature of
banking frauds and the losses suffered by banks or their customers.

(Source:https://www.indiatoday.in/business/story/frauds-worth-rs-32-000-crore-rattle-18-public-banks-within-three-months-reveals-rti-1596960-2019-09-08)

Government spending more
on ads in Hindi newspapers: RTI

In a clear hint of
its plan to make deeper inroads into the Hindi heartland, the Narendra Modi
government has spent over Rs. 890 crores on advertising in Hindi newspapers
compared to over Rs. 719 crores in English newspapers in the last five years,
an RTI inquiry revealed.

At a time when
print media overall is facing rough weather owing to stiff competition from
digital platforms – chiefly Facebook and Google which together share 68% of
digital ads globally – Hindi and regional newspapers across the spectrum
(large, medium and small) are defying the trend and flourishing.

Leading the pack in
the period between 2014-15 and 2018-19 was Dainik Jagran which received
government advertisements worth over Rs. 100 crores in the given time-frame. Dainik
Bhaskar received advertisements worth Rs. 56.62 crores, while Hindustan garnered
advertisements worth Rs. 50.66 crores in the reported period.

Punjab Kesari was able to obtain government advertisements worth Rs. 50.66 crores
and Amar Ujala Rs. 47.4 crores.

(Source:https://www.indiatoday.in/india/story/government-spending-more-ads-hindi-newspapers-rti-1596821-2019-09-08)

BCAJ Admin

CORPORATE LAW CORNER

4. Vashdeo R. Bhojwani vs. Abhyudaya
Co-operative Bank Ltd. [2019] 109
taxmann.com 198 (SC) Civil Appeal No.
11020 of 2018 Date of order: 2^nd
September, 2019

Section 7 of Insolvency and Bankruptcy Code, 2016 read with article 137
and section 23 of the Limitation Act – Application u/s 7 or 9 cannot be moved
if more than three years have lapsed since the default giving rise to the
application – Default does not constitute a continuing wrong – The loss is a
continuing damage arising as a result of the wrong

FACTS

V made a default of
Rs. 6.7 crores and was declared as a non-performing asset (NPA) by A Bank on 23^rd
December, 1999. A recovery certificate dated 24^th December, 2001 was
issued for this amount. A Bank filed a petition against V on 21^st
July, 2017 before the National Company Law Tribunal (NCLT) claiming that this
amount together with interest which kept ticking from 1998, was payable to it.
The loan initially granted to Respondent No. 2 had originally been assigned and
after a merger with a co-operative bank in 2006, A Bank became a financial
creditor to whom these moneys were owed. NCLT admitted the petition stating
that no period of limitation would attach since the default continued.

The appeal filed
before National Company Law Appellate Tribunal was dismissed on the ground that
since the cause of action continued, no limitation period would attach.

Aggrieved by the
order, an appeal was filed before the Supreme Court.

HELD

After hearing both
sides, the Supreme Court referred to its own judgement in B.K.
Educational Services Private Limited vs. Parag Gupta and Associates, 2018 (14)
Scale 482. It was held that the Limitation Act applied to the petitions
filed u/s 7 and 9 of the Insolvency and Bankruptcy Code, 2016. The judgement
stated that the application would be barred under Article 137 of the Limitation
Act if the default occurred more than three years prior to the date of filing
the application.

It was urged before
the Supreme Court that in order to save the case, provisions of section 23 of
the Limitation Act would apply. The Court, relying on Balkrishna Savalram
Pujari and others vs. Shree Dnyaneshwar Maharaj Sansthan and others [1959],
Supp. (2) S.C.R. 476, held that section 23 of the Limitation Act refers
not to a continuing right but to a continuing wrong. If the wrongful act causes
an injury which is complete, there is no continuing wrong even though the
damage resulting from the act may continue. If, however, a wrongful act is of
such a character that the injury caused by it itself continues, then the act
constitutes a continuing wrong. A distinction between the injury caused by the
wrongful act and what may be described as the effect of the said injury was
important.

The Supreme Court,
setting aside the orders of the NCLT and the NCLAT, held that when the Recovery
Certificate dated 24^th December, 2001 was issued, the Certificate
injured effectively and completely the appellant’s rights as a result of which
limitation would have begun ticking. The suit was held to be time-barred but
there was no order as to costs.

5. Duncans Industries Ltd. vs. A.J. Agrochem [2019] 110
taxmann.com 131 (SC) Civil Appeal No. 5120
of 2019 Date of order: 4^th
October, 2019

Insolvency and
Bankruptcy Code, 2016 – Consent of Central Government was not required to be
obtained for initiating proceedings under the Code where notification to take
over the management of tea units of a company by the authorised personnel of
Central Government was already issued – Provisions of the Code would have an
overriding effect over the provisions of Tea Act, 1953

FACTS

D Co is a company
that owns and manages 14 tea gardens. A Co supplied pesticides, insecticides,
herbicides, etc., to D Co and accordingly was its operational creditor. A sum
of Rs. 41,55,500 was payable by D Co to A Co and, therefore, proceedings u/s 9
of the Insolvency and Bankruptcy Code, 2016 (the Code) were initiated. The
Central Government, vide notification dated 28^th January, 2016, in
exercise of its power u/s 16E of the Tea Act, 1953 had taken over the control
of seven of the tea gardens of D Co. The notification of the Central Government
was challenged before the Calcutta High Court and it had, by an interim order,
restored the management of the tea gardens to D Co.

Section 16G of the
Tea Act provided that prior consent of the Central Government was required to
initiate the winding up, or appointment of receiver of the company, once the
management of its tea unit was taken over by the Central Government. D Co
submitted that since this consent was not in place, application u/s 9 of the
Code could not be admitted. The NCLT upheld this contention and dismissed the
application filed.

Aggrieved, A Co
filed an appeal with the NCLAT which, after hearing both the sides, reversed
the order passed by the NCLT and held that a petition u/s 9 would be
maintainable even though the consent of the Central Government had not been
obtained.

Aggrieved by the
order of the NCLAT, D Co filed an appeal before the Supreme Court and raised
the following arguments:

(i) Section 16G of the Tea Act specifically
governed the situation of D Co. Further, ‘winding up’ process under the
Companies Act, 1956 includes the insolvency proceedings under the Code;

(ii) The order of the Calcutta High Court did not
stay the notification issued by the Central Government but only provided
interim relief;

(iii) Section 238 of the Code which provides it an
overriding effect comes into play only when there is an inconsistency in the
provisions of two statutes. It would not apply when there is no conflict. As
such, there is no conflict between the Tea Act and the Code. Section 16G only
requires obtaining consent before initiation of proceedings of winding up.

A Co made the
following arguments:

(a) The Code is an entire code in itself. A
prerequisite of obtaining consent cannot be imported and / or read into the
Code when the self-contained Code itself does not provide for it;

(b) Importing the requirement of obtaining consent
of the Central Government would be contrary to legislative intent sought to be
achieved and to the overriding nature of the Code. Further, as both the Tea Act
and the Code have the objective of restarting or revival of the company, provisions
of the Code would prevail in terms of section 238 of the Code;

(c) It was submitted that section 16G(1) of the
Tea Act does not automatically get triggered with the issuance of a
notification u/s 16E(1) of the Tea Act, but becomes applicable once the
management of a tea undertaking or tea unit owned by a company has been taken
over by the Tea Board. Pursuant to the interim order of the High Court, D Co
continues to be in control and management of the tea units / gardens;

(d) Further, section 16G(1)(c) of the Tea Act is
applicable to a proceeding for ‘winding up’ and not to proceeding for
initiation of ‘corporate insolvency resolution process’, as the two are not one
and the same proceedings.

HELD

The Supreme Court
examined the provisions of section 16G of the Tea Act and also heard both the
parties at length. It was observed that pursuant to the interim order of the
High Court, D Co continued to be in management and control of the tea estates,
despite the notification u/s 16E dated 28^th January, 2016. In the
facts of the case, provisions of section 16G would not be applicable at all.
The Court held that section 16G of the Tea Act shall be applicable only in a
case where the actual management of a tea undertaking or tea unit owned by a
company has been taken over by any person or body of persons authorised by the
Central Government under the Tea Act. Therefore, taking over the actual
management and control by the Central Government or by any person or body of
persons authorised by the Central Government is sine qua non before
section 16G of the Tea Act is made applicable. Accordingly, in the
circumstances of the case, the provisions of section 16G of the Tea Act would
not apply.

The Court observed
that the Insolvency and Bankruptcy Code, 2016 was a complete code in itself. It
took note of its own verdict in the case of Innoventive Industries Ltd.
vs. ICICI Bank, (2018) 1 SCC 407: (2018) 1 SCC (Civ) 356 and proceeded
to hold that the entire ‘corporate insolvency resolution process’ as such could
not be equated with ‘winding-up proceedings’. The proceedings u/s 9 of the Code
were not limited and / or restricted to winding up and / or appointment of
receiver only. The winding up / liquidation of the company would be the last
resort and only in the eventuality that the corporate insolvency resolution
process fails. The focus of the legislation was to ensure revival of business
and by protecting the corporate debtor from its own management and from a
corporate debt by liquidation. The procedure was required to be completed in a
time-bound manner.

It was held that
the Code having been passed subsequent to the Tea Act would have an overriding
effect. Further, prior consent of the Central Government before initiation of
the proceedings u/s 7 or 9 of the IBC would not be required; and even without
such consent of the Central Government the insolvency proceedings u/s 7 or 9 of
the Code shall be maintainable.

The order passed by
NCLAT was upheld and the appeal was dismissed without any costs.

6.
Yashodhara Shroff vs. Union of India [2019] 106 taxmann.com 297 (Kar.) Date of order: 12^th June, 2019

Companies Act – Section 164(2)(a)
disqualifying directors of companies from office for a period of 5 years on
failure to submit annual returns and statements for 3 consecutive years is not ultra
vires Constitution – the period prior to 1^st April, 2014 cannot
be reckoned for the purpose of applying the disqualification under the said
provision along with the period subsequent thereto

FACTS

The petitioner Y
challenged the list published by the Ministry of Corporate Affairs (MCA) in
September, 2017 whereby nearly 3,00,000 directors were disqualified u/s
164(2)(a) and section 167(1)(a) of the Companies Act, 2013 for failing to file
annual returns and statements for a period of three consecutive years.

Further, the
petitioners also contended that there had been an arbitrary exercise of power
by the MCA in disqualifying the petitioners as directors of the respective
companies by giving retrospective operation to the aforesaid provisions of the
Act.

HELD

The High Court
observed as under:

The object of
disqualifying a person as a Director of a company on account of circumstances
mentioned in section 164 and the provisions of section 167 is to bring in a
higher degree of transparency and accountability in corporate governance, which
is necessary to protect the interest of investors and ensure compliance in
filing the annual accounts and annual returns which are a means of disclosure
to all stakeholders.

Further, section
164(2) applies to both private as well as public companies, as against section
274(1)(g) of the Companies Act, 1956.

The High Court,
after deliberations, held as under:

(i) Where the disqualification of the
petitioners is based on taking into consideration any financial year ‘prior to
1^st April, 2014 as well as subsequent thereto’ while
reckoning continuous period of three financial years u/s 164(2)(a) of the Act, such
a disqualification is bad in law;

(ii) If the disqualification of the directors is
based on taking into consideration any financial year prior to 1^st
April, 2014 only, i.e., the disqualification has occurred under the
provisions of the 1956 Act, such disqualification is not bad in law;

(iii) If the disqualification of the directors is
based on taking into consideration three continuous financial years
subsequent to 1^st April, 2014, such disqualification is not
bad in law.

With regard to the
constitutional validity of the proviso of section 167(1)(a) of the Companies
Act, 2013, the Court ruled that the said provision does not violate Articles 14
and 19(1)(g) of the Constitution as it is made in the interest of the general public.

BCAJ Admin

ALLIED LAWS

6. Gift deed – Cancellation of registered gift
deed requires mutual consent of both the parties and their participation – Gift
deed cancellation not valid [Transfer of Property Act (1882), section126;
Registration Act (1908), section 17]

Kolli Rajesh Chowdary vs. State of Andhra Pradesh
and Ors. AIR 2019, Andhra Pradesh 40

A gift settlement deed was executed out of
love and affection by the respondent (grandmother) for the petitioner
(grandson) with a view to provide the said property for his livelihood. The
gift was accepted and possession of the property was delivered to the
petitioner on the same day. Thereafter, the petitioner made an online
application and paid the requisite fee and requested for mutation of the said
property in his name in the revenue records and for issuance of pattadar
passbook. Since the date of the gift settlement deed, the petitioner was in
continuous possession and enjoyment of the property covered by the deed.

In the year
2019, the petitioner noticed that the respondent had executed a deed of
cancellation, dated 29^th September, 2017, registered the same and
revoked the gift settlement deed executed by her in favour of the petitioner.
The petitioner also noticed that after execution of the cancellation deed, she
had further executed a sale deed, dated 28^th October, 2017, in
favour of another person and registered it on 6^th November, 2017.
Since the property in question was transferred in favour of the petitioner with
absolute rights by the respondent by executing the registered gift settlement
deed, she had no right to execute the deed of cancellation either cancelling or
revoking the gift settlement deed already executed by her in favour of the
petitioner. The reason for cancellation of the gift deed was mentioned by the
respondent to be deception and non-fulfilment of the word given by the
petitioner to the respondent.

It was observed
that there cannot be unilateral cancellation of registered sale deeds and that
a deed cancelling a sale deed can be registered only after the same is
cancelled by a competent civil court after notice to the parties concerned. In
the absence of any declaration by a competent court or notice to parties, the
execution of the deed of cancellation as well as its registration are wholly
void and non-est and such transactions are meaningless transactions.

Accordingly, it
was held that the said deed of cancellation / deed of revocation was null and
void and that it was of no effect. As a sequel to the said finding that the
cancellation deed or revocation deed was null and void and further, in view of
the settled legal position that no one can convey a better title than what he /
she has, it was further held that the subsequent sale deed executed by the
respondent was also not valid.

Further, it was
contended by the respondent that if the petitioner was aggrieved by the
cancellation or revocation deed he had to approach a civil court and seek the
common law remedy for setting aside the same but he could not approach the writ
court.

It was held
that if the petitioner was aggrieved by the cancellation or revocation deed
which was unilaterally executed and was null and void and meaningless, it was
just and fair to allow the writ petition leaving it open to the executants of
the cancellation deed or revocation deed to seek the common law remedy by
approaching the civil court.

7. Lawyer’s statement – Client not bound by the
lawyer’s statements or admissions as to matters of law or legal conclusions
[Kerala Buildings (Lease and Rent Control) Act, 1965, S. 11]

Central
Bank of India and Ors. vs. Beena Thiruvenkitam, AIR 2019 Kerala 164

A lease
agreement had been entered into between the bank and the then owners of the
building. After the respondent became the owner of the building, the appellant
(tenant-bank) paid the rent of the building to the respondent and she had
received it. After the lease period expired, the respondent informed the bank
that she was not willing to renew the lease. The bank informed the petitioner
that since a currency chest is attached to the branch, a suitable place will
have to be found by the bank to house its branch and as and when a suitable
place is found, they will surrender the tenanted premises. A writ petition was
filed alleging that despite the undertaking made, the bank is not making any
efforts to surrender the leased premises. The petitioner, therefore, sought
appropriate directions from the court. Before the court it was stated by the
learned senior counsel for the bank that the premises will be surrendered
immediately after the construction of the currency chest. However, the senior
counsel for the bank had not given any undertaking before the court that the
premises shall be vacated within any specific time.

The learned
single judge disposed of the writ petition by directing the bank to surrender
vacant possession of the building occupied by it to the respondent within four
months from the date of the judgement. The aforesaid judgement was under
challenge in the appeal.

The senior
counsel for the appellant bank contended that the writ petition filed by the
respondent was not maintainable. He contended that no direction could be issued
by the court to a tenant, in exercise of its writ jurisdiction under Article
226 of the Constitution, to surrender vacant possession of the building
occupied by the tenant to the landlord. The respondent landlord contended that,
when the writ petition came up for hearing (before the single judge) the
counsel who appeared for the bank had submitted that the bank was ready to
surrender possession of the premises to the respondent and it was on the basis
of such undertaking that the writ petition was disposed of. He submitted that
the appellants cannot now turn around and contend that the writ petition filed
was not maintainable.

As per section
11, a tenant shall not be evicted, whether in execution of a decree or
otherwise, except in accordance with the provisions of the Kerala Buildings
(Lease and Rent Control) Act.

It was observed
by the court that neither the client nor the court is bound by the lawyer’s
statements or admissions as to matters of law or legal conclusions. A lawyer
generally has no implied or apparent authority to make an admission or
statement which would directly surrender or conclude the substantial legal
rights of the client unless such an admission or statement is clearly a proper
step in accomplishing the purpose for which the lawyer was employed.
Consequently, the appeal was allowed.

8. Foreign judgement and its implication on
residents of India [Code of Civil Procedure, 1908, S. 13]

Jose Sousa vs. Ema Mata Fernandes and Ors. AIR
2019 (NOC) 644 (Bom.)

An application
under Article 1102 of the Portuguese Civil Procedure Code, 1939 (Code) was
filed seeking confirmation of the judgement and order passed by the Family
Court at Bradford, U.K., by which the marriage between the applicant and the
first respondent had been dissolved by a decree of divorce.

The applicant
and the respondent are Goans, citizens of India, and were married to each
other. Disputes and differences arose between the parties in the initial period
of the marriage and the parties separated; the applicant had been residing in
London since the year 2005, when he went there for the purpose of work. The
applicant has since acquired Portuguese citizenship in the year 2009, while the
first respondent continues to be an Indian citizen. The applicant and the first
respondent resided together in Goa as husband and wife until the year 2005 and
from the time the applicant left for the U.K. they have been residing
separately.

Matrimonial
petitions had been filed on two occasions for dissolution of the marriage.
However, the same were dismissed. Another petition was filed before the Family
Court at Bradford, U.K. A notice of the petition was served on the first
respondent who sent a detailed reply thereto inter alia taking exception
to the jurisdiction of the Family Court at Bradford to entertain the petition.
It was contended that the parties were Indian nationals of Goan origin at the
time of their marriage. Their marriage was solemnised at Margao, where it is
registered, and thus the Family Court at Bradford would lack jurisdiction to
entertain the petition only on the ground that the applicant has been residing
in the U.K. The Family Court in the U.K. granted the decree of divorce. The
application was filed for confirmation of the decree.

The only
question for adjudication was whether the judgement of the Family Court at
Bradford, U.K., could be confirmed.

The court held
that the applicant has not shown how the Family Court at Bradford, U.K., would
have jurisdiction to entertain the petition only on the basis of the residence
of the applicant in U.K. Admittedly, the marriage was solemnised at Margao as
per the family laws applicable in Goa, when both the parties were Indian
nationals and were governed by the said law, and their marriage was registered
in the office of the Sub-Registrar at Margao. Subsequently, the petitioner
acquired Portuguese citizenship in the year 2009 and had been staying in the
U.K. The parties last resided together at Margao. Even assuming that the U.K.
Family Court had jurisdiction, the judgement of such court makes absolutely no
reference to the specific ground raised of the absence of jurisdiction. Clauses
(a) and (b) of section 13 of the C.P.C. provide as to when a foreign judgement
is not conclusive. On the basis of these clauses the court stated that the
judgement of the Family Court in the U.K. cannot be said to be conclusive and
held that it was not possible to confirm the foreign judgement. In the result,
the civil application was dismissed.

9. Natural guardian – Transfer of property
without the consent of minors u/s 8(3) – Suit for setting aside of document of
transfer being mandatory was time-barred [Hindu Minority and Guardianship Act,
1956, S. 8(3); Limitation Act, 1963, Art. 60]

Thankamoni
Amma Padmakumari Amma and Ors. vs. Ganapathi Suresh and Ors. AIR 2019 Kerala
170

A suit for
partition and fixation of boundary was filed. The defendant, i.e., the father
of the plaintiffs, had sold a property owned by the plaintiff’s mother after
the mother’s death. At the time of such sale of property, the plaintiffs were
minors. Seven years after attaining majority, a suit for partition and fixation
of boundaries was filed. No period of limitation is mentioned anywhere in the
Hindu Minority and Guardianship Act for exercising the option available to the
minor u/s 8(3) of the Act.

It was observed
by the court that no prayer for setting aside the document of transfer had been
made. The legal position can be summarised to say that it is necessary to seek
the relief of setting aside the document to exercise the option by a minor to
avoid the disposal of immovable property by the natural guardian.

It was held
that since the relief of setting aside the document of alienation cannot be
avoided in a suit exercising the option u/s 8(3) of the Act challenging the
disposal of immovable property by the natural guardian, the period of
limitation in such a case would be the one available for setting aside a
document of transfer under the Limitation Act. A separate provision is made under
Article 60 of the Limitation Act to set aside a transfer of property made by
the guardian of a ward as three years from the date of attainment of majority.
Accordingly, the maximum time available to institute a suit for exercising the
option u/s 8(3) of the Act is only three years from the date of attainment of
majority and hence the suit is hopelessly barred by limitation.

10. Stamp Duty – Deputy Commissioner of Stamp
Duty cannot decide the validity of the document or the validity of the trust
deed for the purpose of determining the stamp duty payable [Transfer of
Property Act, 1882, S. 14; Karnataka Stamp Act, 1957, S. 28, 33, 39]

B.R. Jagadish
vs. District Registrar and Deputy Commissioner for Stamps, Basavanagudi and
Ors. AIR 2019 Karnataka 129

A gift deed was
executed which was held to be insufficiently stamped. The reason for the
insufficiency was due to the Deputy Commissioner’s objection to the fact that
the gift of the immovable property was done by a trust and not by a family
member. The stamp duty payable in case of a trust and a family member are
different.

The facts of
the case suggested that a private trust was purported to have been formed by
one of the family members where certain conditions in violation of rules of
perpetuity as per section 14 of the Transfer of Property Act were laid down.
Hence, the trust became null and void and inoperative in the eyes of law, being
void ab initio. Thereafter, a gift deed was drafted for the purpose of
gifting the properties to children. However, the Deputy Commissioner impounded
the said gift deed stating that proper stamp duty had not been paid on the
instrument. It was alleged that the property belonged to the trust and not the
family members and that the gift deed was in the nature of conveyance and hence
a higher stamp amount was applicable.

The Court held that while deciding the stamp
duty under the provisions of sections 33 and 39 of the Stamp Act, the recitals
of the document have to be looked into. The Deputy Commissioner for Stamps
cannot decide the validity of the document or the validity of the trust deed.
It was for the person who disputes the gift deed or the trust deed to approach
the competent civil court. The authorities exercising powers under the
provisions of the Stamp Act have to consider the recitals to determine stamp
duty and they have no jurisdiction to decide the title between the parties.
Accordingly, the impugned order was quashed.

BCAJ Admin

REPRESENTATION

1. Dated: 12^th
November, 2019

To:The Tax policy
and Statistics Division Centre for Tax Policy and Administration OECD

Subject: Comments
and Suggestions for the Unified Approach under Pillar One – Secretariat
proposal

Representation by:
International Taxation Committee of Bombay Chartered Accountants Society

Note: For full Text of the above
Representation, visit our website www.bcasonline.org

BCAJ Admin

RIGHT TO INFORMATION (r2i)

PART A DECISIONS OF HIGH COURTS

Can a Government Order issued by the
State exist over the provisions of the RTI Act?

A writ petition
was filed by Advocate D.B. Binu, who is an RTI activist and president of a federation
of such activists, impugning an order issued by the Government of Kerala which
ostensibly says that certain types of information cannot be made available to
the public even under the RTI Act.

In the High
Court of Kerala at Ernakulam, Mr. Justice Devan Ramachandran while delivering a
judgement on WP(C) No. 11202 of 2019 on 25^th June, 2019
stated:

‘From this
limited perspective, I must say that I fail to understand how the Government of
Kerala could order that “all documents / information related to Inter-State
matters and documents / information which Government feels privy to and the
disclosure of the same may hamper the interest of the State, shall be exempted
from revealing to the public even on request under RTI Act”, particularly when,
under the Right to Information Act is a well-defined hierarchy of officers,
with the State Information Commission at its head, which is expected to be
autonomous and resistant to any pressure from the Executive. It is disquieting
that the order appears to be an attempt to influence the various Information
Officers and Appellate Authorities under the RTI Act by dictating that they
shall not make available certain types of information, no matter what the
mandate of the RTI Act. This certainly is a very dangerous proposition and it
is incomprehensible how the Government could arrogate to itself the power to
issue such an order, knowing full well that this is gross affront to the
provisions of law, because it must certainly be aware that information sought
for by an applicant under the RTI Act can only be denied under the specific
instances enumerated in sections 8 and 9 of the said Act and in no other.
Whatever be the reason behind issuance of this order and however justified the reason stated therein may be, the incontrovertible
fact is that the Government could not have issued this order to pre-empt grant
of any information, whatever be its nature, since it is up to the individual
Information Officers, Appellate Authorities and the Information Commission to
grant or deny such information, guided by the imperatives of the Act; and the
apparent attempt of the Government to dictate to them, through the impugned
order, can never obtain support
in law.’

Further, the
judgement states, ‘I cannot let the order influence or trample the officials
under the RTI Act, while acting under its mandate; and I, consequently, clarify
unequivocally that, notwithstanding the contents of the said order, which I
cannot find to be worthy of favour from this Court, the various Public Information
Officers, Appellate Authorities and the State Information Commission shall only
act implicitly in terms of the RTI Act, de hors this order, adverting to
the exceptions statutorily provided and nothing more, nothing less.’

[WP(C). No.
11202 of 2019, dated 25^th June, 2019]

PART B RTI ACT, 2005

RTI amendment Bill

The existing law
says that the public authorities are required to make disclosures on:

(i) their
organisation, functions and structure,

(ii) powers and
duties of its officers and employees,

(iii) financial
information

If such information
is not provided by the public authorities on their own, the citizens have the
right to demand the same from them under the RTI Act. ‘Public authorities’
refers to Ministers and government servants, among others.

The Central
Information Commission is headed by a Chief Information Commissioner and ten
Information Commissioners. They are appointed by the President (read Central
Government) who appoints them for a fixed tenure of five years and a salary of the rank of the Chief Election
Commissioner and Election Commissioners, respectively. This was done to give
the Central Information Commission autonomy and protection from government
interference.

The gist of the proposed amendment to the RTI is as follows:

(a) The clause
‘five-year fixed term, or up to the age of 65 years, whichever is earlier’ is
removed;

(b) The status, terms and salary of the CIC, which is now equal to that
of Chief Election Commissioner, will be reduced;

(c) It is
contemplated to give powers to the political executive, i.e., to the Central
Government to prescribe the term, salary and status of the commissioners both
at the Centre and in the states;

(d) The Centre will
get power to prescribe the term, status and salary from time to time.

At first glance,
the amendments appear benign. They deal with matters pertaining to tenure,
allowances and the terms of service of Information Commissioners. These were
articulated in the Act, which mandates fixed five-year terms and accords
appropriate status to the Commissioners by equating their salaries with those
of the Election Commissioners at the state and Central level. The amendment
removes these provisions and empowers the Centre to take these decisions.

Two consequences
follow from this. First, it undermines the status of the Commissioners which,
in the hierarchy of the state, is a necessary condition for staying
independent, issuing orders and, more importantly, monitoring implementation.
This was the logic behind conferring Information Commissioner’s status and
salary equivalent to Election Commissioners (and the Chief Secretary in the
case of states). Importantly, this is a principle routinely adopted for
statutory oversight bodies.

Second, it allows
the Centre to meddle with the everyday functioning of the Commission. The
Centre has now appropriated powers to notify the term of office. In other
words, it can get rid of uncomfortable Commissioners with relative ease, thus
making the Information Commissions subservient to it. In undermining their
independence, the amendments threaten the spirit and intent of the RTI Act,
which is to establish norms of transparency and accountability in governance.

‘Information is
the currency that every citizen requires to participate in the life and
governance of society’: Justice A.P. Shah, former
Chief Justice, Delhi and Madras High Courts (2010).

The government must
keep in mind that the RTI Act is regarded as one of the most successful laws of
independent India. It has proved to be the strongest and most effective tool
that ordinary citizens possess to hold accountable the powers that be.

The RTI Act has
been used time and again to ask a million questions across the spectrum – the
Reserve Bank of India, the Finance Ministry, demonetisation, non-performing
assets, the Rafael fighter aircraft deal, electoral bonds, unemployment
figures, the appointment of the Central Vigilance Commissioner, Election
Commissioners and the (non)-appointment of the Information Commissioners
themselves.

It is, therefore, imperative that the government, which runs the world’s
largest democracy, remains sensitive about public sentiment and should do
nothing that can be construed as a move to trample the rights and freedom of
its people.

(This
piece has drawn from inputs of various RTI activists and articles of various
experts on the topic)

PART C INFORMATION ON & AROUND

SFIO in HC against
CIC order to disclose details of criminal cases against Daewoo Motors

The Delhi High Court has sought response of
the now-defunct Daewoo Motors’ former auditor on a plea by the Serious Fraud
Investigation Office SFIO to set aside a Central Information Commission (CIC)
order directing it to make public details of criminal proceedings against the
company which is facing trial in several cases. Mr. Justice V.K. Rao has issued
notice to the auditor, Vipin Malik, and sought his response on the petition by
the SFIO, which functions under the Ministry of Corporate Affairs (MCA). The
Court listed the matter for further hearing on December 3.

(Source:https://economictimes.indiatimes.com/news/politics-and-nation/sfio-in-hc-against-cic-order-to-disclose-details-of-criminal-cases-against-daewoo-motors/articleshow/70721529.cms)

Respond to
RTI query seeking to know illegal Bangladeshis in India: CIC to MHA

The CIC has directed the Home Ministry to
respond to a three-year-old RTI application seeking to know the number of
illegal Bangladeshi nationals in India and action taken against agencies which
failed to send them back.

An RTI applicant had approached the Home
Ministry asking for information on three points – the number of illegal
Bangladeshis in India, the authority responsible for sending them back and
action taken against the authority for failing in its duty.

The matter was referred to the Intelligence
Bureau (IB), which denied the information citing its exemption from the RTI Act
being a national security and intelligence agency.

During the hearing at the Commission, the
highest adjudicating body in RTI matters, the Bureau of Immigration, which
works under the IB, said it only monitors and collects statistics pertaining to
those immigrants who overstay.

Seeking an unconditional apology, the Bureau
said the matter does not pertain to it and should have been returned to the
Ministry.

In view of this, the Commission directed the
respondent to transfer the appellant’s RTI application u/s 6(3) of the RTI Act
to the Central Public Information Officer (CPIO), MHA within a period of two
weeks from the date of receipt of a copy of the order under intimation to the
appellant, Chief Information Commissioner Sudhir Bhargava said.

(Source:https://www.business-standard.com/article/pti-stories/respond-to-rti-query-seeking-to-know-illegal-bangladeshis-in-india-cic-to-mha-119070100657_1.html)

CIC tells RBI to
give defaulters’ names to RTI applicant

The CIC has directed the RBI to disclose the
list of big loan defaulters it had sent to various banks for resolution.

The CIC’s directive came while deciding on a
plea by an RTI activist, who had based the application on media reports that
RBI Deputy Governor Viral Acharya in a lecture in 2017, had said that the
accounts of some loan defaulters had been sent to banks for resolution.

(Source:https://www.deccanchronicle.com/business/economy/280519/cic-tells-rbi-to-give-defaulters-names-to-rti-applicant.html)

CIC slams
DoPT for discrediting itself as RTI implementing agency

Despite the
Supreme Court having ordered transparency in the appointments of Information
Commissioners, the Department of Personnel and Training (DoPT), which is also
the implementer of the RTI Act, stonewalled information on this issue, only to
be admonished by the CIC, which has ordered it to provide the details sought
under RTI.

CIC Divya Prakash, in his order, observed
that ‘this kind of conduct amounts to stonewalling RTI applications and
stifling the very letter and spirit of the RTI Act. By resorting to such
unwarranted opacity, DoPT is setting a bad example for other public authorities
and at the same time discrediting its own footing as the nodal agency for the
implementation of the RTI Act.’

While warning
the DoPT CPIO not to take RTI
applications so casually, he also observed in his order, ‘It is ironic that the
information that has been denied in the instant case pertained to the
appointment of Information Commissioners under the RTI Act, who are ordained
with the statutory authority of securing the regime of transparency.’

(Source:https://www.moneylife.in/article/cic-slams-dopt-for-discrediting-itself-as-rti implementing-agency/57659.html)

BCAJ Admin

GOODS AND SERVICES TAX (GST)

I. AUTHORITY FOR ADVANCE RULING (AAR)

40. [2019] (27) GSTL 54 (A.A.R. – GST) Borbheta
Estate Pvt. Ltd. Date of order: 27^th
June, 2019;

Supply of services of renting of dwelling unit for residence purpose
whether given to individuals or to a company would not attract tax

FACTS

An applicant was inter
alia renting dwelling units. One of the flats was let out to M/s Larsen
& Turbo Ltd. in the housing complex named South City. The applicant argued
that he was not liable to pay tax on the renting services as it was for
residential purpose and exempt as per Notification No. 12/2017-C. T(Rate). The
Department stated that the exemption was not available since the residential
dwelling unit is rented to a commercial entity like M/s Larsen & Toubro
Ltd. But from the observation by the Authority it appeared that it was meant
for residential accommodation for the employees of the company and South City
Apartment Owners’ Association also certified that the applicant owns the flat and
it is a residential flat which cannot be used for any purpose other than
residential.

HELD

It was held that whether renting of dwelling unit
for residence purpose was given to individuals or to a company, it is covered
under exemption notification and thus supply of such services does not attract
tax.

41. [2019] 106 taxmann.com 292 (AAR –
Maharashtra) Aarel Import-Export (P) Ltd., In re. Date of order: 24^th
April, 2019;

The imported goods can be cleared in the name of GST registration
located in different state and even in case of ex-warehouse sale of such
imported goods to customers located in the state where imported goods are
stored; there is no need to obtain separate registration in that state

FACTS

The applicant, a company having its head office in
Mumbai, and registered under the GST Act in the state of Maharashtra, is an
importer and exporter / trader of products, etc. The applicant wishes to import
coke from Indonesia at Paradip Port in the state of Odisha. They will be
storing goods at rented customs warehouse (ex-bond) at Paradip Port. They do
not have any place of business / establishment or place of operation in Odisha.
Therefore, they will clear the goods from that warehouse in the name of their Mumbai
office using the Maharashtra GSTIN. The importation will be completed on
payment of custom duties, if any, and IGST in the name of the Mumbai office.

The applicant wishes to sell the goods directly
from Paradip Port warehouse (ex-bond) to the customers in Odisha and
accordingly charge IGST to their customers by raising bills from their Mumbai
office and not from Odisha. The applicant does not have any facility in Odisha
other than the Paradip Port customs warehouse. In this background, the applicant
raised a question as to whether they are required to obtain registration in
Odisha and whether they can supply the goods from custom warehouses there by
raising invoices in the name of their Mumbai office.

HELD

The AAR found that in respect of goods imported
into India, as per provisions of section 11(a) of the IGST Act, 2017 the place
of supply shall be the location of the importer. In the present case since the
importer is registered in Mumbai, the place of supply will be Mumbai,
Maharashtra. Since the applicant has no establishment or place of operation or
any godown or GSTIN in the state of Odisha, Paradip Port, i.e., the port of
import, the place of supply shall be the place from where the applicant makes a
taxable supply of goods which, in this case is the Mumbai head office.
Accordingly, AAR held that the applicant can clear the goods on the basis of
invoices issued by the Mumbai office and need not take separate registration in
Odisha.

As regards the second
question, AAR held that since as an importer the place of supply for the
applicant will be Mumbai, and the goods also will be cleared in the name of the
Mumbai registered address while paying IGST at the time of customs clearance,
it would follow that they can do further transactions mentioning the GSTIN of
their Mumbai office. As a corollary, they can do the transaction on the Mumbai
office GSTIN and can mention that GSTIN in the E-way Bill and the dispatch
place as the customs warehouse, Odisha, Paradip Port. AAR also relied upon its
own decision in the case of Sonkamal Enterprises (P) Ltd. in re
(2018) 100 taxmann.com 213 (AAR-Maharashtra) in this matter.

BCAJ Admin

Service Tax

I. SUPREME COURT

36. [2019] 106 taxmann.com 217 (SC) Steel
Authority of India Ltd. vs. Commissioner of Central Excise, Raipur Date of order: 8^th
May, 2019;

In case of retrospective escalation in prices of goods sold, for calculation
of interest on excise duty on price differential, the date of removal of goods
shall be considered and not the date of price revision

FACTS

The appellant sold and cleared the goods to its client and paid excise
duty on the price charged. Subsequently, the price of the goods was enhanced
retrospectively. The appellant discharged excise duty on the price differential
arising on account of the revision in price. Revenue demanded interest from
appellant u/s 11AB of the Central Excise Act, 1994, contending that the
appellant was liable to pay interest based on the date of removal of such goods
and not from the date of the price revision. The Tribunal rejected the appeal
filed by the appellant relying upon the judgement of the Supreme Court in CCE
vs. SKF India Ltd. [2009] 21 STT 499.

While deciding the appeal filed by the appellant against the order of
the Tribunal, a bench of two judges of the Supreme Court doubted the
correctness of the decision in the case of SKF India Ltd. (Supra) and
also in the case of CCE vs. International Auto Ltd. [2010] 24 STT 586
(SC) and referred the matter to a bench of three judges. Accordingly,
in the present appeals, the three-judge bench was required to decide that when
price is revised upward with retrospective effect and the excise duty on the
same is paid immediately on a future date, for the purposes of computation of
interest u/s 11AB, which is the month in which the duty ought to have been
paid?

HELD

The Supreme Court opined that where there is an escalation clause, goods
are cleared on a provisional price. Consequently, the value is provisional. If
there is a subsequent escalation with retrospective effect, it will affect the
valuation which was employed in the self-assessment by the assessee which would
necessarily be provisional. Enhancement of the value will date back to the date
of removal in view of the retrospective operation.

The Court did not agree with the reasoning of the bench of two judges
which held that for the purpose of section 11AB, the expression ‘ought to have
been paid’ would mean the time when the price was agreed upon by the seller. It
held that interpreting the words in the manner contemplated by the bench would
result in doing violence to the provisions of the Act and the Rules because
when an assessee in similar circumstances resorts to provisional assessment
upon a final determination of the value consequently, the duty and interest
dates back to the month ‘for which’ the duty is determined. Duty and interest
is not paid with reference to the month in which the final assessment is made.

Though the differential duty becomes crystallised only after the
escalation is finalised under the escalation clause, but it is not a case where
escalation is to have only prospective operation but admittedly retrospective
operation. In other words, the value of the goods which was only admittedly
provisional at the time of clearing the goods is finally determined and it is
on the said differential value that differential duty is paid. The Supreme Court
held that while the principle that the value of the goods at the time of
removal is to reign supreme, in a case where the price is provisional and
subject to variation and when it is varied retrospectively it will be the price
even at the time of removal. The fact that it is known later cannot detract
from the fact that the later-discovered price would not be value at the time of
removal. The three-judge bench also concurred with the views expressed in SKF
India Ltd. (Supra) and International Auto Ltd. (Supra).
Consequently, the present appeal filed by the appellant was dismissed.

II. HIGH COURT

37. [2019] (27) GSTL 12 (Mad.) Hitachi Power
Europe GMBH vs. C.B.I. & C. Date of order: 2^nd
April, 2019;

Pre-show cause notice consultation with Principal Commissioners or
Commissioners is made mandatory in nature involving demand of duty above Rs. 50
lakhs as per the C.B.I. & C. Circular and recommendation of Tax
Administration Reforms Commission (TARC)

FACTS

An intimation for conduct of service tax audit was issued by the audit
department on the petitioner in 2015. In 2016, another notice was issued by
senior audit officer / CERA authority – V about the proposed CERA audit and for
keeping ready the documents for smooth audit. Audit was conducted and no
specific query was raised or explanation called for. Later, in 2016, a letter
was issued by Assistant Commissioner of Service Tax making reference of the
audit slips issued by CERA and the assessee was called upon to deposit the service
tax due as per the audit slips. The petitioner offered an explanation and
sought an opportunity of personal hearing prior to finalisation of proceedings.
Later, another notice was issued calling for various documentary evidence in
support of contentions in the explanation offered. A detailed reply was filed
along with a request to drop the proposals raised by audit. The request for
personal hearing was reiterated. The above events culminated with impugned show
cause notice with a reference to CERA audit. There was, however, no reference
to the replies filed or the details furnished in the course of the audit.

A writ petition was filed by the petitioner that he had not got an
opportunity of personal hearing prior to finalisation of proceedings against him
and eventually a show cause notice was issued against him which ultimately
triggered the commencement of adversarial proceedings between the petitioner
and the department. The circular of C.B.I & C. and recommendation of TARC
states that there should be pre-show cause notice consultation between the
petitioner and the officer prior to the stage of issuance of show cause notice.

HELD

The Hon’ble High Court held that the impugned show cause notice has been
issued to the petitioner without the process of pre-show cause notice
consultation and directed the officer to call upon the petitioner with all
relevant details and afford him full opportunity of pre-show cause notice
consultation, prior to issuance of the show cause notice.

38. [2019] (25) GSTL 534 (Del.) Vaani Kapoor vs.
Commissioner of Service Tax Date of order: 10^th
September, 2018;

Consideration paid by flat buyers to a builder for acquisition of the
flats is not subject to service tax

FACTS

The petitioner was the owner of the residential flat constructed by the
builder. Service tax amount on the residential flat under construction was
collected from the petitioner by the builder. Subsequently, a writ petition was
filed challenging such levy on the construction of residential flats as
unconstitutional vide the judgment of Suresh Kumar Bansal & Ors. vs.
UOI & Ors. (2016) 287 CTR (Del) 1 wherein, the levy of service tax
on residential flat u/s 65(105) (zzzh) of the Finance Act, 1994 – as well as
explanation to section 65(105) (zzzzu) was held ultra vires and
unconstitutional and the amount collected towards service tax was directed to
be refunded.

HELD

The High Court, referring to the judgement of Suresh Kumar Bansal
& Ors. (Supra), held that identical relief shall be granted to the
petitioners. The respondents were directed to undertake the requisite
procedures for the remittance of the refund amount to the petitioner and to
issue required notices to the builder and to the petitioner to facilitate the
process, thereby allowing the writ petition.

III. TRIBUNAL

39. [2019] 106 taxmann.com 148 (Bang. – CESTAT)
AMD India (P) Ltd. vs. Commissioner of Service Tax, Bangalore Date of order: 20^th
November, 2017;

Tribunal held that activity
of providing sales and marketing support in India to entities located outside
India cannot be said to be covered under purview of ‘intermediary services’

FACTS

The appellant, a 100%
software export-oriented unit, provided business auxiliary services to its
holding company located outside India, i.e., sales and marketing support
services which involved activities including meeting with original equipment
manufacturers, providing training on products, holding events or trade shows,
etc. The appellant’s claim of refund for unutilised CENVAT credit, in terms of
Rule 5 of CENVAT Credit Rules, 2004 was rejected by the Revenue on the ground
that the services provided by appellant are in the nature of ‘intermediary
services’ under Rule 9 of Place of Provision of Services Rules, 2012 and, thus,
cannot be said to be ‘export of services’ under Rule 6A of Service Tax Rules,
1994.

HELD

The Tribunal noted that the terms of Master Service Agreement with its
holding company does not provide that the appellant will facilitate or will
arrange the purchase and sale on behalf of entities outside India. Further, it
was noted that the appellant’s potential customers for the products of the
foreign company are located abroad. Though the services are provided with
respect to the buyer in India, the benefit of the same accrued to the service
recipient located abroad.

The Tribunal relied on its decision in Lenovo India (P) Ltd. vs.
CCE [2009] 21 STT 134 (Bang. – CESTAT) holding that promoting sale of
goods of foreign clients in India being BAS fulfils the conditions under Export
of Service Rules, 2005 and qualifies as export of service. Further, in KSH
International (P) Ltd. vs. CCE [2010] 25 STT 307 (Mum.), it was held that
the phrase ‘used outside India’ is to be interpreted to mean that the benefit
of the service should accrue outside India; thus, it is possible that export of
service may take place even when all the relevant activities take place in
India so long as the benefits of these services accrue outside India.
Accordingly, in this case the Tribunal held that the appellant cannot be said
to be providing ‘intermediary services’ and allowed the present appeals with
consequential reliefs.

Note: Similarly, in [2019]
106 taxmann.com 213 (Bang. – CESTAT) Commissioner of Central Excise &
Service Tax, Bangalore-V vs. Analog Devices India (P.) Ltd. [13-11-2017],
it was held that when an Indian entity provided consulting engineering service
and business auxiliary service to the holding company located outside India and
it located potential customers for products of the foreign company located
abroad, such services cannot be said to be in the nature of ‘intermediary
services’. However, in Excel Point Systems India (P) Ltd. vs. CST [2019]
106 taxmann.com 174 (Bang. – CESTAT) [28-09-2017], where the assessee
had entered into a Buying Services Agreement with its parent company located in
Singapore to render marketing support services, which included data collection
and statistical and business analysis in relation to the company’s products /
customer market and sending across data / reports to the company, etc., and
technical support services, which included advisory support provided to
customers with regard to the project design based on directions from the
company, the Bangalore Tribunal held that such services rendered by the
assessee would fall within the definition of intermediary services.

40. [2019] 106 taxmann.com 74 (Chandi. – CESTAT)
Evalueserve.Com (P) Ltd. vs. Commissioner of Service Tax, Gurgaon Date of order: 7^th
February, 2018;

Where assessee provided various services to the customers of the client
(i.e. service recipient), on direction of service recipient located outside
India, Tribunal held that such services cannot be said to be ‘intermediary
services’

FACTS

The appellant entered into an agreement with a client, a foreign entity
located outside India, wherein the appellant was required to provide the
services to the customers of the client in accordance with the requirements as
specified by the client. The appellant would directly interact with the
customers of the client, as and when required, and hence would provide the
services to such customers on behalf of the client in close coordination with
the client’s team. The final reports were directly provided by the appellant to
the customers of the clients.

Accordingly, for the services provided by the appellant on behalf of the
client in relation to inter alia, business research (including financial
services), market research and intellectual property activities, the appellant
received the margin every month from its client in convertible foreign
exchange. Revenue alleged that the activities of the appellant would get
covered within the scope of ‘intermediary services’ under Rule 2(f) of Place of
Provision of Services (POPS) Rules, 2012 and, hence, cannot be said to be
export of services under Rule 6A of ST Rules, 1994.

HELD

The Tribunal noted that the lower authority committed an error in
holding that the appellant provided services on behalf of the foreign client,
whereas the appellants are themselves engaged in providing services to their
client on their own account. In fact, the appellant has provided the services
to customers of their client and having no direct nexus with the customers of
their client and nowhere has facilitated or arranged for the services provided
to their client by a third party. Furthermore, the appellant have themselves
provided the services to their client as the main service provider on
principal-to-principal basis; therefore, the activity undertaken by the
appellant does not qualify as intermediary as defined in Rule 2(f) of Place of
Provision of Services Rules, 2012.

The Tribunal also referred to the view taken by the Advance Rulings
Authority of India in the case of Universal Services India (P) Ltd. vs.
CST [Ruling No. AAR/ST/07/2016, dated 4-3-2016] and Godaddy India
Web Services (P) Ltd. In re [2016] 67 taxmann.com 324/64 GST 681 (AAR –
New Delhi). Accordingly, the Tribunal held that the appellant cannot be
said to be a provider of ‘intermediary services’ and, thus, not liable to pay
service tax under Rule 9 of POPS Rules, 2012.

41. [2019] (25) GSTL 460 (Tri. – Ahmd.)
Commissioner of Service Tax, Ahmedabad vs. Om Air Travels Pvt. Ltd. Date of order: 2^nd
April, 2019;

Discount received from main IATA agent by the appellant as a sub-agent
is not taxable

FACTS

The appellant was a sub-agent, purchasing tickets at a discounted price
from the main IATA agent and later selling these at a higher price to
customers. The Department was of the view that the discount received from the
main IATA agent as a sub-agent was liable to be taxed under Business Auxiliary Service.
Relying on the decision in the case of CCE Goa vs. Zuari Travel
Corporation vide order dated 18^th July, 2013, the appellant
submitted that the services are classifiable as an air travel agent service and that the commission received from the main IATA agent and selling
the tickets to customers is not taxable.

HELD

The Tribunal held that purchasing tickets at lower price, i.e.,
discounted price and selling at a higher price is a trading activity and the
difference is a trade margin during the process of sale and purchase of the
tickets, and hence the trade margin is not taxable. The impugned order is
upheld and Revenue’s appeal is dismissed.

42. [2019] (25) GSTL 59 (Tri. – All.) Logix Infrastructure
Pvt. Ltd. vs. Commissioner of Central Excise & Service Tax, Noida Date of order: 29^th
September, 2018;

Entire consideration on residential complex service including components
such as preference location charges, external and internal development charges,
legal specification, etc. are eligible for abatement under Notification No.
26/2012-ST

FACTS

An appeal was filed by a service provider giving
residential complex services stating that with effect from 1^st July,
2012 there does not exist the concept of individual service in the statute as
per the introduction of section 66F. The section provides that when there are
various elements of services then they are to be bundled together and shall be
treated as a single service. Thus, the assessee can claim an abatement of 75 %
on tax rate of 12.36 % as per Notification No. 26/2012-ST for the service
provided by them to recipients in the form of preference location charges,
external and internal development charges, legal specification, etc., as such
services do not have independent existence but are associated with the
provision of residential complex service; thus they cannot be vivisected and
cannot be treated as separate and charged at a different rate. But the C.B.E.
& C. were of the view that such services should be treated as independent
service and should be subject to different rate of tax, i.e., benefit of
abatement should not be granted on preferential service.

HELD

The Tribunal held that section 66F will prevail over any clarification or
view taken by C.B.E. & C.; therefore the components such as preferred
location charges, external development charges, etc., are part and parcel of
various elements of the main service, which is residential complex service, and
therefore the entire consideration received by the appellants is eligible for
abatement.

43. [2019] (25) GSTL 573 (Tri. – Chan.) Hitachi
Metals (I) Pvt. Ltd. vs. Commissioner of C. Ex. & ST (Gurgaon-1) Date of order: 3^rd
April, 2019;

Claiming refund of service tax beyond the period of one year from the
date of payment

FACTS

The appellant entered into an agreement with M/s Hitachi Metals (India)
Pvt. Ltd. having its office in Japan and similar agreements with outside
clients for promotion of products by way of customer’s identification and
contact and to co-operate with and represent MET in promotional efforts. The
appellant, due to lack of clarity, had paid service tax for the period April,
2006 to February, 2008 for the services provided to the foreign-based service
recipient receiving payment in convertible foreign exchange. As per C.B.E.
& C. Circular No. 111/05/2009-ST dated 24^th February, 2009, it
had been clarified that services of Indian agents who carry out marketing in
India for foreign sellers would be treated as exports and no service tax was
required to be paid.

On the basis of this, the appellant filed a refund
claim on 12^th January, 2010. However, the refund was rejected on the
grounds that it was filed beyond the period of limitation mentioned in section
11B of Central Excise Act, 1944. As per this section, the refund claim shall be
filed within a period of one year from the date of payment. As the appellant
filed the refund claim beyond that period, it was rejected.

HELD

The Tribunal allowed the appeal relying upon the decision in the case of
National Institute of Public Finance & Policy vs. Commissioner of
Service Tax 2019 (20) G.S.T.L. 330 Delhi. In that case, the assessee
paid service tax under the wrong impression that it was liable to pay service
tax. Subsequently, it was informed by C.B.E.C. on 13^th April, 2009
that its activities were not taxable. While processing the refund application,
the refund of certain amounts was denied on the ground that the application was
filed after a lapse of one year.

Revenue relied upon Collector of C.E., Kanpur vs. Krishna Carbon
Paper Co., 1988 (37) E.L.T. 480 (S.C.) and submitted that refund claim
before a departmental authority is to be made within the four corners of the
statute and the period of limitation prescribed in the Central Excise Act and
the Rules framed under it.

The Hon’ble Court, however, distinguished the said judgement stating
that Krishna Carbon Paper Co. (Supra) was a case where principal
duty was payable; excess amount had been paid on a mistaken notion with respect
to the liability for excess production under a notification which was later
discovered to be not correct. In the present case, the levy never applied – a
fact conceded by no less than the authority of C.B.E.C. In these circumstances,
the general principle alluded to in Krishna Carbon Paper
Co. (Supra) would apply. Accordingly, the appeal was allowed.

BCAJ Admin

MISCELLANEA

1. Technology

25. Apple contractors ‘regularly
hear confidential details’ on Siri recordings

Apple contractors regularly hear confidential medical information, drug
deals and recordings of couples having conversations as part of their job
providing quality control, or ‘grading’, to the company’s Siri voice assistant.

Although Apple does not explicitly disclose it in its consumer-facing
privacy documentation, a small proportion of Siri recordings are passed on to
contractors working for the company around the world. They are tasked with
grading the responses on a variety of factors, including whether the activation
of the voice assistant was deliberate or accidental, whether the query was
something Siri could be expected to help with and whether Siri’s response was
appropriate.

Apple says the data ‘is used to help Siri and dictation… understand you
better and recognise what you say’. But the company does not explicitly state
that that work is undertaken by humans who listen to the ‘pseudonymoused’
recordings.

Apple told the Guardian: ‘A small portion of Siri requests are
analysed to improve Siri and dictation. User requests are not associated with
the user’s Apple ID. Siri responses are analysed in secure facilities and all
reviewers are under the obligation to adhere to Apple’s strict confidentiality
requirements.’ The company added that a very small random subset, less than 1%
of daily Siri activations, are used for grading and those used are typically
only a few seconds long.

A whistleblower working for the firm, who asked to remain anonymous due
to fears over his job, expressed concern about this lack of disclosure,
particularly given the frequency with which accidental activations pick up extremely
sensitive personal information.

The whistleblower said: ‘There have been countless instances of
recordings featuring private discussions between doctors and patients, business
deals, seemingly criminal dealings, sexual encounters and so on. These recordings
are accompanied by user data showing location, contact details and app data.’

Apple is not alone in employing human oversight of its automatic voice
assistants. In April, Amazon was revealed to employ staff to listen to some
Alexa recordings and earlier this month Google workers were found to be doing
the same with Google Assistant.

(Source: www.theguardian.com)

26. I found your data. It’s for
sale

I’ve watched you check in for a flight and seen your doctor refilling a
prescription.

I’ve peeked inside corporate networks at reports on faulty rockets. If I
wanted, I could’ve even opened a tax return you only shared with your
accountant.

I found your data because it’s for sale online. Even more terrifying:
It’s happening because of software you probably installed yourself.

My latest investigation into the secret life of our data is not a fire
drill. Working with an independent security researcher, I found as many as four
million people have been leaking personal and corporate secrets through Chrome
and Firefox. Even a colleague in The Washington Post’s newsroom got
caught up. When we told browser makers Google and Mozilla, they shut these
leaks immediately – but we probably identified only a fraction of the problem.

The root of this privacy train wreck is browser extensions. Also known
as add-ons and plug-ins, they’re little programmes used by nearly half of all
desktop web surfers to make browsing better, such as finding coupons or
remembering passwords. People install them assuming that any software offered
in a store run by Chrome or Firefox has got to be legitimate.

Not. At. All. Some extensions have a side hustle in spying. From a
privileged perch in your browser, they pass information about where you surf
and what you view into a murky data economy. Think about everything you do in
your browser at work and home – it’s a digital proxy for your brain. Now
imagine those clicks beaming out of your computer to be harvested for
marketers, data brokers or hackers.

Some extensions make surveillance sound like a sweet deal: Amazon was
offering people $10 to install its Assistant extension. In the fine print,
Amazon said the extension collects your browsing history and what’s on the
pages you view, though all that data stays inside the giant company. (Amazon
CEO Jeff Bezos owns The Washington Post.) Academic researchers say there
are thousands of extensions that gather browsing data – many with loose or
downright deceptive data practices – lurking in the online stores of Google and
even the more privacy-friendly Mozilla.

The extensions we found selling your data show just how dangerous
browser surveillance can be. What’s unusual about this leak is that we got to
watch it taking place. Large swathes of the tech industry treat tracking as an
acceptable way to make money, whether (or not) most of us realise what’s really
going on. Amazon will give you a $10 coupon for it. Google tracks your searches
and even your activity in Chrome to build out a lucrative dossier on you. Facebook
does the same with your activity in its apps and off.

Of course, those companies don’t usually leave your personal information
hanging out on the open internet for sale. But just because it’s hidden doesn’t
make it any less scary.

(Source: www.washingtonpost.com)

27. UPI is world class and it’s
time to take it international

Cryptocurrencies are peer-to-peer electronic cash systems that are
governed not by the authority of a central bank but by digital code.
Transactions are only added to the common distributed ledger if they can be
validated in accordance with the rules stipulated by the code, ensuring that
digital currency once spent cannot be re-spent. For everyone who uses the same
blockchain, its distributed ledger becomes a common source of truth that allows
them to carry out peer-to-peer transactions without the need for validation by
a central entity.

Bitcoin is one such cryptocurrency. It uses a decentralised,
permissionless system that allows anyone to validate a transaction, so long as
they meet the technical requirements for operating a node. However, Bitcoin
prioritises decentralisation over speed and scalability. As a result, it is
incapable of processing transactions at the velocity or volume that modern
financial systems demand. As there is a finite limit to the total number of
Bitcoins that will ever be minted, its value fluctuates wildly, resulting in
the sort of volatility that is undesirable in a currency.

Facebook recently announced the launch of a new cryptocurrency called
Libra which, it claims, will address the many failings of Bitcoin. Libra has
been designed to operate on a bespoke blockchain running on at least 29 nodes
and backed by a basket of bank deposits and government securities to ensure low
volatility. For the foreseeable future, Libra will function as a permissioned
cryptocurrency to achieve the high transaction throughput and low latency
functionality expected of a global
payment system.

Libra will be most useful for underdeveloped countries that lack a
digital financial infrastructure. It will offer them a safe and cost-effective
mechanism for making payments that will scale effortlessly in places where the
use of Facebook and WhatsApp is already widespread. When combined with social
media data, it will allow developers to come up with innovative new products
that incumbent financial sector players will be hard-pressed to match. As the
value of a Libra today is designed to always be close to its value tomorrow and
in the future, it will operate as a currency hedge in countries where exchange
fluctuations are high.

I read the Libra White Paper with interest, keen to understand how this
new cryptocurrency would change things for us in India. We are Facebook’s
second largest market outside the US and any financial product it launches is
bound to have an impact on us. However, the more I read, the less convinced I
was that Libra was going to give India anything that it did not already have.

In Unified Payments Interface (UPI), India has a robust digital payments
infrastructure that, within just three years of its launch, already
effortlessly processes more than 750 million transactions a month. We have a
network of business correspondents throughout the country who integrate our
online and offline payment systems by converting digital payments into cash and
vice versa. While we may not yet have the data advantage that Libra promises to
bring, once the Data Empowerment and Protection Architecture is fully
implemented, it will give us an entirely new way to build financial products
using its digital consent infrastructure. Admittedly, UPI isn’t decentralised,
but given how difficult it is going to be to migrate away from a permissioned
architecture, it’s not as if Libra really offers much better.

That said, there is at least one thing Libra has going for it that UPI
does not – the ability to radically transform how cross-border transfers are
effected. India receives more inward remittances from its diaspora than any
other country in the world ($79 billion in 2018). At present, all the
mechanisms for international transfer of funds are costly, cumbersome and
highly inefficient. A digital currency like Libra, pegged as it is to a basket
of stable currencies, and transferable anywhere in the world, will offer overseas
Indians a cheap, digital way to move money to relatives back home at a fraction
of the cost that they currently spend.

In its report on deepening digital payments, the Nandan Nilekani
Committee has recommended that it is time to take UPI global. Several different
options have been proposed, including amending UPI protocols to include
currency conversion support and directly connecting UPI to global payments
systems to allow immediate, low-cost remittances to take place over the UPI
system. There was also a suggestion that UPI specifications and technologies
should be licensed to operators around the world to allow the protocol to
spread outside India. This must be accompanied by amendments in Indian
regulations, so that Indians can use UPI from abroad in much the same way as
Chinese citizens use WeChat from wherever they are in the world.

Cryptocurrency-based payment systems are slow and computationally
intensive. While the technology can be optimised, we will keep running up against
its inherent limitations that make it hard to scale to population size. UPI may
not be decentralised, but we know it works well at scale even over the
sometimes patchy mobile networks in India.

There is no need to optimise blockchain technologies to meet the needs
of developing markets when we already have a proven, world-class digital
payments protocol in India that can easily be internationalised. Let’s back
ourselves and just do it.

(Source: www.livemint.com)

2. Health

28. ‘My Guru told me that as long
as I have good health, I should continue to serve society’, says Metro Man
Sreedharan

E. Sreedharan, who is revered as the ‘Metro Man’ of India, shared that
his Guru, Poojya Shri Swami BhoomanandaTirthaji, told him that as long as he
has good health he should continue to serve the society with the attitude that
it is an offering to God.

A recipient of the prestigious Padma Vibhushan in 2008,
Sreedharan also said, ‘When the assignment is for the good of society, I don’t
pull back. It is job satisfaction which excites me.’

Answering what keeps him going at 88, he said, ‘I
was very religious in my early years – shaped by my parents that way. And I
moved to spirituality particularly after the association with my guru. I like austerity
and simplicity.’ His habit of waking up and sleeping on time and a disciplined
life kept him fit. ‘I am fastidious about exercise, be it in the open air or
regular yoga. I was a sportsman in my young days, was captain of the college
football team. This addiction to regular exercise has remained with me,’ he
said.

At present Sreedharan is directly in charge of the Kochi Metro, while he
is also serving the Jammu and Kashmir government for light metro projects to be
implemented in Jammu and Srinagar cities.

He is also serving as a consultant to the Uttar Pradesh government for
the Lucknow, Kanpur and Meerut metro projects. Though he had tendered his
resignation from the post last month because of time constraints, it was not
accepted by the State Government led by Chief Minister Yogi Adityanath.

(Source: www.swarajyamag.com)

29. Passive use of social media
may increase depression

Great holiday, fantastic party and incredible food, everyone shows their
life in the best light on social networking apps like Facebook and Twitter, but
researchers have found that people who use these apps passively are in danger
of developing depressive symptoms.

‘Being confronted by social information on the Internet – which is
selective and only positive and favourable – leads to lower self-esteem,’ says
study lead author Phillip Ozimek from the Ruhr University Bochum.

As low self-esteem is closely related to depressive symptoms,
researchers consider this short-term effect to be a potential source of danger.

For the study, published in the journal Behaviour and Information
Technology, the researchers interviewed over 800 people about their use of
Facebook, their tendency to compare themselves with others, their level of
self-esteem and the occurrence of depressive symptoms.

They found a positive correlation between passive Facebook use – not
posting pictures – and depressive symptoms when subjects have an increased need
to make social comparisons of their abilities.

‘So, when I have a strong need to compare and keep seeing in my News
Feed that other people are having great holidays, making great deals and buying
great, expensive things while everything I see out of my office window is grey
and overcast, it lowers my self-esteem,’ Ozimek said.

(Source:
www.gadgetsnow.com)

BCAJ Admin

ALLIED LAWS

11.
Adverse possession – Gratuitous licensee – No rights acquired in case of
gratuitous possession [Limitation Act, 1963, Article 65]

Lawrence
Ranchhodbhai Christian vs. Gujarat Christian Service Society, AIR 2019, Gujarat
161

The
suit was preferred by the plaintiff. The suit premises were owned by the
defendant institution and the plaintiff was living in the premises since
childhood because he had been adopted by the defendant as an orphan. Since the
acceptance of the plaintiff by the defendants, the physical possession of the
suit premises was handed over to him within the knowledge of the defendant and
trustees of the defendant. Nobody had made any disturbance in the possession of
the plaintiff since the last 25 years or more. It was clarified that he was not
a tenant of the suit premises.

But the plaintiff claimed
that he was in vacant and peaceful possession of the suit premises since the
last 25 years and by way of adverse possession he was the owner of the said
premises.

The Court observed that
admittedly the plaintiff was an orphan and since his childhood was permitted by
the defendant institution to live in the suit premises. He cannot create any
dispute by claiming any ownership of the said premises as he has not acquired
any title. Long possession even of many years or decades could not acquire
(bestow) any rights or interest in the suit premises by the plaintiff. An
orphan can never acquire any interest in the property irrespective of his long
possession. Such possession cannot be protected by a court of law. Such
protection can only be granted or extended to a person who has a valid,
subsisting rent agreement, a lease agreement or a license agreement in his
favour. The plaintiff has acquired no right or interest whatsoever in the suit
property irrespective of his long stay and possession.

It was held that the
appellant shall hand over the vacant possession and mesne profit of the
suit premises to the defendant who is admittedly the owner of the property.

12.
General power of attorney holder (GPA) – When no legal practitioner
appears for the principal and the GPA holder undertakes not only the signing of
pleadings but also the job of a legal practitioner, he must necessarily file
the affidavit of the principal authorising him to do so [Civil Procedure Code,
1908; O. 3, R. 2; Andhra Pradesh Civil Rules of Practice and circular orders,
R. 32]

Ruhina
Khan and Ors. vs. Abdur Rahman Khan and Ors. AIR 2019, Hyderabad 117

The issue was regarding the
nature of the procedure prescribed by Rule 32 which dealt with an agent other
than an advocate appearing for a party and Rule 33 of the Civil Rules of
Practice which dealt only with signing or verification of proceedings by an
agent; and should it be construed to be merely directory or mandatory to the
extent of holding non-compliance therewith to be fatal?

It was
observed by the Court that Rule 32(1) was clear w.r.t. its application to a
situation where a party appears as an agent other than an advocate. Therefore,
the said agent would appear for the party in all respects and not merely for
the purpose of signing and verifying pleadings. When the party appears through
an agent other than an advocate, the agent is required, before he appears or
acts in the Court or makes an application thereto, to file the power of
attorney, or written authority, or a properly authenticated copy thereof along
with an affidavit that the said authority, whereby he is empowered to do so, is
still subsisting. In the event of an agent carrying on a trade or business on
behalf of a party without a written authority, an affidavit stating the
residence of his principal; the trade or business carried on by the agent on
his behalf; the connection of the same with the subject matter of the suit; and
that no other agent is authorised to make or do such appearance, application or
act; shall be filed. Rule 32(2) provides that the Judge may thereupon record in
writing that the agent is permitted to appear and act on behalf of the party
and unless and until the said permission is granted, no appearance, application
or act of the agent shall be recognised by the Court.

Rule 33 deals with an agent
signing and verifying on behalf of his principal and states that if any
proceeding, which under any provision of law or the Civil Rules of Practice, is
required to be signed or verified by a party but is signed or verified by the
agent, a written authority in this behalf signed by the party shall be filed in
Court, together with an affidavit verifying the signature of the party and
stating the reason for his inability to sign or verify the proceedings and
stating the means of knowledge of the facts set out in the proceedings of the
person signing or verifying the same and that such person is a recognised agent
of the party, as defined by Order 3 Rule 2 CPC, and is duly authorised and
competent to do so.

The Division Bench held
that where the GPA holder merely signs the pleadings in a case where the
principal is represented by a legal practitioner, it is sufficient if the Court
satisfies itself that he has the authority to sign such pleadings and the
filing of an affidavit is not mandatory. Any defect in this regard can also be
cured at a later stage by convincing the Court that such GPA holder was duly
authorised by the principal to represent him in the matter. However, in a case
where the GPA holder not only signs the pleadings but also adduces evidence and
advances arguments on behalf of the principal, he would necessarily have to
file an affidavit of the principal affirming that he authorised the GPA holder
to do so.

In
view of the above observations, the Court held that Rule 32 of the Civil Rules
of Practice is not mandatory seems to be an oversight as it is Rule 33 which
was held to be not mandatory, but no mention was made of the said Rule in the
concluding paragraph. Rule 32, on the other hand, was clearly held to be
mandatory as the Bench observed that when no legal practitioner appears for the
principal and the GPA holder undertakes not only the signing of pleadings but
also the job of a legal practitioner, he must necessarily file the affidavit of
the principal authorising him to do so.

13. Hindu Undivided Family (HUF) – Sale
by karta – Failure to prove legal necessity – Sale not binding on
members of joint family [Civil Procedure Code, 1908; O. 32, R. 1]

Sangnath
and Ors. vs. Babu and Ors., AIR 2019 (NOC) 685 (Bom.)

The appeal was filed by the
original defendants. The present respondents No. 1 and 2 were the original
plaintiffs. They had filed a suit for partition and separate possession. They
were minors at that time and therefore the suit was filed through their cousin
as next friend. The original defendant is the father of the plaintiffs.

It was contended that the
plaintiffs and the defendant are the members of a joint Hindu family. However,
after the wife expired, the father (defendant) did not pay attention to the
family. He got addicted to liquor and ganja and in order to fulfil his
vices, he started selling the joint Hindu family properties. It is stated that
there was absolutely no necessity for the defendant to sell the lands. The sale
transactions were not for legal necessity and they were not binding on the
share of the plaintiffs. The defendant filed a written statement and denied the
statement that the defendant was addicted to liquor and in order to satisfy his
vices, he had sold out the lands.

It was
argued that the land which was near a rivulet (nala) was barren and was
not giving any income to the father, therefore he sold it to defendant No. 2.
It was for the necessities of the family. So also a portion of the land was
sold since the father did not have bullocks and other agricultural implements to
cultivate it. Thus, according to defendants No. 2 to 4, the lands had been sold
for legal necessity and those transactions were binding on the plaintiffs.

Taking into consideration
the evidence on record and hearing both sides, the Civil Judge, Junior Division
held that the plaintiffs would get 2/3^rd share. The first appeal
before the Joint District Judge was dismissed.

In the 2^ndappeal
before the High Court, heavy reliance was placed on ratio expounding
that karta of the family can sell the property for legal necessity.

The
High Court held that casual statements made in the sale deed regarding sale of
the land for ‘necessity’ is not sufficient evidence for the simple reason that
the details of the necessity were not given in the recital of the sale deeds.
Further, there was also no need to challenge the sale deeds for the simple
reason that, though the sale deeds were executed by the defendant No. 1 without
any legal necessity, those sale deeds cannot be said to be binding on the share
of the plaintiffs. Accordingly, the appeal was dismissed.

14.
Secured creditors would have priority over all debts and government dues
[Securitisation and Reconstruction of Financial Assets and Enforcement of
Security Interest Act, 2002; section 35]

Kulbir
Singh Dhaliwal vs. UT Chandigarh, AIR 2019 P&H 151

The earlier owner of the
property in question through its Directors had availed of a loan facility in
the amount of Rs. 13.15 crores from respondent No. 3 – Punjab National Bank – against
security by way of equitable mortgage. The respondent bank had got the details
of the secured asset registered. The loan account subsequently became irregular
as the borrowers could not maintain financial discipline and hence the same was
classified as an NPA (Non-Performing Asset). Thereafter, the respondent bank
initiated recovery proceedings under the provisions of the Securitisation and
Reconstruction of Financial Assets and Enforcement of Security Interest Act,
2002 (SARFAESI Act), which culminated in taking over of the possession of the
secured asset. A public auction was fixed at a reserve price of Rs. 11.50
crores vide a notice in which the petitioners emerged as the highest bidders.
After the deposit of the entire bid amount of Rs. 13.92 crores against the
reserve price of Rs. 11.50 crores, physical possession of the property was
handed over to the petitioners by respondent No. 3 (the bank) along with the
sale certificate under Rule 9(6) of the Security Interest (Enforcement) Rules,
2002. It may be emphasised here that there was no mention at all in the public
notice regarding any dues or encumbrances which may have stood against the said
property.

When the petitioners and
the authorised officer of the secured creditor approached respondent No. 2
(Sub-Registrar, UT) for registration of the sale certificate under the
Registration Act, 1908 (the 1908 Act), he refused to register the same holding
that the property in question already stood attached by the Government of
Maharashtra u/s 4 and 5(1) of the Maharashtra Protection of Interest of
Depositors (in Financial Establishments) Act, 1999 (the MPID Act). On refusal
of registration of the sale certificate, the petitioners impugned the order by
preferring an appeal u/s 72 of the 1908 Act before the Deputy
Commissioner-cum-Registrar, respondent No. 1, who dismissed the same. It was in
this background that the instant writ petition came to be filed before the High
Court.

The question which arose
for consideration was whether the recovery of a secured debt would take
precedence over a crown debt; the issue is no longer res integra.

It was observed that a
reading of section 31-B of the Recovery of Debts and Bankruptcy Act, 1993 which
starts with a non-obstante clause, makes it amply clear that the right
of a secured creditor to realise a secured debt shall have priority over all
debts and government dues including revenues, taxes, cesses and rates due to
the Central Government, State Government or Local Authority.

Accordingly it was held
that it cannot be over-emphasised that the property in question was auctioned
by the respondent bank to recover its secured debts and the attachment order
issued by the Government of Maharashtra must yield to the rights of the
respondent bank. Therefore, the auction proceedings must be taken to their
logical end and no reason was seen as to why the registration of the sale
certificate be refused to the auction purchasers, i.e., the petitioners.

BCAJ Admin

FROM THE PRESIDENT

Dear Members,

As I sit down to write this
communication, the Finance Minister has just concluded presenting the Interim
Budget. In an invigorating Interim Budget speech, for the first time by a
Chartered Accountant, the Finance Minister left no stone unturned in highlighting
the series of measures taken by the Government to overcome policy paralysis and
bring the Indian economy back on track.
While a bystander may get a perception that some of these recollections
amount to blowing one’s own trumpet, perhaps in these times of persistent
negativity and noise, some element of positive assertion helps build
confidence.

Departing
from established conventions, the Finance Minister also proposed certain
amendments in the tax laws. Interestingly, there was a departure not only from
convention but also from a traditional mindset. Essentially, the proposals do
not aim to merely provide incremental benefits but appear to suggest a
recalibration of tax laws and limits to accept ground level realities and
changing times. The doubling of the basic exemption limit for individuals from
Rs. 2.5 lakh to Rs. 5 lakh and the quadruplicating of the threshold limit for
TDS on interest on bank fixed deposits from Rs. 10,000 to Rs. 40,000 cannot be
simply brushed aside as incremental changes. Nor can one ignore the concession
granted for the second residential house, both in terms of interest deduction
and the reinvestment benefit.

GST has been a classic
example of how multiple Government agencies having distinct taxing powers can
collectively administer and recover taxes from the common subject. Perhaps
taking inspiration from the said success, the Interim Budget also proposes
reforms in the levy and collection of stamp duty on financial securities
transactions. Collecting such stamp duty at one place through the Stock
Exchange and sharing the same backend with the State Governments seamlessly on
the basis of domicile of the buying client, could bring in much needed
simplicity in the administration of the said duty.

One more reflection of the mindset
change could perhaps be an elaborate thanksgiving to the tax payers. Through
some examples drawing an emotional connect with the tax payers, the Finance
Minister acknowledged the stellar role of the tax payers in contributions
towards nation- building. While it is always said that taxes are the price that
the society pays for building civilization, it is not very common for a Finance
Minister to acknowledge such contribution wholeheartedly through the Budget
speech.

This mindset change is now clearly visible in many of the interactions with the
Government officials. The CPC – TDS is on a mission to roll out the next phase
of reforms in the field of filing of TDS Returns. In an inspiring talk at the
BCAS, the Commissioner Mr. Sunil Sharma with full humility outlined the
proposed system and wholeheartedly invited suggestions and constructive
feedback for improvements.

The Society had the
privilege to have an interactive discussion with the IIA Global Chairman Mr.
Naohiro Mouri and IIA Global President Mr. Richard Chambers on the side-lines
of the International Conference on Internal Audit. It was interesting to hear
about their life journeys and we could carry home many lessons for the growth
of the internal audit profession. The discussion will be transcribed and
carried in the next issue of the Journal.

A host
of amendments proposed in the GST Act were ultimately made effective from 1^st
February 2019. Many of these amendments are carried out retrospectively and
clearly represent a mindset of the Government to understand the ground level
difficulties and provide workable solutions to such difficulties. Notable
amongst them is the permanent burial of the reverse charge mechanism in case of
supplies received from unregistered persons.

It is perhaps now time for the industry and
the professionals to welcome this mindset change with positivity and build up
confidence and assurance in the long-term reforms and growth. While
constructive criticism is an essential ingredient of any live and vibrant democracy,
too much of criticism without a logical basis for the same could result in the
economy reverting back to policy paralysis.

The next edition of the
Journal will mark the conclusion of the 50^th year of the Journal. 50
years is a very important milestone. In the context of a magazine published by
a voluntary organisation, it speaks volumes about the contents and the
relevance. The next edition of the BCAJ will do its bit to spread this
positivity especially in the context of the accounting profession and would be
a must read for all the professionals. The Editorial Team led by Raman Jokhakar
has ably curated the best of articles and features and I eagerly await the said
edition. In the meantime, I wish you all a very happy reading.

Yours truly

CA.
Sunil Gabhawalla

President

BCAJ Admin

FROM THE PRESIDENT

Dear Members,

At the outset,
let me take this opportunity to wish you a Happy New Year 2019. 2018 is a year
which will be remembered in the history of accountants and finance
professionals for a variety of reasons – both good and not so good.

The year started
with the unravelling of a massive scam of unsubstantiated LOUs issued by the
Punjab National Bank. Though it is traditionally an off balance sheet exposure,
the role of the auditors was widely discussed and criticised. This, followed by
the recent ILFS episode, brought to forefront various systemic issues and to
some extent the inefficacy of the audit process. While the ICAI has acted fast
on such issues, one thing which is evident is that the profession of chartered
accountancy has taken a turn which needs immediate course correction.

Overambitious
expansion plans and / or systemic diversion of funds by corporates coupled with
bad lending decisions by banks resulted in an alarming ratio of NPAs, which to
some extent were window dressed. However, recent trends suggest a good recovery
ratio of such NPAs. It appears that the new Insolvency and Bankruptcy Code is
now deriving the desired results. Despite the same, there are lots of issues
surrounding the banking sector resulting in a virtual liquidity crisis with major
public sector banks being under the prompt corrective action plan of the
Reserve Bank of India.

The tiff between
the Reserve Bank of India and the Government apparently on issues ranging from
PCA and liquidity crisis to the withdrawal of reserves took an ugly turn. This
was immediately followed by a change in guard at the helm of RBI.

The year also did
not augur too well in terms of growth in the economy. Unemployment continues to
remain an issue. Farm debt and waivers became an election issue. Coupled with
many other factors, it resulted in change in Governments in a few States.
Perhaps such incidents made the Government rethink on some of the policies
surrounding GST. The GST Council in its 31^st Meeting brought in a
slew of measures to simplify the burden of the businesses and also reduced the
rate of GST on many goods and services.

The results of
the Central and Regional Councils of the ICAI have been announced. Our
congratulations to all the winners. The task before the winners is clearly cut
out. The Regional Council members will have to strive hard to improve
administrative efficiencies and provide better member services including
disseminating knowledge to the members. The Central Council members have a much
onerous duty to perform – to provide thought leadership, ensure effective
representation and also take concrete efforts for the overall development of
the profession. The Society is always available to provide constructive
suggestions in this regard and work hand in hand with the Institute.

The year ended
with a series of high profile weddings – be it Bollywood or industry tycoons.
Each of these weddings entailed a lavish display of wealth. While such
expenditure is a personal choice and is also helpful in generating domestic
employment to some extent, one wonders at the disparity in the wealth which
becomes so apparent and visible and is further fuelled by social media.

As we proceed
towards 2019, all eyes will be on the General Elections. Will it be a contest
fought on the agenda of development and growth or will caste, religion and
populism take priority? It is for the nation to decide. We as professionals can
initiate an informed debate and convince our circles of influence to cast their
vote.

After hectic
professional season, this period is relatively relaxed in terms of professional
work. It is perhaps time to ponder on some larger issues facing the profession.
It is also time to sharpen the knowledge base. The Society has lined up a
series of events which are relevant for the membership at large. I trust the
members will take the benefit of the same.

Yours truly

CA. Sunil Gabhawalla

President

BCAJ Admin

GLIMPSES OF SUPREME COURT RULINGS

11.
Mahabir Industries vs. Pr. CIT (2018) 406 ITR 315 (SC)

Industrial undertaking – Deduction u/s.
80IA, 80IB and 80IC – The Assessees had started claiming and were allowed
deductions from the Assessment Years 1998-99 and 1999-2000 u/s. 80-IA and from
the Assessment Year 2000-01 to Assessment Year 2005-06 under section 80-IB of
the Act and thus were entitled to the deduction under the new provision i.e.
section 80-IC on fulfilling conditions contained in sub-section (2) of section
80-IC for the first time for the Assessment Year 2006-07

The Assessee
manufactured polythene for which it had its factory in Shimla, Himachal
Pradesh. The activity undertaken by the Assessee, an industrial undertaking,
qualified for exemption from income tax u/s. 80-IA of
the Act.

This deduction
under section 80-IA was claimed and allowed for two Assessment Years i.e.
1998-99 and 1999-2000.

Section 80-IA of the
Act was originally introduced in the year 1991 by the Finance (No. 2) Act, 1991
w.e.f. April 1, 1991. There were amendments in the section from time to time.
This section was amended by the Finance Act, 1999 w.e.f. April 1, 2000. Along
with this provision, section 80-IB was also introduced for the first time by
the same Finance Act, 1999.

From the Assessment
Year 2000-01 to Assessment Year 2005-06, the Assessee claimed deduction u/s.
80-IB.

Another provision
in the form of section 80-IC was inserted by Finance Act, 2003 w.e.f. April 1,
2004. The provisions of section 80-IC provided deduction to manufacturing units
situated in the State of Sikkim, Himachal Pradesh and Uttaranchal and
North-Eastern States. The deduction was provided to new units established in
the aforesaid States, and also to existing units in those States if substantial
expansion was carried out.

The Assessee completed substantial expansion (by investing in new plant
and machinery of value more than 50% of the value of plant and machinery
already installed as on 1 April, 2005) to the manufacturing unit situated at
Baddi, Himachal Pradesh in the Assessment Year 2006-07. In view of the
substantial expansion, the Assessee claimed deduction u/s. 80-IC @100% for
Assessment Years 2006-07 and 2007-08, which was also allowed by the Assessing
Officer (AO) after passing the order u/s. 143(3) of the Act.

However,
thereafter, deductions for the Assessment Year 2008-09 and Assessment Year
2009-2010 were rejected by the AO on the ground that this was 11^th
and 12^th year of deduction and as per section 80-IC(6), total
deductions u/s. 80-IC and section 80-IB cannot exceed the total period of ten
years. Commissioner of Income Tax (Appeals) and Income Tax Appellate Tribunal
upheld the order of the AO. The High Court dismissed the appeals on the ground
that it cannot claim deduction u/s. 80-IC, 80-IB or 10C for a period exceeding
ten years.

The Assessee framed
the questions of law in the appeal before the Supreme Court:

(a) Whether the Hon’ble High Court was justified
in holding that the Petitioner was not entitled to deduction u/s. 80-IC of the
Act by virtue of provision s/s. (6), when the same was not even applicable to
the Petitioner?

(b) Whether the Hon’ble High Court was justified in
holding that the provisions of section 80-IC(6) of the Act apply to all the
undertaking claiming deduction u/s. 80-IB(4) of the Act when 80-IC(6) refers to
only those undertakings which are covered by second proviso to section
80-IB(4)?

(c) Whether the Hon’ble High Court was justified
in holding that the Petitioner is not eligible for deduction u/s. 80-IC for a
period of 10 assessment years when substantial expansion was carried out by the
Petitioner and a substantially new unit was claiming deduction u/s. 80-IC of
the Act?

(d) Whether the Hon’ble High Court was justified in
holding that the Petitioner was not entitled to deduction u/s. 80-IC of the Act
for assessment year 2008-09 and 2009-10 when the total period of deduction of
ten years was expiring after assessment year 2009-10?

The Supreme Court
noted that the High Court judgment had taken a categorical view that the moment
‘substantial expansion’ is completed as per section 80-IC(8)(ix), the statutory
definition of ‘initial assessment year’ {Section 80-IC(8)(v)} comes into play.
As a consequence, section 80-IC(3)(ii) would entitle the unit to hundred per
cent deduction for five years commencing with completion of ‘substantial
expansion’ followed by twenty-five per cent deduction for next five years i.e.
subject to maximum of ten years. According to the Supreme Court, the High
Court, thus, accepted that when the substantial expansion is done in a
particular Assessment Year and that is made during the period mentioned in
sub-section (2) of section 80-IC, not only benefit admissible u/s. 80-IC shall
get triggered, the year in which such substantial expansion is completed is to
be treated as ‘initial assessment year’. Having said so, it has put a cap of
ten years by invoking the provision of section 80-IC(6). According to the
Supreme Court, as per the provisions of sub-section (6) of section 80-IC, no
deduction is allowed to any undertaking or enterprise under that section, where
the total period of deduction inclusive of the period of deduction under that
section, or under the second proviso to sub-section (4) of section 80-IB or
u/s. 10C, as the case may be, exceeds ten assessment years. The total period of
ten years, thus, is to be counted in the following three circumstances:

(a) When the
deduction has been given u/s. 80-IC for a period of ten years, no further
deduction is admissible.

(b) When the
deduction is given under second proviso to sub-section (4) of section 80-IB.

The said second
proviso reads as under:

Provided further
that in the case of such industries in the North-Eastern Region, as may be
notified by the Central Government, the amount of deduction shall be hundred
per cent of profits and gains for a period of ten assessment years, and the
total period of deduction shall in such a case not exceed ten assessment years.

This provision
pertains to those industries which are in the North-Eastern Region.

It is again a
special provision in respect of certain industrial undertakings in
North-Eastern Region.

The Supreme Court
held that the Assessee in the instant case had not got deduction u/s. 80-IC for
a period of ten years as he started claiming deduction under this provision
w.e.f. Assessment Year 2006-07. Situation Nos. (b) and (c) mentioned above would
not apply to the Assessee as it’s undertaking/enterprise was not established in
North-Eastern Region. It was, thus, clear that the High Court had failed to
appreciate that the provisions of section 80-IC(6) of the Act state that the
total period of deduction u/s. 80-IC and section 80-IB cannot exceed ten
assessment years only if the manufacturing unit was claiming deduction under
second proviso to section 80-IB(4) of the Act i.e. units located in the
North-Eastern State.

According to the
Supreme Court, the matter could be looked into from another angle. U/s. 80-IA,
deduction is provided to such industrial undertakings or enterprises which are
engaged in infrastructure development etc., provided they fulfill the
conditions mentioned in s/s. (4) thereof. Section 80-IB makes provisions for
deduction in respect of those industrial undertakings, other than
infrastructure development undertakings, which are enumerated in the said
provision. On the other hand, the intention behind section 80-IC is to grant deduction
to the units making new investments in the State by establishing new
manufacturing unit or even to the existing manufacturing unit which carried out
substantial expansions. The purport behind the three types of deductions
specified in section 80-IA, section 80-IB and section 80-IC was, thus,
different. Section 80-IC stipulates the period for which hundred per cent
deduction is to be given and then deduction at reduced rates is to be given. If
the Assessee had earlier availed deduction u/s. 80-IA and section 80-IB, that
would be of no concern in as much as on carrying out substantial expansion, which
was carried out and completed in the Assessment Year 2006-07, the Assessee became entitled to deduction u/s. 80-IC from the initial
year. The term ‘initial year’ is referable to the year in which substantial
expansion has been completed, which legal position was stated by the High Court
itself and even accepted by the Department as it had not challenged that part
of the judgment.

The inclusion of
period for the deduction is availed u/s. 80-IA and section 80-IB, for the
purpose of counting ten years, is provided in sub-section (6) of section 80-IC
and it is limited to those industrial undertakings or enterprises which are
set-up in the North-Eastern Region. By making specific provision of this kind,
the Legislature had shown its intent, namely, where the industry is not located
in North-Eastern State, the period for which deduction is availed earlier by an
Assessee u/s. 80-IA and section 80-IB would not be reckoned for the purpose of
availing benefit of deduction u/s. 80-IC of the Act.

The Supreme Court
observed that insofar as the factum of substantial expansion of the
Assessee’s unit in the Assessment Year 2006-07 was concerned, the same was not
subject matter of any controversy in the instant case. It hads been accepted by
the Department that Assessee had carried out substantial expansion. Precisely,
for this reason, the AO had allowed deduction for Assessment Years 2006-07 and
2007-08. Therefore, issue was not as to whether there is a substantial
expansion or not. The issue was only as to how a period of ten years was to be
calculated, namely, whether those Assessment Years in respect of which
deduction u/s. 80-IA and section 80-IB was allowed were to be counted for the
purpose of giving deduction u/s. 80-IC.

The Supreme Court
was of the opinion that it was wrong on the part of the AO not to allow
deduction to the Assessee u/s. 80-IC for the Assessment Years 2008-09 and
2009-2010. As a result, the judgment of the High Court on this aspect was set
aside and the appeals were accordingly allowed.

12. CIT vs. Classic Binding Industries (2018) 407 ITR 429 (SC)

Industrial undertaking – Deduction u/s.
80IC – After availing deduction for a period of 5 years @ 100% of such profits
and gains from the ‘units’, the Assessees would be entitled to deduction for
remaining 5 Assessment Years @ 25% (or 30% where the Assessee is a company), as
the case may be, and not @ 100%.

The Assessee firm
derived income from manufacturing of printed embossed book binding cover
material of cotton in sheet form and security fiber of dual coloured
combination. The Assessee firm comprised of nine partners during the relevant
assessment year. The Assessee started its business activity/operation on 11^th
July, 2005 and initial Assessment Year for claim of deduction u/s. 80-IC of the
Act was Assessment Year 2006-07. The Assessee had already claimed deduction
u/s. 80-IC to the extent of the 100% eligible profit for five Assessment Years
2006-07 to Assessment Year 2010-11. However, it was noticed that the Assessee
firm had again claimed 100% deduction against eligible profits in the relevant
Assessment Year 2012-13 which is seventh year of production for the firm by
claiming substantial expansion in Financial Year 2010-11.

The Assessee was
asked to furnish the reasons and justification for the said claim of 100% as
against the eligible norm of 25%. The Assessee submitted its reasons for claim
stating that the Assessee fulfills all the conditions for the claim of 100%
deduction.

The Assessing
Officer found that in view of the provisions of section 80-IC of the Act
Assessee firm had already claimed deduction u/s. 80-IC of the Act at the rate
of 100% for five years from Assessment Year 2006-07 to Assessment Year 2010-11,
i.e., from the date of setting up of the industrial undertaking and in view of
the same, it would be eligible for claim of deduction @ 25% of its eligible
business profits for the remaining five years, i.e., from Assessment Year
2011-2012 to Assessment Year 2015-2016. The Assessing Officer denied the claim
of the enhanced deduction in view of the substantial expansion was claimed by
the Assessee and, accordingly, restricted the deduction to 25% of eligible
profits for the assessment year 2012-13.

On appeal, the
CIT(A) following the decision of the jurisdictional Tribunal in the case of Hycron
Electronics vs. ITO and other related cases, upheld the order of the
Assessing Officer and dismissed the appeal of the Assessee for 100% deduction.

Feeling aggrieved,
the Assessee filed further appeal before the ITAT. While observing that both
the parties agreed that the issue involved in appeals, was squarely covered
against the Assessee in view of the decision of the coordinate bench of ITAT in
the case of Hycron Electronics, dismissed the appeal by a composite order for
Assessment Years 2011-12 and Assessment Year 2012-13 by holding that Assessee
was eligible for deduction u/s. 80 of the Act @ 25% of the profit derived from
industrial undertaking for these years and not @ 100% of deduction claimed by
the Assessee.

Dissatisfied with
the aforesaid order, Assessee filed appeal u/s. 260A before the High Court of
Himachal Pradesh, Shimla raising therein substantial questions of law. The
result of other Assessees was also on almost same pattern, who filed their
respective appeals as well. The High Court decided the issue in a composite
judgment, in favour of all these Assessees. The High Court held that there was
no restriction that undertaking or enterprise established after 7^th
January, 2003 could not carry out ‘Substantial Expansion’ and could not be
carried out more than once as long as period of eligibility for claiming
deduction u/s. 80-IC of the Act.

The Supreme Court
noted the provisions of section 80IC of the Act and observed that whereas the
exemption is provided @ 100% of such profits and gains for five assessment
years commencing with the initial assessment years and, thereafter, 25% (or 30%
where the Assessee is a company) of the profits and gains for next five years.
The deduction is limited to a period of 10 years.

In this backdrop,
according to the Supreme Court, the question before it was as to whether these
Assessees, who had availed deductions @ 100% for first five years on the ground
that they had set up a manufacturing unit as prescribed under s/s. (2) of the
Act, could start claiming deductions @ 100% again for next five years as they
had undertaken “substantial expansion” during the period mentioned in
s/s. (2)?

The Supreme Court
noted that in the instant case, it was concerned with the Assessees who had
established their undertakings in the State of Himachal Pradesh. S/s. (3),
mentions the period of 10 years commencing with the initial Assessment Year.
S/s. (6) puts a cap of 10 years, which is the maximum period for which the
deduction can be allowed to any undertaking or enterprise under this section,
starting from the initial Assessment Year. Another significant feature under
s/s. (3) is that the deduction allowable is 100% of such profits and gains from
an undertaking or an enterprise for five Assessment Years commencing with the
initial Assessment Year and thereafter the deduction is allowable at 25% (or
30% where the Assessee is a company) of the profits and gains. Cumulative
reading of these provisions brings out the following aspects:

(a) Those undertakings or enterprises fulfilling
the conditions mentioned in sub-section (2) of section 80-IC become entitled to
deduction under this provision.

(b) This deduction is allowable from the initial
Assessment Year. “Initial Assessment Year” is defined in section
80-IB(14)(c) of the Act.

(c) The deduction is @ 100% of such profits and
gains for first 5 Assessment Years and thereafter a deduction is permissible @
25% (or 30% where the Assessee is a company).

(d) Total period of deduction is 10 years, which
means 100% deduction for first 5 years from the initial Assessment Year and 25%
(or 30% where the Assessee is a company) for the next 5 years.

According to the
Supreme Court, keeping in mind the aforesaid scheme and spirit behind this
provision, such a situation could not be countenanced where an Assessee is able
to secure deduction @ 100% for the entire period of 10 years. If that was
allowed it would amount to doing violence to the provisions of sub-section (3)
read with sub-section (6) of section 80-IC. A pragmatic and reasonable interpretation
of section 80-IC would be to hold that once the initial Assessment Year
commences and an Assessee, by virtue of fulfilling the conditions laid down in
sub-section (2) of Section 80-IC, starts enjoying deduction, there cannot be
another “Initial Assessment Year” for the purposes of section 80-IC
within the aforesaid period of 10 years, on the basis that it had carried
substantial expansion in its unit.

The Supreme Court
expressly stated that it was conscious of its recent judgment in Mahabir
Industries vs. Principal Commissioner of Income Tax (406 ITR 315). However,
a fine distinction needed to be noted between the two sets of cases. In Mahabir
Industries, the Assessees had availed the initial deduction under a different
provision, namely, section 80-IA of the Act, i.e. by fulfilling the conditions
mentioned in sub-section (4) of section 80-IA. Those conditions were altogether
different. Deduction in respect of profits and gains under the said provision
was admissible when these profits and gains are from industrial undertakings or
enterprises engaged in infrastructure development etc. Even this availment
started at a time when section 80-IC was not even on the statute book. Section
80-IC was inserted by the Finance Act, 2003 with effect from April 01, 2004.
The Assessees in those cases had started claiming and were allowed deductions
from the Assessment Years 1998-99 and 1999-2000 u/s. 80-IA and from the
Assessment Year 2000-01 to Assessment Year 2005-06 u/s. 80-IB of the Act. The
deduction was, thus, claimed by the Assessees in those appeals under the new
provision i.e. section 80-IC on fulfilling conditions contained in sub-section
(2) of section 80-IC for the first time for the Assessment Year 2006-07. Thus,
insofar as those cases were concerned, the initial Assessment Year u/s. 80-IC
started only from the Assessment Year 2006-07. In contrast, position here was
altogether different. These Assessees had availed deduction u/s. 80-IC alone.
Initially, they claimed the deduction on the ground that they had set up their
units in the State of Himachal Pradesh and after availing the deduction @ 100%
they wanted continuation of this rate of 100% for the next 5 years also under
the same provision on the ground that they had made substantial expansion. The
Supreme Court held that, as pointed out above, once the Assessees had started
claiming deduction u/s. 80-IC and the initial Assessment Year has commenced
within the aforesaid period of 10 years, there could not be another initial
Assessment Year thereby allowing 100% deduction for the next 5 years also when
s/s. (3), in no uncertain terms, provides for deduction @ 25% only for the next
5 years. Also, the Assessees accepted the legal position that they could not
claim deduction of more than 10 years in all u/s. 80-IC.

The Supreme Court therefore held that after
availing deduction for a period of 5 years @ 100% of such profits and gains
from the ‘units’, the Assessees would be entitled to deduction for remaining 5
Assessment Years @ 25% (or 30% where the Assessee is a company), as the case
may be, and not @ 100%. The question of law was, thus, answered in favour of
the Revenue thereby allowing all these appeals.

BCAJ Admin

LETTER TO THE EDITOR

Dear Editor,

I, Mr.
Dineshkumar Sitaram Agarwal, am a member of the Bombay Chartered Accountants’
Society & also a regular reader of Bombay Chartered Accountants’ Society
Journal. With reference to the December 2018 Edition, it is my pleasure to tell
you that content in the BCAJ is very well-written and useful.

I would like to
make one suggestion. Case laws on Chartered Accountants who happen to be
Ordinary Directors/ Individual Directors/ Non – Executive Directors of a
Company & face criminal/ civil liability under Labour Law or any other law
can be inserted under your “ALLIED LAWS” Column.

For example: We
enclose herewith one case law of Kerala High Court where a Chartered Accountant
defended
himself successfully in a prosecution case launched against him under PF Act.

We hereby suggest
that similar case laws are included as it would be useful for members at large
& hope that you will consider my suggestion.

Thanks,

Mr. Dineshkumar
Sitaram Agarwal.

B. C. A. M. No.: LA – 000048.

BCAJ Admin

ETHICS AND U

Arjun (A) — O’ Lord, you have always been telling me the importance of
ethics; but ………

Shrikrishna — ‘But what, Arjun?

A — In practice, it is very difficult. I will have to close down my practice. Whatever I do, there is some misconduct or
the other. Just not possible to escape.

S — (smiles). What you say is largely true. But ultimately, it is in your own interest to
follow the rules of ethics.

A — How?
Many times it is a burden.

S — You are mistaken. Yours is not only a profession; but a
mission!

A —This is very philosophical and idealistic.

S —Listen, the very foundation of any
profession is credibility. If that is
lost, not only that individual member but the entire profession suffers.

A — It’s really a challenge. Just think, we as chartered accountants are
answerable to so many authorities – MCA, SEBI, Tax authorities, Bankers, RBI,
FEMA, Labour law authorities, authorities under many economic laws and most
importantly, our client! This is very
unfair!

S — I appreciate this. But often when a few members commit
misconduct, the society perceives the entire profession as unethical. Then your
professional brothers also suffer for no reason.

A — True, we do slog in updating our
knowledge, delivering the quality. But
one factor is beyond our control. We
became helpless.

S — What is that?

A — Corruption! Wherever we go, corruption gives frustration
to us.

S — It is difficult to disagree with
you. But what do you mean by corruption?

A — Bribery!
Even if a case is hundred per cent perfect, it does not reach finality
without some greesing. Professionals are made helpless.

S — What if you refuse?

A —The authorities have tremendous nuisance
value. They can make one’s life
miserable if their demand is not ‘satisfied’, and client gets scared as his
business is disrupted. In spite of
representing the case perfectly, the client gets an impression that the case
gets ‘settled’ by money and not by merits of our presentation!

S — Do you feel bribery is the only form of
corruption? Any compromise on principles
for a personal gain is corruption.

A — What do you mean?

S — Have there been times when you sign a accounts
without diligently verifying its correctness, or sometimes even knowing the
deficiencies in the accounts? And you
take fees. Is it not corruption?

A — It is a point worth thinking about!

S — Arjun, corruption is of thoughts
also. Tell me, you CAs are perceived to
be those who can ‘manage’ things! Many a
time it is perceived that, you people help find loopholes in the laws. .

A — Yes.
I have also experienced that. It
is very painful as most of us are not of that sort.

S — So, you need to introspect. Just think, you people manage even your ‘CPE’
hours! Some pay the seminar fees; but
often not remain present. Even if you
are physically present, you enjoy your ‘siesta’. Is it not ‘corruption’?

A — Lord, now don’t give me any more
instances! I feel more and more guilty;
if not ashamed! We are burdened by so
much unnecessary and useless matters and are surrounded by such imperfections
of the society such as complicated legal systems. Tell me what is the solution?

S — Unity amongst yourselves and strong
leadership. Don’t allow it to be a
spineless profession. You need courage
to stand up and fight. After all you are
financial ‘police’. You cannot help or
ignore the thieves!

A — We also need strong leaders.

S — How can you expect strong
leadership? Even your elections are
fought on the basis of caste, community, language and such irrelevant factors
whereas merit and motivation to serve should be the sole criteria. This, I say, is corruption of ‘thoughts’.

A — I agree that we can bring about the
change only by united action with strong leadership. It will be my ‘New Year Resolution” for 2019!

S — New Year Resolutions are never acted
upon. Take it as life mission! Then only you will get ‘Divine Support and
blessings’!

A — Yes Bhagwan.

Om Shanti

This dialogue is meant for reinforcing the
importance of ethics and the need for unity to achieve the triumph of
righteousness over evil.

BCAJ Admin

FROM PUBLISHED ACCOUNTS

Segment Reporting as per IndAS 108

Compilers’ Note:

As compared to AS 17 ‘Segment Reporting’, Ind AS 108 ‘Operating Segments’ has changed the manner in which segment identification is done and has also mandated several additional disclosures. These disclosures are required in line to be what internally the company reports to its ‘Chief Operating Decision Maker (“CODM”). Given below is a compilation of the extracts of disclosures given in the financial statements for the year ended 31^st March 2018 from few companies in different industries.

REDDY’S LABORATORIES LTD

From Significant Accounting Policies:

Segment Reporting:

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. Refer 2.24 for segment information presented.

From Notes to Financial Statements

Segment Reporting:

The Chief Operating Decision Maker (“CODM”) evaluates the Company’s performance and allocates resources based on an analysis of various performance indicators by operating segments. The CODM reviews revenue and gross profit as the performance indicator for all of the operating segments, and does not review the total assets and liabilities of an operating segment. The Chief Executive Officer is the CODM of the Company.

The Company’s reportable operating segments are as follows:

Global Generics;
Pharmaceutical Services and Active Ingredients (“PSAI”); and
Proprietary Products.

Global Generics: This segment consists of the Company’s business of manufacturing and marketing prescription and over-the-counter finished pharmaceutical products ready for consumption by the patient, marketed either under a brand name (branded formulations) or as generic finished dosages with therapeutic equivalence to branded formulations (generics). This segment includes the operations of the Company’s biologics business.

Pharmaceutical Services and Active Ingredients: This segment consists of the Company’s business of manufacturing and marketing active pharmaceutical ingredients and intermediates, also known as “API” or bulk drugs, which are the principal ingredients for finished pharmaceutical products. Active pharmaceutical ingredients and intermediates become finished pharmaceutical products when the dosages are fixed in a form ready for human consumption such as a tablet, capsule or liquid using additional inactive ingredients. This segment also includes the Company’s contract research services business and the manufacture and sale of active pharmaceutical ingredients and steroids in accordance with the specific customer requirements.

Proprietary Products: This segment consists of the Company’s business that focuses on the research, development, and manufacture of differentiated formulations and new chemical entities (“NCEs”). These novel products fall within the dermatology and neurology therapeutic areas and are marketed and sold through Promius ® Pharma, LLC.

Others: This includes the operations of the Company’s wholly-owned subsidiary, Aurigene Discovery Technologies Limited, a discovery stage biotechnology company developing novel and best-in-class therapies in the fields of oncology and inflammation and which works with established pharmaceutical and biotechnology companies in early-stage collaborations, bringing drug candidates from hit generation to pre-clinical development.

The measurement of each segment’s revenues, expenses and assets is consistent with the accounting policies that are used in preparation of the Company’s consolidated financial statements.

Segment Information:

(1) Revenue for the year ended 31^st March 2018 does not include inter-segment revenues from PSAI segment to Global Generics segment which amounts to Rs. 5,492 (as compared to Rs. 6,181 for the year ended 31^st March 2017).

(2) Post implementation of Goods and Services Tax (“GST”) with effect from 1^st July 2017, sales is disclosed net of GST. Sales for the year ended 31^st March 2017 included excise duty of Rs. 939 which is now subsumed in the GST. Sales for the year ended 31 March 2018 includes excise duty of Rs. 173 up to 30^th June 2017. Accordingly, sales for the year ended 31^st March 2018 are not comparable with those of the previous year presented.

Analysis of revenue by geography:

The following table shows the distribution of the Company’s revenues (excluding other operating income) based on the location of the customers:

REPORTABLE SEGMENTS	FOR THE YEAR ENDED 3^rd MARCH 2018
	GLOBAL GENERICS	PSAI	PROPRIETARY PRODUCTS	OTHERS	TOTAL
Revenue from operations(1)(2)	114,282	22,438	4,250	1,840	142,810
Gross profit	67,190	4,477	3,799	869	76,335
Less: Selling and other unallocable expense/ (income), net					62,831
Profit before tax					13,504
Tax expense					4,380
Profit after tax					9,124
Add: Share of profit of equity accounted investees, net of tax					344
Profit for the year					9,468

REPORTABLE SEGMENTS	FOR THE YEAR ENDED 3^rd MARCH 2017
	GLOBAL GENERICS	PSAI	PROPRIETARY PRODUCTS	OTHERS	TOTAL
Revenue from operations(1) (2)	115,736	21,651	2,783	1,791	141,961
Gross profit	71,079	4,497	1,951	853	78,380
Less: Selling and other unallocable expense/(income), net					62,843
Profit before tax					15,537
Tax expense					2,965
Profit after tax					12,572
Add: Share of profit of equity accounted investees, net of tax					349
Profit for the year					12,921

COUNTRY	FOR THE YEAR ENDED 31^st MARCH 2018	FOR THE YEAR ENDED 31^st MARCH 2017
India	25,209	24,927
United States	68,124	69,816
Russia	12,610	11,547
Others	36,085	34,519
Total	142,028	140,809

Analysis of revenue within the Global Generics segment:

An analysis of revenue (excluding other operating income) by therapeutic areas in the Company’s Global Generics segment is given below:

PARTICULARS	FOR THE YEAR ENDED 31^st MARCH 2018	FOR THE YEAR ENDED 31^st MARCH 2017
Gastrointestinal	19,153	21,190
Oncology	16,999	17,054
Cardiovascular	16,501	15,553
Pain Management	12,898	14,323
Central Nervous System	12,509	12,749
Anti-Infective	6,557	7,189
Others	29,397	27,351
Total	114,014	115,409

Analysis of revenue within the PSAI segment:

An analysis of revenues (excluding other operating income) by therapeutic areas in the Company’s PSAI segment is given below:

PARTICULARS	FOR THE YEAR ENDED 31^st MARCH 2018	FOR THE YEAR ENDED 31^st MARCH 2017
Cardiovascular	6,191	5,078
Pain Management	3,228	3,290
Central Nervous System	2,331	2,758
Anti-Infective	1,968	1,859
Dermatology	1,606	1,606
Oncology	1,650	1,534
Others	5,018	5,152
Total	21,992	21,277

Analysis of assets by geography:

The following table shows the distribution of the Company’s non-current assets (other than financial instruments and deferred tax assets) by country, based on the location of assets:

COUNTRY	AS AT 31^st MARCH 2018	AS AT 31^st MARCH 2017
India	61,997	61,031
Switzerland	32,202	31,457
United States	8,483	8,233
Germany	2,968	2,560
Others	5,930	5,001
Total	111,580	108,282

The following table shows the distribution of the Company’s property, plant and equipment including capital work in progress and intangible assets acquired during the year (other than goodwill arising on business combination) by country, based on the location of assets:

COUNTRY	FOR THE YEAR ENDED 31^st MARCH 2018	FOR THE YEAR ENDED 31^st MARCH 2017
India	8,093	10,545
Switzerland	1,100	26,639
United States	779	2,657
Others	1,830	728
Total	11,802	40,569

Analysis of depreciation and amortisation, for arriving gross profit by reportable segments:

PARTICULARS	FOR THE YEAR ENDED 31 MARCH 2018	FOR THE YEAR ENDED 31 MARCH 2017
Global Generics	3,549	3,334
PSAI	2,887	2,647
Proprietary Products	–	–
Others	94	89
Total	6,530	6,070

Information about major customers

Revenues from two of the customers of the Company’s Global Generics segment were Rs.13,486 and Rs.10,755 representing approximately 9% and 8% of the Company’s total revenues, respectively for the year ended 3^rd March 2018.

Revenues from one of the customers of the Company’s Global Generics segment were Rs. 22,760 representing approximately 16% of the Company’s total revenues, for the year ended 31^st March 2017.

INFOSYS LTD

From Notes to Financial Statements

Segment Reporting:

Ind AS 108 establishes standards for the way that public business enterprises report information about operating segments and related disclosures about products and services, geographic areas, and major customers. The Group’s operations predominantly relate to providing end-to-end business solutions to enable clients to enhance business performance. Based on the ‘management approach’ as defined in Ind AS 108, the Chief Operating Decision Maker (CODM) evaluates the Group’s performance and allocates resources based on an analysis of various performance indicators by business segments and geographic segments. Accordingly, information has been presented both along business segments and geographic segments. The accounting principles used in the preparation of the financial statements are consistently applied to record revenue and expenditure in individual segments, and are as set out in the significant accounting policies.

Business segments of the Group are primarily enterprises in Financial Services (FS), enterprises in Manufacturing (MFG), enterprises in Retail, Consumer packaged goods and Logistics (RCL), enterprises in the Energy & utilities, Communication and Services (ECS), enterprises in Hi-tech (Hi-tech), enterprises in Life Sciences, Healthcare and Insurance (HILIFE) and all other segments. The FS reportable segments has been aggregated to include the Financial Services operating segment and the Finacle operating segment because of the similarity of the economic characteristics. All other segments represent the operating segments of businesses in India, Japan, China and IPS. Geographic segmentation is based on business sourced from that geographic region and delivered from both onsite and offshore locations. North America comprises the United States of America, Canada and Mexico, Europe includes continental Europe (both the east and the west), Ireland and the United Kingdom, and the Rest of the World comprises all other places except those mentioned above and India.

Revenue and identifiable operating expenses in relation to segments are categorized based on items that are individually identifiable to that segment. Revenue for ‘all other segments’ represents revenue generated by IPS and revenue generated from customers located in India, Japan and China. Allocated expenses of segments include expenses incurred for rendering services from the Company’s offshore software development centres and onsite expenses, which are categorised in relation to the associated turnover of the segment. Certain expenses such as depreciation, which form a significant component of total expenses, are not specifically allocable to specific segments as the underlying assets are used interchangeably. The Management believes that it is not practical to provide segment disclosures relating to those costs and expenses, and accordingly these expenses are separately disclosed as ‘unallocated’ and adjusted against the total income of the Group.

Assets and liabilities used in the Group’s business are not identified to any of the reportable segments, as these are used interchangeably between segments. The management believes that it is currently not practicable to provide segment disclosures relating to total assets and liabilities since a meaningful segregation of the available data is onerous.

Geographical information on revenue and business segment revenue information is collated based on individual customers invoiced or in relation to which the revenue is otherwise recognised.

Business Segment

For the years ended 31^st March 2018 and March 31^st 2017.

(In Rs. Crore)
Particulars	FS	MFG	ECS	RCL	HILIFE	Hi-Tech	All other segments	Total
Revenue from operations	18,638	7,699	16,757	11,104	9,271	5,047	2,006	70,522
	18,555	7,507	15,430	11,225	8,437	5,122	2,208	68,484
Identifiable operating expenses	9,476	4,135	8,411	5,339	4,596	2,679	1,162	35,798
	9,271	3,922	7,430	5,378	4,178	2,659	1,406	34,244
Allocated expenses	3,955	1,745	3,796	2,516	2,100	1,144	455	15,711
	4,075	1,737	3,569	2,598	1,951	1,186	510	15,626
Segmental operating income	5,207	1,819	4,550	3,249	2,575	1,224	389	19,013
	5,209	1,848	4,431	3,249	2,308	1,277	292	18,614
Unallocable expenses								1,865
								1,713
Other income, net (Refer to Notes 2.17 and 2.25)								3,193
								3,080
Share in net profit / (loss) of associate, including impairment								(71)
								(30)
Profit before tax								20,270
								19,951
Tax expense								4,241
								5,598
Profit for the year								16,029
								14,353
Depreciation and amortisation expense								1,863
								1,703
Non-cash expenses other than depreciation and amortisation								191
								28

Geographic segments

For the years ended 31^stMarch 2018 and March 2017:

	In Rs. crore
	Particulars		North America		Europe		India		Rest of the World		Total
	Revenue from operations		42,575		16,738		2,231		8,978		70,522
			42,408		15,392		2,180		8,504		68,484
	Identifiable operating expenses		22,105		8,535		906		4,252		35,798
			21,618		7,694		1,002		3,930		34,244
	Allocated expenses		9,624		3,778		426		1,883		15,711
			9,799		3,548		442		1,837		15,626
	Segmental operating income		10,846		4,425		899		2,843		19,013
			10,991		4,150		736		2,737		18,614
	Unallocable expenses										1,865
											1,713
	Other income, net (Refer to Notes 2.17 and 2.25)										3,193
											3,080
	Share in net profit / (loss) of associate, including impairment										(71)
											(30)
	Profit before tax										20,270
											19,951
	Tax expense										4,241
In Rs. crore
Particulars		North America		Europe		India		Rest of the World		Total
										5,598
Profit for the year										16,029
										14,353
Depreciation and amortisation expense										1,863
										1,703
Non-cash expenses other than depreciation and amortisation										191
										28

Significant clients

No client individually accounted for more than 10% of the revenues in the years ended 31^stMarch 2018 and 31^stMarch 2017.

RELIANCE INDUSTRIES LTD

From Notes to Financial Statements

Segment Information

The Group’s operating segments are established on the basis of those components of the Group that are evaluated regularly by the Executive Committee (the ‘Chief Operating Decision Maker’ as defined in Ind AS 108 – ‘Operating Segments’), in deciding how to allocate resources and in assessing performance. These have been identified taking into account nature of products and services, the different risks and returns and the internal business reporting systems.

The Group has five principal operating and reporting segments; viz; Refining, Petrochemicals, Oil and Gas, Organised Retail and Digital Services.

The accounting policies adopted for segment reporting are in line with the accounting policy of the Company with following additional policies for segment reporting.

Revenue and Expenses have been identified to a segment on the basis of relationship to operating activities of the segment. Revenue and Expenses which relate to enterprise as a whole and are not allocable to a segment on reasonable basis have been disclosed as “Unallocable”.
Segment Assets and Segment Liabilities represent Assets and Liabilities in respective segments. Investments, tax related assets and other assets and liabilities that cannot be allocated to a segment on a reasonable basis have been disclosed as “Unallocable”.

(i) Primary Segment Information

Not reproduced…..

(ii) Inter segment pricing are at Arm’s length basis.

(iii) As per Indian Accounting Standard 108 – Operating Segments, the Company has reported segment information on consolidated basis including business conducted through its subsidiaries.

(iv) The reportable segments are further described below:

– The Refining segment includes production and marketing operations of the petroleum products.

– The Petrochemicals segment includes production and marketing operations of petrochemicals products namely. High density Polythylene, Low density Polyethylene, Linear Low density Polyethylene, Polypropylene, Polyvinyl Chloride, Polyester Yarn, Polyester Fibres, Purified Terephthalic Acid, Paraxylene, Ethylene Glycol, Olefins, Aromatics, Linear Alkyl Benzene, Butadienc, Acrylonitrile, Poly Butadiene Rubber, Styrene Butadiene Rubber, Caustic Soda and Polyethylene Terephthalate.

– The Oil and Gas segment includes exploration, development and production of crude oil and natural gas.

– The organised Retail segment includes organise retail business in India.

– The Digital Services segment includes range of digital services in India.

– The business, which were not reportable segments during the year, have been grouped under the ‘Others’ segment. This mainly comprises of:

Media
SEZ Development
Textile

(v) Secondary Segment Information:

Rs. in crore
		2017-18	2016-17
1	Segment Revenue – External Turnover
	Within India	2,09,093	1,52,197
	Outside India	2,21,638	1,77,983
	Total	4,30,731	3,30,180
2	Non – Current Assets
	Within India	6,09,272	5,38,852
	Outside India	23,290	26,674
	Total	6,32,562	5,65,526

ITC LTD

From Significant Accounting Policies

Operating Segments

Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision-maker (CODM). The CODM, who is responsible for allocating resources and assessing performance of the operating segments, has been identified as the Corporate Management Committee.

Segments are organised based on business which have similar economic characteristics as well as exhibit similarities in nature of products and services offered, the nature of production processes, the type and class of customer and distribution methods.

Segment revenue arising from third party customers is reported on the same basis as revenue in the financial statements. Inter-segment revenue is reported on the basis of transactions which are primarily market led. Segment results represent profits before finance charges, unallocated corporate expenses and taxes.

“Unallocated Corporate Expenses” include revenue and expenses that relate to initiatives / costs attributable to the enterprise as a whole and are not attributable to segments.


(Rs. in Crores)
		2018				2017
		External	Inter Segment	Total	External	Inter Segment	Total
1.	Segment Revenue-Gross
	FMCG-Cigarettes	24848.09	–	24848.09	35877.66	–	35877.66
	FMCG-Others	11339.31	18.07	11357.38	10523.53	13.90	10537.46
	FMCG-Total	36187.40	18.07	36205.47	46401.22	13.90	46415.12
	Hotels	1480.02	14.65	1494.67	1400.35	14.04	1414.39
	Agri Business	4474.22	3680.82	8155.04	5314.13	3070.73	8384.86
	Paperboards, Paper and Packaging	3695.41	1554.23	5249.64	3732.63	1630.23	5362.86
	Others	1525.46	76.97	1602.43	1439.62	74.06	1513.68
	Segment Total	47362.51	5344.74	52707.25	58287.95	4802.96	63090.91
	Eliminators			(5344.74)			(4802.96)
	Gross Revenue from sale of products and services			47362.51			58287.95
2.	Segment Results
	FMCG-Cigarettes			14128.12			13203.70
	FMCG-Others			170.46			26.15
	FMCG-Total			14298.58			13229.85
	Hotels			145.00			117.12
	Agri Business			841.49			926.32

(Rs. in Crores)
		2018				2017
		External	Inter Segment	Total	External	Inter Segment	Total
	Paperboards, Paper and Packaging			1042.16			965.84
	Others			126.81			102.71
	Segment Total			16454.04			15341.84
	Eliminators			(93.60)			41.46
	Consolidated Total			16360.44			15383.30
	Unallocated corporate expenses net of unallocated income			1020.29			1007.60
	Profit before interest etc., and taxation			15340.15			14375.70
	Finance Costs			89.91			24.30
	Interest earned on loans and deposits, income from current and non-current investments, profit and loss on sale of investments etc.-Net			1738.39			1668.95
	Share of net profit of associates & joint ventures			7.58			5.97
	Exceptional Items [refer note 28(i)]			412.90			–
	Profit before tax			17409.11			16026.32
	Tax expense			5916.43			5549.09
	Profit for the year			11492.68			10477.23
3.	Other Information			2018		2017
				Segment Assets	Segment Liabilities	Segment Assets	Segment Liabilities
	FMCG-Cigarettes			8508.42	4756.35	8573.92	2561.31
	FMCG-Others			7760.11	1909.42	7257.61	1411.58
	FMCG-Total			16268.53	6665.77	15831.53	3972.89
	Hotels (Refer Note 3B)			6564.68	619.34	5849.59	446.94
	Agri Business			3693.37	807.75	3255.76	723.60
	Paperboards, Paper and Packaging			6730.78	786.73	6313.82	623.85
	Others			900.81	229.54	771.74	209.52
	Segment Total			34158.17	9109.13	32022.44	5976.80
	Unallocated Corporate Assets/Liabilities			30130.69	2335.15	23920.83	3258.80
	Total			64288.86	11444.28	55943.27	9235.50

*Segment Liabilities of FMCG – cigarettes is before considering `233.02 Crore (2017 – Rs. 629.83 crore) in respect of disputed taxes, the recovery of which has been stayed or where States’ appeals are pending before Courts. These have been included under ‘Unallocated Corporate Liabilities’. Also Refer Note 28(i).

(Rs. in Crores)
	2018		2017
	Capital expenditure	Depreciation and amortisation	Capital expenditure	Depreciation and amortisation
FMCG – Cigarettes	96.23	295.15	262.35	305.15
FMCG – Others	835.85	301.97	1157.41	246.08
FMCG – Totals	932.08	597.12	1419.76	551.23
Hotels	918.64	174.98	472.19	172.31
Agri business	92.90	68.04	160.63	50.42
Paperboards, Paper and Packaging	910.01	274.60	560.63	254.14
Others	16.25	25.68	10.46	28.53
Segment Total	2869.88	1140.42	2623.37	1056.63
Unallocated	327.65	95.86	553.76	96.16
Total	3197.53	1236.28	3177.43	1152.79

	Non Cash Expenditure other than depreciation	Non Cash Expenditure other than depreciation
FMCG – Cigarettes	2.44	3.42
FMCG – Others	48.55	40.14
FMCG – Totals	50.99	43.56
Hotels	6.89	11.30
Agri Business	2.33	0.52
Paperboards, Paper and Packaging	44.32	22.97
Others	4.89	5.67
Segment Total	109.42	84.02

GEOGRAPHICAL INFORMATION

		2018	2017
1.	Revenue from External Customers
	– Within India	41175.15	51796.82
	– Outside India	6187.36	6491.13
	Total	47362.51	58287.95

2.	Non-Current Assets
	– Within India	23341.21	21816.13
	– Outside India	1245.68	1009.85
	Total	24586.89	22825.98

NOTES:

1) The Group’s corporate strategy aims at creating multiple drivers of growth anchored on its core competencies. The Group is currently focused on four business groups: FMCG, Hotels, Paperboards, Paper and Packaging and Agri Business. The Group’s organisation structure and governance process are designed to support effective management of multiple businesses while retaining focus on each one of them.

The Operating Segments have been reported in a manner consistent with the internal reporting provided to the corporate Management Committee, which is the Chief Operating Decision Maker.

2) The business groups comprise the following

FMCG : Cigarettes – Cigarettes, Cigars etc.

Others – Branded packaged foods business (Staples, Snacks and meals; Dairy and Beverages; Confections), Apparels, education and stationery product, personal care product, safety matches and agarbattis.

Hotels Hoteliering

Paperboards, Paper and Packaging – Paperboards, paper including speciality paper

and packaging including flexibles.

Agri Business – Agri commodities such as soya, spices, coffee and leaf tobacco.

Others – Information Technology service etc.

3) The Group companies have been included in segment classification as follows:

FMCG : Cigarettes – Surya Nepal Private Limited

Others : – Surya Nepal Private Limited and North East Nutrients

Private Limited.

Hotels – Srinivasa Resorts Limited, Fortune Park Hotels Limited, Bay Island Hotels Limited and Welcome Hotels Lanka (Private) Limited.

Agri Business – Technico Agri Science Limited, Technico Pty Limited and its subsidiaries Technico Technology Inc., alongwith its jointly controlled operations with Shamrock Seed Potato Farm Limited, Technico Asia Holdings Pty Limited and Technico Hoticulture (Kunming) Co. Limited.

Others – ITC Infotech India Limited and its subsidiaries ITC Infotech Limited, ITC Infotech (USA). Inc and Indivate Inc. Russell Credit Limited and its Subsidiaries Greenacre Holdings Limited, Wimco Limited, Pravan Poplar Limited, Prag Agro Farm Limited, ITC investments and Holding Limited and its Subsidiary MRR Trading and Investment Company Limited, Land Based India Limited and Gold Flake Corporation Limited.

4) The geographical Information considered for disclosure are:

– Sales within India

– Sales outside India

5) Segment result of “FMCG: Other” are after considering significant business development, brand Building and

Gestation cost of the Branded Package Foods business and Personal Care products and business

6) As stocks options are granted under ITC ESOS to align the interest of employees with those shareholders and also to attract and retain talent for the group as a whole, the option value of ITC ESOS do not form part of segment performance reviewed by corporate management committee.

7) The Group is not reliant on revenue from transactions from any single external customer and does not receive 10%

or more of its revenue from its transactions with any single external customer.

BCAJ Admin

ALLIED LAWS

15. Appeal dismissed – Merger of
the High Court order into the Supreme Court Order. [Constitution of India,
Article 141, 136]

Archana
Mishra and Ors. vs. State of U.P. and Ors. AIR 2018 Allahabad 278

The
question before the Court for consideration was with respect to whether Dr.
Vishwajeet Singh’s case and the Full
Bench decision in Heera Lal’s case have been correctly decided.

It
was observed that the decision in Dr. Vishwajeet Singh had been subjected to
challenge before the Supreme Court in Civil Appeal Nos. 6385-6386 of 2010, and
the same was dismissed without any discussion. Hence, it was not in dispute
that if it is ultimately held that the view/opinion expressed by the Division
Bench in Dr. Vishwajeet Singh’s stands confirmed and merged in the order of the
Supreme Court, it would not be necessary for the reference to be addressed on
merits.

It
was held by the Court that their unequivocal answer therefore to the issue
framed would be that the decision in Dr. Vishwajeet Singh stood duly
affirmed by the Supreme Court. The said decision consequently merged in the
order of the Supreme Court. The order of the Supreme Court came to be rendered
after grant of leave. Once the decision of this Court stood merged in the order
of the Supreme Court, it would not be legally permissible for this Full Bench
to consider the correctness or otherwise of Dr. Vishwajeet Singh. This Court is
bound by the said order of the Supreme Court irrespective of the absence of a
“speech” or recordal of elaborate reasons on the legal issues which
arose therein. The issue essentially is not one of the Court being faced with a
precedent but primarily of merger. Once, as we have found, the decision of the
Division Bench stood subsumed in the order of the Supreme Court after grant of
leave with a positive affirmation of the view taken therein, it is no longer
open for this Court to revisit the said decision.

16. Benami
Property – Land in name of Family member – Cannot be considered as Benami.
[Benami Transactions (Prohibition) Act, 1988; Section 4]

Narendra
Prasad Singh vs. Ram Ashish Singh and Ors. AIR 2018 Patna 205

The stand of the appellant was that the claim of the
plaintiff’s title and not the title of the defendants, over the suit property,
was barred u/s. 4 of the Benami Transaction (Prohibition) Act, 1988. It was
observed by the court that such a view could not have been accepted since
acquisition of the land in the name of a member of a family from the joint
family property cannot be regarded as a benami transaction within the meaning
of section 2 of the Benami Transaction (Prohibition) Act, 1988. Benami
transaction has been defined u/s. 2(a) of the Benami Transaction (Prohibition)
Act, 1988 as any transaction in which property is transferred to one person and
a consideration is paid or provided by another person. In the present case, the
consideration has been found to have been provided by the joint family fund
which cannot be treated as fund of another person.

It
was therefore held that the said provision does not have any application at all
in the present facts and circumstances. This is also to be noted that the
plaintiff claimed his title purely on the basis of the family arrangement and
not a benamidar and, therefore, the suit cannot be said to be hit by Benami
Transaction (Prohibition) Act, 1988. The said question was answered
accordingly.

17. Partition – Oral Agreement
–Registered document not required. [Registration Act, 1908; S.17]

Santosh
Kumar Tiwari and Ors. vs. Meena Bai and Ors. AIR 2018 Chhattisgarh 167

The
plaintiffs had proved that the registered deed was executed amongst the
successors-in interest of Chhedilal and their three brothers namely Ramdulare,
Ramjharokha and Ramnarayan, in which also, such fact was mentioned. The deed
had been duly proved by Santosh Kumar (P.W. 1). Therefore, the evidence led by
all the joint owners and their successors-in-interest is coherent that the oral
partition had taken place amongst four brothers way back in the year 1966-67.
The defendant-Motilal is an outsider. As against common stand taken by all the
shareholders of the property that the partition was effected in the year
1966-67, the defendant/Motilal, except denying such partition, has failed to
place on record any clinching evidence, oral or documentary in nature, to prove
that partition had taken place in the year 1962-63, except suggestions being
given to the witnesses.

In
view of the above, the Court held that the learned Trial Court fell in error in
holding that the plaintiffs failed to prove the partition amongst themselves.
It has to be noticed that the factum of partition has been proved from
the oral evidence of Ramnarayan, Ramjharokha and Ramdulare who were three brothers
in the partition proceedings with their fourth brother – Chhedilal. Learned
Trial Court appears to be swayed from the fact that a subsequent deed was not a
registered document. The effect of that document being unregistered would only
be that it would not be inadmissible in evidence as proof of partition,
however, the plaintiffs have led their evidence to prove partition amongst four
brothers. When three out of four brothers have deposed in the Court that they
had partitioned a joint family property amongst themselves in the year 1966-67,
in the considered opinion of this Court, law does not require that it should be
proved only by a registered document and not otherwise. Once there is reliable
oral evidence of partition amongst the joint holders of the property, the law
does not require that it should be only by way of registered deed of partition.

18. Precedent – Mere pendency of
appeal cannot operate as stay on order – Order appealed against holds good.

R.K. Ganapathy Chettiar vs. Assistant Commissioner (CT),
Kangeyam 2018 (16) G.S.T.L. 562 (Mad.)

In
case of an issue where reliance was place on a certain judgment by the
petitioner, the Learned counsel appearing for the respondent submitted that
writ appeals have been preferred by the State, against the order in the case of
Everest Industries Limited vs. State of Tamil Nadu [2017] 100 VST 158 (Mad),
and the appeals are yet to be numbered.

It
was held by the honourable Court that, as on date, the writ appeals filed by
the State challenging the correctness of the decision in Everest Industries
Limited vs. State of Tamil Nadu [2017] 100 VST 158 (Mad), are yet to be
numbered and mere pendency of such appeals cannot operate as stay of orders in Everest
Industries Limited vs. State of Tamil Nadu [2017] 100 VST 158 (Mad).
Therefore as on date, the said order holds good. Thus, on the second aspect
also, the assessment requires to be re-done.

19. Public Interest Litigation –
Encroachment by shopkeepers – Mandatory Directions. [Constitution of India;
Article 226, 227, 21]

Manmohan
Lakhera vs. State and Ors. AIR 2018 Uttarakhand 187

The
fact of the matter state that despite repeated directions issued the Court,
neither the State Government nor the MDDA nor the Nagar Nigam Dehradun had
taken any effective steps to remove the encroachment from the public
streets/pavements.

It was observed
by the honourable Court that the Public streets are for public convenience.
These should be free from encroachment. The citizen must have a free access to
footpaths. The Court can take judicial notice of the fact that the children and
elderly people also use the footpaths. The shopkeepers, firstly, are permitted
to construct temporary khokhas and, thereafter, they make them pucca. There are
permanent bottlenecks as noticed in the report, and highlighted by us. The
footpaths are being permitted to be used for placing big generators causing
noise and air pollution. The shopkeepers are permitting the vegetable and fruit
vendors to sit in front of their shops. The residential premises have been
converted into commercial complexes, more particularly, in the oldest colony
i.e. Nehru Colony. Similar is the plight of other localities. There is chaos
all over Dehradun. The traffic moves at snail’s pace. The public authorities
cannot be oblivious to the loss of precious time of commuters. The Court can
take judicial notice of the fact that the roads, encroached upon with impunity
with the connivance and collusion of the authorities, are also ridden with
garbage. Every citizen has a right to access to footpaths, roads, parks and
public utilities under Article 21 of the Constitution of India. It is the duty
cast upon the MDDA and the Nagar Nigam to keep the roads clean. Recently, there
was a strike by the Safai Karamchari which further deteriorated the position.
There was no alternative plan available with the Nagar Nigam and MDDA. The
garbage was not removed from the streets for days together. The respondents are
putting wool over the eyes of the Court by giving assurances from time to time
that they are doing their best to remove the encroachment, but till date,
Dehradun town is still suffering from this menace. The decision was taken by
the High Power Committee on 10^th July 2014. We are in 2018. Since
then, the things have worsened instead of improving. The simple reason for
encroachments, extension of shops and unauthorised construction is
manifestation of the human greed with the collusion of functionaries of
government and municipal bodies. The employers did not take any disciplinary action
against the persons responsible for keeping the cities and towns free from
encroachment.

In
view of the same, The Municipal Corporation/MDDA/State functionaries are
directed to remove all the unauthorised encroachment on public
footpaths/streets/roads/pavements including unauthorised constructions made
over them within a period of four weeks from today by using its might.

The
Chief Secretary to the State of Uttarakhand is directed to initiate
disciplinary proceedings against the officers/officials, during whose tenure,
government land/municipal land/forest land have been encroached, with impunity,
by the unscrupulous people, and other related parties.

It was also mentioned that in case of
non-compliance, he shall be personally liable for contempt as well as
disciplinary proceedings.

BCAJ Admin

FEMA FOCUS

Analysis of Recent Compounding Orders

An
analysis of some interesting compounding orders passed by Reserve Bank of India
in recent months of August 2018 and September 2018 and uploaded on the website[1]
are given below. Article refers to regulatory provisions as existing at the
time of offence. Changes in regulatory provisions are noted in comments
section.

A. (Comment: Deleted since this section covers
orders passed under FDI / ECB and investment in partnerships, otherwise should
be bifurcated as (a) FDI compounding orders (b) ODI Compounding orders and (c)
Other compounding orders)

Aditya
Birla Idea Payments Bank Limited

Date
of order: 6^th August 2018

Regulation:
FEMA 20/2000-RB Foreign Exchange Management (Transfer or Issue of Security
by a Person Resident Outside India) Regulations, 2000 (FEMA 20).

Issue:
Delay in meeting minimum capitalisation norms beyond the stipulated time
period.

Facts

Applicant[2]
is engaged in Banking Business, i.e., to accept deposits from individuals,
small businesses, other entities and public, as permitted by the Reserve Bank
of India from time to time.

Idea Mobile Commerce Services Limited (IMCSL)
merged with Applicant and accordingly Applicant is successor entity of IMCSPL
for violation committed by IMCSPL .

Until March 2014, IMCSL (wholly owned
subsidiary of Idea) was a business correspondent for a private sector bank in
India. Pursuant to authorisation dated 25^th November 2013, granted
by RBI, IMCSL was engaged in the business of issuing prepaid payment
instruments (PPIs).

As per the extant guidelines, activity of
issuing PPIs is covered under the 18 permitted NBFC activities where foreign
investment is permitted under 100% automatic route subject to complying with
minimum capitalisation norms.

On 10^th January 2007, Idea had
obtained an approval of the erstwhile Foreign Investment Promotion Board (FIPB)
for foreign equity participation of up to 74% in its paid-up capital, by virtue
of which it was now a foreign owned and controlled company, and thus, its WOS,
IMCSL also became foreign owned and controlled. IMCSL was thus required to
comply with the minimum capitalisation norms of USD 5 million.

However, there was a delay in meeting these
norms. The norms were finally met on 26^th April 2016, when the
applicant completed bringing in the deficit amount of Rs. 26,79,00,000/-
thereby fulfilling the shortfall amount in meeting the capitalisation
requirement of Rs. 31,29,00,000 (USD 5 million).

Regulatory
provisions:

Regulation
5(1) of Notification No. FEMA 20/2000-RB permits purchase of shares by certain
persons resident outside India under Foreign Direct Investment Scheme, subject
to terms and conditions specified in Schedule I.

Further,
Paragraph 24.2(1) (ii), later renamed as Paragraph F.8.2 (1) (iii) of Annexure
B of Schedule I of Notification No. FEMA 20/2000-RB specifies the minimum
capitalisation norms subject to which foreign investment in NBFC is allowed
under the automatic route. It specifies the same as “US $5 million for foreign
capital more than 51% and up to 74% to be brought up front.”

Contravention:

Relevant Para of FEMA 20 Regulation

Nature of default

Amount involved (in INR)

Time period of default

Paragraph F.8.2 (1) (iii) of Annexure B of Schedule I

Delay in meeting the minimum capitalisation norms.

Rs. 26,79,00,000/-

2 years 4 months approximately

Compounding
penalty:

Compounding
penalty of Rs.16,57,400 was levied.

Comments:

(I) Scenario until October, 2016

• Until October, 2016, 100% FDI in NBFC
sector under automatic route was permitted only for prescribed 18 activities.
Further, such activities were classified as fund based and non-fund based
activities and the investment was subject to minimum capitalisation norms as
prescribed in the FDI Policy and FEMA 20.

(II) Replacement of NBFC sector by OFS in October
2016

• On 25^th October, 2016,
Department of Industrial Policy and Promotion (DIPP) released Press Note 6 of
2016[3] and liberalised the FDI Policy by replacing
the existing NBFC sector with Other Financial Services
(OFS) Sector.

• OFS includes activities which are regulated
by any financial sector regulator — RBI, SEBI, IRDA, Pension Fund Regulatory
and Development Authority, National Housing Bank or any other financial sector
regulator as may be notified by the government in this regard.

• OFS are categorised as (A) Regulated OFS
and (B) Unregulated / Unregistered / Exempted OFS. Entities engaged in
Regulated OFS are permitted to receive up to 100% FDI under automatic route
whereas entities engaged in Unregulated OFS are permitted to receive up to 100%
FDI only with Government approval.

• The said Press Note further provided that
FDI in OFS Sector (both Regulated OFS and Unregulated OFS) shall be subject to
conditionalities and minimum capitalisation norms that may be prescribed by the
concerned Financial Services Regulator or Government agency, as applicable.
However, the Government did not prescribe such minimum capitalisation norms
pursuant to Press Note 6.

• The same conditions applicable to OFS
Sector under the 2016 FDI Policy have been retained under the current
consolidated FDI policy of 2018, FEMA 20R and RBI Master Directions on FDI in
India.

(III) 2018 Press Release introducing Minimum
Capitalisation Norms for unregulated OFS

• Ministry of Finance vide press release
dated 16^th April 2018[4],
proposed to introduce Minimum Capital Requirements for Unregulated OFS. The
said press release prescribes minimum FDI Capital of US $ 20 Mn for Unregulated
/ Exempted / Unregistered Fund-Based activities and US $ 2 Mn for Unregulated /
Exempted / Unregistered Non Fund-Based activities. It has further given a list
of what activities which are fund based and non-fund based.

• However, it may be noted that this press
release has not yet been notified.

B. Aircom International India Private Limited

Date of Order: 23^rd August 2018

Regulation:
FEMA 3/2000-RB Foreign Exchange Management (Borrowing or Lending in Foreign
Exchange) Regulations, 2000

Issue:

1. Availing ECB from a non-recognized lender

2. Availing ECB for an end-use that was not
permitted

3. Drawdown of ECB before obtaining Loan
Registration Number (LRN) from RBI

4. Delay in meeting the reporting requirements

Facts:

Applicant is engaged in the business of import
of software for further resale in India and export of management services, software
consultancy and training services, and is the wholly owned subsidiary (WOS) of
M/s Aircom International Limited, UK.

Applicant raised foreign currency loan of GBP
75,000 (equivalent to INR 51,15,398) on 7^thFebruary 2001 from its
holding company for general corporate expenses. The lender was not a recognised
lender at the time of giving loan and became eligible only from June 2001.

The applicant company also raised foreign
currency loans of GBP 3,93,000 and USD 5,33,477 (in totality equivalent to INR
5,56,75,886) in 7 tranches from July 15, 2004 to May 15, 2006 from the parent
company, for working capital purposes and without obtaining LRN. ECB was
allowed for working capital purposes only from 4^th September 2013.

Reporting requirements were also not adhered
to.

Regulatory
Provisions:

Regulation
6 of Notification No. FEMA 3/2000-RB read with paragraphs 1(iii), 1(iv), (xi)
and (xii) of Schedule I.

Contravention:

Relevant
Para of FEMA 20 Regulation

Nature
of default

Paragraph 1(iii) of
Schedule I

Availing ECB from a
non-recognised lender.

Paragraph 1(iv) of
Schedule I

Availing ECB for an
end-use that was not permitted.

Paragraph 1(xi) of
Schedule I

Drawdown of ECB
before obtaining LRN from RBI

Paragraph 1 (xii)
of Schedule I

Delay in meeting
the reporting requirements.

Period of default is approximately 4 months to
17 years and total amount of default is Rs. 6,07,91,284/-.

Compounding
penalty

Compounding
penalty of Rs. 5,05,935 was levied.

Comments:

Under
the erstwhile ECB Policy, ECB was not permitted to be utilised for General
Corporate Purpose. RBI vide notification[5]
dated 4^th September 2013, permitted eligible borrowers to avail ECB
under approval route from their foreign equity holder company for general
corporate purposes subject to certain conditions.

As a
simplification measure, RBI vide notification[6] dated 16^th May 2014 permitted
companies belonging to manufacturing, infrastructure, hotels, hospitals and
software development sectors to avail ECB only from Direct Equity Holders
for general corporate purpose (including working capital financing) under
the Automatic Route.

As
on date, ECB Policy permits Eligible Borrowers to avail ECB for general
corporate and working capital purpose from ‘Foreign Direct Equity
Holders as well as Indirect Equity Holders and Group Companies (as defined
under FEMA 3/2000) under Automatic Route provided that the minimum
average maturity period is of 5 years.

Further,
extant ECB guidelines permits companies engaged in software development sector
to avail ECB for general corporate purpose (including working capital).
Software development sector is not defined but it would generally mean
development of software. In facts of case, applicant is engaged in business of
import of software for further resale in India and export of management
services, software consultancy and training services. Accordingly, even though
other disabilities in terms of permitted lender, end-use restriction are
removed over period of time, trading of software would not fall within scope of
‘software development sector’. It is advisable to obtain upfront clarification
from RBI by companies engaged in IT and ITES services before obtaining ECB.

C. ElringKlinger Automotive Components (India)
Private Limited.

Date of Order: 6^th September 2018

Regulation FEMA 20/2000-RB Foreign Exchange Management (Transfer or Issue of
Security by a Person Resident Outside India) Regulations, 2000 (FEMA 20).

Issue:

Neither equity instruments were issued nor
money was refunded to foreign investor within 180 days of receipt of inward
remittance.

Delay in reporting receipt of foreign inward
remittance towards subscription to equity.

Delay in submission of Form FC-GPR to RBI
after issue of shares to foreign investor.

Failure to obtain, specific and prior
Government approval for issue of shares to person resident outside India against
pre-operative / pre-incorporation expenses.

Facts:

Applicant is engaged in the business of
designing, assembling, manufacturing, selling, distributing, importing,
exporting etc., of cylinder head gaskets, cover modules and shielding parts and
related and allied products.

Applicant received foreign inward remittance
from Elringklinger AG, Germany, towards equity / preference share capital and
reported the same to RBI with delay.

In respect of remittances amounting to Rs
8.31 crore, applicant allotted shares after 180 days of receipt of such
investment.

Applicant is Wholly Owned Subsidiary (WOS)
of Elringklinger AG, Germany. In November, 2006 Applicant’s WOS directly made a
payment of Rs.1.95 crore to Maharashtra Industrial Development Corporation (‘MIDC’)
on behalf of the Applicant to acquire land for setting up its manufacturing
plant in Pune, Maharashtra as pre-operative/pre-incorporation expenses.

In February 2007, Applicant allotted
19,50,505 equity shares to Elringklinger AG, Germany against pre-incorporation
expenses without obtaining prior approval of Foreign Investment Promotion Board
(FIPB). Later on Company made application to FIPB for approval. However, same
was denied vide FIPB letter dated 31^st March 2017 and Applicant was
also directed to unwind the said transaction by way of repatriation of
investment proceeds to the parent entity. In order to implement the said order,
Applicant unwounded the transaction on 29^th December 2017.

Contravention:

Relevant
Para of FEMA 20 Regulation

Nature
of default

Amount
involved (in INR)

Approx.
Time period of default

Paragraph
8 of Schedule 1

Shares
were not issued to person resident outside India within 180 days from date of
receipt of inward remittance / share application money not refunded to person
resident outside India within 180 days from date of receipt of inward
remittance.

Rs.8,31,25,640

5
days

Paragraph
9(1) (A) of Schedule 1

Delay
in reporting of receipt of foreign inward remittance towards subscription to
shares.

Rs.37,10,75,095

3
to 5 years

Paragraph
9(1) (B) of Schedule 1

Delay
in submission of Form FC-GPR to RBI

Rs.62,14,24,090

12
days to 5 years

Para
3 (e) of schedule 1

Issue
of shares against pre-incorporation expenses without prior FIPB Approval

Rs.
1,95,05,050

11
Years

Compounding
penalty:

Compounding
penalty of Rs.35,28,759/-was levied.

Comments:

Erstwhile
FEMA Regulations did not permit issue of shares against pre- incorporation
expenses.

Existing
FDI Regulations permit issue of Capital Instruments against pre -incorporation
/ pre-operative expenses by Indian Entities which are WOS of a non-resident
entity subject to the following conditions:

• WOS should be operating in a sector where
100 percent foreign investment is allowed under the automatic route and there
are no FDI linked performance conditions.

• Issue of Capital Instruments by such WOS
against such pre -incorporation expenses is allowed only upto 5% of the
Authorised Share Capital of the Indian Entity or USD 500,000 whichever is less.

• Form FC-GPR to be filed by the Indian
Entity within 30 days from the date of issue of such Capital Instruments but
not later than 1 year from the date of incorporation

• Certificate
issued by the statutory auditor of the Indian company that the amount of
pre-incorporation/ pre-operative expenses against which capital instruments
have been issued has been utilised for the purpose for which it was received
should be submitted with Form FC-GPR.

An
inclusive definition of Pre-incorporation/ pre-operative expenses has been set
out in the regulations which is as under :

“Pre-incorporation/
pre-operative expenses will include amounts remitted to the investee Company’s
account or to the investor’s account in India if it exists or to any consultant
or attorney or to any other material/ service provider for expenditure relating
to incorporation or necessary for commencement of operations”

As
can be seen, issue of shares to compensate parent for pre-incorporation/
pre-operative expense even though permitted is subject to various conditions
especially that WOS is operating in sector where 100% FDI is permitted and
there are no FDI linked performance condition. In facts of case, FIPB has taken
a strict view and asked Applicant to unwind said transaction by repatriation of
proceeds to parent. Unwinding may have significant tax and regulatory
implications and hence FEMA regulations should be complied at threshold.

D. Expedition Voyages

Date
of Order: 3^rd September 2018

Regulation:
Notification No. FEMA 24/2000-RB Foreign Exchange Management (Investment in
Firm or Proprietary Concern in India) Regulations, 2000

Issue:
FDI in partnership without obtaining prior approval.

Facts:

Expedition Voyages (Applicant)
is a Partnership Firm formed vide a Deed of Partnership made on 23^rd
March 2015 between a New York Resident Individual and individual resident of
India with a profit sharing ratio of 70:30. Main business of partnership firm
is to carry on travel and tourism business from India by undertaking cruise
travel which include ultra-luxury cruises also, marketing expeditions and all
allied services.

The foreign resident
remitted approx. Rs.38.51 lakh in five tranches in India.

Applicant subsequently
reversed the transaction and remitted the above amount back to the foreign resident
on 28^th May 2018.

Applicant has not taken
RBI approval for investment by a person resident outside India by way of
contribution to capital of the Applicant partnership firm thereby contravening
Regulation 3 of FEMA 24/2000-RB.

Regulatory
Provision:

Regulation
3 of FEMA 24/2000-RB – a person resident outside India shall not make any
investment by way of contribution to the capital of a firm or a proprietary
concern or any association of persons in India without prior approval of RBI

Contravention:

The
period of default is around 2 years approximately and total amount of
contravention is Rs.38,51,373.22

Compounding
penalty:

Compounding
penalty of Rs. 73,108/- was levied.

Comments:

FEMA regulations also do not allow non-residents to
invest in / contribute to the capital of any firm or proprietary concern in
India without prior approval of RBI. However, NRIs or OCIs are allowed to
invest on a non-repatriation basis, by way of contribution to the capital of a
firm or a proprietary concern in India provided such firm or proprietary
concern is not engaged in any agricultural/ plantation activity or print media
or real estate business. Accordingly it is necessary to undertake suitable restructuring
in partnership firm to ensure that entity in which FDI capital is infused is
FEMA compliant.

E. Invesco Asset Management (India) Private
Limited

Date
of Order: 9^th August 2018

Regulation:
Notification No. FEMA 20/2000-RB Foreign Exchange Management (Transfer or
Issue of Security by a Person Resident Outside India) Regulations, 2000

Issue: Indirect foreign investment in Indian
Company without prior Government approval.

Facts:

Applicant, Invesco Asset Management (India)
Private Limited is an Asset Management Company (AMC). On 30^th June
2014, MF Utilities India Private Limited (MFU) issued 5,00,000 equity shares of
Rs. 1 each amounting to Rs.5,00,000 to the applicant.

At the time of this investment, 51%
shareholding of the applicant was held by resident entities [Religare
Securities Ltd. (RSL) 46.5% and RGAM Investment Advisors Pvt. Ltd.(RGAM) –
4.5%]. Subsequently in April 2016, RSL and RGAM transferred their shareholding
of 51% to Invesco Hong Kong Ltd., and Invesco Asset Management Pacific Ltd.
Applicant thus became a foreign owned and controlled company and accordingly,
investment in MFU by the applicant became an indirect foreign investment in
MFU.

In September 2017 FIPB (Foreign Investment
Promotion Board) granted post facto approval for the indirect investment in MFU
subject to the applicant applying for compounding to the Reserve Bank. At the
time of investment, activity of MFU was under other financial activities
requiring Government approval. Pursuant to FEMA Notification No.375 dated 9^th
September 2016, the activity was brought under automatic route. As post facto
approval from FIPB has been received the administrative action is complete in
this regard.

Regulatory
Provision:

Regulation14(6)(i)
of FEMA 20 – Downstream investment by an Indian Company owned or controlled by
Non Residents have to comply with the relevant sectoral conditions on entry
route, conditionalities and caps

Para 2(1) of Schedule 1 to FEMA 20 – An Indian company,
not engaged in any activity / sector mentioned in Annex A to this Schedule may
issue [shares or convertible debentures or warrants] to a person resident
outside India, subject to the limits prescribed in Annex B to this Schedule, in
accordance with the Entry Routes specified therein and the provisions of
Foreign Direct Investment Policy….”

Sr.No.F.8
of Annex B to Schedule 1 of FEMA 20 – Foreign investment in ‘Other Financial
Services’, other than those specifically stated therein, would require prior
approval of the Government.

Contravention:

Period
of default is 5 months approximately and total amount of contravention is Rs.
5,00,000/-

Compounding
penalty:

Compounding
penalty of Rs. 52,500 /-was levied.

Comments:

Until
October, 2016, 100% FDI in NBFC sector under automatic route was permitted only
for prescribed 18 activities. This did not include mutual funds.

On
25^th October, 2016, Department of Industrial Policy and Promotion
(DIPP) released Press Note 6 of 2016[7]
and liberalised the FDI Policy by replacing the existing NBFC sector with Other
Financial Services (OFS) Sector.

OFS
includes activities which are regulated by any financial sector regulator —
RBI, SEBI, IRDA, Pension Fund Regulatory and Development Authority, National
Housing Bank or any other financial sector regulator as may be notified by the
government in this regard

Foreign
owned and controlled Indian Entities need to be extra cautious before making
any downstream investment in other Indian Entities and especially check whether
the operations carried on by such Investee Indian Entities fall under the
Automatic or Approval route of RBI. Sectoral caps and other conditionalities
associated with the operations of the Indian Investee Entities also need to be
taken care of. Furthermore, compliance in term of sectorial condition is not to
be seen at the time of investment but needs to be monitored continuously. This
aspect is relevant just not for FDI entity receiving investment but also for
downstream investment held by FDI entity.

F. Jetair Private Limited

Date
of Order: 28^th August 2018

Regulation:
Notification No. FEMA 20/2000-RB Foreign Exchange Management (Transfer or
Issue of Security By a Person Resident Outside India) Regulations, 2000.

Issue: Delay in reporting of downstream investment to the designated
agencies within 30 days of such investment

Facts:

Applicant company, owned and controlled by
non-resident entities, is engaged in the business of acting as travel and
tourist agents for every mode of travel by sea, air or land, and arranging for
tourists and travellers, the provision of conveniences, reserve places, hotel
and lodging accommodation etc.

In May 2015, Applicant made downstream
investment in India to the extent of Rs. 4.81 crore into Jetair Tours Private
Limited (Investee Indian Company).

This downstream investment made by applicant
company, on account of the aforesaid indirect FDI, was required to be reported
to the (then) Secretariat of Industrial Assistance (SIA), Department of
Industrial Policy and Promotion (DIPP) and the then Foreign Investment
Promotion Board (FIPB) within 30 days of such investment.

However, there was a delay in meeting the
above-mentioned reporting requirements beyond the stipulated period of 30 days.

Regulatory
Provision:

Regulation
14(6)(ii)(a) of Notification No.FEMA.20/2000-RB, as then applicable –
Downstream investments by Indian companies was required to be notified to
Secretariat for Industrial Assistance (SIA), DIPP and FIPB within 30 days of
such investment.

Contravention:

The
period of default is 2 years 11 months approximately. Total amount of
contravention is Rs. 4.81 crore.

Compounding
penalty:

Compounding
penalty of Rs. 1,55,833/- was levied.

Comments:

Under
the existing regulations, downstream investments made by Indian companies which
are majority owned / controlled by non-residents are required to be reported to
DIPP in Form DI within a period of 30 days of the Indian Entity making such
downstream Investment.

G. Take Business Cloud Private Limited

Date of Order: 8^th August 2018

Regulation:
FEMA 120/2004-RB – Foreign Exchange Management (Transfer or Issue of any
Foreign Security) Regulations, 2004

Issue:

1. Delay in reporting outward remittances made
to overseas entity

2. Delay in receipt of share certificate
towards outward remittance made to overseas entity

3. Disinvestment
of stake in overseas entity with write-off without necessary prior approval
when Applicant was not eligible to undertake disinvestment under automatic route

4. Disinvestment from the overseas entity
without submission of Annual Performance Reports (APRs).

Facts:

In March 2007, Applicant made outward
remittance amounting to USD 21 million to an overseas entity in USA viz Navitas
Inc (formerly Take Solutions Inc). Such outward remittance was reported in Form
ODI with delay. There was also a delay in receipt of share certificate in
relation to the said outward remittance

In March, 2012, Applicant disinvested its
stake in Navitas Inc with write-off and transferred its stake to another
overseas entity viz Take Solutions Global Holdings Pte Ltd, Singapore without
obtaining RBI Approval. Also, disinvestment was made without filing of APRs

As the applicant was an unlisted company and
the amount of the overseas direct investment in the overseas entity was in
excess of USD 10 million, the applicant was not permitted to undertake
disinvestment with write-off under the automatic route.

Contravention:

Relevant Para of FEMA 20 Regulation

Nature of default

Amount involved
(in INR)

Approx time period of default

Regulation 6(2)(vi)

Applicant
did not report investments made in overseas entity within prescribed time
period of 30 days

USD 21 million
(Rs.92.82 crore)

10 years

Regulation 15(i)

Delay
in receipt of the share certificate towards the outward remittance made to
the overseas entity.

USD 21 million
(Rs.92.82 crore)

10 years

Regulation 16(1)(v)

Applicant
disinvested its stake in overseas JV without submission of APRs

USD 184,68,121 (Rs.
94.72 crore)

5 years

Regulation 16(1A)

Applicant
disinvested its stake in overseas entity with write off without obtaining

prior RBI approval

USD 184,68,121 (Rs.
94.72 crore)

5 years

Compounding
penalty:

Compounding
penalty of Rs.1,49,78,167 was levied.

Comments:

Indian
Entities to take care of various FEMA compliances while remitting funds outside
India and also at the time of disinvestment as such non-compliance / breach of
regulations invites heavy compounding penalties.

H. Wipro Limited

Date
of Order: 10^th August, 2018

Regulation:
FEMA 120 / RB-2004 Foreign Exchange Management (Transfer or Issue of any
Foreign Security) Regulations, 2004

Issue: Issuance of corporate guarantees by Applicant
on behalf of its overseas step-down subsidiaries beyond the 1^st level
subsidiary, without prior RBI approval

Facts:

Applicant is engaged in the business of
providing software and IT services.

Applicant incorporated multiple wholly owned
subsidiaries (WOSs) in Mauritius and Cyprus.

Applicant issued corporate guarantees in
favor of step-down subsidiaries (SDSs) of these WOSs, beyond the 1^st
level, without prior approval of RBI.

Regulatory Provisions:

Regulation
6(4) of Notification No. FEMA.120/2004-RB, as then applicable provided that An
Indian Party may extend a loan or a guarantee to or on behalf of the Joint
Venture/ Wholly Owned Subsidiary abroad, within the permissible financial
commitment, provided that the Indian Party has made investment by way of
contribution to the equity capital of the Joint Venture.

Contravention:

Issuance
of corporate guarantees by the applicant on behalf of its overseas step-down
subsidiaries, which were 2nd, 3rd and 4th level step down subsidiary, i.e.
beyond the 1st level subsidiary, without prior approval of the Reserve Bank of
India.? Period of contravention is 8 to 10 years. ? Amount of contravention is
Rs. 855.71 crore.

Compounding penalty:

Compounding penalty of Rs. 69,17,862/- was
levied.

Comments:

Under the erstwhile ODI Regulations, an Indian Party was permitted
to extend corporate guarantees only on behalf of its JV / WOS.

In
2013, ODI Regulations have been amended whereby in addition to the above,
Indian Parties are permitted to extend corporate guarantees on behalf of its
firstgeneration step down operating company within the prevailing ODI Limit.
Issue of Corporate guarantee on behalf of second level or subsequent level
operating step-down subsidiaries may be permitted with RBI Approval.It is to be
noted that the above Amendment has been given retrospective effect from 27th
May, 2011.

[1] https://www.rbi.org.in/scripts/Compoundingorders.aspx

[2] Currently, Idea
Cellular Limited (Idea) and Grasim Industries Limited (Grasim), hold 49% and
51% stake in the applicant respectively. Subject violation was prior to change
in shareholding of Applicant

[3] http://dipp.nic.in/sites/default/files/pn6_2016.pdf

[4] http://pib.nic.in/PressReleaseIframePage.aspx?PRID=1529264

[5] RBI/2013-14/221
A.P. (DIR Series) Circular No.31

[6] RBI/2013-14/594
A.P. (DIR Series) Circular No.130

[7] http://dipp.nic.in/sites/default/files/pn6_016.pdf

BCAJ Admin

FINANCIAL REPORTING DOSSIER

This article
provides key recent updates in financial reporting in the global space;
insights into an accounting topic, viz., subsequent
accounting of goodwill tracing its roots, developments and upcoming
changes; compliance aspects of tax reconciliation disclosure under Ind
AS; and a peek at an international reporting practice in the Directors’
Remuneration Report

1.
KEY RECENT UPDATES

1.1 Audit quality in a multidisciplinary firm

The International
Federation of Accountants (IFAC) released a publication, Audit Quality in a
Multidisciplinary Firm – What the Evidence Shows, on 25^thSeptember,
2019 aimed at contributing to the debate on multidisciplinary firms. A
multidisciplinary firm provides audit and non-audit services under a single
brand name. The publication strives to provide readers with a better
understanding of how the multidisciplinary model is the most effective
structure to serve the audit function and how the rules that have evolved over
the past decades serve to mitigate risks associated with audit firms providing
non-audit services to some audit clients.

1.2 USGAAP
– Simplifying the classification of debt

The Financial
Accounting Standards Board (FASB) issued an Exposure Draft (ED) on 12^th
September, 2019 proposing changes to Topic 470, Debt, of USGAAP. The
proposed accounting standards update – Simplifying the Classification of
Debt in a Classified Balance Sheet (Current vs. Non-Current) – would shift
the classification of certain debt arrangements between non-current and current
liabilities.

The ED introduces a
principle for determining whether a debt arrangement should be classified as
non-current liability. The principle is that an entity should classify an
instrument as non-current if either of the following criteria is met at the
reporting date: (1) the liability is contractually due to be settled
more than one year (or operating cycle, if longer) after the balance sheet
date; (2) the entity has a contractual right to defer settlement of the
liability for at least one year (or operating cycle, if longer) after the
balance sheet date. As an example of the proposed changes, current USGAAP
requires short-term debt that is refinanced on a long-term basis (after the
balance sheet date but before issue of financial statements) to be classified
as non-current liability. The amendment proposed prohibits an entity from
considering a subsequent financing when determining classification of debt at
the balance sheet date.

1.3 IFRS – Business Combinations Under Common
Control

The International
Accounting Standards Board (IASB) at its 22^nd October, 2019 meeting
finalised its discussion on the scope of the project ‘Business Combinations
Under Common Control’ and is exploring how companies should account for the
same. It tentatively decided that a receiving entity should recognise and
measure assets and liabilities transferred in a business combination under
common control at the carrying amounts included in the financial statements of
the transferred entity. A discussion paper is expected to be published in the
first quarter of 2020.

2. RESEARCH:
DAY 2 GOODWILL ACCOUNTING

2.1 Introduction

The Day 2
(subsequent measurement) accounting for goodwill is a contentious issue in
accounting literature. Over the years, different accounting models have been
evaluated / mandated by global standard setting
bodies. The FASB and the IASB are both currently working on projects involving
research on goodwill and impairment.

Stakeholders
continue their quest to seek answers to related questions that include (a) how
is the consumption of economic benefits embodied in the asset ‘goodwill’
reflected in the financial statements? (b) whether an impairment of goodwill
communicates its periodic consumption or erosion in value, etc.

2.2 Setting the context

Analysis of three sample companies’ data is provided below:

Company 1 –
Microsoft Corporation, US listed (USGAAP)

2019
($ millions)

2018
($ millions)

% change

Goodwill

42,026

35,683

18%

Total equity

102,330

82,718

24%

Goodwill as % of equity

41.1%

43.1%

Company 2 – Tata
Steel, India listed (Ind AS)

2019 (Rs. cr.)

2018 (Rs. cr.)

% change

Goodwill

3,997

4,099

(2)%

Total equity

71,290

61,807

15%

Goodwill as % of equity

5.6%

6.6%

Company 3 –
GlaxoSmithKline plc. (GSK), UK listed (IFRS)

2018
(GBP million)

2017
(GBP million)

% change

Goodwill

5,789

5,734

Total equity

3,672

3,489

Goodwill as % of equity

157.7%

164.3%

As can be seen from
the table above, company 3 has goodwill that is 157.7% of its total
equity. It may be noted that the company uses Alternate Performance
Measures (APMs) in reporting business performance to stakeholders (in
management commentary / presentations, etc.). In arriving at APMs, the company
adjusts its IFRS results for some items that include amortisation of
intangibles and impairment of goodwill. The resultant adjusted measures include
‘Adjusted Operating Profit’, ‘Adjusted PBT’ and ‘Adjusted EPS’. The objective
of reporting APMs is to provide users with useful complementary information to
better understand the financial performance and position of the company.

In the following sections (2.3 to 2.7), an attempt is made to
address the following questions:

Is goodwill an asset or an accounting
‘plug’ figure?

How has Day 2 accounting for goodwill
developed historically in international GAAP?

What are the various models explored /
mandated by standard setters over the years?

What is the current position in India?

Is there consistency in the accounting
concepts underlying Day 2 accounting of goodwill across prominent GAAPs as of
date?

Would amortisation of goodwill be back
under USGAAP / IFRS?

What are the developments expected in
this space?

2.3 Goodwill

IFRS / Ind AS
define goodwill as ‘an asset representing the future economic benefits
arising from other assets acquired in a business combination that are not
individually identified and separately recognised’. The USGAAP definition
of goodwill is in line.

AS has not
specifically defined goodwill but explains as follows:

(a) Goodwill
arising on amalgamation represents a payment made in anticipation of
future income and it is appropriate to treat it as an asset to be amortised to
income on a systematic basis over its useful life. (Para 19, AS 14);

(b) Goodwill arising on acquisition represents a
payment made by an acquirer in anticipation of future economic benefits.
The future economic benefits may result from synergy between the identifiable
assets acquired or from assets that individually do not qualify for recognition
in the financial statements. (Para 79, AS 28).

Goodwill is
invariably an accounting plug as the quantum recorded is a function of the
accounting model and the policy choices adopted on the date of acquisition. At
the same time it is an accounting asset as it represents future economic
benefits arising from other assets in a business combination that are not
separately recognised.

2.4 Accounting models evaluated / mandated by
standard setters

A summary of
various approaches evaluated / mandated by standard setters over the years is
summarised
below:

S.No.

Approach

Immediate charge off to the Profit
and Loss Account

Immediate charge
off to Other Comprehensive Income (OCI)

Immediate charge off to equity

Componentising goodwill and accounting for components
separately

Capitalise goodwill and amortise over estimated period of benefit (with
a rebuttable presumption with respect to period over which benefits derived).
Impairment testing is in addition

Capitalise goodwill and amortise over estimated period of benefit (with
a rebuttable presumption with respect to period over which benefits derived).
No further impairment testing

Capitalise and subject to impairment testing only

Source: (1) IASB’s ‘Goodwill and
Impairment Research Project’; (2) FASB’s ‘Invitation to comment –
Identifiable Intangible Assets and Subsequent accounting for Goodwill’; (3)
European Financial Reporting Advisory Group’s (EFRAG) ‘Discussion Paper –
Goodwill Impairment Test: Can it be improved?’; (4) AS 14 & 28; (5) Ind
AS 36 & 103, (6) IFRS for SMEs and US FRF standards

2.5 Development of Goodwill Day 2 accounting

2.5.1 USGAAP

APB Opinion No. 17,
Intangible Assets issued in August, 1970 by the Financial
Accounting Standards Board (FASB), explained goodwill as the excess of the cost
of an acquired company over the sum of identifiable net assets. Goodwill was
required to be amortised to the income statement on a systematic basis
over the period estimated to be benefited, not exceeding forty years.

In June, 2001
the FASB issued SFAS No. 142, Goodwill and Other Intangible Assets that
prohibited amortisation of goodwill. Goodwill would instead be tested at
least annually for impairment. The impairment of goodwill was based on a two-step
approach. In Step 1, the fair value of a reporting unit (to which goodwill was
assigned) was compared with its carrying amount and in case the carrying value
exceeded the fair value, then the entity undertook Step 2. In Step 2, the
impairment of goodwill was measured as the excess of the carrying amount of
goodwill over its implied fair value. The implied fair value of goodwill was
calculated in the same manner in which goodwill is recognised in a business
combination.

The FASB issued ASU
2017-04 in January, 2017 Simplifying the Test for Goodwill Impairment
(effective for public listed entities for fiscal years beginning after 15^th
December, 2019) eliminating Step 2, thereby requiring the annual goodwill
impairment test to be conducted by comparing the fair value
of a reporting unit with its carrying amount.

At present, non-controlling
interests (NCI), if any, need to be accounted in USGAAP by measuring the
same at their fair value.

2.5.2 IFRS

The current
standard governing the accounting for acquisitions and the resultant
recognition of goodwill as an asset is IFRS 3, Business Combinations,
issued in March, 2004 by the IASB. IFRS 3 treats goodwill as an asset akin to
an indefinite-life intangible asset and permits an
impairment-only approach. Para 90 of IAS 36, Impairment of Assets,
states that a cash-generating unit to which goodwill has been allocated shall
be tested for impairment annually and whenever there is an indication that the
unit may be impaired. The carrying amount of a cash-generating unit (to
which goodwill is allocated) is compared with its recoverable amount to
determine the impairment loss.

Prior to the
addition of IFRS 3 to the authoritative literature, its predecessor, IAS 22,
Business Combinations, required goodwill to be amortised with a
rebuttable presumption that its useful life did not exceed 20 years from
the date of initial recognition. In case a reporting entity rebutted the
presumption, goodwill was compulsorily required to be subject to annual
impairment testing even if there was no indication that it was impaired.

IFRS 3 permits an accounting
policy choice with respect to calculation of NCI at the date of
acquisition. An entity can opt to measure NCI either at fair value
(resulting in recording of ‘full goodwill’) or as its proportionate
share in the acquiree’s identifiable net assets (resulting in recording
of ‘partial goodwill’) per Para 19, IFRS 3. For the purposes of
impairment testing, goodwill needs to be notionally grossed up in
arriving at the carrying amount of the cash-generating unit to which goodwill
has been assigned when the ‘partial goodwill’ method has been adopted (Appendix
C, IAS 36).

2.6 Current positions under various GAAPs for
goodwill accounting

Accounting framework	Accounting model for acquisitions / business combinations giving rise to Day 1 Goodwill	Subsequent accounting of goodwill	Rebuttable presumption (goodwill life)	Standard
USGAAP	Acquisition method	Impairment only	NA	ASC 350 – Intangibles – Goodwill and Other
IFRS	Acquisition method	Impairment only	NA	IAS 36, Impairment of Assets
AS	Purchase method	Amortisation and impairment	5 years	AS 14, Accounting for Amalgamations
Ind AS	Acquisition method	Impairment only	NA	Ind AS 36, Impairment of Assets
IFRS for SMEs¹	Purchase method	Amortisation and impairment	10 years²	Section 19, Business Combinations and Goodwill
US FRF³	Acquisition method	Amortisation only. No impairment	15 years⁴	Chapter 13, Intangible Assets
¹ IFRS for SMEs issued by the IASB ² If the useful life of goodwill cannot be established reliably, the life shall be determined based on management’s best estimate but shall not exceed 10 years ³ US Financial Reporting Framework (US FRF) for small and medium-sized entities issued by the AICPA, a special purpose framework that is a self-contained financial reporting framework not based on USGAAP ⁴ Goodwill should be amortised generally over the same period as that used for federal income tax purposes or, if not amortised for federal income tax purposes, then a period of 15 years

Accounting framework

Accounting model for
acquisitions / business combinations giving rise to Day 1 Goodwill

Subsequent accounting of
goodwill

Rebuttable presumption
(goodwill life)

Standard

USGAAP

Acquisition method

Impairment only

ASC 350 – Intangibles –
Goodwill and Other

IFRS

Acquisition method

Impairment only

IAS 36, Impairment of
Assets

Purchase method

Amortisation and impairment

5 years

AS 14, Accounting for
Amalgamations

Ind AS

Acquisition method

Impairment only

Ind AS 36, Impairment of
Assets

IFRS for SMEs¹

Purchase method

Amortisation and impairment

10 years²

Section 19, Business
Combinations and Goodwill

US FRF³

Acquisition method

Amortisation only.
No impairment

15 years⁴

Chapter 13, Intangible
Assets

¹ IFRS for SMEs issued by the
IASB

² If the useful life of
goodwill cannot be established reliably, the life shall be determined based
on management’s best estimate
but shall not exceed 10 years

³ US Financial Reporting
Framework (US FRF) for small and medium-sized entities issued by the AICPA, a
special purpose framework that is a
self-contained financial reporting framework not based on USGAAP

⁴ Goodwill should be
amortised generally over the same period as that used for federal income tax
purposes or, if not amortised for
federal income tax purposes, then a period of 15 years

2.7 Coming up next

(1) The IASB
(that issues IFRSs) has planned to release a Discussion Paper (DP) in February,
2020 to present its preliminary views on ‘Goodwill and Impairment’ that inter
alia include the following:

Not to reintroduce amortisation of goodwill

Introduce a requirement to present
total equity before goodwill

Provide relief from the mandatory
annual quantitative impairment test

(2) The FASB
(that issues USGAAP) in July, 2019 issued an Invitation to Comment
– Identifiable Intangible Assets and Subsequent Accounting for Goodwill
that includes invitation to comment inter alia on the project area
‘Whether to change the subsequent accounting for goodwill’.

Ind AS and IFRS
preparers and auditors need to watch this space.

3. GLOBAL
ANNUAL REPORT EXTRACTS: ‘RELATIVE IMPORTANCE OF SPEND ON PAY’

3.1 Background

UK Company Law
requires disclosures of ‘The Relative Importance of Spend on Pay’ in the
Directors’ Remuneration Report.

The Large and
Medium-sized Companies and Groups (Accounts and Reports) (Amendment)
Regulations 2013 (effective 1^st October, 2013) require the Directors’
Remuneration Report to set out in a graphical or tabular form the actual
expenditure for the financial year and the immediately preceding financial year
and the difference in spend between those years on – (i) remuneration paid /
payable to employees, (ii) distribution to shareholders by way of dividend and
share buyback, and (iii) any other significant distributions / payments deemed
by the directors to assist in understanding the relative importance of spend on
pay.

3.2 Extracts from the ‘Directors’ Remuneration
Report’ section of an Annual Report

Company: Burberry Group Plc, FTSE 100 Index constituent (2019 Revenues: GBP
2.7 billion)

Relative
importance of spend on pay for 2018/19

The table below
sets out the total payroll costs for all employees over FY 2018/19 compared to
total dividends payable for the year and amounts paid to buy back shares during
the year. The average number of full-time equivalent employees is also shown
for context.

Relative Importance of Spend on Pay

FY 2018/19

FY 2017/18

Dividends paid during the year (total)

GBP million

171.1

169.4

% change

+1.0%

Amounts paid to buy back shares during
the year

GBP million

150.7

355.0

% change

-57.5%

Payroll costs for all employees

GBP million

519.8

515.2

% change

+0.9%

Average number of full-time equivalent
employees

Nos.

9,862

9,752

% change

+1.1%

4.
COMPLIANCE: TAX RECONCILIATION
DISCLOSURE (Ind AS)

Tax reconciliation disclosure

4.1 What is the disclosure
requirement?

Ind AS requires a Tax Reconciliation Disclosure in the
notes. The objective of the disclosure is to enable users understand whether
the relationship between Tax Expense and profit before Tax (PBT)
is unusual and to understand the significant factors that could affect the
relationship in the future. The disclosure facilitates users to model a
long-term forecast tax rate in valuation analysis.

4.2 Where
are the disclosure requirements contained?

The disclosure
requirements are contained in Para 81(c) of Ind AS 12, Income Taxes. An
entity also needs to take into consideration paragraphs 84 to 86, 46 to 52B and
Para 5 of the standard.

4.3 Is the disclosure mandatory?

This disclosure is
mandatory for all entities preparing financial statements under the Ind AS
framework.

4.4 What needs to be disclosed?

An explanation of
the relationship between tax expense and accounting profit (PBT) is required to
be
disclosed and the same is summarised in the table given below:

Disclosure Alternate 1

Numerical reconciliation
between tax expense and the product of accounting profit multiplied by the
applicable tax rate

(Amount in Rs.)

Tax at Applicable Tax Rate¹
on Accounting Profit

(Applicable tax rate X PBT)

xxx

Reconciling items^2,3

+/- xxx

Tax expense

Tax as per P&L (current
tax plus deferred tax)

xxx

Disclosure Alternate 2

Numerical reconciliation
between the average effective tax rate and the applicable tax rate

(%)

Applicable tax rate¹

xx.x%

Reconciling items^2,3

+/- xx.x%

Average effective tax rate

(Tax as per P&L/ PBT)

xx.x%

• An entity can provide the
disclosure in either or both of the above alternates

• The basis of
computing applicable tax rate also needs to be disclosed

¹ The applicable tax rate
used in the reconciliation has to be the one that provides the most
meaningful information to users. The applicable tax rate often is the domestic
rate of tax in the country in which the entity is domiciled. An entity
that operates in several tax jurisdictions may have to aggregate the
reconciliation prepared using domestic rate of tax for each individual tax
jurisdiction in determining the applicable tax rate

² Illustrative list of
reconciling factors include (1) tax effect of non-deductible expenditure,
(2) tax effect of non-taxable income, (3) prior year
adjustments, (4) changes to unrecognised deferred tax assets, (5)
effect of overseas tax rates, (6) re-assessment of deferred tax
assets, (7) effect of tax rate changes related to DTA/DTL, (8) effect
of tax losses, etc.

³ Income taxes relating to
items of Other Comprehensive Income (OCI) do not enter the reconciliation
statement

5. FROM
THE PAST – ‘ROOT CAUSE ANALYSIS OF AUDIT DEFICIENCIES’

Extracts of remarks
made by Mr. Brian T. Croteau (former Deputy Chief Accountant, US Securities
Exchange Commission) before the American Accounting Association Annual Meeting
in August, 2012 is reproduced below:

‘Consider for a
moment the investigation of the tragic crash of the Air France flight on its
way from Brazil to France in June, 2009. Like the National Transportation
Safety Board does in conducting objective, precise accident investigations and
safety studies in the United States, France’s Bureau of Investigation and
Analysis studied this crash. Only recently, three years later and after careful
study, it issued a report detailing its conclusions of the various contributors
and the underlying root cause of the crash. Understanding the root cause
in these circumstances included a challenging two-year relentless search for
the black box and piecing together many pieces of evidence to develop the
entire picture. Doing so has already resulted in changes to the way
pilots are trained in an effort to reduce the risk of future accidents.

I believe with
today’s audit documentation and technology, auditors, academics, standard
setters, regulators and others can continually strive to do more to understand
and assess the contributing factors
and root causes of audit deficiencies so we can
effect improvements in auditor performance and audit quality.’

BCAJ Admin

CORPORATE LAW CORNER

7. Religare Finvest Ltd. vs. Bharat Road Network Ltd. CP(IB) No. 540/KB/2018 & CP(IB) No.
1060/KB/2018 Date of order: 28^thAugust, 2019

Section 7(1),
read with sections 14 and 33 of the Insolvency and Bankruptcy Code, 2016 – An
admission of debt and default was sufficient to initiate the corporate
insolvency resolution process – Any document bypassing such admission was not
to be looked into – Provisions of Indian Stamp Act, 1899 to ascertain the
validity of these documents would not be considered to the extent they are
inconsistent with the Code – A person would be considered as a financial
service provider only when there is license / registration with a regulator to
that effect

FACTS

R Co, a non-banking financial institution
(NBFC), advanced a sum of Rs. 50 crores to B Co as a short-term loan for one
year and executed a memorandum of understanding (MOU) for the same on 14^th
December, 2016. The same was payable with interest on 14^thDecember,
2017. Stamp duty on the MOU was paid by B Co. A loan recovery notice dated 28^th
February, 2018 was issued to B Co.

R Co contended that the genuineness of the
MOU was not in dispute. Further, B Co had in its balance sheet dated 31^st
March, 2019 disclosed the loan payable to R Co and the fact that insolvency
proceedings u/s 7 of the Insolvency and Bankruptcy Code, 2016 (the Code) were
commenced against it.

B Co raised three objections against the
initiation of corporate insolvency resolution proceedings (CIRP). Firstly, the
MOU was a bond within the meaning of the Stamp Act, 1899. Irrespective of the
nomenclature, if the relevant provisions of the Stamp Act applied, it was to be
construed as a bond. Further, if the same was inadequately stamped then the
document would not be enforceable in law and such a document could not be
considered as evidence. Reliance was placed on various decisions to advance
this contention.

The second argument was that B Co was a core
investment company and an NBFC as on 31^stDecember, 2018, and most
certainly it was one on 31^st March, 2019. It was urged that B Co was
a financial service provider within the meaning of the Code. Although
registration as an NBFC from the Reserve Bank of India (RBI) was yet to be
received, the eligibility for authorisation was to be considered as a
requirement to qualify as a financial service provider under the Code.

Thirdly, the person initiating the
proceedings did not have adequate authority to do so.

HELD

The National Company Law Tribunal (NCLT)
heard both the parties at length.

It was taken on record that R Co was a
registered NBFC and in the course of its business granted the short-term loan
to B Co as per the terms and conditions agreed through the MOU. The amount of
loan, the rate of interest and the fact of failure to repay are not in dispute.
Hence, R Co has filed an application for insolvency.

As regards the first contention of B Co,
NCLT examined the meaning of the terms ‘claim’, ‘default’, ‘debt’ and the judicial
precedents on these subjects. It was observed that B Co had obtained a loan,
enjoyed it subject to the MOU and the same constituted a legal and equitable
obligation of B Co. Admitted facts need not be proved and, consequently, there
was no need to examine the legal validity of a document bypassing the admission
of facts made by B Co. Since the facts have been admitted by B Co in its annual
audited statements, there was no need to examine the nature of the MOU or its
enforcement for insufficiency of stamp duty. Further, applicability of the
Stamp Act, 1899 was not to be considered to the extent that its provisions were
inconsistent with the Code.

The NCLT also held that in terms of section
3(17), a financial creditor was a person to whom the authorisation was issued
or registration granted by the regulator. In the facts of the present case, B
Co had merely applied for a license / registration with the RBI. There was no
license or registration either on the date of taking the loan, or on the date
of filing the petition u/s 7, or even on the date of the order by NCLT. Thus,
the contention that B Co was a financial services provider was rejected by
NCLT.

The contention
as to authorisation was discarded by NCLT on the ground that the person filing
the petition had authority vide a board resolution to file a petition before
the adjudication authority. The adjudication authority being NCLT, the petition
was held to be in order.

The contentions raised by B Co were all
discarded and NCLT passed an order admitting the application made by R Co and
initiated the CIRP. A moratorium was declared and an order to make necessary
public announcements was passed by the NCLT.

8. Alliance Commodities (P) Ltd. vs. Office of
Registrar of Companies [2019] 110 taxmann.com 219 (NCLAT, Delhi) Date of order: 9^th July, 2019

ROC was justified in striking off name of
‘A’ company where company had failed to file financial statements and annual
returns for various financial years – At the time of striking off ‘A’ company
was not carrying on business or operations

FACTS

‘A’ company was
incorporated on 1^stFebruary, 2008 with the object of doing business
of trading in all types of commodities. It had been complying with the
statutory requirements of filing returns and financial statements till 2013,
but thereafter failed to abide by the statutory compliances. This resulted in
its name being struck off by the Registrar of Companies.

In its appeal
before the Tribunal, ‘A’ company contended that it was unaware of the notice
issued by the ROC and thus the default committed by it was unintentional. It
sought restoration of its name on the aforesaid ground.

The Registrar
of Companies contested the appeal on the ground that ‘A’ company failed to file
its annual returns and financial statements for more than two consecutive years
and it did not pray for obtaining the status of a ‘Dormant Company’. The ‘A’
company was accordingly struck off after complying with the mandate of section
248 as there were reasonable grounds to believe that the appellant company was
not carrying on any business, or was not in operation for a period of two
immediately preceding financial years.

HELD

It was observed
by the Appellate Tribunal that the notice contemplated u/s 248(1) of the
Companies Act, 2013 read with Rule 3 of the Companies (Removal of names of
companies from the Register of Companies) Rules, 2016 was issued by speed post
to ‘A’ company and its directors. A copy of the notice was published in the
official website calling for objections to the proposed removal / striking off
of the name of the company within 30 days from the publication of the same . A
copy of the notice was published in the official gazette. A public notice was
published in the Times of India and in a regional newspaper. The notice
published in the official website notified that the ‘company stands struck off
from the Register of Companies’. Thus, no legal infirmity or flaw was pointed
out in adherence to the provisions relevant to the process of striking off of
‘A’ company. It was done after following due procedure laid down in the Act.

On the crucial issue of ‘A’ company being in
operation and doing business in consonance with its objects, it was noticed
that the financial statements covering the fiscal period beginning 2013 through
2017 demonstrated that ‘A’ company was not in operation and did not conduct any
business of the nature bearing nexus with its intended object/s. The Tribunal
had tabulated the factual position arising from such financial statements
reflecting the assets, liabilities and turnover of the company as NIL. It was
further observed that indulging in business activity not falling within the
ambit of the objects of the company, or not being incidental or ancillary
thereto, cannot be termed as a legitimate business for demonstrating that the
company was in operation.

‘A’ company has
failed to make out a just ground warranting interference with the order passed
by the Tribunal which is neither shown to be legally infirm, nor the findings
recorded therein shown to be erroneous, much less perverse.

In view of the
above facts and being devoid of merit, the appeal against the order passed by
the ROC was dismissed.

BCAJ Admin

FROM PUBLISHED ACCOUNTS

ILLUSTRATION OF REPORTING UNDER SEBI LODR
WITH DISCLAIMER OPINION AND REPORTING UNDER SECTION 143(12) TO THE CENTRAL
GOVERNMENT

8K
MILES SOFTWARE SERVICES LTD. (31^st March, 2019)

From
Independent Auditors’ Report on Consolidated Financial Results

DISCLAIMER OF OPINION

1. We were engaged to audit
the accompanying Statement of Consolidated Financial Results of 8K Miles
Software Services Limited (‘the Parent’ / ‘the Holding Company’ / ‘the
Company’) and its subsidiaries (refer paragraph 16 below, for the subsidiaries
that are considered in these consolidated financial results), (the Parent and
its subsidiaries together referred to as ‘the Group’) for the year ended 31^stMarch, 2019 (‘the statement’), being submitted by the Parent pursuant to
the requirement of Regulation 33 of the SEBI (Listing Obligations and
Disclosure Requirements) Regulations, 2015, as modified by Circular No.
CIR/CFD/FAC/62/2016 dated 5^th July, 2016.

2. This Statement, which is the
responsibility of the Parent’s management and approved by the Board of
Directors, has been compiled from the related consolidated financial statements
which has been prepared in accordance with the Indian Accounting Standards prescribed
u/s 133 of the Companies Act, 2013 (the Act), read with relevant rules issued
thereunder (Ind AS) and other accounting principles generally accepted in India.

3. Our responsibility is to conduct an audit
of the Statement in accordance with Standards on Auditing specified u/s 143(10)
of the Act and to issue an auditor’s report. However, because of the matters
described in Paragraphs 4 to 15 below, we were not able to obtain sufficient
appropriate audit evidence to provide a basis for an audit opinion on the
Statement.

BASIS FOR DISCLAIMER OF OPINION

4. Report u/s 143 (12) of the Act

During the
course of our audit of the Statement for the year ended 31^st March,
2019 we came across certain transactions that gave us reason to believe that
suspected offences involving fraud have been committed in the Group. Such
transactions with regard to the Statement, inter alia, pertained to:

(a) Several instances of inconsistencies
between the initial bank statements and the subsequent bank statements provided
for verification in certain subsidiaries. Also see paragraphs 6.3 and 7 below.

(b) Several instances of inconsistencies between
declarations provided by Directors and information available in the public
forum which demonstrated existence of probable related parties which were not
disclosed previously, including certain transactions with such parties which
were not disclosed or approved by the Audit Committee / Board of Directors.
Also see paragraphs 6.3 and 12.1(a) below.

(c) Several instances of transactions with
certain customers, wherein the Company was not able to provide us with the
particulars of the services rendered and acknowledged by the customer, the
details of employees actually rendering such service, the appropriateness and
source of the monies received from such customers. Also see paragraph 7 below.

(d) Several inconsistencies with the names of
the parties / customers mentioned in the bank statements of some of the
subsidiaries and the books of accounts maintained by those subsidiaries. Also
see paragraph 4(a) above and paragraphs 6.3 and 7 below.

(e) Several instances of multiple addresses
being considered in various communications with certain customers in the
invoices, website of the customer, on cheques received from customers, including
instances wherein some of the communication addresses coincided with the
residential address of certain employees of the Company or its subsidiaries,
which impacted our ability to establish the authenticity of the customer. Also
see paragraph 7 below.

(f) Several instances of communications with a
vendor, wherein there were multiple
communications using different email ids, documents with varying
signatures and differences in the spelling of the common signatory of the
vendor, etc., which impacted our ability to establish the authenticity of the
vendor. Also see paragraph 8.1 below.

(g) Several instances of transactions with
vendors, wherein there were inconsistencies between the nature of services as
mentioned in the invoices and the basis of recording in the books of accounts
as consultancy expenses and intangible assets, multiple federal tax
identification against the same vendor, contracts signed by employees post
cessation of their employment, etc. Also see paragraph 8.2 below.

(h) Appropriate approvals and concerns over
recovery of advances made to a related party, by the Group. Also see paragraph
6 below.

Pursuant, inter
alia, to the above observations, we requested the Audit Committee of the
Company to provide us with their replies or observations to the aforesaid
matters for us to consider the same as part of our audit.

Subsequent
to our reporting of such matters to the Audit Committee vide our letter dated
15^th July, 2019, the Audit Committee in its meeting held on 18^th
July, 2019 appointed an external firm of Chartered Accountants to carry out an
investigation. We are informed that as on the date of this report, the
investigation report of the external firm of Chartered Accountants has not yet
been received by the Company and, hence, the same has not been made available
to us.

Further,
we also included the aforesaid matters in our report dated 13^th
September, 2019 to the Central Government in accordance with the requirements
of section 143(12) of the Act.

Pending
receipt of the report on the findings of such investigation and pending receipt
of information and explanations and evidence relating to the aforesaid matters
from the management of the Company, we have been unable to obtain sufficient
and appropriate audit evidence in respect of the above matters / transactions
that gave us reasons to believe that suspected offences involving fraud may
have been committed in the company and / or its subsidiaries.

In view of
the above, we are unable to comment on the consequential adjustments, if any,
that may be required to the Statement in this regard.

5. Access to books of accounts of a
subsidiary and information on subsidiaries

5.1. Our terms of engagement for the audit of the
Statement included the management’s responsibility to provide us access, at all
times, to the records of all the subsidiaries of the Company insofar as it
relates to the consolidation of its financial statements as envisaged in the
Act.

However,
the Company did not provide us the access to the records and books of accounts
of 8K Miles Software Services FZE, a wholly-owned subsidiary of the Company,
which represents total assets of Rs. 11,635.68 lakhs as at 31^st
March, 2019, total revenues of Rs. 7,560.23 lakhs, profit after tax of Rs.
789.65 lakhs and net cash outflows amounting to Rs. 96 lakhs for the year ended
on that date, as considered in the Statement.

These
balances have been included in the Statement by the management based on
financial statements of the subsidiary, prepared in accordance with the
International Financial Reporting Standards (IFRS), wherein the auditor of the
subsidiary has issued an unmodified report.

We were
unable to obtain sufficient appropriate audit evidence about the state of
affairs of the subsidiary as at 31^st March, 2019 and the results of
its operations for the year then ended, in the absence of access to the records
and books of accounts of the subsidiary.

5.2. Based on information in the public domain, 8K
Miles Cloud Solutions Pte. Limited, Singapore has stated itself to be a
subsidiary of the Holding Company. This entity appears to have been
incorporated on 8^th May, 2017. Further, 8K Miles Software Services
Pte. Ltd, Singapore and 8K Miles Software Services UK Limited, United Kingdom
exist with the promoter directors appearing as shareholders / directors. The
incorporation of wholly-owned subsidiaries in these countries was approved by
the Board of Directors of the Holding Company on 30^th May, 2018.

However,
all these three entities have not been considered by the management of the
Holding Company as subsidiaries in the preparation of the consolidated
financial statements. We are informed by the management that these entities are
not subsidiaries of the Holding Company and the information in the public
domain, including with the regulatory authorities in those geographies, is not
correct.

We have
not been provided with the audited financial statements of these entities and /
or any other verifiable evidence to ascertain the relationship of these
entities with the Holding Company. Hence, we are unable to comment on the
relationship of these entities and the impact the financial statements of these
entities may have on the Statement.

6. 8K Miles Media Private Limited (8K Miles
Media)

6.1. Around the last week of September, 2018 we
were made aware of the resignation of the statutory auditor of 8K Miles Media,
a company promoted by the promoter directors of the Company, vide their
resignation letter dated 30^th April, 2018. As per the said letter,
the resignation was due to the misuse of that Audit Firm’s letterhead and
signature of their partner through forgery in certain ODI certificates
submitted by 8K Miles Media to its bankers for transfer of funds of USD 71.51
lakhs (Rs. 4,612.91 lakhs) to 8K Miles Media Holdings Inc. USA, a subsidiary of
8K Miles Media. 8K Miles Media and its subsidiaries (together ‘8K Miles Media
Group’) were identified as a related party in the consolidated financial
statements of the Company for the year ended 31^st March, 2018.

During the period ended 31^st December, 2018 the management of
8K Miles Media initiated an independent forensic review to evaluate the
authenticity of the signatures in the ODI certificates referred above. 8K Miles
Media has submitted a copy of the forensic report to the Company. We understand
that the aforesaid forensic report states that the writer of the signature in
the ODI certificates is the same as that of the specimen signatures of the
audit partner as provided to the forensic auditor, thereby concluding that there
was no forgery in the ODI certificates.

Since this
matter relates to a company where another firm is the statutory auditor and
since the financial statements of that company are not included in the
consolidated financial statements of the Company, we have not been able to
perform any procedures related to the allegation or the forensic report.

6.2. Further, during the last week of September,
2018,

(a) the CEO and Managing Director of the
Company, who was also a promoter director in 8K Miles Media, resigned as a
director in 8K Miles Media.

(b) the CFO and Executive Director of the
Company, who was the other promoter director in 8K Miles Media, resigned from
his role as CFO of the Company stating that his resignation was to have the
necessary time to clear all the baseless allegations and unsubstantiated
allegations relating to 8K Miles Media. However, he continues to be a director
in both the Company as well as 8K Miles Media.

6.3. The Company has trade and other receivables
aggregating Rs. 3,309.10 lakhs as at 31^st March, 2019 receivable
from 8K Miles Software Services Inc., a subsidiary. It may be noted that this
subsidiary had loans receivable from entities of 8K Miles Media Group in the
USA aggregating USD 89.61 lakhs (Rs. 5,808.44 lakhs) as at 31^st
March, 2018.

We are informed by the management of the Holding Company that such
amounts due, including interest as accrued, have been fully recovered as at 31^st
March, 2019 by that subsidiary. However, in the absence of appropriate workings
for the interest, documentation regarding loan agreements and due to
inconsistencies noted between the transactions as per the bank statements of
the subsidiary with the transactions as recorded in the books of accounts of
the subsidiary, as mentioned in paragraphs 4(a) and 4(d) above, we were unable
to confirm the management’s assertion on the said collections made by the
subsidiary.

6.4. We are unable to conclude if the above
events in 8K Miles Media have any effect on:

(a) the Group and its operations, in view of
the allegations in the aforesaid resignation letter of the statutory auditor of
that company and the nature of the Group’s relationship with 8K Miles Media, as
described in paragraphs 6.1 and 6.2 above, respectively;

(b) the status of the Group’s receivables from
such related party, as described in paragraph 6.3 above; and

7. Revenue
from contracts with customers and related outstanding receivables

During the
year ended 31^st March, 2019 the Group initially recognised revenue
aggregating to Rs. 54,789 lakhs (including Rs. 2,428.69 lakhs relating to the
Company) from the customers referred to in paragraphs 4(c), 4(d) and 4(e)
above.

The management has, subsequently, based on our report u/s 143(12) of the
Act, reversed and derecognised revenue aggregating to Rs. 16,940.66 lakhs
(including Rs. Nil relating to the Company) and the consequent receivables.
Accordingly, the net revenues recognised from these customers during the year
aggregated to Rs. 37,848.34 lakhs and the outstanding receivables as at 31^stMarch, 2019 is Rs. 9,382.13 lakhs (includes balances of Rs. 1,022.36
lakhs outstanding even as at 31^st March, 2018).

In the
absence of complete information regarding the proof of services rendered,
efforts expended, basis of revenue recognition and reversal / derecognition,
and in view of our observations in paragraphs 4(c), 4(d) and 4(e) above in
respect of these customers, and inconsistencies in the bank statements referred
in paragraph 4(a) above, we are unable to conclude on the appropriateness /
correctness / completeness / validity of the net revenue recognised, compliance
with the recognition and measurement of revenue required under the Indian
Accounting Standard (Ind AS) 115 – Revenue from Contracts with Customers and
the corresponding receivables in the Statement.

The Group
has also not carried out an evaluation of the expected credit loss required
under Indian Accounting Standard (Ind AS) 109 – Financial Instruments
for the outstanding trade receivables as at 31^stMarch, 2019 and
therefore we are unable to comment on the adequacy and appropriateness of the
provision made against the trade receivable balances as at 31^st
March, 2019.

8. Procurement of services and trade
payables

8.1. Based on the master service
agreement with the external service provider, referred to in paragraph 4(f)
above, for technical and referral services to be rendered towards certain
customers, referred to in paragraphs 4(c) and 4(e) above, the Company has recorded
consultancy charges of Rs. 1,706.40 lakhs for the year ended 31^stMarch,
2019 with an outstanding liability of Rs. 1,709.16 lakhs.

In the
absence of complete information regarding proof of the services being rendered
by the vendor, and in view of our observations in paragraph 4(f) above in
respect of this vendor, we are unable to conclude on the appropriateness /
correctness / completeness / validity of the expense and the corresponding
liability recorded in the Statement.

Further,
the Company has not evaluated the applicability or coverage of such services
under the Goods and Services Tax Regulations and has not accrued / paid the
same. However, in our opinion such tax is payable on those services. The
management has not determined the amount of Goods and Services Tax payable and
any interest thereon. We are unable to conclude on the consequential impact of
the same on the Statement.

8.2. Based on the invoices received from certain vendors, referred to in
paragraph 4(g) above, the Group has for the year ended 31^st March,
2019 recorded consultancy charges aggregating Rs. 26,689.45 lakhs, intangible
assets / assets under development of Rs. 22,267.29 lakhs, with an outstanding
liability of Rs. 2,224.43 lakhs as at that date.

In the
absence of complete information regarding nature of the services being
rendered, the customers for whom these services were rendered and the nature of
intangible assets being developed, and in view of our observations in paragraph
4(g) above in respect of these vendors, we are unable to conclude on the
appropriateness / correctness / completeness / validity of the expense, the
intangible asset / asset under development and the corresponding liability /
payment recorded in the Statement.

9. Income Taxes

The Group
has recorded tax expenses (net) of Rs. 1,270.57 lakhs during the year ended 31^st
March, 2019 and has a net tax asset as at that date of Rs. 3,155.17 lakhs and a
net deferred tax liability of Rs. 731.91 lakhs relating to certain of its
foreign subsidiaries.

We have not
been provided with the tax returns filed with regard to its foreign
subsidiaries, reconciliation of the balances considered in the tax returns so
filed with the audited financial statements of the subsidiaries, the tax
position and status of assessments of such subsidiaries, a roll forward to the
deferred tax position as at 31^st March, 2019 from 31^st
March, 2018 and the workings for the tax provision for the current year.

We are
accordingly unable to conclude on the carrying amounts of tax assets and liabilities,
including deferred tax balances, as at 31^st March, 2019 as
considered in the Statement. Further, in the absence of the tax returns we have
also not been able to validate if the profits of these subsidiaries considered
in the tax returns and as per the books of accounts provided to us were the
same.

10. Intangible asset capitalisation and
evaluation of impairment, including for goodwill

10.1. The Group has during the year capitalised costs
towards internally generated intangible assets and internally generated
intangible assets under development amounting to Rs. 32,393.80 lakhs (also
refer paragraphs 4(g) and 8.2 above).

In the
absence of appropriate documentation as to the nature of these intangible
assets, data to demonstrate the appropriateness of the timing to commence
capitalisation of costs associated with such intangible assets as well as the
basis to demonstrate the costs capitalised in fact were associated with the
intangibles being developed, we are unable to comment on the carrying value of
such intangible assets as at 31^st March, 2019.

10.2. The Group has goodwill and acquired
intangibles (net of amortisation) of Rs. 62,800.11 lakhs as at 31^st March, 2019.

The
management has not provided us with their assessment of any impairment to the
carrying value of such goodwill and other intangible assets. Accordingly, we
are unable to comment on the appropriateness of the carrying value and the
recoverability of such goodwill and other intangible assets as at 31^stMarch,
2019.

11. Business Combinations

The Group
had in the previous year ended 31^st March, 2018 completed certain
acquisitions or had paid advances towards proposed acquisitions, wherein we
noted that:

11.1. During the previous year ended 31^st
March, 2018, the Group had recorded an amount of USD 3,304,557 (INR 2,142.01
lakhs) as contingent consideration due to the erstwhile owners of Cornerstone
Advisors Group LLC (‘Cornerstone’) payable upon satisfaction of conditions as
specified in the acquisition agreement. During the current year an amount of
USD 1,747,198 (INR 1,218.85 lakhs) has been paid by the Group to the erstwhile
members of Cornerstone. In the absence of details with respect to satisfaction
of conditions as specified in the acquisition agreement, we are unable to comment
on the amount of contingent consideration that has been paid during the year
and the carrying amount of USD 1,557,359 (Rs. 1,079.56 lakhs) as the liability
towards contingent consideration as at 31^st March, 2019. Further,
such consideration has not been fair valued as required under Ind AS 109.

11.2. An advance of USD 6,500,000 was paid by one of
the subsidiaries of the Company, during the previous year ended 31^st
March, 2018, consequent to a share purchase agreement entered into with a
Seller and a Corporation for acquiring the entire outstanding shares of the
Corporation. In accordance with the said agreement, in the event the closing of
acquisition doesn’t occur within 15 months (i.e., before February, 2019) from
the date of agreement, Seller will retain USD 500,000 as penalty and balance
USD 6,000,000) shall be refunded to the Group within five calendar days.

As at 31^st
March, 2019 the acquisition as planned was not completed and the management of
the Company has represented that the term of the share purchase agreement has
been extended. In the absence of supporting convincing evidence and our
inability to send direct confirmation request to the Seller and the Corporation
on the revision of the terms including waiver of the penalty, due to not receiving
the communication address to which the confirmation requests were to be sent,
we are unable to comment on the recoverability of the amount of Rs. 4,505.80
lakhs (equivalent to USD 6,500,000) included under Note 9 as ‘advances towards
acquisition’, as at 31^st March, 2019 and the consequential impact,
if any, on the Statement.

12. Regulatory compliances

12.1. We are unable to conclude on the consequential
impact, if any, on the operations and the financial performance of the Group
arising out of the following matters pertaining to non-compliance with the
provisions of the Companies Act, 2013 and notifications issued by the
Securities and Exchange Board of India (SEBI), as applicable:

(a) In the absence of appropriate processes for
identifying related parties in view of the matters reported in paragraph 4(b)
above, we are unable to comment on the accuracy and completeness of the related
parties identified and disclosed by the Company including compliance with
obtaining necessary approvals, as required, from those charged with governance.

(b) It was noted that in the case of two of the
directors who were re-appointed at the Annual General Meeting (AGM) held on 18^th
September, 2015 and designated as independent directors (one was also the
Chairman of the Audit Committee and the other a member of the Nomination and
Remuneration Committee and also the Chairman of the Stakeholder Relationship
Committee), they may have ceased to be independent directors under the Act with
effect from 17^th November, 2015 and 12^th August, 2015, respectively, being the date from when their
relatives were employed either with the Company or its subsidiary. These
directors have been designated as non-independent directors by the Company from
6^th September, 2019 and 13^th February, 2019,
respectively.

Considering
the above, we are unable to opine on the validity of the meetings of the Board
of Directors, Audit Committee, Stakeholder Relationship Committee and
Nomination and Remuneration Committee, in regards to the quorum in such meetings
and the resolutions approved in those meetings from the aforesaid AGM date
until the dates when the Company designated them as non-independent directors.

12.2. We are unable to conclude on the consequential
impact, if any, on the Statement arising out of the matters pertaining to
non-compliance by the Holding Company with the applicable master directions /
notifications issued by the Reserve Bank of India (RBI) and provisions of the
Foreign Exchange Management Act, 1999, as amended, in respect of the following:

(a) The Holding Company has export trade
receivables and foreign currency interest receivable aggregating Rs. 3,037.28
lakhs and Rs. 336.13 lakhs, respectively, including intra-group receivables
which amounts, as at 31^st March, 2019, were outstanding for more
than nine months from the invoice date, which is beyond the time limit
stipulated under the Foreign Exchange Management (Export of Goods &
Services) Regulations, 2015, for repatriation of foreign currency receivables.

(b) As at 31^stMarch, 2019 the
Company had not made the necessary intimations to the authorised dealer / RBI
as required under the Master Directions provided by the RBI on Foreign
Investment in India for loan / collaterals / pledge received from the promoter
of the Company, being a resident outside India, amounting to Rs. 1,395.02 lakhs
during the year ended 31^st March, 2019.

However,
subsequent to the year-end, the Company has made an intimation to the
authorised dealer on 12^th July, 2019 and is yet to make an
application for condonation of delay.

(c) It appears that the Holding Company has
provided a corporate guarantee to Columbia Bank for a line of credit availed by
two of the subsidiaries in the Group aggregating USD 5,000,000 on 12^th
September, 2018. As per the loan sanction document issued by Columbia Bank, the
line of credit was approved by Columbia Bank, based on a representation by the
Managing Director of the Holding Company that the corporate guarantee was
approved by the shareholders of the Holding Company.

We have not been provided with minutes of the meeting of the
shareholders referred above approving such corporate guarantee. Further, the
Company has also not intimated the authorised dealer for providing such
corporate guarantee as required under the Master Directions provided by the RBI
on Direct Investment by Residents in Joint Venture (JV) / Wholly-Owned
Subsidiary (WOS) Abroad.

12.3. Further, the Holding Company has not carried
out a comprehensive review of compliance with laws and regulations and
therefore we are unable to comment if there are any other instances of
non-compliance with laws and regulations and any consequential impact thereof.

13. Information / clarifications requested
but not provided

During the
course of our audit, we have requested from the management various information
and clarifications that were required for the purposes of our audit. In
addition to the information and clarifications pending in respect of the
matters described in paragraphs 4 to 12 above, information, inter alia,
relating to assessment of how the revenue recognised by the Group was in
compliance with the provisions of Ind AS 115, documentation supporting
evaluation of expected credit losses as at 31^st March, 2019,
information of payroll costs recognised in some of the subsidiaries,
confirmation of balances from customers, vendors and other parties, etc., are
also pending to be provided to / received by us. In view of such pending
information, we have not been able to obtain sufficient appropriate evidence to
conclude on those matters to express an opinion on the Statement.

14. Book Entries

In view of
the matters described in paragraphs 4, 6.3, 7, 8, 10 and 13 of the Basis for
Disclaimer of Opinion section of our report, we are unable to state if any of
the transactions referred to in those paragraphs were represented by mere book
entries.

15. Use of going concern assumption

In view of
the matters reported in paragraphs 4 to 14 above, and in the absence of
reliable cash flow projections by the management, and any consequential impact
of those matters on the Statement and operations of the Group, we are unable to
comment on the appropriateness of the going concern assumption adopted by the
management in the preparation of the Statement.

16. The Statement includes the results of the
following entities:

(i) 8K Miles Software Services Limited (‘the
Parent’)

(ii) 8K Miles Software Services Inc. USA, the
Subsidiary

(iii) 8K Miles Health Cloud Inc. USA, the
Wholly-Owned Subsidiary

(iv) 8K Miles Software Services FZE UAE, the
Wholly-Owned Subsidiary

(v) Mentor
Minds Solutions & Services Inc. USA, the Wholly-Owned Subsidiary

(vi) Nexage Technologies USA Inc., the Step-down
Subsidiary

(vii) Cornerstone Advisors Group LLC, the Step-down Subsidiary

(viii) Serj Solutions Inc. USA, the Step-down
Subsidiary

17. Because of the significance
of the matters described in paragraphs 4 to 15 above, we have not been able to
obtain sufficient appropriate audit evidence to provide a basis for an audit
opinion as to whether the Statement:

a. is
presented in accordance with the requirements of Regulation 33 of the SEBI
(Listing Obligations and Disclosure Requirements) Regulations, 2015, as
modified by Circular No. CIR/CFD/FAC/62/2016 dated 5^th July, 2016;
and

b. gives a true and fair view in conformity with the aforesaid Indian
Accounting Standards and other accounting principles generally accepted in
India of the net profit, total comprehensive income and other financial
information of the Group for the year ended 31^st March, 2019.

The BCAJ
reader can read Management Response on Auditor’s Opinion in the annual report
of the company.

BCAJ Admin

FROM THE PRESIDENT

Dear Members,

A lot has been written and said about the impact of technology on our
lives. We often read about how technology will influence every aspect of our
lives. Technology used in a positive way leads to innovations, which in turn
result in an improved and enhanced lifestyle and better standard of living.
This improves the quality of life, fuels investments and if handled wisely
could even create employment opportunities. Technology has changed the way we
live, behave and interact, both at work and at home. It has changed the way we
communicate, the way we entertain ourselves, the way we seek information and
much more. On the flip side, technology has made a number of traditional jobs
redundant, raising a fear that machines and automation will replace low and
semi-skilled workers and newer technologies like Artificial Intelligence (AI)
will be a threat to skilled workers. The new advancements are forcing people to
continuously update their knowledge to stay relevant and productive in this
competitive world.

In the midst of all the debates on the influence of technology, I was
very happy to come across a very comforting report about the Chicago-based
aircraft maker Boeing. Boeing is said to be dumping one of its most ambitious
automation projects of using advanced and sophisticated robot technology to
build two main fuselage sections for its 777 jetliners and an upgraded version,
the 777X. Boeing will now rely on skilled mechanics to manually insert
fasteners into holes drilled along the circumference of the airplanes. This is
so because the manual solution has proven more reliable, requiring less work by
hand and less rework, than what the robots were capable of doing. This proves a
point, that however tempting it may be to trust automation and technology,
there are and always will be certain areas where technology can’t match the
dexterity, creativity and precision of the human mind, hand and eye. This
debate will always go on, but I strongly believe that humans, human skills and
emotions can never be replaced by technology. Humans remain one up against
machines!

Mistakes: A mistake ‘is an action,
decision, or judgement that produces an unwanted or unintentional result.’ We
are all humans and we all make mistakes. So the best solution is not to try and
hide or disown your mistake, but to face it head on. Depending on the nature of
a mistake, it is more important to acknowledge this fact and apologise (if
needed), introspect over the reasons, learn from it and ensure that it does not
happen again.

Everyone makes mistakes and everyone deserves a second chance. Some
mistakes have little or no significance and can actually be a great learning
experience. But some mistakes may have huge ramifications and may involve a
huge cost not just financially but on relationships and on emotional
well-being. As mentioned earlier it is vital to learn from mistakes and have
the courage to own up to them. Here are examples of some well-known
personalities who have spoken about and owned up mistakes made by them:

a) Bill Gates has said that ‘his
greatest mistake ever’, reportedly worth US$400 billion, was not to create
Android at Microsoft.

b) Mark Zuckerberg said that ‘one
of the biggest mistakes’ of Facebook was not digging deeper into the Cambridge
Analytica scandal, in which the data mining firm misused data to try and
influence the elections, which caused a huge public outcry and more than US$100
billion was knocked off Facebook’s market capitalisation.

c) Ace investor Warren Buffett
admitted that his decision to take control of Berkshire Hathaway was a
‘monumentally stupid decision’ taken only because it was available cheap. He
kept on investing in Berkshire’s textile mills, which eventually shut
operations in 1985.

d) Chinese e-commerce giant
Alibaba’s founder and CEO Jack Ma reportedly said ‘My biggest mistake was I
made Alibaba’. He was just trying to do a small business but it grew and
brought on greater responsibility and more trouble. He became so busy that he
did not have personal time.

e) Ratan Tata, Chairman of Tata
Trusts and former head of Tata Sons, said his greatest mistake was branding the
Nano car as the cheapest instead of the ‘most affordable’, which was the
intention of the company. Branding it as the cheapest created negative impact on
the market.

Well, we must learn from the mistakes of others because we can’t live
long enough to make them all ourselves!

With
Best Regards,

CA Manish Sampat

President

BCAJ Admin

GLIMPSES OF SUPREME COURT RULINGS

4. Pr. Commissioner of Income Tax (New Delhi) vs.
Maruti Suzuki India Limited (2019) 416 ITR 613 (SC)

Assessment
– Notice to non-existing person – Despite the fact that the AO was informed of
the amalgamating company having ceased to exist as a result of the approved
scheme of amalgamation, the jurisdictional notice was issued only in its name –
The basis on which jurisdiction was invoked was fundamentally at odds with the
legal principle that the amalgamating entity ceases to exist upon the approved
scheme of amalgamation – Participation in the proceedings by the appellant in
the circumstances cannot operate as an estoppel against law – Not a
procedural violation of the nature adverted to in section 292B

The assessee was a joint
venture between Suzuki Motor Corporation and Maruti Suzuki India Limited (MSIL)
in which the shareholding was 70% and 30%, respectively. It was known upon
incorporation as Suzuki Metal India Limited. Subsequently, with effect from 8^th
June, 2005, its name was changed to Suzuki Powertrain India Limited (SPIL).

Some time later, on 28^th
November, 2012, the assessee filed its return of income for the A.Y. 2012-13
declaring an income of Rs. 212,51,51,156. The return of income was filed in the
name of SPIL (no amalgamation having taken place on the relevant date).

On 29^th
January, 2013, a scheme for amalgamation of SPIL and MSIL was approved by the
High Court with effect from 1^st April, 2012. The terms of the
approved scheme provided that all liabilities and duties of the transferor
company would stand transferred to the transferee company without any further
act or deed. On the scheme coming into effect, the transferor was to stand
dissolved without winding up. The scheme stipulated that the order of
amalgamation would not be construed as an order granting exemptions from the
payment of stamp duty or taxes or any other charges, if payable, in accordance
with the law.

Accordingly,
on 2^ndApril 2013, MSIL intimated the AO about the amalgamation. The
case was selected for scrutiny with the issuance of a notice u/s 143(2) on 26^thSeptember, 2013 followed by a notice u/s 142(1) to the amalgamating
company.

On 22^nd
January, 2016, the Transfer Pricing Officer passed an order u/s 92CA(3)
determining the Arm’s Length Price of royalty at 3% and making an adjustment of
Rs. 78.97 crores in respect of royalty paid by the assessee for the relevant
previous year.

A draft
assessment order was then passed on 11^th March, 2016 in the name of
Suzuki Powertrain India Limited (amalgamated with Maruti Suzuki India Limited).
The draft assessment order sought to increase the total income of the assessee
by Rs. 78.97 crores in accordance with the order of the TPO in order to ensure
that the international transaction with regard to the payment of royalty to the
associated enterprises is at arm’s length.

MSIL
participated in the assessment proceedings of the erstwhile amalgamating
entity, SPIL, through its authorised representatives and officers.

On 12^th
April, 2016, MSIL filed an appeal before the Dispute Resolution Panel as
successor in interest of the erstwhile SPIL, since amalgamated. Form 35A was
verified by Mr. Kenichi Ayukawa, MD and CEO of MSIL. The grounds of appeal did
not allude to the objection that the draft assessment order was passed in the
name of SPIL (amalgamated with MSIL), or that this defect would render the
assessment proceedings invalid.

The DRP, on 14^th
October, 2016, issued its order in the name of MSIL (as successor in interest
of the erstwhile SPIL, since amalgamated).

But the final assessment
order was passed on 31^stOctober, 2016 in the name of SPIL
(amalgamated with MSIL), making an addition of Rs. 78.97 crores to the total
income of the assessee. While preferring an appeal before the Tribunal, the
assessee raised the objection that the assessment proceedings were continued in
the name of the non-existent or merged entity SPIL and that the final assessment
order which was also issued in the name of a non-existent entity, would thus be
invalid.

By its decision dated 6^th
April, 2017 the Tribunal set aside the final assessment order on the ground
that it was void ab initio, having been passed in the name of a
non-existent entity by the AO. The decision of the Tribunal was affirmed in an
appeal u/s 260A by the Delhi High Court on 9^th January, 2018
following its earlier decision in the case of the assessee for the A.Y.
2011-12.

On further appeal by the Revenue,
the Supreme Court observed that while assessing the merits of the rival
submissions, it was necessary at the outset to advert to certain significant
facets of the present case:

First, the income which is
sought to be subjected to the charge of tax for A.Y. 2012-13 was the income of
the erstwhile entity (SPIL) prior to amalgamation. This was on account of a
transfer pricing addition of Rs. 78.97 crores;

Second, under the approved
scheme of amalgamation, the transferee had assumed the liabilities of the
transferor company including tax liabilities;

Third, the consequence of
the scheme of amalgamation approved u/s 394 of the Companies Act 1956 was that
the amalgamating company ceased to exist (Saraswati Industrial Syndicate
Ltd. [282 ITR 186]);

Fourth, upon the
amalgamating company ceasing to exist, it cannot be regarded as a person u/s
2(31) of the Act, 1961 against whom assessment proceedings can be initiated or
an order of assessment passed;

Fifth, a notice u/s 143(2)
was issued on 26^th September, 2013 to the amalgamating company,
SPIL, which was followed by a notice to it u/s 142(1);

Sixth, prior to the date on
which the jurisdictional notice u/s 143(2) was issued, the scheme of
amalgamation had been approved on 29^th January, 2013 by the High
Court of Delhi under the Companies Act, 1956 with effect from 1^stApril,
2012;

Seventh, the AO assumed
jurisdiction to make an assessment in pursuance of the notice u/s 143(2). The
notice was issued in the name of the amalgamating company in spite of the fact
that on 2^ndApril, 2013 the amalgamated company MSIL had addressed a
communication to the AO intimating to him the fact of the amalgamation.

According
to the Supreme Court, in the above conspectus of the facts, the initiation of
assessment proceedings against an entity which had ceased to exist was void ab
initio.

The
Court noted that in Spice Entertainment, a Division Bench of the
Delhi High Court (2012) 280 ELT 43 (Delhi) dealt with the
question as to whether an assessment in the name of a company which has been
amalgamated and has been dissolved is null and void, or whether the framing of
an assessment in the name of such company is merely a procedural defect which
can be cured. The High Court held that upon a notice u/s 143(2) being
addressed, the amalgamated company had brought the fact of the amalgamation to
the notice of the AO. Despite this, the AO did not substitute the name of the
amalgamated company and proceeded to make an assessment in the name of a
non-existent company which rendered it void. This, in the view of the High
Court, was not merely a procedural defect. Moreover, the participation by the
amalgamated company would have no effect since there could be no estoppel against law.

Following
the decision in Spice Entertainment, the Delhi High Court quashed
the assessment orders which were framed in the name of the amalgamating company
in (i) Dimension Apparels; (ii) Micron Steels; and (iii) Micra India. The Supreme
Court noted the facts in all these three cases.

The
Supreme Court further noted that a batch of civil appeals was filed before it
against the decisions of the Delhi High Court, the lead appellant being Spice
Enfotainment. On 2^nd November, 2017 the Supreme Court
dismissed the civil appeals and tagged Special Leave Petitions.

It
observed that the doctrine of merger results in the settled legal position that
the judgement of the Delhi High Court stands affirmed by the above decision in
the civil appeals.

The
Supreme Court further noted that the order of assessment in the case of the
respondent for A.Y. 2011-12 was set aside on the same ground. This resulted in
a Special Leave Petition by the Principal Commissioner of Income Tax – 6,
Delhi. The SLP was dismissed on 16^th July, 2018 in view of the order
dated 2^nd November, 2017 governing Civil Appeal No. 285 of 2014 in Spice
Enfotainment and the connected batch of cases. According to the Supreme
Court, although leave was not granted by it, reasons had been assigned by the
Supreme Court for rejecting the SLP. The law declared would attract the
applicability of Article 141 of the Constitution (Kunhayammed, 381 ITR
245).

After
considering the contention urged on behalf of the Revenue that a contrary
position emerges from the decision of the Delhi High Court in Skylight
Hospitality LLP (405 ITR 296) which was affirmed on 6^thApril,
2018 by the Supreme Court, it held that there was no conflict between the
decisions of the Supreme Court in Spice Enfotainment (dated 2^nd
November, 2017) and in Skylight Hospitality LLP (dated 6^th April,
2018).

Referring
to the provisions of section 292B of the Income-tax Act, the Supreme Court held
that in this case the notice u/s 143(2) under which jurisdiction was assumed by
the AO was issued to a non-existent company. The assessment order was issued
against the amalgamating company. This was a substantive illegality and not a
procedural violation of the nature adverted to in section 292B.

The
Supreme Court ultimately concluded that in the present case, despite the fact
that the AO was informed of the amalgamating company having ceased to exist as
a result of the approved scheme of amalgamation, the jurisdictional notice was
issued only in its name. The basis on which jurisdiction was invoked was
fundamentally at odds with the legal principle that the amalgamating entity
ceases to exist upon approval of the scheme of amalgamation. Participation in
the proceedings by the appellant in the circumstances cannot operate as an estoppel
against law. This position now holds the field in view of the judgement of a
Co-ordinate Bench which dismissed the appeal of the Revenue in Spice
Enfotainment on 2^nd November, 2017. The decision in Spice
Enfotainment had been followed in the case of the respondent while
dismissing the Special Leave Petition for A.Y. 2011-12. Thus, there was no
reason to take a different view.

For the
above reasons, the Supreme Court found no merit in the appeal and accordingly
dismissed it.

BCAJ Admin

CORPORATE LAW CORNER

11. Housing Development Finance Corporation Ltd.
vs. RHC Holding (P) Ltd. [2019] 107
taxmann.com 200 (NCLAT – New Delhi) Date of order: 10^th
July, 2019

Sections 3(8), 3(16) and 3(17) read with
section 7 of the Insolvency and Bankruptcy Code, 2016 – A company which is
registered as a non-deposit-taking NBFC with the Reserve Bank of India would
qualify as a financial service provider – Accordingly, it would be outside the
purview of the definition of corporate debtor and hence the provisions of the
Code would not apply to it in such capacity

FACTS

H Co initiated insolvency proceedings
against R Co by filing an application u/s 7 of the Insolvency and Bankruptcy
Code, 2016 (the Code) which was rejected by the National Company Law Tribunal
(NCLT) on the grounds that R Co being a non-banking financial institution was
rendering ‘financial services’ and was, therefore, out of the purview of the
Code. Aggrieved by the order, H Co filed the present petition before the
National Company Law Appellate Tribunal (NCLAT).

H Co argued that R Co was a holding company
that invested in the shares, bonds, debentures, debts or loans of group
companies and gave guarantees on behalf of group companies. None of these
activities qualified as rendering of financial services. H Co even elaborated
how the activities carried out by R Co did not fall in any of the limbs of
section 3(16) of the Code which defines financial services.

R Co, on the
other hand, argued that it was a financial institution within the meaning of
the Reserve Bank of India Act, 1934 and therefore a financial service provider.
Accordingly, it would not qualify as a corporate person and provisions of the
Code could not be enforced against it.

HELD

The Tribunal examined the provisions of the
Code and the Reserve Bank of India Act, 1934. It was observed that the
definition of financial services u/s 3(16) of the Code was an inclusive
definition. This would imply that there were other services which would come in
the definition of financial services. The argument of H Co would not hold good
on that count.

It was also observed that R Co being a
non-banking financial institution was carrying on the business of financial
institution and thus, it being a financial service provider, would not come
within the definition of Corporate Debtor. Accordingly, the provisions of the
Code could not be applied to R Co in its capacity as a Corporate Debtor.

The order passed by the NCLT was upheld by
the NCLAT and the appeal was dismissed.

12. Janak Goyal vs. Satyendra Jain [2019] 107
taxmann.com 68 (NCLAT) Company appeal
(AT) (Insolvency) No. 202 of 2019 Date of order: 10^th
June, 2019

Section 7 read with section 12A of the
Insolvency and Bankruptcy Code, 2016 – Once the parties had settled the matter
inter se between them, the application u/s 7 was treated as withdrawn and
therefore dismissed

FACTS

Mr. S filed an
application u/s 7 of the Code against O Co which was admitted by the National
Company Law Tribunal (NCLT). It was argued before the NCLT that the loan given
by O Co is time-barred. However, it was observed that there was a suit filed
against O Co which was decided against it. O Co thereafter moved the Supreme
Court and that appeal was dismissed by the Supreme Court as well. Mr. S also
filed an execution case for the same.

The Committee of Creditors had been formed
and two meetings of the same held. The Resolution Professional was appointed in
one of those meetings. O Co sought time to settle the matter and in the third
meeting of the Committee of Creditors the Resolution Professional was informed
that O CO had settled the matter and Form FA was duly submitted.

It was unanimously agreed in the meeting
that the corporate insolvency resolution process would be withdrawn against O
Co and an application to that effect should be made before the authority.

HELD

The NCLAT observed that the consent of all
the financial creditors to withdraw the application had been obtained by O Co.
Further, the dues of the Resolution Professional were also paid to him.

In view of the
above, NCLAT permitted the withdrawal of the application filed before it u/s 7
of the Code. The order passed by NCLT was set aside and disposed of as
withdrawn. All other orders of moratorium, appointment of Resolution
Professional and advertisements given in the newspapers were also set aside.
NCLT was directed to close the proceedings and O Co was permitted to function
independently through its Board of Directors with immediate effect. The appeal
was thus allowed.

BCAJ Admin

Section 37 of the Act and Rule 9A of IT Rules, 1962 – Business expenditure – capital or revenue expenditure – Expenditure incurred on account of abandoned teleserial – Revenue expenditure

31.
Asianet Communications Ltd. vs. CIT; 407 ITR 706 (Mad); Date of order: 26^th June, 2017 A. Y. 2001-02

Section 37 – Business expenditure – Capital
or revenue – Amount paid as non-compete fees – No new source of income – Amount
deductible as business expenditure

The assessee was a company engaged in the business of television
broadcasting, formed in the year 1991. The assessee was managed by one of the
directors, SK and he was also the president of the company, managing all the
affairs of the company till April 1999. SK had 50% share holding and the
balance was held by a non-resident Indian, RM. SK and RM decided to part ways
and an agreement was arrived at between them by which SK agreed to sell 50% of
his shareholding to RM or to his nominees and to renounce his management of the
company. As a part of the agreement SK agreed not to compete with the business
of the assesee for a period of five years for which the company agreed to pay
him a sum of Rs. 10.5 crore during the previous year relevant to the A. Y. 2000-2001. This amount was paid to
SK in respect of a non-compete covenant, which was claimed as business
expenditure in computing the income for the same year. The claim was rejected
by the Assessing Officer.

The Commissioner
(Appeals) and the Tribunal confirmed the order of the Assessing Officer.

On appeal by the
assessee, the Madras High Court reversed the decision of the Tribunal and held
as under:

“i) Any contractual term that
imposes restraint on a contracting party from engaging in any business for a
reasonable term must be backed by consideration. Therefore, the non-compete
compensation is but a consideration paid to the party who is kept out of
competing business during the term of the contract. The non-compete
compensation from the stand point of the payee of such compensation, is paid in
anticipation that absence of a compensation from the other party to the
contract may secure a benefit to the party paying the compensation. There is no
certainty that such benefit would accrue. In other words, in spite of the fact
that a competitor is kept out of the competition, on may still suffer loss.

ii) The facts clearly disclose
that on account of the payment of non-compete fee, the assessee had not
acquired any new business, the profit making apparatus had remained the same,
the assets used to run the business remained the same and there was no new
business or new source of income, which accrued to the assessee on account of
the payment of the non-compete fee.

iii) The stand taken by the Revenue that the
assessee had ammortised expenditure spread over for the period of five years
had been found to be factually incorrect, as the assessee had not capitalised
it in its accounts, but treated it as differed revenue expenditure for a period
of five years. That apart, that issue was never raised by the Revenue before
any of the lower authorities. The amount paid under the non-compete covenant
was deductible.”

BCAJ Admin

SOCIETY NEWS

BEPS STUDY CIRCLE

Study Circle meetings held on 2^nd May, 2019 and 11^th
May, 2019 at BCAS Conference Hall

The BEPS Study Circle
meeting was held on 2^nd May, 2019 to discuss “Article 7 of MLI with
reference to Principal Purpose Test – Analysis of provisions using case
studies”. The discussion was led by Ms Sonia Agarwal and Mr. Rutvik Sanghvi.
They gave a well-prepared analytical presentation which was followed by an
interesting discussion between members.

Meanwhile, CBDT has come
out with a draft report for public consultation on amendments to the Rules for
Profit Attribution to Permanent Establishment. The report outlined the formula
for calculating “profits attributable to operations in India” giving weightage
to sales revenue, employees, wages paid and assets deployed. To understand the
implication of the draft report at a very short notice, a study meeting was
held on 11^th May, 2019 at the BCAS Conference Hall. Mr. Ganesh
Rajgopalan analysed the report in his masterly way. Thereafter, Mr. Rashminbhai
Sanghvi explained the background and implications of the draft report. The
meeting was very interactive and the participants benefited tremendously from the
discussion.

ITF STUDY CIRCLE

Meeting on Taxation of
Agency PE in the light of OECD Commentary (BEPS Action Plan) – Part II &
III held on 9^th May, 2019 and 23^rd May, 2019 at BCAS
Conference Hall

The discussion was led by
Mr. Kartik Badiani.

At the Part II meeting on 9^th
May, 2019 a brief recap of the earlier session was given to summarise the
discussions. The group leader took the members through the various provisions
of article 12 of the Multilateral Instrument relating to the measures for
preventing avoidance of a permanent establishment. He explained the
commissionaire arrangement and why it is not very relevant in the Indian
context. He also described the expanded scope of the Agency PE arising out of
the new provisions, especially regarding activities of dependent agents in
respect of contracts for the transfer of the ownership of, or for the granting
of the right to use, property owned by that enterprise, or that the enterprise
has the right to use for the provision of services by it.

Then, he compared the MLI
provisions with the newly-substituted Explanation 2(a) to section 9(1)(i) of
the Income-tax Act. The scope of the substituted Explanation and its
applicability to purchasing activities for export or otherwise was also
discussed.

Mr. Badiani explained
Articles 5(4), 5(5) and 5(6) of the existing treaty along with the OECD
commentary. He also took the gathering through the proposed changes vis-a-vis
the existing treaty provisions.

In Part III, which was held
on 23^rd May, 2019 the group leader, after giving a recap of the
previous sessions, deliberated on nuances of the MLI and BEPS action plan on
Agency PE. Apart from a case study on low risk distributor, treaty shopping and
liaison office, an in-depth deliberation on the latest judicial precedence in
the case of General Electric and Daikin was also taken up by the Speaker, Mr.
Badiani.

DIRECT TAX STUDY CIRCLE

Discussion on ‘Issues
relating to Re-assessment’ held on 21^stMay, 2019 at BCAS Conference
Hall

The Chairman of the
session, CA Sanjeev Pandit, in his
opening remarks pointed out that the number of notices issued u/s. 148 by the
Income-tax department had been increasing over the years due to various
reasons.

Later, Group Leader CA
Navin Gandhi analysed section 147 along with provisos and the explanation to
the section. The group discussed concepts such as “Reasons to believe”, “Income
chargeable to tax”, “May assess or re-assess” which are crucial for the
application of section 147. He then referred to the conditions to be fulfilled
by the AO for issuance of notice u/s. 148 after four years from the end of the
relevant assessment year and the distinguishing factors about issuance within a
period of four years from the end of the relevant assessment year. The Supreme
Court decision in GKN Driveshafts (India) Ltd vs. ITO (2003) 259 ITR 19
(SC), a landmark ruling on the issue, was also briefly touched upon by
CA Navin Gandhi.

Thereafter, the group
discussed the following issues along with relevant case laws relating to
reassessment proceedings:

Issuance of notice u/s. 143(2) during
the course of reassessment proceedings;

Reopening of proceedings based on
change of opinion;

Reopening on ground of
“oversight, inadvertence or mistake”;

Before issuing notice u/s. 148, the AO
must have reasons to believe that the income has escaped the assessment;

Time limit u/s. 149(1)(a) / (c);

Retraction of the statement on which
reassessment is based;

Right to make inquiry of unrelated
issues;

Sharing of evidence during the course
of proceedings;

Right to cross-examination; and

Notice issued u/s. 148 on a deceased
person.

Lastly, the decision of the
Bombay High Court in the case of CIT vs. Jet Airways (I) Ltd. (2011) 331
ITR 236 was discussed wherein it was held that where the ground on
which reassessment notice u/s. 148 was issued was dropped while passing
reassessment order, the AO could not reassess or assess any other income which
had escaped assessment.

Lecture meeting on ‘AI,
ML and Future of Internal Auditing’ held on 24^th May, 2019 at BCAS
Conference Hall

BCAS and IIA Bombay Chapter jointly organised a lecture
meeting on “AI, ML and Future of Internal Auditing”. The speaker was Mr.
Shailesh Haribhakti who said that in today’s hyper-connected world, the
expectation from internal audit had undergone a sea change. The new rules of
the game were: More from less, Faster, No waste, No damage to Environment,
Continuous auditing and Continuous improvement for process excellence.

Mr. Haribhakti insisted
that internal auditors need to have pride in what they are doing; they need to
be determined and have integrity and ambition, too. Today, data flows were
creating and generating accounting. Everything and everyone was working through
portals, such as tax portals, legal portals, operations portals, etc. By
integrating accounting at the time of data generation, errors and wastages
could be avoided.

Internal audit had to be
ready 24×7 and with due diligence. It had to be ready to do and face forensic
audit.

They needed to be online
with all their documentation every day; offer solutions and not ideas; stay on
course every single day; demand more from themselves and others and make
winning a habit; establish morality of processes; make themselves relevant;
contribute and promote values continuously; have a dashboard to monitor
themselves and the organisation, continuously upskill themselves. Transparency,
trust and technology had to be the key drivers.

Internal auditors also had
to get themselves upgraded with the latest trends such as Robotic Process
Automation, Artificial Intelligence and Data Science. Today, an internal
auditor had to be a data scientist as well. This was because expectation had
moved from insight to foresight. Data was all about pattern and trends; for example,
can the past data be back-tested to check the current findings?

Mr. Haribhakti said that in
today’s world, primarily, financial risks were being assessed, but technology
risks, environment, social and governance (ESG) risks were ignored. The
approach wherein one just ticked a box would not do. AI tools could help assess
every component in the audit and risk universe. They could also help find
patterns.

His key takeaways were as
follows: Create a vigil mechanism; power it with AI / ML; create dashboards to
monitor the pulse of the organisation, including KPIs / KRIs; continuously
challenge the status quo; evolve rapidly and be ahead of the trends.

INTERNATIONAL ECONOMICS STUDY GROUP

Meeting on ‘Economic
Impact of Modi 2.0’ held on 28^th May, 2019 at BCAS Conference Hall

The International Economics
Study Group held its meeting on 28^th May, 2019 to discuss “Economic
Impact of Modi 2.0“. CA Shalin Divetia led the discussion presenting
key differences between the mandates of 2014 and 2019, such as enhanced moral
authority due to the stronger second mandate, better grip over administration,
better relationship with the RBI, key challenges identified and fundamental
changes implemented – GST and IBC. Prime Minister Modi is facing challenges
such as past excesses of the financial / banking sector, creation of jobs
amidst automation / protectionism, the aspirational burgeoning population,
farm-sector woes, judicial activism and NGO-led foreign interference.

CA Shalin Divetia also
threw light on the “circle” of national economy – ultimate objectives of
welfare state and national security funded mostly by tax revenues which will
generate consumption – which should come from domestic production – which
ideally requires increased capex and efficient infrastructure – which, in turn,
will impact monetary liquidity – which results from low-cost funding arising
out of low inflation – which is impacted by low CAD and low fiscal deficit
impacted by tax revenues!

Therefore, he highlighted
the Modi government’s focus on increasing tax revenues for which he presented
data of buoyancy in tax collection over the last three years which had been
showing in an improved tax-to-GDP ratio. He also presented data on fiscal
deficit, inflation, cost of funds for businesses, monetary liquidity,
government spending on infrastructure and encouragement to domestic
manufacturing which would result in control of CAD and fiscal deficit.

Members also discussed “Modi
Sarkar 2.0: What Should We Look Forward to?” wherein they analysed the
reasons for the stupendous success registered by him. They also dwelt on his
long-term vision and the most important aspect of taking India’s current $2.5
trillion economy to a $5 trillion economy by the year 2025 and $10 trillion by
2032. They noted that the BJP’s “Sankalp Patra” (election manifesto) had
indicated investments of $1.44 trillion. The election results in key states in
the Hindi heartland and in Bengal were also discussed.

Indirect Tax Study
Circle meeting held on 30^th May, 2019 at BCAS Conference Hall

CA Janak Vaghani played the
perfect mentor when the Indirect Tax Study Circle held an interesting meeting
on the important topic of “Real Estate-Related Recent Notifications – GST” This
was the second part (Part II) of the series highlighting the crucial issue.

Thanks to Group Leader CA
Adit Shah, who conducted the proceedings admirably well, the members took part
in a detailed interaction at which they exchanged views on the case studies and
issues that had been forwarded to all the participants in advance. As a result, most of them
came well prepared for the meeting and were able to make their reasoned points
in detail.

Apart from this, a few
other points were identified and set aside for future representation to the
government bodies concerned.

Mentor Janak Vaghani and
Group Leader Adit Shah formed a very good team as they steered the discussions
adeptly and kept the proceedings on track.

The meeting concluded with
a vote of thanks to the duo of Janak and Adit.

Training Session for CA
article students on ‘GST Audit from Article’s Perspective’ and ‘Filing of
Annual Return’ held on 31^st May, 2019 at BCAS Conference Hall

The Students Forum under
the auspices of the HRD Committee organised this training session for CA
article students on the above-mentioned topics.

The first session on GST
Annual Return was conducted by CA Jigar Shah; it was followed by the session on
GST Audit by CA Raj Khona. Ms Devyani Choksi, the student co-ordinator,
introduced the speakers and described the upcoming events for students. CA
Anand Kothari, Convener of the HRD Committee, welcomed both speakers with a
memento.

CA Jigar Shah explained the
entire Form GSTR-9 clause by clause and dealt with the various issues /
complexities involved in the annual return form by giving practical examples.
He highlighted a few key areas which article students should keep in mind while
filing the annual returns.

In the second session, CA
Raj Khona gave a brief insight into various aspects of GST Audit and thoroughly
explained the entire form GSTR-9C. He also gave useful tips to the article
students on how to effectively conduct GST Audit and highlighted the key
challenges. Both the sessions were highly interactive and the speakers answered
all the queries raised by the participants.

With the due dates for GST
Audit fast approaching and every CA firm wanting its articles to be well
equipped with the nitty-gritty’s of GST Annual return and GST Audit, the
training session saw a record participation by over 100 students. The session
ended with the Convener, CA Anand
Kothari, proposing the vote of thanks to the speakers for sparing their
valuable time and to the audience for participating in huge numbers.

Training Session for CA
Article Students on ‘Preparation and Filing of Income Tax Returns for July,
2019’ held on 07^th June, 2019 at BCAS Conference Hall

The Students’ Forum, under
the auspices of the HRD Committee, organised this training session for CA
Article Students from 6 pm on 7^th June at the BCAS Conference Hall.

The session was conducted
by CA Divya Jokhakar. The Student Co-ordinator, Mr. Aniruddh Parthsarthy,
introduced the speaker for the session and spoke about the upcoming events for
students.

CA Divya Jokhakar first
highlighted the new amendments pertaining to A.Y. 2019-20. She then spoke
briefly about the applicability of various forms to certain categories of
assessees. She also gave useful tips to the article students on how to
effectively prepare and fill the ITR Forms and highlighted the key challenges.
The session was highly interactive.

With the due dates for
Income-tax returns fast approaching and every CA firm wanting its articles to
be well-informed and well–equipped, the training session saw eager
participation by more than 70 students. The session ended with Convener CA
Anand Kothari proposing the vote of thanks to the speakers and to the audience
for their participation.

BCAJ Admin

GOODS AND SERVICES TAX (GST)

I. HIGH COURT

25 2019 [23] G.S.T.L. 162 (All) DM Advertisers
Agency vs. State of U.P.

Date of order: 14^th
February, 2019

If States do
not have power to levy tax on any particular activity, municipal corporations
cannot enjoy such power – No taxes can be levied without power

FACTS

A writ petition was filed by
the petitioner, an advertising company, challenging the vires of the
Mathura Vrindavan Nagar Nigam (Vigyapan Kar Ka Nirdharan and Wasuli Viniyaman)
Upvidhi, 2017 which enforced bye-laws with effect from 6^th January,
2018 by virtue of section 172(2)(h) of the U.P. Municipal Corporation Act
whereby advertisement tax was levied. However, the said provision had stood
deleted vide section 173 of the U.P. GST Act enforced on 1^st July,
2017. Moreover, the power to impose advertisement tax by the state was divested
through section 17 of the Constitution 101st (Amendment) Act with effect from
16^th September, 2016 which deleted Entry 55 of List-II of the VIIth
Schedule of the Constitution of India by which the state legislature was
invested with the power to make laws in respect of taxes on advertisement.

HELD

The
Hon’ble Court held that when the state legislature was deprived of power to
levy tax on advertisement, clearly the municipal corporations also ceased to
have the power to impose any tax on advertisement. Therefore, Mathura Vrindavan
Nagar Nigam had no legislative competence on 6^th January, 2018 to
promulgate the aforesaid bye-laws. Accordingly, the writ petition was allowed,
striking down the aforesaid bye-laws as ultra vires.

26 2019 [23] G.S.T.L. 164 (All) Mandeep Dhiman
vs. Dy. Dir., Directorate-General of GST Intelligence

Date of order: 6^th
March, 2019

A writ of habeas corpus shall not be maintainable when a
person is in custody on the basis of orders passed by a court of competent
jurisdiction

FACTS

A writ of habeas corpus
was filed directing the respondents to produce the detainee before the Court.
The detainee was arrested u/s. 69 of the Central Goods and Services Tax Act,
2017 for the offences specified in section 132(1) of the said Act. The detainee
had also filed a bail application before the Chief Judicial Magistrate which
was subsequently rejected, in response to which the aforementioned writ was
filed.

HELD

The
Hon’ble High Court dismissed the writ petition stating that writ of habeas
corpus shall not be maintainable since the person detained was in custody
on the basis of the orders passed by a Court of competent jurisdiction.

27 2019 [23] G.S.T.L. 178 (Mad) TVL. R.K. Motors
vs. State Tax Officer, Virudhunagar

Date of order: 24^th
January, 2019

Goods seized
as they were not offloaded at designated place but taken further to another
delivery point. But tax was duly paid on said goods, thus seizure order was
held to be grossly unreasonable

FACTS

A writ petition was filed
challenging the vindictive and drastic order levying penalty and detention of
goods and vehicle. E-way bill was generated by the petitioner having separate
billing and shipping addresses. The goods under transit were not offloaded at
the designated place; instead, they were taken further towards the billing
address. The said goods were also covered under appropriate documents and the
tax was remitted. There was no attempt of evasion. The vehicle in transit was
intercepted by the respondent Department when it was en route to the
billing address. The vehicle was seized and the driver of the vehicle was asked
to co-operate. It appeared that he did not co-operate with the authorities.
Therefore, owing to the circumstances, the impugned order was passed by the
respondent. Hence, writ petition was filed questioning the detention order.

HELD

The Hon’ble High Court held
that the order passed by the respondent was grossly unreasonable and
disproportionate; it said the respondent ought to have taken a sympathetic and
indulgent view. Hearing both the parties, the petitioner was directed to pay a
sum of Rs. 5,000 as fine to the respondent and ordered the release of the goods
and the vehicle, thereby quashing the impugned orders and allowing the
petition.

28 2019 [23] G.S.T.L. 191 (Ker) Chaithanya
Granites and Marbles vs. Assistant State Tax Officer, State Goods and Services
Tax Department, Kasaragod

Date of order: 19^th
September, 2018

E-way bill
expired due to breakdown of the vehicle, goods and vehicle directed to be
released on personal bond without bank guarantee

FACTS

The present writ petition was
filed against the detention order passed by the Department despite reasonable
submissions for interim release. The petitioner had purchased goods from a
company in Maharashtra. These were entrusted to the parcel agency after
generating the E-way bill. En route to the destination, the vehicle
broke down and required repairs in Karnataka. In the meanwhile, the state of
Kerala was caught in unprecedented floods which made it impossible for the transporter
to resume the journey. Thus, the E-way bill expired since it took more time
than usual for the transporter to reach the destination. The vehicle was
intercepted by the respondent and the goods were seized u/s. 129 of the GST
Act, 2017. Hence the writ petition.

HELD

The
Hon’ble High Court of Kerala held that that once the petitioner had explained
the circumstances through submissions, the respondent ought to have taken a
lenient view rather than a practical view. The said writ petition was disposed
by holding that the goods be released under security of personal bond from the
petitioner without insisting on the bank guarantee.

29 2019 [23] G.S.T.L. 3 (Ker) Noushad Allakkat
vs. State Tax Officer (WC), State GST Deptt., Manjeri

Date of order: 4^th
October, 2018

Bank guarantee
submitted with regard to detention of goods cannot be enchased during
limitation period of appeal

FACTS

The petitioner, a dealer in
timber, purchased timber in Tamil Nadu and was transporting it to Kerala. The
said goods were intercepted and detained u/s. 129 of the Kerala GST Act, 2017
for the supplier’s failure to collect IGST. Subsequently, an order was passed
imposing tax and penalty. The petitioner obtained provisional release of goods
after furnishing a bank guarantee for tax and penalty and also tendered bond
and security for the value of the goods.

Later, he
decided to contest the adverse order by filing a statutory appeal u/s. 107 of
the said Act. But before the petitioner’s action on the Department, it
threatened to apprehend him to invoke the bank guarantee on failure to produce
goods at the appointed date and time as laid down under Rule 140(2) of the CGST
Rules, 2017 and confiscate them. Aggrieved by the same, the petitioner
preferred a writ petition before the Hon’ble High Court.

HELD

The
Hon’ble High Court, while deciding the issue, relied on the decision of Commercial
Tax Officer vs. Madhu M.B. 2017 (6) GSTL 150 (Ker.) wherein it was held
that a dealer ought to produce the goods at the time of adjudication, which was
not produced by the petitioner; therefore, he was held liable for penalty. But
the Court also left room for the petitioner to distinguish the judgement and
assert its case before the Appellate Forum. It was further held that pending
the petitioner’s three months’ time to prefer an appeal against the impugned
order, the act of the respondent was inequitable to invoke the bank guarantee.
The writ petition was disposed with a direction to the Department to not invoke
the bank guarantee for three months. In the interim, the petitioner was
directed to make efforts before the appellate authority to get an interim
protection, pending appeal.

30 2019 [23] G.S.T.L. 168 (Kar) Avinash Aradhya
vs. Commissioner of Central Tax, Bengaluru

Date of order: 18^thFebruary,
2019

In case of an
offence punishable under GST Law, anticipatory bail granted on imposing
stringent conditions

FACTS

A group of
petitioner companies along with other companies indulged in continuous issuance
of fake invoices without actual supply of goods with an intention to enable
them to avail the input tax credit fraudulently. Revenue registered a complaint
against these companies upon finding that the invoices which were issued and
circulated among these companies and other companies reached back to the
originating companies without actual movement of goods, thereby transferring
the irregular input tax credit to the originating companies for payment of GST
and Sales Tax; it held that this was offensive and criminal in nature.

Consequently,
the Revenue issued arrest orders against this group of companies. The
petitioner filed an anticipatory bail application before the Hon’ble High Court
contesting the arrest order stating that as per section 137 of the GST Act, the
maximum punishment which can be imposed upon making out of offence and
conviction is five years and as per section 138 of the said Act, offence can be
compounded before the Commissioner on payment (of penalty). It further
contested that there was no irregularity or loss to revenue of Central or State
Governments. The GST was paid by creating invoices. The only allegation against
the petitioner was that it gave only inflated transaction, therefore this
cannot be an offence under the said Act.

The
respondent, however, vehemently objected to the contention of the accused,
stating that the petitioner claimed ITC without any payment of tax and without
there being any movement of goods, due to which the economy of the country
could be affected. Further, the respondent contested that actually no tax was
paid to anybody and rather only paper transactions happened and such acts would
affect trade transactions of the nation. The act of the petitioner appeared to
be a scam and if allowed to be continued it would have its own cumulative
effect on the economy as a whole. And if the accused were released on bail then
the entire investigation would be affected which may hamper the case of the
prosecution.

HELD

The
Hon’ble High Court relied on the Hon’ble Supreme Court decision passed in the
case of Om Prakash & Anr. vs. Union of India & Anr. 2011 (24) STR
257 (SC) and in the case of Siddharam Satlingappa Mhatre vs.
State of Maharashtra and others, reported in (2011) 1 SCC 694 to
understand the parameters to follow while dealing with anticipatory bail. The
Court observed that no material was produced by the Revenue to show the
magnitude of loss likely to be caused and how the said act could affect the
economy of the country.

Thus,
considering the gravity of the offence and punishment which was likely to be
involved, the Court ordered the accused to be released on bail to meet the ends
of justice with imposition of some stringent conditions, that each petitioner
would have to execute a bond of a sum of Rs. 5,00,000 with two sureties for the
like sum to the satisfaction of the authority and to surrender before the
Investigating Officer within 15 days from the date of passing of the High Court
order. Further that they should not tamper with the prosecution evidence or any
documents required for the purpose of investigation and should co-operate with
the investigation and should not leave the country without prior permission of
the Special Court for Economic Offences and refrain from undertaking similar
type of criminal activities covered under the Act.

31 [2019] 104 taxmann.com 31 (AAAR-Maharashtra)
IMS Proschool (P) Ltd., in re

Date of order: 4^th
February, 2019

AAAR held that the scope of
exemption under Entry No. (69) of Notification No. 12/2017-CT(R) is restricted
only to the activities in relation to specific schemes implemented by National
Skill Development Council and not to other skill development training
programmes provided by approved training partners of NSDC under its general
mandate to promote skill development

FACTS

The
appellant offers educational training and skill development courses through
classroom training and virtual coaching for various national and international
certifications. The appellant is an approved training partner of the National
Skill Development Corporation (NSDC) and the courses offered are approved by
NSDC. However, in some cases, the qualification packs (QPs) / National
Occupation Standards (NOS) with reference to certain courses are pending final
approval and hence such courses are conditionally / exceptionally approved by
NSDC. The appellant is offering such courses to corporates and business
institutes. In some cases, the training part is sub-contracted to business
partners of the appellant.

The
appellant sought advance ruling as to whether they would be entitled to
exemption provided under Entry No. (69) of Notification No. 12/2017-CT (R)
dated 28th June, 2017 in respect of
services provided by the training partner approved by NSDC in relation
to any other scheme implemented by NSDC.

AAR held
that the NSDC programme would cover only the actual schemes and programmes of
skill development that are undertaken by government through its various
ministries, departments, directorates, attached offices and organisations and
cannot in any way be construed to include all the courses that enhance skills.

Aggrieved
by this ruling of the AAR, the appellant filed the appeal. Referring to clause
(i) and (iii) of Entry No. 69(d), the appellant submitted that the scope of the
said entry is broad as it covers activities in relation to schemes implemented
by NSDC and hence, once it is established that NSDC is involved in
implementation of the activity of training programmes / courses, the exemption
should be granted to the appellant.

HELD

The
appellate authority observed that NSDC is acting as the nodal implementing
agency for various schemes implemented by the Ministry of Skill Development and
Entrepreneurship. The AAAR held that, as regards various courses run by it,
there is no conclusive evidence that such training programmes are covered under
clauses (i) or (iii) of Entry 69(d). As regards the appellant’s submission that
the scope of the said entry is broad as it covers activities in relation to
schemes implemented by NSDC, the appellate authority noted that NSDC has two
mandates, i.e., to implement specific schemes of government and a general
mandate to encourage and support the private sector and skill development.

Thus, the
appellate authority held that the scope of exemption given under said Entry No.
(69) is restricted to the schemes implemented by Ministries through NSDC acting
as nodal agency and cannot be extended to general initiatives undertaken by
NSDC. For arriving at such a conclusion, the AAAR took a view that the words
“National Skill Development Programme” is very limited in scope and is
restricted only to the efforts that are undertaken through government funding,
government schemes and specially-designed government programmes. Accordingly,
the appellate authority upheld the order of AAR that since the training
provided by the appellant is covered under the general mandate of NSDC and is
not related to specific government-funded schemes implemented by NSDC, the
appellant is not entitled for this exemption.

32 [2019] 104 taxmann.com 422 (AAAR-Maharashtra)
Spaceage Syntex (P.) Ltd., in re

Date of order: 13^th
March, 2019

AAAR held that
duty-free import authorisation (DFIA) are included in duty credit scrips, as
referred under the Foreign Trade Policy. The sale or purchase of DFIA are
exempt from GST in light of Sr. No. 122(a) of Notification No. 02/2017-CT (R)

FACTS

The
appellant sought an advance ruling to decide whether GST is applicable on sales
and / or purchase of DFIA (Duty-Free Import Authorisations) as Sr. No. (122a)
of Notification No. 2/2017-CT (R) exempts duty credit scrip (DCS). The AAR
observed that the DSC are issued under chapter 3 of the Foreign Trade Policy,
whereas DFIA are issued under chapter 4 of FTP; observing other procedural
differences between DSC and DFIA, AAR held that DFIA are liable to GST. Being
aggrieved, the appellant filed the present appeal.

HELD

The appellate authority
observed that DCS are rewards provided to exporters under MEIS / SEIS schemes
and the goods imported / domestically procured against them are freely
transferrable. DCS can be used to offset basic custom duty and additional
custom duty for import of goods. The DFIA is issued to allow duty-free imports
of inputs, i.e., it is an instrument to extend incentive to exporters by
entitling them to import the goods specified under the import authorisation,
without payment of customs duties.

Thus, the appellate authority
found that though the DCS and the DFIA have been envisaged under different
chapters and under different schemes of the export of the FTP followed by DGFT,
the basic nature and functionality of both the instruments is the same, i.e.,
to set off basic customs duty on imports of goods. Further, it was noted that
in Atul Glass Industries Ltd. 1986 (25) ELT 473 (SC), the Supreme
Court had held that the words and expressions must be construed in the sense in
which they are understood in trade, by the dealer and the consumer. The DCS and
DFIA are construed as same in trade parlance and are widely known as
duty-paying scrips or licenses or duty credit scrips due to their common
functionality and nature.

Further,
the appellate authority observed that since the said DCS cannot be used for
payment of GST, the GST rate on sale / purchase of DCS was reduced from 5% to
0% so as to restore the lost incentive on sale of DCS to exporters.
Accordingly, the appellate authority set aside the ruling of AAR by holding
that DFIA is equivalent to DCS and thus chargeable to nil rate of GST on sale or
purchase of DFIA.

33 [2019] 104 taxmann.com 88 (AAR-Madhya Pradesh)
J.C. Genetic India (P.) Ltd., in re

Date of order: 21^stJanuary,
2019

AAR held that
the exemption for healthcare services provided by clinical establishments is
not applicable to entities functioning as sub-contractors of clinical
establishments

FACTS

The
applicant, a healthcare company, is engaged in diagnosis, pre- and
post-counselling therapy and prevention of diseases by providing necessary
sophisticated tests. It also provides genomic information which helps
physicians and wellness professionals in curing diseases and improving human
health. The applicant has a collaboration with diagnostic companies accredited
by NABL (National Accreditation Board for Testing and Calibration Laboratories)
and DSIR (Department of Scientific and Industrial Research) certified to
provide advanced genetic tests that help in prevention and management of cancer
and various health and metabolic disorders. The applicant sought an advance
ruling as to whether it qualifies to be a ‘clinical establishment’ and eligible
for exemption from GST to healthcare services provided by clinical
establishments in terms of Notification No. 12/2017-CT (R).

HELD

AAR noted
that the applicant has a collaboration with diagnostic companies accredited by
NABL and DSIR, which indicates that the applicant does not have their own
authority for giving clear report / opinion of their own for the tests and they
have to get all the tests conducted and certified by the said NABL-accredited
laboratory. Thus, AAR held that the applicant is functioning as sub-contractors
to the said accredited companies and not as an independent clinical
establishment.

Further, AAR observed that
the exemption under said Entry No. (74) is service-specific as well as
service-provider specific. To qualify for the said exemption an establishment
has to satisfy dual conditions of providing healthcare service as well as being
a clinical establishment. Thus, AAR held that while the services provided by
the applicant may be healthcare service, since they do not qualify to be a
clinical establishment the benefit of said exemption would not be available to
them.

BCAJ Admin

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