2020 Archives

GLIMPSES OF SUPREME COURT RULINGS

5. Pr. CIT vs. NRA Iron and Steel Pvt. Ltd. (2019) 418 ITR 449 (SC)

Notice – Service of notice – Application for recall of ex parte
order – Service of notice on authorised representative – Section 2(35) defines
‘principal officer’ which includes agent of the company and the term ‘agent’
would certainly include a power of attorney holder – No ground for recall of
judgment

An application was filed for recall of the judgment for the A.Y. 2009-10
passed by the Supreme Court on the ground that the applicant company was not
served with the notice of the SLP at its registered office, nor was a copy of
the SLP served on the applicant company.

The applicants submitted that the court notices
were sent to the earlier registered office address of the company, i.e., at
310, 3rd Floor, B-Block, International Trade Tower, Nehru Place, New Delhi.
However, on 19^th May, 2014, the company had changed its registered
office to 211, Somdutt Chambers II, 9, Bhikaji Cama Place, New Delhi 110066.

Thereafter, on 23^rd January, 2019, the registered office was
again changed to 1205, Cabin No. 1, 89 Hemkunt Chambers, Nehru Place, New
Delhi.

The applicants submitted that they learnt of the judgment dated 5^thMarch, 2019 passed by the Court from a news clipping published in The
Economic Times on 7^th March, 2019. Subsequently, the application
for recall was filed on 12^th March, 2019.

The company submitted that on an inspection of the court record it
learnt that the affidavit of dasti service filed by the Revenue
Department on 19^th December, 2018 showed an acknowledgement receipt
by Mr. Sanjeev Narayan, the chartered accountant of the applicant company, on
13^th December, 2018.

The company also placed on record the affidavit of Mr. Sanjeev Narayan
wherein he had stated that he was the authorised representative of the company
before the Income Tax authorities but was not engaged before the High Court or
the Supreme Court. He submitted that he had received service on 13^th
December, 2018 from one of the Inspectors of the Income Tax Department, but he bona
fide believed that the documents were ‘some Income Tax return documents
from Income Tax Department.’ He further submitted that he was suffering from an
advanced stage of cataract and had undergone surgery in both eyes, on 4^th
January, 2019 and 23^rd January, 2019, respectively.

The Department in its counter affidavit submitted that the dasti
notice was duly served on Mr. Narayan at his office address, in his capacity as
the authorised representative of the company who was holding a power of
attorney of the company for the A.Y. 2009-10. The POA appointed all four
partners of the firm, i.e., Mr. Mohan Lal, Advocate, Mr. Ashwani Kumar,
Chartered Accountant, Mr. Sanjeev Narayan, Chartered Accountant, and Mr.
Surender Kumar, FCA, as their counsel and authorised them to represent the
company at all stages of the proceedings. The POA executed by the company in
favour of Mr. Sanjeev Narayan was placed on record.

It was further submitted on behalf of the Revenue that even though Mr.
Narayan had stated that he underwent the cataract surgery on 4^th
January, 2019 and 23^rd January, 2019, this was much after the notice
had been served on 13^th December, 2018. Further, Mr. Narayan had
appeared before the tax authorities after the date of service on 13^thDecember,
2018, and prior to his surgery, to represent the company and its sister
concerns on the 14^th, 21^st, 28^th and 29^th
of December, 2018. In these circumstances, it was pointed out, there was no
merit in the contention raised by the company, and hence no ground was made out
to recall the judgment passed by the Supreme Court.

During oral hearing on the recall application, a submission was made by
the counsel for the company that Mr. Sanjeev Narayan was not the ‘principal
officer’ of the company and hence service could not have been effected upon
him.

* The Supreme Court noted that section 2(35) defines ‘principal
officer’, which includes agent of the company and the term ‘agent’ would
certainly include a power of attorney holder {State of Rajasthan vs.
Basant Nehata [2005 (12) SCC 77]}.

* It held that Mr. Narayan admittedly being the power of attorney holder
of the applicant (M/s. NRA Iron & Steel Pvt. Ltd.) for the A.Y. 2009-10,
was the agent of the company and hence notice could be served on him as the
agent of the company in this case.

* The Supreme Court observed that the ground taken by Mr. Narayan that
even though notice was served on 13^th December, 2018, he assumed
that they were ‘some Income Tax return documents’ lacked credibility. It was
difficult to accept that the envelope containing the dasti notice from
this Court was considered to be ‘some Income Tax return documents’. Also, the
deponent had not disclosed as to whether the envelope containing the dasti notice
was ever opened. Further, the ground urged that the chartered accountant was
suffering from an advanced stage of cataract and hence was constrained from
informing his clients, was again not worthy of credence. The dasti notice
was served on him at his office on 13^thDecember, 2018 which was
much prior to his surgery which took place on 4^th January, 2019.
Furthermore, Mr. Narayan appeared before the Income Tax authorities to
represent the company and its sister concerns on various dates prior to his
surgery, i.e., on 14^th, 21^st, 28^thand 29^thDecember, 2018.

The Supreme Court stated that keeping in view the above-mentioned facts
and circumstances, it was satisfied that the applicant company was duly served
through its authorised representative and was provided sufficient opportunities
to appear before the Court and contest the matter. The company chose to let the
matter proceed ex parte. The grounds for recall of the judgment were
therefore devoid of any merit whatsoever.

The Supreme Court dismissed the application for recall.

6. Pr CIT vs. I-Ven Interactive Limited (2019) 418 ITR 662 (SC)

Assessment – Change of address – Notice – In absence of any application
for change in address and/or change in the name of the assessee in the
Permanent Account Number database, the assessing officer would be justified in
sending the notice at the available address mentioned in the PAN database of
the assessee, more particularly when the return has been filed under e-module
scheme – Mere mentioning the new address in the return of income is not enough
– The change of address in the database of the PAN is a must

The assessee filed return of income for the A.Y.
2006-07 on 28^th November, 2006 declaring total income of Rs.
3,38,71,716. The said return was filed under the e-module scheme and thereafter
a hard copy of the same was filed on 5^th December, 2006. The return
of income was accompanied with the balance sheet and profit and loss account.
The return was processed u/s 143(1) of the Act. A notice u/s 143(2) of the Act
was issued to the assessee on 5^th October, 2007. The notice was sent
at the assessee’s address available as per the PAN database. A further
opportunity was provided to the assessee vide notice u/s 143(2) on 25^th
July, 2008. This notice was also issued at the available address as per the PAN
database. Thereafter, further notices u/s 142(1) were issued to the assessee on
23^rdJanuary, 2008, 25^th July, 2008 and 5^th
October, 2008 along with questionnaires calling for various details and were
duly served on the assessee company.

In response to the said notice, the representative
of the company appeared on 28^th November, 2008 and 4^th
December, 2008. The assessee participated in the proceedings before the AO.
However, the assessee challenged the notice under sections 143(2) and 142(1) on
the ground that the said notices were not served upon the assessee as the assessee
never received those notices and the subsequent notices served and received by
the assessee were beyond the period of limitation prescribed under proviso to
section 143(2) of the Act.

The AO vide assessment order dated 24^th
December, 2008 completed the assessment u/s 143(3) by making disallowance of
Rs. 8,91,17,643 u/s 14A, read with Rule 8 of the Rules, and computed the total
income at Rs. 5,52,45,930.

Being aggrieved by the assessment order dated 24^th
December, 2008, the assessee preferred an appeal before the learned C.I.T.
(Appeals). The C.I.T. (Appeals) allowed the appeal vide order dated 23^rd
December, 2010 holding, inter alia, that the AO completed the assessment
u/s 143(3) without assuming valid jurisdiction u/s 143(2), and therefore the
assessment framed u/s 143(3) was invalid. The C.I.T. (Appeals) observed that as
the subsequent service of notice u/s 143(2) was beyond the period of limitation
prescribed under the proviso to section 143(2) and earlier no notices
were served upon the assessee and / or received by the assessee as the same
were sent at the old address, and in the meantime the assessee changed its
address, therefore the assessment order was bad in law. The Revenue preferred
an appeal before the Income Tax Appellate Tribunal which came to be dismissed
by the I.T.A.T. vide order dated 19^th January, 2015. The orders
passed by the C.I.T. (Appeals) as well as the I.T.A.T. were confirmed by the
High Court.

Hence, the Revenue preferred an appeal before the
Supreme Court.

The Supreme Court noted at the outset that the
notice u/s 143(2) was sent by the AO to the assessee at the address as
mentioned in the PAN database on 5^thOctober, 2007 and the same was
within the time limit prescribed in the proviso to section 143(2) of the
Act.

It recorded, however, that it was the case of the
assessee that the said notice was not served as the assessee had changed its
name and address and shifted to a new address prior thereto and therefore the
said notice was not served upon the assessee, and by the time when subsequent
notices were served, notice u/s 143(2) was barred by the period prescribed in proviso
to section 143(2). Therefore, the assessment order was bad in law. It was the
case on behalf of the assessee that vide communication dated 6^th
December, 2005 the assessee had intimated to the AO about the new address and
despite this, the AO sent the notice at the old address.

The Supreme Court observed that the alleged
communication dated 6^th December, 2005 was not forthcoming. Neither
was it produced before the AO nor before the Supreme Court. In the affidavit,
too, filed in compliance with the order dated 21^st August, 2019, the
assessee has stated that the alleged communication dated 6^th
December, 2005 was not available. Thus, the assessee had failed to prove the
alleged communication of that date. The only document available was Form No. 18
filed with the ROC.

The Supreme Court held that the filing of Form-18
with the ROC could not be said to be intimation to the AO with respect to
intimation of change in address. According to the Court, it appeared that no
application was made by the assessee to change the address in the PAN database
and in the PAN database the old address continued. Therefore, in absence of any
intimation to the AO with respect to change in address, the AO was justified in
issuing the notice at the address available as per the PAN database. Hence, the
AO could not be said to have committed any error; in fact, the AO was justified
in sending the notice at the address as per the PAN database. If that was so,
the notice dated 5^th October, 2007 could be said to be within the
period prescribed in proviso to section 143(2) of the Act. Once the
notice is issued within the period prescribed as per the said proviso,
the same can be said to be sufficient compliance of section 143(2) of the Act.
And once the notice is sent within the period prescribed in the proviso
to section 143(2), in that case, the actual service of the notice upon the
assessee thereafter would be immaterial.

In a given case it may happen that though the
notice is sent within the period prescribed, the assessee may avoid actual
service of the notice till the period prescribed expired. Even in the case
relied upon by the Assessee [Asst. CIT vs. Hotel Blue Moon (2010) 321 ITR
362 (SC)], it was observed that the AO must necessarily issue notice
u/s 143(2) within the time prescribed in the proviso to section 143(2)
of the Act.

The Supreme Court, therefore, in the facts and
circumstances of the case, held that the High Court was not justified in
dismissing the appeal and confirming the orders passed by the C.I.T. (Appeals)
and the I.T.A.T. setting aside the assessment order solely on the ground that
the assessment order was bad in law on the ground that subsequent service of
notice upon the assessee u/s 143(2) was beyond the time prescribed in the
proviso to section 143(2) of the 1961 Act.

The Supreme Court, in the context of the
observations made by the High Court while concurring with the view of the
Tribunal that merely by filing of return of income with the new address it
shall be enough for the assessee to discharge its legal responsibility for
observing proper procedural steps as per the Companies Act and the Income Tax
Act is concerned, held that mere mentioning of the new address in the return of
income without specifically intimating the AO with respect to change of address
and without getting the PAN database changed, is not enough and sufficient.

In the absence of any specific intimation to the AO
with respect to change in address and / or change in the name of the assessee,
the AO would be justified in sending the notice at the available address
mentioned in the PAN database, more particularly when the return has been filed
under the e-module scheme. It is required to be noted that notices u/s 143(2)
are issued on selection of cases generated under the automated system of the
Department which picks up the address of the assessee from the database of the
PAN. Therefore, the change of address in the database of PAN is a must; in case
of change in the name of the company and / or any change in the registered
office or the corporate office, the same has to be intimated to the Registrar
of Companies in the prescribed format (Form 18) and after completing the said
requirement, the assessee is required to approach the Department with the copy
of the said document and the assessee is also required to make an application
for change of address in the Departmental database of PAN, which in the present case the assessee had failed to do.

Accordingly, the appeal was allowed by the Supreme
Court. The impugned judgment and order passed by the High Court, as well as the
orders passed by the C.I.T. (Appeals) and the I.T.A.T., were quashed and set
aside. The matter was remanded to the C.I.T. (Appeals) to consider the appeal
on merits on other grounds, in accordance with the law.

BCAJ Admin

FROM THE PRESIDENT

Dear Members,

Wishing you and your loved ones a very
Happy, Healthy and Prosperous New Year!

It’s New Year, friends! As the New Year
stands before us, it’s another 366 days of opportunities and reasons to be
happy. It’s like a new chapter waiting to be written in the book called LIFE.
So let’s all of us resolve to seize this opportunity and promise ourselves that
we will strive towards happiness and make this world a better place to live in
for ourselves and others around us.

I hope 2020 will mark the beginning of a new
decade of hope, trust and well-being of our profession. As I communicate with you
for the first time at the beginning of this decade, I would like to emphasise
certain recent developments in our profession that will have a great impact on
the way we discharge our professional responsibilities and obligations.

ICAI Code of Ethics: The Code of Ethics issued by the ICAI was aligned with the
International Ethics Standards Board for Accountants (IESBA) Code of Ethics
2005 for the first time in 2009. Now, after a gap of ten years, the ICAI has
decided to revise the Code of Ethics applicable to the profession with effect
from 1^st April, 2020. As in the case of the code issued in 2009,
this edition, too, is divided into two parts, Part A representing provisions of
the IESBA Code of Ethics as suitably incorporated after modification, and Part B
representing the domestic provisions of India governing the Chartered
Accountants’ Act, 1949.

Part A of the Code of Ethics was revised in
2018 on the basis of the IESBA Code of Ethics, 2018 edition; and now the ICAI
has proposed a revision of Part B of the Code of Ethics, 2019.

Since the past decade (when this code was
last revised), multiple changes have taken place in the domestic rules and
regulations governing our profession. Changes in the CA Act, 1949, ICAI Council guidelines and decisions and clarifications
of the Ethical Standards Board have been incorporated in the new code. Further,
other developments and contemporary requirements like New Companies Act, 2013,
revision of Accounting Standards (AS) and Standards of Auditing (SA) also
mandated compilatory updating and upgrading Part B of the code.

Various new provisions, clauses, sections
have been proposed to be inserted in Part B such as: Responding to
Non-Compliance of Laws and Regulations; provision of taxation services to the
audit clients; prohibition on management responsibilities to the audit clients;
restrictions on total fees from a client; duty of accountant in case of breach
of Independence Standards; advertisement guidelines; guidelines on website and
social networking sites; affiliations with networks; long association with
firms and so on.

The ICAI will carry out mass awareness and
educational programmes but it is important for us to be aware of the changes to
maintain the inclusive and ethical culture of our profession and ensure that
none of us is caught unaware of these changes.

Report on Audit Quality Review (2018-19): Cases of financial irregularities continue to haunt the corporate
world, both domestically and internationally, bringing to the forefront
concerns on the need to improve the quality of audit services carried out by
auditors. Last year, the Financial Reporting Council of the UK expressed
concern over falling audit quality and partly attributed this deterioration to
a failure to challenge management and show appropriate professional scepticism.
So far, the Quality Review Board (QRB) of ICAI has being carrying out reviews
of listed and other public interest entities and issuing a report on the
observations from the Audit Quality Review carried out by them annually. This report
of the QRB for reviews carried out during financial year 2018-19 was issued in
October, 2019. It highlights the key findings and observations from reviews
carried out on audit quality of 51 entities (which included 51 audit firms, 64
audit files and 22 industries) indicating the QRB’s approach, key trends, their
expectations and other focus areas.

Though the reported observations are from
reviews carried out on the said 51 entities, these deficiencies can act as
check-points for others to improve their audit quality. The report highlights
in detail non-compliance of SA, AS (standard wise) and other relevant
regulatory requirements. Out of the total observations, 66% required
improvements, 33% were generally acceptable and 1% required significant improvement.
I am sure this will make for interesting reading and help in improving the
quality of audit services rendered by us.

Audit Quality Review (AQR) by NFRA: More recently, the NFRA carried out its first AQR on the statutory
audit of IL&FS Financial Services Limited for F.Y. 2017-18. NFRA has
verified the compliance of SA, assessing the audit quality control system of
the audit firm and the extent to which the same was complied with in the
performance of the audit. This report has made some startling observations and
comments on the compliance of independence requirements, role of engagement
partner, communication with those charged with governance, evaluation of risk
of material misstatement, management’s written representations, evaluation of
going concern assumptions and documentation of the audit quality control
system. A reading of this report will also go a long way in overall improvement
in the quality of services rendered by us.

‘Professionalism: It’s NOT the job you
DO, It’s HOW you DO the job.’

With Best Regards,

CA Manish Sampat

President

BCAJ Admin

FROM PUBLISHED ACCOUNTS

REPORTING AND DISCLOSURES IN QUARTERLY CONSOLIDATED
RESULTS FOR A MATERIAL EVENT OCCURRING AFTER THE END OF THE QUARTER (PERIOD AND
QUARTER ENDED 30^th SEPTEMBER, 2019)

BHARTI AIRTEL LTD.

From: Notes below statement of audited consolidated
results

(A) Details of the specific
event and implications of these on these financial results

On October 24, 2019, the Honourable Supreme Court of India delivered a
judgment in relation to a long outstanding industry-wide case upholding the
view considered by Department of Telecommunications (‘DoT’) in respect of the
definition of Adjusted Gross Revenue (‘AGR’) (‘Court Judgment’). The Hon’ble
Supreme Court has allowed a period of three months to the affected parties to
pay the amounts due to DoT. This Court Judgment has significant financial
implications on the group.

The management is reviewing its options and remedies available,
including but not limited to filing petitions before the Supreme Court and
seeking other reliefs, with others affected in the industry, from the
government. As on the date, the management understands that the government has
formed a high-level Committee of Secretaries across Ministries to assess the
stress in the industry and recommend suitable measures.

In the absence of available reliefs, the group has, in these financial
results, provided for an additional amount of Rs. 168,150 million (comprising
of principal of Rs. 32,070 million, interest of Rs. 70,000 million, penalty of
Rs. 24,920 million, and interest on penalty of Rs. 41,160 million) as a charge
to the statement of profit and loss, with respect to the license fee payable as
estimated based on the Court Judgment. In addition, an amount of Rs. 116,350
million (comprising of principal of Rs. 29,570 million, interest of Rs. 52,190
million, penalty of Rs. 12,680 million, and interest on penalty of Rs. 21,910
million) with respect to spectrum usage charges (‘SUC’), based on the
definition of AGR, has further been provided as a charge to the statement of
profit and loss as estimated, albeit the group believes SUC is a charge
related to use of spectrum and should be levied only on the AGR earned from
wireless access subscribers / services. These provisions have been made without
prejudice to the group’s right to
contest DoT’s demands on facts as well as on rights available in law.

Accordingly, in the absence of available reliefs, with respect to the
operations of the group, the liabilities / provisions as at September 30, 2019
aggregate Rs. 342,600 million (comprising of principal of Rs. 87,470 million,
interest of Rs. 154,460 million, penalty of Rs. 37,600 million, and interest on
penalty of Rs. 63,070 million).

Management plan
to deal with this event and the material uncertainty related to the event

The group will require significant additional financing to discharge its
obligations under the Court Judgment… the management’s actions include, inter
alia, accessing diversified sources of finance. The group has an
established track record of accessing diversified sources of finance across
markets and currencies. However, there can be no assurance of the success of
management’s plans to access additional sources of finance to the extent
required, on terms acceptable to the group, and to raise these amounts in a
timely manner. This represents a material uncertainty whereby it may be unable
to realise its assets and discharge its liabilities in the normal course of
business, and accordingly may cast significant doubt on the group’s ability to
continue as a going concern.

From: Independent auditors’ report on audit of
interim consolidated financial results

Material
uncertainty related to going concern

The accompanying Consolidated Financial Results have been prepared
assuming that the group will continue as a going concern. As discussed in Note
3 to the Consolidated Financial Results, the company has referred to a judgment
delivered by the Honourable Supreme Court of India on October 24, 2019 in
relation to a long outstanding industry-wide case upholding the view considered
by the Department of Telecommunications in respect of definition of Adjusted
Gross Revenue which, along with other matters as stated in the said Note,
indicates that a material uncertainty exists that may cast significant doubt
about its ability to continue as a going concern. Management evaluation of the
events and conditions and management’s plans regarding these matters are also
described in Note 3.

Our opinion on the Statement is not modified in respect of this matter.

Emphasis of matter

(i) …………..

(ii) …………..

Our opinion on the Statement is not modified in respect of these
matters.

VODAFONE IDEA LTD.

From: Notes below statement of unaudited
consolidated results

(A) Subsequent to the quarter end, the Hon’ble Supreme
Court on 24^th October, 2019 passed the judgment (SC AGR Judgment) on
cross appeals against the Hon’ble TDSAT judgment dated 23^rd April, 2015
wherein it has held that the definition of Gross Revenue under Clause 19 of the
UASL is all-encompassing and comprehensive. The Hon’ble Supreme Court has
further held that the gross revenue definition shall prevail over the
accounting standards and is binding on the parties to the contract / license
agreement. The Hon’ble Supreme Court has then dealt with different heads of
revenue / inflow and has held that these will fall within the definition of
adjusted gross revenue. Further, the Hon’ble Supreme Court has upheld the levy
of interest, penalty and interest on penalty stating that the levy is as per
the terms and conditions of the license agreement.

Consequent to the above, the company has estimated license fee of Rs.
276,100 million and Spectrum Usage Charges (SUC) of Rs. 165,400 million
(including interest, penalty and interest thereon of Rs. 330,050 million) (‘AGR
liability’) based on the DoT demands received till date and estimation for
periods for which demands have not been raised by DoT, together with interest
and penalty, all taken for periods up to 30^thSeptember, 2019 and
adjusted for certain computational errors. Whilst the company has provided for
SUC, considering that no spectrum is used for generating non-telecom income,
the company is evaluating the levy of SUC on such income. Accordingly, during
the quarter, the company has recognised a charge of Rs. 256,779 million as an
exceptional item after adjusting the available provisions and adjustments for
potential payments under a mechanism on satisfaction of contractual conditions
as per the implementation agreement dated 20^th March, 2017 entered
on merger of erstwhile VInL and ICL in relation to the crystallisation of
certain contingent liabilities which existed at the time of merger. Also, the
company has informed the lenders and bond holders about the SC AGR judgment, as
required under the financing agreements entered with them and also notified the
stock exchanges.

The Hon’ble Supreme Court has directed the telecom operators to pay the
dues within 90 days from the date of the SC AGR Judgment. By its letter of 13^thNovember, 2019, the DoT has directed the company to make payment in
accordance with SC AGR judgment based on its own assessment with requisite
documents. The company would complete its assessment, reconcile / validate the
DoT demands and true up the estimates considered in accordance with SC AGR
judgment.

The company is in the process of filing a review petition with the
Hon’ble Supreme Court. Further, the company through Cellular Operators
Association of India (‘COAI’) has made representations to the government to
provide relief to the telecom sector, including but not limited to requesting
to not press for the AGR liability payment and grant waivers, not levy spectrum
usage charges on non-licensed revenue / income, reduction of licence fee and
SUC rates, use of GST credit for payment of government levies and allow payment
to be made in instalments after some moratorium and grant a moratorium of two
years for the payment of spectrum dues beyond 1^stApril, 2020 up to
31^st March, 2022. The Government has taken cognisance of these
representations and has recently set up a Committee of Secretaries (‘COS’) to
evaluate the telecom operator’s plea and suggest measures to mitigate the financial
stress.

(B) During the year ended 31^st
March, 2019, the company had classified Rs. 102,062 million from non-current
borrowings to current maturities of long-term debt for not meeting certain
covenant clauses under the financial agreements for specified financial ratios
as at 31^st March, 2019. The company had exchanged correspondence /
been in discussions with these lenders for the next steps / waivers.

Based on the above waiver and / or grant of deferred payment terms for
the AGR liability by the government, reduction of license fee and / or SUC
rates and a moratorium on payment of DoT spectrum instalments are essential to
meet the funding requirement for the aforesaid payments. The above factors
indicate that material uncertainty exists that casts significant doubt on the
company’s ability to continue as a going concern and its ability to generate
the cash flow that it needs to settle, or refinance its liabilities and
guarantees as they fall due, including those relating to the SC AGR judgment. The
company’s ability to continue as going concern is dependent on obtaining the
reliefs from the government, as discussed in Note 5(A) above and positive
outcome of the proposed legal remedy. Pending the outcome of the above matters,
these financial results have been prepared on a going concern basis.

From: Independent auditors’ review report on
unaudited consolidated financial results

We draw attention to Note 5 to the financial results regarding the
Hon’ble Supreme Court judgment dated 24^thOctober, 2019 on the
definition of gross revenue as per the UASL agreement and the liability on
licence fee and spectrum usage charges of Rs. 441,500 million payable within 90
days from the Supreme Court judgment and breach of debt covenants, its ability
to generate the cash flow that it needs to settle, or refinance its liabilities
and guarantees as they fall due resulting in a material uncertainty that casts
significant doubt on the holding company’s ability to make the payments
mentioned therein and continue as a going concern.

The said assumption of going concern is dependent upon the holding
company obtaining the reliefs from the government as discussed in Note 5,
positive outcome of the proposed legal remedy. Our conclusion is not modified
in respect of this matter.

BCAJ Admin

ETHICS AND U

Shrikrishna: Yes, my dear
Arjun, you seem to be in a relaxed mood today. All tension over?

Arjun: Hmm! I wish I could be
really relaxed. But in our profession there is no room for relaxation. It is
not in a CA’s destiny at all.

Shrikrishna: Why are you so
sceptical? All professions, or rather, all people are sailing in the same boat
today.

Arjun: That is true. But almost
all practising CAs I know are fed up with practise. Many are giving up their
COP. Their next generation is keeping itself away from traditional practice.

Shrikrishna: I am told even
the large firms are shying away from assurance function. Then who will do the
audits?

Arjun: That is really a problem.
Government should think about it seriously. Many of us feel that all small and
medium entities should be exempted from audit. That the turnover limit should
be respectably high. Other criteria also should be liberal.

Shrikrishna: Arjun, you
feel so because you are staying in a metro city. Have you thought of your
professional brothers staying upcountry? They will literally starve if audit
work is gone.

Arjun: Yes. That’s a point. But
then, what’s the solution? We slog so much even for a small audit and take so
much tension, but there is no proportionate remuneration. The regulations are
too strict for a small entity to comply.

Shrikrishna: I agree. For
this I feel you should be more serious about collective thinking and action
among your members. In your study circles, you brainstorm only on academics.
Instead, you should devote more time to think about how to tackle this chronic
issue. Think of the fate of the profession.

Arjun: True. And on the top of it,
the sword of disciplinary action is always hanging on our heads. I don’t see
any ray of hope. Everything is gloomy.

Shrikrishna: That’s another
problem. You people are very keen to learn all other laws that you are dealing
with in the practice but you are not that serious about knowing and updating
yourself about your own CA Act!

Arjun: Why? What happened? Is
there any change?

Shrikrishna: Yes. There is
a change in both the parts of your Code of Ethics.

Arjun: Both the parts? I didn’t
even know that there are two parts! I only know that COE is very frightening.

Shrikrishna: Ha! Ha! Ha! Arey,
Arjun, Part A is more about principles applicable internationally. New
concepts, new thinking, new principles which are universally recognised. Our
Indian Code is expected to be in tune with this international thinking. That’s
in Part B.

Arjun: Ahh! Who is bothered about
such philosophy? Let them change Part A as many times as they like. Tell me
what matters to me.

Shrikrishna: That’s the
problem! You are not awakened enough about your profession. Part A has already
been changed and your Institute has already published it a few months ago. Now,
they are changing Part B – i.e., your Indian Code of Ethics.

Arjun: Where is that new thing?
When is it applicable?

Shrikrishna: They have
already circulated the Exposure Draft for your comments. The Institute cannot
change the provisions of law or the schedules. That is to be done by
Parliament. The Institute expresses its views and interpretations in its
commentary. That is sought to be changed.

Arjun: I will see when it becomes
applicable.

Shrikrishna: Arjun,
this approach is wrong. You are sleeping over such things. Not awakened about
the proposed changes. And then you keep
crying after it becom-es applicable – when it is too late! You need to be
proactive.

Arjun: I agree.
So what should we do?

Shrikrishna: You
should sit in a group and study the proposed changes and their impact. And send
representations to the Institute.

Arjun: Let me
first study it for myself. I’m sure none of my friends would know about it. But
next time we will discuss the changes so that I can take more care.

Shrikrishna: Sure.

Om Shanti.

(This dialogue is based on the need to study
the exposure draft on changes in the Code of Ethics – Part B. Details will be
discussed in the next write-up)

BCAJ Admin

CORPORATE LAW CORNER

9. Neena Somani vs. Jaiprakash Associates Ltd.[2019] 111 taxmann.com 293 (NCLT, All.) Date of order: 13^thSeptember, 2019

Petition filed by depositors u/s 73 of the
Companies Act 2013 (CA 2013) for recovery of interest due is maintainable in
case of deposits accepted by company even prior to 1^st April, 2014,
i.e., date on which section 73 of CA 2013 is notified – Depositors entitled to
interest payment from the date of maturity till actual payment is made

FACTS

‘N’ had invested her money in the company J
in different fixed deposit receipts (FDRs). However, company J had not repaid
the FDRs on the date of maturity and also not paid the interest for additional
time period for which the money of the investors was kept with it.

‘N’ had sent some claim letters to
company J about non-payment of due interest after maturity period of FDRs and
approached company J several times, but had not received any satisfactory
response.

‘N’ filed petition u/s 73(4) of CA 2013
seeking direction to company J to make repayment of the interest due from the
date of maturity till the date actual payment was released.

Company J contended that the deposits in
respect of which the present petition had been filed were accepted by the
company before the commencement of the Companies Act, 2013, i.e., prior to 1^stApril, 2014. It was also submitted that the repayment of these deposits,
after the enforcement of CA 2013, was now governed by section 74 of CA 2013 and
not by section 73 of CA 2013 under which the present petition had been filed.

HELD

It was observed that NCLT has held in the
past that it is not the intention of the legislature to differentiate between
depositors prior to or after 1^stApril, 2014. The remedies cannot be
any different nor can they be categorised into two separate groups. Rule 19 of
the Companies (Acceptance of Deposits) Rules, 2014 clarifies the applicability
of the provisions of sections 73 and 74 of CA 2013 to deposits accepted from
the public by eligible companies, prior to or after the coming into force of
the 2013 Act. The term deposit would mean and include all previous deposits
accepted by the company.

In Jaiprakash Associates vs. Jainendra
Sahai Sinha (in the matter of another depositor of company J) the
Supreme Court had held company J liable to pay interest at the rate of 12/12.5%
per annum from the date of maturity till the actual payment.

As per section 74(2) of CA 2013, the
Tribunal may, on an application made by the company, after considering the
financial condition of the company, the amount of deposit or part thereof and
the interest payable thereon and such other matters, allow further time as
considered reasonable to the company to repay the deposit.

A mere plain reading of the provision shows
that by exercising the power, the Tribunal allows time as it may consider
reasonable to the company to repay the deposit, and since the Tribunal simply
regularised the belated payment which was made by company J to the depositors
by extending the time to make the payment u/s 74(2) of CA 2013, the order of
the Tribunal will not debar ‘N’ from getting the interest after the maturity
till the date the actual payment is made.

Therefore, the Tribunal held that in view of
the order passed by the Supreme Court in another case, the petitioners were
entitled to get the interest at the rate of 12/12.5% p.a. from the date of
maturity till the date the actual payment is released to the depositors. Hence,
‘N’ and other depositors are entitled to get the interest at the rate of
12/12.5% p.a. from the date of maturity till the date payment is released to
‘N’ and other depositors.

Thus, company J was directed to make the
payment to ‘N’ at the rate of 12/12.5% p.a. from the date of maturity till the date the actual payment is released to ‘N’ and other depositors.

BCAJ Admin

REPRESENTATIONS

1. Dated: 2^nd
December, 2019

To: The
International Co-operation and Tax Administration Division Centre for Tax
policy and Administration OECD

Subject: Comments
and Suggestions for Pillar 2-Global Anti-Base Erosion (‘GloBE’) Proposal

Representation by:
International Taxation Committee of Bombay Chartered Accountants Society

2. Dated: 19^th
December, 2019

To: Shri Pramod
Chandra Mody, Chairman, Central Board of Direct Taxes, New Delhi

Subject:
Representation on Processing Returns for A.Y. 2019-20; Ref: Section 143(1)(a)
and section 139(9)

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

GOODS AND SERVICES TAX (GST)

I. HIGH COURT

21. [2019] (29) GSTL 5 (Ker.) Hyundai Construction Equipment India Pvt.
Ltd. vs. State Tax Officer, Kasargod Date of order: 9^th August, 2019

Bank guarantee cannot be encashed before expiry of the
time period to file the appeal is over

FACTS

A
writ petition was filed by the petitioner on the grounds that the respondent
had invoked extraordinary jurisdiction by not accounting for the submissions
and explanation in the records and by ordering encashment of the bank guarantee
before the period for filing the appeal expired.

HELD

The
Hon’ble Court perused the facts of the case and held that the respondent should
have recorded the explanations offered under any given circumstances, even in
case of any delay. Further, that the invocation of bank guarantee even before
the expiry of period of appeal can be deferred by passing appropriate orders,
and thus directed the respondent to not encash the bank guarantee for a period
of 90 days.

22. [2019]
(29) GSTL 29 (Mad.) Assistant Commr. of CGST & C. Ex. vs.
Daejung Moparts Pvt. Ltd. Date of order: 23^rd July, 2019

Interest on delayed payment of tax to be calculated on
net tax payable by cash only

FACTS

A
writ petition was filed by the petitioner because the AO calculated interest
amount on gross output tax liability without considering the balance in the
electronic credit ledger and the bank account was sealed for the amount
calculated by the AO. The petition was allowed by the learned Single Judge
observing that the AO was bound to hear the aforesaid objections of the
assessee in determining the correct liability of interest. Further, the Judge
directed the bank to deposit the admitted liability for interest u/s 50 of the
Act to the extent calculated by the assessee. Revenue filed an intra-court
appeal against the judgment passed by the Single Judge.

HELD

The
Hon’ble Chief Justice held that the judgment passed by the Single Judge was
correct. The liability of interest arises on net tax liability and the bank
account was operative with the exception of aforementioned admitted sum which
shall be paid by the bank to the Assistant Commissioner of CGST and Central
Excise.

23. [2019] (29) GSTL 6 (Bom.) Ashish Jain vs. Union of India Date of order: 13^th July, 2019

Offences like issue of fake invoices without supplying
goods and fraudulent availment of input tax credit are cognisable and
non-bailable as per section 132(5) of CGST Act

FACTS

In
the given case, the assessee fraudulently availed input tax credit by issuing
fake invoices to fictitious companies without supplying any goods. For this the
Department issued summons under the CGST Act, 2017. The petitioner contended
that investigation cannot be commenced without following the procedure of
section 154 or 155 of the Criminal Code, i.e., the authority first has to
register an FIR and then investigate the case.

HELD

The
Hon’ble High Court relied on the decision of the Union of India vs. Sapna
Jain (Supreme Court) wherein it was held that the Apex Court had
refused to entertain the special leave petition. In the present case, the order
of the Apex Court in the case of Sapna Jain (Supra) was
considered final and thus did not grant any relaxation to the assessee from the
arrest warrant.

24. [2019-TIOL-3411-CESTAT-CHD.] M/s Fresenius KabiOnclogy Ltd. vs. Commissioner, CGST Date of order: 6^th November, 2019

Subsequent reversal of credit in TRAN-1 is sufficient
compliance of refund claimed under Notification No. 27/2012-ST which requires
reversal of service tax claimed as refund

FACTS

The
appellant availed input services for export of goods. It filed a refund claim
under Rule 5 of the CENVAT Credit Rules, 2004 read with Notification No. 27/2012-ST
dated 18^th June, 2012. As per the condition of the notification, the
CENVAT credit availed on the services is required to be reversed. It is alleged
that since the credit availed on the services is not reversed, the refund is
liable for rejection. Both the authorities below have rejected the claim and
therefore the present appeal is filed.

HELD

The
Tribunal, relying on the decision in the case of Global Analytics India
Pvt. Ltd – Final Order No. 40942-40943/2019 dated 22^nd July, 2010
holding that there was no provision in the ACES system to debit the value of
refund and also the fact that the entire credit which was carried forward in
TRAN-1 stood reversed by the appellant voluntarily in its GSTR3B filed for the
month of April, 2018, is sufficient compliance of the condition of the
Notification. The refund is accordingly allowed.

II. AUTHORITY FOR ADVANCE RULING
[AAR]

25. [2019]
(29) GSTL 778 (AAR – Mah.) Jotun India Pvt. Ltd. Date of order: 4^th October, 2019

Recovery of insurance premium from the employees is not
an activity in the course or furtherance of business as applicant was not
involved in business of insurance

FACTS

The
applicant, a manufacturer, supplier and exporter of paints and powder coating,
introduced an optional parental insurance scheme for employees’ parents. It
initially paid the entire premium and then recovered 50% of the premium from
their salary in instalments. The scheme was not the business of the applicant.
The insurance was taken with the Oriental Insurance Company Ltd. Besides,
providing parental insurance cover was not mandatory under any law.
Non-provision of parental insurance would not affect the business of the
applicant by any means.

HELD

The
term ‘supply’ u/s 7 and ‘business’ u/s 2(17) of the CGST Act, 2017 were
referred for analysing the activity of the applicant and it was found that
provision of mediclaim policy for the employees’ parents was not mandatory
under any law. Non-provision of parental insurance would not affect the
business of applicant by any means. ARA of ‘Posco India Pune Processing
Center Private Limited-AAR 2019 (21) G.S.T.L. 351’ was confirmed
wherein it was held that ‘they are not rendering any service of health insurance
to its employees, hence there is no supply of service in instant case’. Thus,
the activity of recovery of 50% of cost of insurance premium was not treated as
an activity done in the course or furtherance of business.

26. [2019-TIOL-493-AAR-GST] Ex-Servicemen’s Resettlement Society Date of order: 29^th November, 2019

GST is payable on the bonus paid by the recipient of the
service to provider of service as the persons deployed are not the employees of
the service receiver

FACTS

The
applicant is a registered society providing security services and scavenging
services to various hospitals under the State Government. They seek a ruling as
to whether they are liable to pay GST on the portion of the payment received on
account of the bonus paid or payable to the persons it deploys as security
personnel.

HELD

The
Authority noted that the security personnel engaged are at no point of time
employees of the State Government. The assessee is an employer of the security
personnel deployed and is responsible for paying all statutory dues and payment
of bonus at the Government approved rate. Since the agreement does not create a
master and servant relationship between the recipient of service and the
security personnel, payment received from recipient on account of bonus is not
guided by paragraph 1 of Schedule III. The applicant is, therefore, liable to
pay GST on the portion of the payment received on account of bonus paid or
payable to the persons it deploys as security personnel.

27. [2019-TIOL-448-AAR-GST] M/s Santosh Distributors Date of order: 16^th September,
2019

Since prices are determined by the principal company, the
discounts reimbursed are liable to be added to the value of supply. Further,
input credit is not required to be reversed for commercial credit notes
received

FACTS

The
applicant is paying the tax due as per the invoice value issued and availing
the input credit of GST shown in the inward invoice received from the principal
company or their stockist. The question before the Authority is whether
additional discount provided by the principal company attracts GST and whether
the amount shown in the commercial credit note requires any proportionate
reversal of credit.

HELD

The
Authority noted that the price of the products supplied is determined by the
supplier / principal company and they have no control over the same. Therefore,
it is evident that the additional discount given by the supplier which is
reimbursed to the applicant is a special reduced price and such additional
discount is liable to be added to the consideration payable by the customer to
the distributor / applicant to arrive at the value of supply in terms of
section 15 of the Act. Further, the supplier of goods / principal company
issuing the commercial credit note is not eligible to reduce its original tax
liability and hence applicant will not be liable to reverse the input tax
credit.

III. APPELLATE AUTHORITY FOR ADVANCE RULING [AAAR]

28. [2019 (29) GSTL 773 (App. AAR – GST)] Malli Ramalingam Mothilal Date of order: 7^th August, 2019

Payment of shortfall of statutory fees for filing appeal
before appellate authority sufficient cause for condoning the delay

FACTS

The
appellant filed an appeal before the Appellate Advance Ruling Authority along
with fees of Rs. 5,000 each under CGST and SGST instead of Rs. 10,000 each
under CGST & SGST. Subsequently, the appellant paid additional amount of
Rs. 5,000 each under CGST and SGST.

HELD

The
Appellate Authority accepted the appeal holding that deficiency was made good
within the further period of 30 days as provided in the law. Therefore, the
lacuna was condonable.

BCAJ Admin

SERVICE TAX

I. TRIBUNAL

16.
[2019-TIOL-3424-CESTAT-Del.] M/s Gurnani Infra Developers Pvt. Ltd. vs. The
Commissioner, Central Goods and Services Tax Date of order: 1^st October, 2019

Balance sheet shows
an advance recoverable in cash as being paid towards the service tax, there is
therefore no question of unjust enrichment

FACTS

The appellant
received a taxable service and had been depositing the service tax under
reverse charge mechanism. Since they were not liable to discharge the liability
under reverse charge mechanism, they filed a refund claim. The claim was
acknowledged but it was held that the same was hit by unjust enrichment and
therefore the amount was to be transferred to the Consumer Welfare Fund.
Accordingly, the present appeal was filed.

HELD

The Tribunal, on
perusal of the balance sheet, noted that till the time of filing the impugned
refund claim, an advance recoverable in cash as being paid towards the service
tax is shown. There is, therefore, sufficient evidence otherwise on record to
falsify any charge of unjust enrichment. The order is accordingly set aside and
the appeal is allowed.

17. [2019
(29) GSTL 441 (Tri.-Del.)] IDP Education India Pvt. Ltd. vs. Commissioner of
C. Ex., Delhi-IV Date of order: 8^th May, 2019

Conducting test does
not amount to commercial training or coaching services

FACTS

The present appeal
was filed by the appellant who operates the business of International English
Language Test Centres from various locations in India under license agreement with
IELTS Australia. The practice material was available on the website of the
appellant who was not engaged in training and coaching for preparation for the
said test. The test was required to be conducted in two modules, namely,
academic module and general training module. The appellant had sub-contracted
the services for conducting the tests. He received the fees for the test
directly from the students and remitted the respective share to IELTS Australia
and the sub-contractor after retaining certain amount. No service tax was paid
for the period April, 2012 to June, 2012. The Department passed an order
confirming demand of service tax treating the activity of the appellant to be
coaching and training services.

HELD

The Hon’ble Tribunal
held that the agreement clearly stipulated that holding of the IELTS Test by
the appellant was itself a skill and nothing in the agreement required the
appellant to coach or train the candidates. Besides, no consideration was
earmarked for such test. Conducting the test cannot be considered as imparting
skill or knowledge by any stretch of imagination. Therefore, the order was set
aside, thus allowing the appeal.

18.
[2019-TIOL-3393-CESTAT-Hyd.] M/s ArunExcello Foundation vs. Commissioner of GST
and Central Excise Date of order: 8^th November, 2019

Excess payment of
service tax can be adjusted in any month or quarter within a reasonable time as
per Rule 6(4A) of the Service Tax Rules, 1994

FACTS

The appellants made
excess payment of service tax from April, 2015 to June, 2016. This was adjusted
in the return of September, 2016. A show-cause notice was issued to them
alleging that the adjustment of the excess service tax made is against the
provisions of law and not in order. Since the appeal was rejected by Commissioner
(Appeals), the present appeal was filed.

HELD

The Tribunal held
that the Rule intends to adjust excess payment in order to avoid the hassles of
a refund claim. When there is already an excess amount in the hands of the
Revenue, while making such adjustment there is no revenue loss and, in fact,
the Revenue is enriched by the interest on the excess amount till the
adjustment. The word ‘immediate’ being absent in the Rule, the only
interpretation possible is that the assessee can adjust the excess payment to
any succeeding month or quarter when he has service tax liability. Further,
such adjustment should be made within reasonable time. The adjustment is in
accordance with Rule 6(4A) of the Service Tax Rules, 1994 and therefore
allowed.

19. [2019-TIOL-3327-CESTAT-Kol.] M/s Etrans Solutions Pvt. Ltd. vs. Commissioner of
CGST and Central Excise Date of order: 30^th July, 2019

When credit
attributable to exempted services is reversed, Revenue cannot insist that
option (3)(i) under Rule 6 of the CENVAT Credit Rules, 2004 of payment of 6% of
the value of exempted services should be followed by the assessee

FACTS

The assessee is
engaged in the provision of services as well as trading of goods. It maintains
a common balance sheet for its manufacturing as well as trading activity. The
short issue that arises for consideration is whether the assessee is required
to pay 6% of total sale value of the goods traded by it in terms of Rule
6(3)(i) of the CENVAT Credit Rules, 2004 when it paid the actual credit
attributed to the quantum trading sale in terms of Rule 6(3A) along with
interest following the option available under Rule 6(3)(ii) of the Rules.

HELD

The
Tribunal, relying on the decision in the case of M/s Mercedes Benz India
(P) Limited vs. Commissioner of Central Excise, Pune-I
[2015-TIOL-1550-CESTAT-Mum.], held that the main objective of Rule 6 is
to ensure that the assessee should not avail the CENVAT Credit in respect of
input or input services which are used in or in relation to the manufacture of
the exempted goods, or for exempted services. If this is the objective, then at
the most the amount which is to be recovered shall not be in any case more than
the CENVAT Credit attributed to the input or input services used in the
exempted goods. The Tribunal noted that the appellant reversed the
proportionate common credit taken on input services used in trading of goods
along with interest thereon. Therefore, Rule 6(3)(i) will not have any
application. The appeal is accordingly allowed.

BCAJ Admin

MISCELLANEA

I. Technology

10. What
are the most promising technologies for software development?

Software is the
driving force of the world today. With an estimated 9 trillion devices in use,
software is the glue that connects people from all around the globe. The
software developers that build and develop these software products are shaping
and building the modern technological world. The developer population had been
estimated to hit approximately 26.4 million by this year. Yet, even after the
increasing number of developers, there seems to be a talent shortage.

Change is the only
constant on this planet. The software industry is one of those sectors in
contemporary times that witnesses a constant change in practices due to the
ever-growing technological landscape. Software developers and professionals
need to keep themselves updated with the latest technologies and innovations in
order to compete and get the best possible position and pay.

In recent years, the
IT industry has seen tremendous growth. In a report by Gartner in 2018, it is
predicted that the industry will witness a growth of 8.3% in 2019 in its
spending.

Some of the
technologies that seem to have the most promising future are:

Mixed
Reality

Mixed reality is a
combination of the twin technologies of virtual reality (VR) and augmented
reality (AR). Experts predict that by 2025 the market size of mixed reality
will reach US $3.7 billion.

AR has seen a
tremendous amount of growth recently and the credit for this goes solely to its
applications on smartphones. The popularity of smartphones is one of the major
reasons why companies are hiring AR developers in large numbers and investing
in their own AR applications.

Many people assume
that the applications and the scope of VR are limited to gaming and
entertainment. But effective applications by companies and armies around the
world have proved this notion wrong. The US Army has used Microsoft’s HoloLens
mixed reality technology for military training purposes. Similarly, Walmart is
also planning to utilise VR technology to train employees in customer service
and compliance.

Progressive
web applications

Progressive web
applications (PWAs) are a hybrid of mobile and web applications. They differ a
lot from the regular mobile application. The service worker script is an
integral part of PWAs on which they majorly work. PWAs have a number of
features such as responsiveness, connectivity independence, safety,
linkability, etc. The main feature of PWAs includes its offline support, where
the application is supposed to be able to work without a connection. These
applications can be loaded very fast even with low internet speed. For example,
Uber’s PWA was designed to run even on 2G speeds. The core app is a mere 50KB
and takes just three seconds to load on 2G speeds. PWAs are also very good for
customer engagement. Trivago saw an increase of 150% for the people who add its
PWA on their home screen. Trivago also observed a 97% increase in hotel offer
clickouts owing to the increased customer engagement.

Additionally, they
are very easy to develop and maintain. This, in particular, has attracted many
mobile developer companies in the past few years.

Machine
Learning and Artificial Intelligence

A total of 91 machine
learning deals were carried out last year with a business value of US $16.9
billion. According to Deloitte, approximately 100,000 legal jobs will be automated
by 2036. Automation and machine learning are here to stay and are going to make
a huge difference and change the way organisations operate.

Machine learning
allows organisations to customise the customer experience and helps target the
company’s efforts. For example, Facebook implements statistical analysis and
predictive analytics together to find patterns based on data. It helps Facebook
to personalise the newsfeed for each individual, suggest interesting content,
posts and to improve user engagement. In addition, Facebook uses neural
networks on images to suggest members to tag in the picture.

Artificial
intelligence aims to be able to improvise business tasks and make them simple.
The advent and popularity of artificial intelligence has provided the web app
developers brilliant support to experiment. This has broadened the reach of AI
to sectors like healthcare, banking, education, mathematics, etc.

IoT

Internet of Things
(IoT) covers various categories of devices that are connected to the internet
and communicate with each other. The applications of IoT are present in both
the consumer and the industrial domains. In areas such as security and customer
experience, IoT is experiencing exponential growth and demands.

According to David
Evan, a former researcher at Cisco, each second about 127 devices are being
connected to the internet. This clearly signifies the constantly increasing
reach of IoT.

Over 90% of
automobiles are expected to be IoT-enabled by 2020. In the coming years, IoT
will continue to grow in prevalence and get more sophisticated. From smart cars
to in-store smart assistants for customer personalisation, the future holds a
lot of value for IoT. Enterprises will come closer to an intelligently
connected future by embracing real-time visibility.

CONCLUSION

The evolution of
software technologies provides a clear insight into the type of developments
ongoing in the information technology industry. Developers all around the world
are working to improve the convenience and comfort level of humans. With
traditional developments like Java application development, .NET development,
etc., developers need to keep themselves updated with the emerging technologies
and trends.

Similarly, it is
vital for organisations to adopt these new technologies in order to expand and
compete with their competitors. Consultancy companies can provide greater
insights into these new technologies and help businesses become software
leaders.

(Source:
International Business Times – By IBTimes Staff Reporter, 18^thDecember,
2019)

11. New
mobile number portability rules kick in: All you need to know

The revised mobile
number portability or MNP rules issued by the telecom regulator TRAI came into
effect from December 16. The new rules are slated to make the porting process
fast and simple.

The revised process
comes with conditions for generation of Unique Porting Code (UPC). It entails
three working days’ timeline for port out requests within a service area, and
five working days for requests for port out from one circle to another.

Here are the other
details:

*For corporate mobile
connections, there is no change in the porting timelines, TRAI stated;

* Mobile users can
generate the UPC and avail the mobile number porting process;

* In the new process,
the UPC can be generated only when the subscriber is eligible to port out his /
her mobile number;

* Laying down the
rules for the new process, the Regulator said a positive validation of various
conditions will determine the generation of the UPC;

* For instance, in
case of post-paid mobile connection, the subscriber has to ensure clearance of
outstanding dues towards the existing telecom service provider for the issued
bills as per normal billing cycle;

* Some other
conditions include activation in the present operator’s network of not less
than 90 days; and no pending contractual obligations to be fulfilled by the
subscriber as per the exit clause provided in the subscriber agreement;

* Once UPC is
generated, it will be valid for four days for all ‘Licensed Service Areas
(LSAs)’ except the circles of Jammu & Kashmir, Assam and North-East, where
it will remain valid for 30 days.

* Users will need to
submit address and identity proof to the changing operator to begin the MNP
request.

(Source:
Times of India.com – 16^th December, 2019)

II. Economy

12. Government
imposes restrictions on import of gold, silver

According to a
notification issued by the Directorate-General of Foreign Trade (DGFT), import
of gold in any form has been placed in ‘restricted’ category from ‘free’
category.

Amid
rising inward shipments of gold, the Government imposed restrictions on the
import of precious metals. According to a notification issued by the
Directorate-General of Foreign Trade (DGFT), import of gold in any form has
been placed in ‘restricted’ category.

‘Import
policy of gold in any form, other than monetary gold and silver in any form, is
amended from “Free” to “Restricted”; import is allowed only through nominated
agencies as notified by RBI (in case of banks) and DGFT (for other agencies),’
the Directorate said. However, import under advance authorisation and supply of
gold directly by foreign buyers to exporters against orders have been exempted.
The restrictions come in the backdrop of rising imports of gold, which rose by
6.59% to USD 2.94 billion in November from USD 2.76 billion a year-ago.

(Source: Financial
Express – By PTI, 18^th December, 20

BCAJ Admin

ALLIED LAWS

15. Advocate –A
client is not bound by a statement or admission which he or his lawyer was not
authorised to make – There is no estoppel against law [Advocates Act,
1961, S. 35]

Director of
Elementary Education, Odisha and Ors. vs. Pramod Kumar Sahoo; AIR 2019 SC 4755

The counsel for
the appellant conceded before the Tribunal that teachers having Intermediate
qualification are entitled to the scale of pay as is available to trained
Matric teachers. On the basis of such concession, the learned Tribunal allowed
the original application. The counsel for the appellant submitted that separate
pay scales are provided for untrained Matric teachers and for trained Matric
teachers. Merely because the respondent is Intermediate, that is, a higher
qualification than Matric does not make him a trained teacher. Therefore, the
concession given by the State counsel is an erroneous concession in law and
does not bind the appellant.

The Court
observed that generally, admissions of fact made by a counsel are binding upon
their principals as long as they are unequivocal; however, where doubt exists
as to a purported admission, the Court should be wary about accepting such
admissions until and unless the counsel or the advocate is authorised by his
principal to make such admissions. Furthermore, a client is not bound by a
statement or admission which he or his lawyer was not authorised to make. 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. The Court
added that neither the client nor the Court is bound by the lawyer’s statements
or admissions as to matters of law or legal conclusions.

Accordingly, it
was held that the concession given by the State counsel before the Tribunal was
a concession in law and contrary to the statutory rules. Such concession is not
binding on the State for the reason that there cannot be any estoppel
against law. The rules provide for a specific grade of pay; therefore, the
concession given by the learned State counsel before the Tribunal is not
binding on the appellant. The original application filed by the respondent was
dismissed on merits.

16. Advocate –
Legal advice – Negligence – Advocate is not liable unless guilt proved [Indian
Penal Code, S. 420, 467, 468, 471 & 120B]

Subha Jakkanwar W/o Arun Jakkanwar vs. State of Chhattisgarh, Criminal
Misc. petition No. 1614 of 2017; Date of order: 26^th November, 2019
(CHH)(HC)

Ten borrowers
made an application to a bank for a loan. The bank requisitioned a
non-encumbrance certificate, which was provided by the petitioner who was the
empanelled advocate of the bank. The petitioner certified the application qua
the lands held by the borrowers for the grant of loan. The borrowers failed to
repay the loan. It was seen that the borrowers had submitted false and
fabricated documents. The question arose as to whether the advocate
(petitioner) could be incriminated for issuing a non-encumbrance certificate
negligently.

The High Court
observed that extending of a legal opinion for granting loan has become an
integral component of an advocate’s work in the banking sector. A lawyer on his
part has a responsibility to act to the best of his knowledge and skills and to
exhibit an unending loyalty to the interests of his clients. He has to exercise
his knowledge in a manner that would advance the interest of his clients.
However, while doing so, the advocate does not assure his client that the
opinion so rendered by him is flawless and must in all possibility act to his
benefit. Just as in any other profession, the only assurance which can be
given, and may even be implied from an advocate so acting in his professional
capacity, is that he possesses the requisite skills in his field of practice
and while undertaking the performance of a task entrusted to him, he would
exercise his skills with reasonable competence.

The only
liability that may be imputed to an advocate while so acting in his
professional capacity is that of negligence in application of legal skills, or
due exercise of such skills, or when an opining advocate is an active
participant in a plan to defraud the bank. Merely because his opinion may not
be acceptable he cannot be criminally prosecuted, particularly in the absence
of direct evidence against him.

It was held
that in the instant case the petitioner was neither named in the written
complaint nor in the FIR. Only in the statements of three branch managers for
the first time was the advocate’s name indicated stating that with an intention
to extend pecuniary advantage to the farmers, the non-encumbrance certificate
was issued in their favour which was found to be not acceptable by the bank and
also found to be untrue. There is no basis on record for making such a
statement except that the non-encumbrance certificate was not found proper.
There is no evidence on record to hold that the petitioner met the accused
persons at any point of time and there is no allegation that she gained any
pecuniary benefit as a result of preparing such a report; except for the
statements of three branch managers of Dena Bank that the report was false,
there is no material to show that the petitioner at any point of time was
involved in any criminal conspiracy with any of the accused persons to commit
the offence alleged against her.

Accordingly, even
if the allegations are taken at their face value and accepted in their
entirety, the same do not disclose any commission of offence nor do they make
out a case against the petitioner. The Honourable Court relied upon the case of
K. Narayana Rao (2012) 9 SCC 512. Accordingly, the entire
charge-sheet as framed and filed against the petitioner was quashed.

17. Joint
family property – Inherited property – Any conveyance or compromise regarding
inherited property by few coparceners would not affect and bind the shares of
the other coparceners who were not a party to such conveyance / compromise
[Hindu Law]

Doddamuniyappa
(Dead) through L.R.S. vs. Muniswamy and Ors.; (2019) 7 SCC 193

The property
was originally purchased by propositus (sic) of the family, namely,
Chikkanna. After the death of Chikkanna, the property devolved to his three
sons who jointly sold the property in 1950 and the sale deed contained the
clause of re-conveyance requiring the purchaser to re-convey the property in
the event of sale. After the appellant purchased the subject property in 1962,
a civil suit was instituted for the re-conveyance of the property by the sons
of Chikkanna in the first instance which was dismissed by the trial court. On
the order of the High Court, the respondents put the decree to execution and a
deed of re-conveyance was executed and possession of the property was restored
to the respondents on execution of the decree; it assumed the character of a
joint family property in the hands of the respondents.

At the stage of
execution appeal, which was preferred at the instance of the appellant, a
compromise was executed between the parties and accordingly, part of the
possession of the subject property was restored to the appellant. After the
restoration of possession of the subject property, the title of the property
re-assumed its original character of joint family property and created the
right of inheritance in the joint family property; all the coparceners were
neither consulted nor made parties to the said compromise.

The Court held
that the respondents were not parties to the compromise and the subject
property at that time was joint family property and the compromise entered into
between the parties would not bind the rights of the respondents. It would be
an ancestral property in their hands and the respondents are neither party to
the proceedings nor consented when the compromise decree was executed in the
execution appeal; admittedly, the same would not be binding upon their share of
the property. It goes without saying that the compromise would bind the share
of the respondents as they are party to the compromise which was entered into
in the execution appeal and has been rightly recorded by the High Court under its impugned judgment.
Accordingly, the order of the High Court was upheld.

18. Limitation
– Residuary section of Limitation Act will apply when no limitation under any
other Act provided [Hindu Succession Act, 1925, S. 263; Limitation Act, 1963,
Article 137]

Jethmal Soni
vs. Hariom Soni and Ors.; AIR 2019 (CHH) 172 (HC)

An application
under section 263 of the Indian Succession Act, 1925 was filed for revoking a
probate granted by a probate court in favour of the petitioners. A preliminary
objection against the said application was filed before the trial court that
there was a delay of more than 90 days due to which the application was barred
by limitation. The trial court rejected the said preliminary objection finding
no merit in it and held that limitation for revocation of probate will be
governed by Article 137 of the Limitation Act, 1963; the date of knowledge
admittedly is 20^th December, 2013, and therefore the application so
filed is within the period of limitation. A writ petition was filed challenging
the order of rejecting the preliminary objection.

The Court in
the present petition held that the learned District Judge while dealing with
the application in question was acting as a civil court and, therefore, the
provisions of Article 137 of the Act of 1963 clearly govern the situation. In
view of the same, in case of application u/s 263 of the Act of 1925 for
revocation of probate, which is not governed by any specific Article of the Act
of 1963, the residuary Article 137 of the Act of 1963 would apply. It was held
that the correct position was that ‘the right to apply’ accrued to the
respondents only on 20^th December, 2013 and they filed an
application for revocation of probate on 27^th January, 2014, well
within the period of three years when the right to apply for setting aside
accrued to them. Thus, the learned District Judge was absolutely justified in rejecting
the preliminary objection filed by the petitioner.

BCAJ Admin

STATISTICALLY SPEAKING

BCAJ Admin

ALLIED LAWS

20. Securitisation
and Reconstruction of Financial Assets and Enforcement of Security Interest
(SARFAESI) Act, 2002, sections 2(c) and 5(c), Banking Regulation Act, 1949,
sections 5(b) and 6(1) – Co-operative banks – Definition of ‘banks’ – SARFAESI
Act – Power of the Central Government to legislate

Pandurang
Ganpati Chaugule vs. Vishwasrao Patil Murgud Sahakari Bank Limited; Civil
Appeal No. 5674 of 2009 (SC); Date of order: 5^thMay, 2020

Bench: Arun
Mishra J., Indira Banerjee J., Vineet Saran J., M.R. Shah J., Aniruddha Bose J.

FACTS

A question
arose with respect to the legislative field covered by Entry 45 of List I, viz.
‘Banking’ and Entry 32 of List II of the Seventh Schedule of the Constitution
of India, consequentially the power of the Parliament to legislate and the
applicability of the SARFAESI Act to co-operative banks.

HELD

The Supreme Court held that the
co-operative banks under the State legislation and multi-state co-operative
banks are ‘banks’ u/s 2(1)(c) of the SARFAESI Act and while state laws might
regulate co-operative societies regarding their incorporation, regulation and
winding up, the Parliament was competent to enact laws to regulate their
banking function.

Further,
recovery is an essential part of banking; as such, the recovery procedure
prescribed u/s 13 of the SARFAESI Act, a legislation relatable to Entry 45 List
I of the Seventh Schedule to the Constitution of India, is applicable.
Parliament has legislative competence under Entry 45 of List I of the Seventh
Schedule of the Constitution of India to provide additional procedures for
recovery u/s 13 of the SARFAESI Act with respect to co-operative banks.

21. Covid-19 –
Period of limitation – Applicable to Arbitration & Conciliation Act, 1996,
and Negotiable Instruments Act, 1881

Suo Motu
Writ Petition by the Hon’ble Supreme Court; Suo Motu Writ Petition No. 3
of 2020 (SC); Date of order: 6^th May, 2020

Bench: Chief Justice S.A. Bobde, Deepak
Gupta J., Hrishikesh Roy J.

Counsel: K.K. Venugopal, Tushar Mehta

FACTS

The Hon’ble
Supreme Court had in the same petition vide order dated 23^rd
March, 2020 held that to ease the difficulties faced by the litigants and their
lawyers across the country in filing their petitions / applications / suits /
appeals, irrespective of the limitation prescribed under the general law or
Special Laws whether condonable or not, shall stand extended w.e.f. 15^th
March, 2020 till further order/s to be passed by the Court in the present
proceedings. A clarification was sought with respect to the applicability of
the order to the Arbitration and Conciliation Act, 1996 and the Negotiable
Instruments Act, 1881.

HELD

The Supreme
Court has clarified that all periods of limitation prescribed under the
Arbitration and Conciliation Act, 1996 and u/s 138 of the Negotiable
Instruments Act, 1881 shall be extended with effect from 15^th March,
2020 till further orders.

It further held
that in case the limitation has expired after 15^th March, 2020, then
the period from 15^th March, 2020 till the date on which the lockdown
is lifted in the jurisdictional area where the dispute lies or where the cause
of action arises, shall be extended for a period of 15 days after the lifting
of the lockdown.

22. Partnership Act, 1932, sections 37 and 42 – Partnership firm – Only
two partners – Retirement of one partner – Dissolution – Accounts to be settled
accordingly

Guru Nanak Industries vs. Amar Singh
(deceased) through LR

Civil Appeal No. 6659-6660 of 2010 (SC);
Date of order: 26^th May, 2020

Bench: Sanjiv Khanna J., N.V. Ramana J.,
Krishna Murari J.

FACTS

The firm had two partners and one of them
agreed to retire. The dispute arose as to whether the same amounted to ‘dissolution of a partnership firm’ or ‘retirement of a partner’ as
the same would have a direct bearing on the accounting treatment for settling
of the accounts.

HELD

The Supreme Court held that there is a clear
distinction between ‘retirement of a partner’ and ‘dissolution of a partnership
firm’. On retirement of the partner, the reconstituted firm continues and the
retiring partner is to be paid his dues in terms of section 37 of the
Partnership Act. In case of dissolution, the accounts have to be settled and
distributed as per the mode prescribed in section 48 of the Partnership Act. In
the present case, there being only two partners, the partnership firm could not
have continued to carry on business as a firm. A partnership firm must have at
least two partners. When there are only two partners and one has agreed to
retire, the retirement amounts to dissolution of the firm.

23. Indian
Evidence Act 1872, sections 65 and 66 – Wills – Existence of a Will – Secondary
evidence to establish its existence

Jagmail Singh vs. Karamjit Singh; Civil
Appeal No. 1889 of 2020 (SC); Date of order: 13^th May, 2020 Bench: Navin Sinha J., Krishna Murari J.

FACTS

During the pendency of a land dispute, an
application under sections 65 and 66 of the Evidence Act was moved by the
appellants seeking permission to prove a copy of a Will dated 24^th
January, 1989 by way of secondary evidence. The application was made on the
ground that the said original Will was handed over by the appellants to revenue
officials for sanctioning the mutation in their favour. The revenue officials
were issued notice for production of the original Will dated 24^th
January, 1989 but they failed to produce the said Will. The application was
then dismissed.

HELD

The Supreme Court held that a perusal of
section 65 makes it clear that secondary evidence may be given with regard to
the existence, condition or the contents of a document when the original is
shown or appears to be in possession or power against whom the document is
sought to be produced, or of any person out of reach of, or not subject to, the
process of the Court, or of any person legally bound to produce it, and when,
after notice mentioned in section 66 such person does not produce it. It is a
settled position of law that for secondary evidence to be admitted foundational
evidence has to be given being the reasons as to why the original evidence has
not been furnished.

Further, during cross-examination the
(revenue) officials did not unequivocally deny the existence of the Will and
the scribe of the Will and another witness had admitted the existence of such a
Will. Therefore, the appellants would be entitled to lead secondary evidence in
respect of the Will in question. However, such admission of secondary evidence
does not automatically attest to its authenticity, truthfulness or genuineness
which will have to be established during the course of the trial in accordance with
law.

24. Covid-19 –
General law – Service of notices, summons and exchange of pleadings / documents

Suo Motu
Writ Petition by the Hon’ble Supreme Court; Suo Motu Writ Petition No. 3
of 2020 (SC); Date of order: 10^th July, 2020

Bench: Chief Justice S.A. Bobde, R. Subhash
Reddy J., A.S. Bopanna J.

Counsel: K. K. Venugopal, Tushar Mehta

FACTS

Service of notices, summons and exchange of
pleadings / documents is a requirement of virtually every legal proceeding.
Services of notices, summons and pleadings etc. have not been possible during
the period of lockdown because this involves visits to post offices, courier
companies or physical delivery of notices, summons and pleadings. The Supreme
Court took cognisance of this fact.

HELD

The Hon’ble Supreme Court held that such
services may be effected by e-mail, FAX, commonly used instant messaging
services, such as WhatsApp, Telegram, Signal, etc. However, if a party intends
to effect service by means of said instant messaging services, the party must
also effect service of the same document / documents by e-mail simultaneously
on the same date.

BCAJ Admin

REGULATORY REFERENCER

(BCAJ
earlier carried a feature called SPOTLIGHT for several years. Ever since
updates became nearly instant from several sources, it was stopped. However,
today the problem is of too many regulatory changes too frequently. Keeping
track of important updates is becoming increasingly difficult. This feature, in
this new avatar, seeks to bring a curated set of changes in Tax, Accounting and
Audit, and FEMA at one place every month)

DIRECT TAX

1. Employees, who have donated to PM CARES Fund,
can claim deduction u/s 80G based on the Form 16 issued by employer, since one
consolidated donation receipt will be issued by PM CARES Fund in the name of
the employer [F. No. 178/7/2020 – ITA – 1 dated 9^th April, 2020].

2. Clarification regarding short deduction of TDS
/ TCS due to increase in rates of surcharge by Finance (No. 2) Act, 20l9
[Circular No. 8/2020 dated 13^th April, 2020].

3. Clarification for employers for deduction of
tax from salary paid to employees, in respect of option u/s
115BAC of the Income-tax Act, 1961 [Circular No. C1/2020 dated 13^th
April, 2020].

4. In view of the prevailing situation due to the
Covid-19 pandemic across the country, reporting under clause 30C and
clause 44 of the Tax Audit Report kept in abeyance till 31^st
March, 2021 [Circular No. 10 /2020 dated 24^thApril, 2020].

5. Clarification on provisions of Direct Tax Vivad
se Vishwas Act, 2020 – Circular No. 9/2020 dated 22^ndApril,
2020 [Corrigendum to Circular No. 9/2020 – dated 27^th April,
2020].

6. Clarification in respect of exclusion of
number of days of stay in India for the purpose of determining residency
u/s 6 of the Act [Circular No. 11/2020 dated 8^th May, 2020].

7. The rates of Tax Deduction at Source (TDS) for
the non-salaried specified payments made to residents
have been reduced by 25% for the period from 14^th May, 2020 to 31^st
March, 2021 [Press Release dated 13^th May, 2020].

ACCOUNTS AND AUDIT

A. Extension
of the last date of filing of Form NFRA-2 – The time
limit for filing of Form NFRA-2 for FY 2018-19 will be 210 days from the date
of deployment of the form on the NFRA Website. [MCA General Circular No.
19/2020 dated 30^th April, 2020.]

B.
Communication with Retiring Auditor through E-mail – During
the lockdown period, members may communicate with the retiring auditor vide
e-mail. Acknowledgement must be received from the retiring auditor’s
Institute-registered / official e-mail address in which case the same would be
deemed to be valid evidence of positive delivery of communication. [ICAI’s
Decision dated 1^st May, 2020.]

C. Going
Concern – Key Considerations for Auditors amid Covid-19 – Auditing guidance
that focuses on implications of the pandemic for the auditor’s work related to
going concern and includes specific FAQs to deal with various situations in the
current environment. [ICAI’s Guidance dated 10^thMay, 2020.]

D.
Relaxation from publishing quarterly consolidated financial results under Reg
33(3)(b) of SEBI LODR – Listed entities that are banking
/ insurance companies or having subsidiaries that are banking / insurance
companies may submit consolidated financial results for the quarter ending 30^th
June, 2020 on a voluntary basis. However, they shall continue to submit the
standalone results. If such listed entities choose to publish only standalone
financial results, they shall give reasons for the same. [SEBI Circular No.
SEBI/HO/CFD/CMD1/CIR/P/2020/79 dated 12^th May, 2020.]

E. Physical Inventory Verification – Key Audit
Considerations amid Covid-19 – Auditing guidance covering
alternative audit procedures where it is impracticable for auditors to attend
physical inventory counting and related implications for the Auditor’s Report. [ICAI’s
Guidance dated 13^th May, 2020.]

F. Auditor’s Reporting – Key Audit Considerations
amid Covid-19 – Auditing Guidance covering impact of
Covid-19 pandemic on (i) the auditor’s report, (ii) reporting under CARO 2016,
and (iii) reporting on Internal Financial Controls with reference to Financial
Statements. [ICAI’s Guidance dated 17^th May, 2020.]

G. Advisory on disclosure of material impact of
Covid-19 pandemic on listed entities under SEBI (LODR) Regulations
– Listed entities encouraged to disclose impact of the pandemic on their
business, performance and financials. Illustrative list of disclosures
includes, estimation of the future impact of Covid-19 on operations; details of
impact on capital and financial resources; profitability; liquidity; debt
servicing ability; internal financial reporting and control; etc. [SEBI
Circular No. SEBI/HO/CFD/CMD1/CIR/P/2020/84 dated 20^th
May, 2020.]

FEMA

(I) In view of the Covid-19 pandemic, the period
of realisation and repatriation of the full export value of goods or software
or services for exports made up to 31^st July, 2020 has been
increased by the Reserve Bank of India from nine months to 15 months. The
similar period for exports to warehouses, however, remains unchanged at 15
months. [A.P. (DIR Series) Circular No. 27 dated
1^stApril, 2020.] The FEM (Export of Goods and Services)
Amendment Regulations, 2020 enabled the Reserve Bank to specify the period of
realisation and repatriation in the above cases in consultation with the
Government [FEMA 23(R)/(3)/2020-RB dated 31^st March, 2020].

(II) As per the announcement made in Union
Budget 2020-21, certain specified
categories of Central Government Securities (G-Secs) were to be opened up fully
for non-resident investors without any restrictions. RBI has now introduced
a separate route – ‘Fully Accessible Route’ (FAR) for such investment by
non-residents in G-Secs from 1^stApril, 2020. Its main features
are the following:

(a) FAR is available to eligible investors which
are defined as any ‘person resident outside India’ as per section 2(w) of FEMA.

(b) Investment can be made in all securities as
periodically notified by the RBI. The securities covered for this purpose, with
effect from 1^st April, 2020 are notified vide Circular No.
FMRD.FMSD.No.25/14.01.006/2019-20 dated 30^th March, 2020.

(c) There shall be no quantitative limit on
investment. The minimum residual maturity requirement, security-wise limit and
concentration limit would also not apply to investors under FAR.

(d) Existing investments by eligible investors in
specified securities shall be considered under FAR.

(e) FPIs have been provided one year to readjust
their investments to comply with the revised requirements under the Medium Term
Framework (MTF). Further, the MTF itself has been revised for FY 2020-21 vide
A.P. (DIR Series) Circular No. 30 dated 15^th April, 2020.

[FAR
Directions – A.P. (DIR Series) Circular No. 25 dated 30^th March,
2020.]

(III) Existing facilities for
non-residents and residents to hedge their foreign exchange risk on account of
transactions permitted under FEMA have been revised following the
announcement in the Statement on Developmental and Regulatory Policies dated
5^thDecember, 2019. The revised facilities broadly provide for:

(a) A User Classification Framework has now been
provided and authorised dealers shall offer derivative contracts to a user as
this framework. The framework classifies users as retail and non-retail users.
Non-retail users are all entities regulated by a financial sector regulator;
EXIM Bank, NABARD, NHB and SIDBI; companies with minimum net worth of Rs. 500
crores; and persons resident outside India other than individuals. All other users
are classified as retail users. Complex derivative contracts are not available
to retail users.

(b) Amongst other conditions, users may undertake
over the counter (OTC) currency derivative transactions for derivative
contracts involving Indian rupees up to US$ 10 million without the need to
evidence underlying exposure.

(c) Banks shall be provided with the discretion, in
exceptional circumstances, to pass on net gains on hedge transactions booked on
anticipated exposures in case specified conditions are met.

[A.P. (DIR
Series) Circular No. 29 dated 7^th April, 2020.]

The revised
directions were supposed to come into effect from 1^st June, 2020,
but have been postponed to 1^st September, 2020 in view of the
pandemic. Directions on the participation of banks in Offshore Non-deliverable
Rupee Derivative Markets issued vide A.P. (DIR Series) Circular No. 23
dated 27^th March, 2020 will come into effect from 1^stJune,
2020 as hitherto [A.P. (DIR Series) Circular No. 31 dated 18^th
May, 2020].

(IV) To counter opportunistic
takeovers / acquisitions of Indian companies during the current pandemic by
China, Regulation 6(a) of Non-Debt Instrument Rules has been amended to
provide that investment into India under Schedule I (Foreign Direct Investment)
will be allowed only with Government approval in the following cases:

(a) By an entity from a country which shares a land
border with India;

(b) Where the beneficial owner of an investment into
India is situated in a country which shares a land border with India, or is a
citizen of such a country;

(c) By a citizen of Pakistan or an entity
incorporated in Pakistan in sectors or activities other than defence, space,
atomic energy and such other sectors or activities prohibited for foreign
investment;

(d) Where transfer of ownership of any existing or
future FDI in an entity results in beneficial ownership of such entity falling
within restricted categories as per all the provisos mentioned in points
(a) to (c) above.

[Notification No. S.O. 1278 (E)
dated 22^nd April, 2020. Similar
amendment made to Para 3.1.1 of Consolidated FDI Policy 2017 vide Press Note No. 3 dated 17^th
April, 2020.]

BCAJ Admin

FINANCIAL REPORTING DOSSIER

This article
provides (a) key recent updates in the financial reporting global space;
(b) insights into an accounting topic, viz. convenience translation; (c)
compliance aspects of transition disclosure under Ind AS 116 from the
lessee’s perspective; (d) a peek into an international reporting practice in
the Auditor’s report; and concludes with (e) an extract from a
regulator’s speech from the past on MD&A disclosure

KEY RECENT UPDATES

Revised International Standard on Auditing (ISA 315)

On 19^th December, 2019 the IAASB issued ISA 315 (Revised
2019), Identifying and Assessing the Risks of Material Misstatement.
ISA 315 (Revised) sets out enhanced requirements and application material
to support the auditor’s risk assessment process. The revised ISA has enhanced
requirements related to exercise of professional scepticism,
separate focus on understanding the applicable financial reporting
framework, clarifications on which controls need to be identified
for the purposes of evaluating the design of a control, and determining whether
the control has been implemented and also considerations for using automated
tools and techniques incorporated within the application material of the standard.
A new Appendix (Appendix 6) has also been added to provide the auditor with considerations
for understanding general IT controls.

The revised ISA is
effective for audits of financial statements for periods commencing on or after
15^th December, 2021.

SEC Guidance on Reporting KPIs and Metrics in MD&A

On 30^th January, 2020 the US SEC issued a Guidance on
Management Discussion and Analysis (MD&A) related to disclosure of
Key Performance Indicators (KPIs) and metrics. SEC registrants are required to
discuss and analyse statistical data in the MD&A section that in the
company’s judgement enhances a reader’s understanding. Such information could
constitute KPIs and other metrics.

The SEC, based on
the issued guidance, expects the following disclosures to accompany the metric:
(i) a clear definition of the metric and how it is calculated, (ii) a
statement indicating the reasons why the metric provides useful information
to investors, and (iii) a statement indicating how management uses the
metric in managing or monitoring the performance of the business. A company
should also consider whether there are any estimates / assumptions underlying
the metric or its calculation and whether disclosure of such items is necessary
for the metric not to be materially misleading.

It may be noted
that examples of metrics to which the guidance applies include operating
margin, same store sales, sales per square foot, average revenue per user,
active customers, total impressions, traffic growth, employee turnover rate, number
of data breaches, etc.

USGAAP – Simplifying the Accounting for Income Taxes

The FASB issued
Accounting Standards Update (ASU) No. 2019-12 in December, 2019, Simplifying
the Accounting for Income Taxes, amending Topic 740, Income Taxes.
The ASU makes a number of amendments and is part of the FASBs USGAAP
simplification initiative. One such amendment relates to intra-period tax
allocation.

Intra-period tax
allocation is the process of allocating income tax expense (or benefit) to
components of income statement, i.e. continuing and discontinuing operations,
other comprehensive income and equity. Under extant USGAAP, the general
accounting principle is that an entity determines the tax expense / benefit for
continuing operations and then proportionally allocates the remaining tax
expense / benefit to other items. USGAAP made an exception to this general
principle in a situation when there was a loss in continuing operations and a
gain / surplus in OCI / discontinuing operations. The ASU has removed the exception
and the amended position is that ‘the tax effect of pre-tax income or
loss from continuing operations should be determined by a computation that does
not consider the tax effects of items that are not included in continuing
operations’. This has an impact in situations when income from
continuing operations is subject to a tax rate that is different from the tax
rate applicable to chargeable / capital gains on discontinued operations / OCI.

The amendment is
effective for public companies for fiscal years commencing 15^th
December, 2020. It may be noted that IFRS (IAS 12, Income Taxes) does
not explicitly provide guidance on such intra-period tax allocation.

RESEARCH: CONVENIENCE TRANSLATION

Introduction

Convenience
translation is ‘a display of financial statements or selected
portions of financial statements in a currency other than the
presentation currency, as a convenience to some users’.

Setting the
Context

An analysis of a
sample of four companies’ data based on their annual reports filed with the US
Securities Exchange Commission (SEC) is provided below.

It may be noted
that the ‘functional currency’ is the currency of the primary
economic environment in which an entity operates.

The ‘presentation currency’ (or the reporting currency) is the
currency in which the financial statements are presented.

Case Study 1: Baidu Inc. (Listed on NASDAQ)

GAAP for SEC filing

USGAAP

Functional Currency

US $

Reporting Currency

RMB

Extracts from the Income Statement and Balance Sheet for
the Year ended 31^stDecember, 2018

(Amount in millions)

2016 (RMB)

2017 (RMB)

2018 (RMB)

2018 (US$)

(Convenience Translation)

Total revenue

70,549

84,809

102,277

14,876

Net income

11,596

18,288

22,582

3,284

Total assets

251,728

297,566

43,279

Total equity

119,350

175,036

25,459

Convenience Translation

Translations of amounts from RMB into US$ for the
convenience of the reader have been calculated at the exchange rate on 31^st
December, 2018, the last business day in fiscal year 2018

Case Study 2: Honda Motor Co. Limited (Listed on NYSE)

GAAP for SEC filing

IFRS

Functional Currency

Japanese Yen

Presentation Currency

Japanese Yen

Extracts from the Income Statement and Balance Sheet for
the Year ended 31^stMarch, 2019

(Amount in millions)

2017 (JPY)

2018 (JPY)

2019 (JPY)

Convenience Translation

Total revenue

13,999,200

15,361,146

15,888,617

Net income

679,394

1,128,639

676,286

Total assets

19,349,164

20,419,122

Total equity

8,234,095

8,565,790

Convenience Translation

Case Study 3: Wipro Limited (Listed on NYSE)

GAAP for SEC filing

IFRS

Functional Currency

Indian Rupees

Reporting Currency

Indian Rupees

Extracts from the Income Statement and Balance Sheet for
the Year ended 31^stMarch, 2019

(Amount in millions)

2017 (INR)

2018 (INR)

2019 (INR)

2019 (US$)

(Convenience Translation)

Total revenue

550,402

544,871

585,845

8,471

Net income

85,143

80,084

90,173

1,302

Total assets

760,640

833,171

12,045

Total equity

485,346

570,753

8,252

Convenience Translation

The accompanying consolidated financial
statements have been prepared and reported in Indian Rupees, the functional
currency of the parent company. Solely for the convenience of readers, the
consolidated financial statements as at and for the year ended 31^st
March, 2019 have been translated into US$ at the exchange rate on
31^st March, 2019

Case Study 4: Infosys Limited (Listed on NYSE)

GAAP for SEC filing

IFRS

Functional Currency

Indian Rupees

Presentation Currency

US Dollar

Extracts from the Income Statement and Balance Sheet
for the Year ended 31^st March, 2019

(Amount in millions)

2017 (US $)

2018 (US $)

2019 (US $)

Convenience Translation

Total revenue

10,208

10,939

11,799

Net income

2,140

2,486

2,200

Total assets

12,255

12,252

Total equity

9,960

9,400

Convenience Translation

As can be seen from
the above table, Company 1 presents its financial statements in RMB although
its functional currency is US$. It also presents US$ figures for the latest
financial year based on a convenience translation converting all balance sheet
and income statement items at the year-end exchange rate.

Company 3 and 4
are India listed entities whose functional currency is the INR. Company 4 presents
its financial statements in US$ (applying IAS 21) while the other company
presents its financial statements in INR with a convenience translation of only
the current period figures in US$ [based on year-end exchange rate (applying
SEC Regulation S-X)].

In the following
sections an attempt is made to address the following questions:

1. What is the current position with respect to
convenience translation under prominent GAAPs?

2. Is there consistency among GAAPs with respect
to convenience translation?

3. Is there a difference between displaying
financial statements in a presentation currency (that is different from an
entity’s functional currency) and convenience translation of financial
statements?

4. Is convenience translation an option or mandatory
for a US listed entity?

5. Why do entities adopt convenience translation
if it is optional?

The position
under prominent GAAPs

US GAAP

USGAAP does not
contain any guidance on convenience translation. Even the SEC
regulations do not permit full-fledged convenience translations for foreign
private issuers (FPIs) with the exception of a ‘limited convenience
translation’.

The Accounting
Standards Codification (ASC 830) that covers the accounting topic Foreign
Currency Matters in USGAAP states that, ‘this topic does not cover
translation of the financial statements of a reporting entity from its
reporting currency into another currency for the convenience of readers
accustomed to that other currency’. (ASC 830-10-15-7).

US-listed
entities that are subject to SEC regulations may
at their option present convenience translation of financial statements.
The salient aspects of the said rule [Regulation S-X, Rule 3-20 (b)] are
summarised below.

a. An FPI shall state amounts in its
primary financial statements in the currency which it deems appropriate.

b. If the reporting currency is not the US
dollar, dollar-equivalent financial statements or convenience translations
shall not be presented, except a translation may be presented of the
most recent fiscal year and any subsequent interim period presented using
the exchange rate as of the most recent balance sheet, except that a rate
as of the most recent practicable date shall be used if materially different.

IFRS and Ind AS

IAS 21 The
Effects of Changes in Foreign Exchange Rates permits an entity to present
its financial statements in any currency or currencies.

IFRS also does not prohibit an entity from providing, as
supplementary information, ‘a convenience translation’. Such a
‘convenience translation’ may display financial statements (or selected
portion of financial statements) in a currency other than the presentation
currency as a convenience to some users. The ‘convenience translation’ may be
prepared using a translation method other than that required by the
Standard. These types of ‘convenience translations’ should be clearly
identified as supplementary information to distinguish them from information
required by IFRSs and translated in accordance with IAS 21 (para 57 and BC14).

The position under IND
AS 21 The Effects of Changes in Foreign Exchange Rates is the same
as under IAS 21.

AS 11 The
Effects of Changes in Foreign Exchange Rates does not contain any explicit
guidance with respect to ‘convenience translation’. It also does not prohibit use
of a currency other than the currency of country of domicile as the reporting
currency:

This standard does not
specify the currency in which an enterprise presents its financial statements.
However, an enterprise normally uses the currency of the country in which it is
domiciled. If it uses a different currency, this standard requires disclosure
of the reason for using that currency (para 3).

Conclusion

At present there is
no consistent principle underlying the preparation and presentation of financial
statements applying convenience translation across GAAPs. USGAAP and AS do not
contain explicit guidance on this topic. IFRS (and Ind AS) does permit
convenience translation, albeit it does not contain the prescriptions
available when financial statements are translated into a presentation currency
(other than the functional currency). The SEC regulations provide the
methodology to be adopted for presenting convenience translation figures that
is very limited in scope.

Presenting
financial statements in a presentation currency (both under IFRS and USGAAP)
requires standard procedures to be adopted (with balance sheet items being
translated at closing rate and income statement figures at average rates and
resultant exchange differences accounted in other comprehensive income).
Convenience translation, on the other hand, under SEC regulations requires all
items in the balance sheet and income statement to be translated at closing
rate (with no comparatives). Some entities that have dual listing status opt for
providing additional information by way of such a translation for the
convenience of their investors. A summary of the case studies is provided in
the table below:

Global Listed Entities

Indian Listed Entities

US SEC reporting

Case Study 1

Case Study 2

Case Study 3

Case Study 4

GAAP adopted

USGAAP

IFRS

Functional currency

US $

JPY

INR

Presentation / reporting currency

RMB

JPY

INR

US$

Whether US$ figures are made available to
investors on face of financial statements?

Yes, with convenience translation

Yes. With convenience translation

Yes. Without convenience translation

GAAP literature adopted for convenience
translation

SEC Regulation S-X and not USGAAP ASC 830

SEC Regulation S-X and IAS 21

NA (IAS 21 adopted for translation to
presentation currency)

GLOBAL ANNUAL REPORT EXTRACTS: ‘APPLICATION OF
MATERIALITY’ IN
AUDIT REPORT

Background

Unlike SA 701 in
the Indian context, International Standard on Auditing (UK) 701 Communicating
Key Audit Matters in the Independent Auditor’s Report issued by the
Financial Reporting Council (FRC), UK also deals with the auditor’s
responsibility to communicate other audit planning and scoping matters
in the auditor’s report (paragraph 1-1).

As per para 16-1 of
ISA (UK) 701, Communicating other Audit Planning and Scoping Matters,
the auditor’s report is required to provide:

1 An explanation of how the auditor applied
the concept of materiality in planning and performing the audit. Such
explanation shall specify the threshold used by the auditor as
being materiality for the financial statements as a whole

2 An overview of the scope of the audit
including an explanation of how such scope: addressed each Key Audit Matter
relating to one of the most significant risks of material misstatement
disclosed and was influenced by the auditor’s application of the materiality
disclosed

It may be noted
that ISA (UK) 701 that was effective 2016 has undergone a revision in November,
2019 (further updated in January, 2020) and amendments require the auditor’s
report to specify the threshold used by the auditor as being materiality
for financial statement as a whole and performance materiality, and
to also provide an explanation of the significant judgements made by the
auditor in determining materiality and performance materiality. The revised ISA
is effective for audits of financial statements for periods commencing on or
after 15^th December, 2019.

Extracts from an
Independent Auditor’s Report

Company:
Whitbread PLC (2018/19 revenues: GBP 2.05 billion, FTSE 100)

Our Application of Materiality

We define
materiality as the magnitude of misstatement in the financial statements that
makes it probable that the economic decisions of a reasonably knowledgeable
person would be changed or influenced. We use materiality both in planning the
scope of our audit work and in evaluating the results of our work. Based on our
professional judgement, we determined materiality for the financial statements
as a whole as follows (refer to the table below):

We agreed with the Audit Committee that we
would report to the Committee all audit differences in excess of GBP
1.25 m (2018: GBP 1.3 m), as well as differences below that threshold that,
in our view, warranted reporting on qualitative grounds. We also report to the
Audit Committee on disclosure matters that we identified when assessing the
overall presentation of the financial statements.

Adjusted PBT

GBP 509 m

Group Materiality

GBP 25 m

Component Materiality range

GBP 10 m to 20 m

Audit Committee reporting threshold

GBP 1.25 m

COMPLIANCE: TRANSITION
DISCLOSURE UNDER IND AS 116

Background:

Ind AS 116 Leases became effective from 1^st April,
2019. The ensuing fiscal year ending 31^st March, 2020 financial statements of Ind AS preparers need to
incorporate disclosures mandated
by Appendix C – Effective Date and Transition of Ind AS
116.

The disclosure requirements from the lessee’s perspective is a
function of the transition option elected and a
ready reference to the same is provided in the table given below: (Disclosures – A Referencer)

FROM THE PAST – ‘DISCLOSURES ARE DRIVEN BY WHAT INVESTORS
WANT TO KNOW’

Extracts from a
speech made by Elisse B. Walter (former Commissioner, US SEC) at the
Stanford Directors’ College meeting in June, 2013 are reproduced below:

‘Regulations
are the floor but not the ceiling. They tell
companies what, at a minimum, should be covered, but it’s up to the company to
make sure the story gets told. That’s where MD&A
(Management’s Discussion and Analysis) becomes a real opportunity for
the company to tell shareholders what’s really going on. No MD&A
should be merely a recitation of the financial statements. Give
investors the when, the where, the why and, perhaps most importantly, the what’s
next. You should address your investors like they are your business
partners, and the MD&A should reflect that perspective. Disclosure isn’t driven
by what the company wants to disclose but by what the investors want to know.
That should be front and centre as you review the MD&A.

Group Financial Statements

Parent Company Financial
Statements

Materiality

GBP 25.0 m (2018: GBP 27.3 m)

GBP 10.0 m (2018: GBP 10.9 m)

Basis for determining
materiality

Group materiality was based on 5% of
statutory profit before tax excluding certain items related to the sale
of Costa, being costs associated with the restructure of the continuing
business and non-recurring pension scheme costs. The adjusted profit used in
our determination was GBP 509 m

Materiality was determined on the basis of the
parent company’s net assets. This was then capped at 40% of
group materiality

Rationale for the benchmark
applied

Profit before tax is a key metric for the users
of the financial statements and based on our judgement, we considered
this to be the most appropriate measure for business performance

Profit before tax was used
as the basis for our calculation in the prior year

The entity is non-trading and contains an
investment in all of the Group’s trading components and as a result, in line
with prior year, we have determined materiality on the basis of net assets
for the current year

Group Financial Statements

Parent Company Financial
Statements

The accounting choice to
transition to Ind AS 116

‘Rull Retrospective’ Transition Method (Ind AS 116 applied retrospectively to each
prior reporting period presented applying Ind AS 8)

‘Cumulative Catch-up’ Transition Method1

(New lease standard applied
retrospectively with the cumulative effect of initially applying Ind AS 116
recognised at the date of initial application2)

Para 40A, Ind AS 1

An entity is required to
present a third balance sheet (at the beginning of the preceding period) if
it applies an accounting policy retrospectively that has a material effect on
the balance sheet at the beginning of the preceding period

Para 28(f) of Ind AS 8 and
Para C12 of Ind AS 116

For the current period and
each prior period presented, to the extent practicable, the amount of the
adjustment:

(i) for each financial statement line item affected, and

(ii) if Ind AS 33 Earnings per Share applies to the entity, for basic
and diluted earnings per share.

(Para 28(f), Ind AS 8)

a) The weighted average
lessee’s incremental borrowing rate applied to the lease
liabilities recognised in the balance sheet at the date of initial
application

b) An explanation of any
difference between: (i) operating lease commitments disclosed applying Ind AS
17 at the end of the annual reporting period immediately preceding the date
of initial application, discounted using the incremental borrowing rate at
the date of initial application, and (ii) lease liabilities recognised in the
balance sheet at the date of initial application.

[Para C12, Ind AS 116
instead of para 28(f) of Ind AS 8)]

Para C13 and C10, Ind AS 116

An entity that uses one or
more of specified practical expedients needs to disclose
that fact

Specified practical
expedients (Para C10) include (i) lessee applying a single discount rate to a
portfolio of leases, and (ii) electing not to apply the new lease accounting
model to leases for which the lease term ends within 12 months of the date of
initial application

Disclosures applicable under
both methods w.r.t. change in accounting policy:

Para 28 of Ind AS 8

An entity is required to disclose:

a) The title of the Ind AS,

b) When applicable, that the
change in accounting policy is made in accordance with transitional
provisions,

c) The nature of the change
in accounting policy,

d) When applicable, a description of the transitional provisions,

e) When applicable, the
transitional provisions that might have an effect on future periods.

f) ….

g) The amount of the
adjustment relating to periods before those presented, to the extent
practicable.

h)If retrospective
application is impracticable, the circumstances that led to the existence of
that condition and a description of how and from when the change in
accounting policy has been applied.

Para C4 and C3, Ind AS 116

An entity that chooses the practical
expedient of not reassessing whether a contract is, or contains, a
lease at the date of initial application is required to disclose that fact

Ask yourself, what do I know about the company’s
performance that cannot be reasonably inferred from the financial statements?
You are the investor’s voice and as the company’s stewards, you should also be
their advocate as well. You play such a crucial role in ensuring that the company’s
true story is told, and that’s the story that investors deserve to
hear.’

_________________________________________________________________________

1 Para BC279, IFRS 16

2 The date of initial application is the
beginning of the annual reporting period in which an entity first applies Ind
AS 116. For Ind AS steady-state preparers, 1st April, 2019 is the date of
initial application (FY 2019-20).

BCAJ Admin

ALLIED LAWS

24. HUF – Rights of daughter – Coparcenary property – Partition
deed and settlement deed indicating that defendant’s son is absolute owner of
suit premises – Plaintiff having married prior to enforcement of Hindu
Succession Act – Not entitled to claim share in suit properties [Hindu
Succession Act, 1956, S. 6; Hindu Succession Amendment Act, 2005]

Amsaveni vs.
Viswanathan; AIR 2020 Madras 20

The plaintiff is the daughter and the
second defendant is the son of the first defendant. The plaintiff was married
to one Rajaram in the year 1987 and they had two children. The plaintiff’s
husband began to ill-treat the plaintiff and therefore she left the company of
her husband six years ago and came to her parents’ house along with the male
child. Subsequently, the male child was taken away by the plaintiff’s husband.
The plaintiff was provided a separate residence by the defendants and
accordingly the plaintiff was also enjoying the suit property as a joint family
member of the defendants and therefore, according to the plaintiff, she is
entitled to obtain her share in the suit properties.

The Court held that the plaintiff has
admitted that she was married to one Rajaram in the year 1987. Therefore, as
determined by the first appellate court, the plaintiff having got married prior
to the enactment of the Hindu Succession (Amendment) Act 1989 and the Hindu
Succession (Amendment) Act, 2005, she
would not be entitled to claim share in the suit properties claiming to be a
coparcener of the same.

25. Precedent – Two mutually irreconcilable decisions of co-equal
Benches of the Supreme Court – Earlier decision to prevail – Subsequent view
would be held as per incuriam [Constitution of India, Art. 141]

Vasanthi Shridhar
Bangera vs. Vishala Bokapatna Laxman; AIR 2020 Bom. 31

The plaintiff is the
younger sister of the respondent. She sued her elder sister and brother-in-law
for eviction. The suit was decreed. Vasanthi, the elder sister, and her husband
appealed, but without success. In the meanwhile, her husband died. So, along
with her children, the respondent filed this Civil Revision Application. The
issue No. 3 was pertaining to the retrospective applicability of the Benami
Transaction (Prohibition) Act, 1988.

A three-judge bench of the Hon’ble
Supreme Court in the case of R. Rajagopal Reddy, in principle, accepted that
the Act is prospective. However, the petitioners relied on a three-judge bench
of the Hon’ble Supreme Court in the case of K. Govindraj wherein, in a case
pertaining to Minor Mineral Concession Rules, it was held that the legislature
can legislate prospectively or retrospectively.

It was held that the decision in the
case of K. Govindraj, a co-equal bench of the Supreme Court upsets R. Rajagopal
Reddy’s proposition. However, firstly, a decision that deals with an
issue directly should take precedence over a decision which deals with the same
issue collaterally. Secondly, in the event of the two co-equal bench
decisions, the former prevails and the latter can also be per incuriam
if it is not possible for the Court to reconcile its ratio with that of
a previously pronounced judgment. It was further held that the former case does
not dilute nor overrule the latter case.

26. Registration – Compulsory – Unregistered agreement of mortgage
by conditional sale – No evidentiary value [Registration Act, 1908, S. 17, 49]

Tukaram S/o Shankar
Gondkar vs. Dnyaneshwar S/o Sopanrao; AIR 2020 (NOC) 123 (Bom.)

The petitioner is the original plaintiff
in Regular Civil Suit No. 80/1990. He claims to have purchased the land
admeasuring 40 R. out of Survey No. 167 vide sale deed dated 29^th
April, 1981. The petitioner, by preferring the suit for redemption of mortgage
of 40 R. land from Survey No. 167/5/A, contended that respondent No. 1 had
entered into a mortgage deed dated 30^th July, 1979 with the
petitioner for a period of five years. The said period ended on 30^th
July, 1984 and the mortgage was to be redeemed by respondent No. 1 in favour of
the petitioner. Since he failed to do so, the petitioner was constrained to
prefer the said suit.

It was held that the document at issue
was necessarily required to be registered. Since it was an unregistered
document, it was struck by section 49 of the Registration Act under which no
document required to be registered u/s 17 of the Act would have any evidentiary
value.

27. Website – Order/Judgment from official website has sanctity –
Should not be refused

Ibrahim Sk. Rasool
vs. Mohommad Zahir Mohammad Sharif and Ors.; Civil Application No. 411 of 2018
in Second Appeal No. 157 of 2017; Date of order: 19^th March, 2018
(Bom.)(HC)

The counsel for the applicant had
approached the office of the appellate court in order to deposit the amount of
Rs. 5,000 in terms of the judgment and order dated 4^th September,
2017, relying upon the copy of the said judgment and order obtained from the
official website of the Court. But the office of the Court below refused to
accept the said amount on the ground that it would do so only when an official
copy of the said order was received from the Court.

It was held that
the insistence on an official copy of the order of the Court was absolutely
uncalled for and the applicant / appellant ought to have been permitted to
deposit costs on the basis of the copy of the judgment and order obtained from
the official website of the Court. Further, a printout of the orders of the
Court from the official website has sanctity and the trial Courts are expected
to consider the said orders, if they are cited after taking a printout from the
official website. The said orders are also available before the trial Court
from the official website and there can be a counter verification to find out
whether such an order is actually uploaded to the official website or not.

BCAJ Admin

RECENT DEVELOPMENTS IN GST

(Recent Developments in GST is a new feature
starting this month. It will cover select important proposals, notifications,
amendments, circulars, advance rulings, etc. in the field of Goods and Services
Tax. The column by the same authors titled ‘VAT’ is discontinued)

DECISIONS TAKEN IN 39^THMEETING OF GST COUNCIL

The GST Council, on 14^th March, 2020, took several
important decisions. Here are some key ones:

® The E-invoice and QR code requirement deferred
to 1^st October, 2020. [Notification Nos. 13/2020 and 14/2020
dated 21^stMarch, 2020.]

® New returns implementation also deferred to 1^stOctober, 2020.

® Date of filing Annual Return in Form GSTR9 and
Audit Reconciliation Statement in GSTR9C for F.Y. 2018-19 extended till 30^th
June, 2020. [Notification No. 15/2020 dated 23^rd March, 2020.]

® New facility to ‘Know Your Supplier’ to be
introduced on site.

® Restrictions to be brought in on passing of
ITC in case of new registrations.

® Time for filing applications for revocation of
cancellation of registrations to be extended till 30^th June, 2020
for all cancellation orders passed on or before 14^th March, 2020.

® Refund claims allowed across financial years
to facilitate exporters.

® Extension of present exemptions from IGST and
Cess on the imports made under the AA/EPCG/EOU schemes extended up to 31^st
March, 2021.

® Special procedure for corporate debtors under
the provisions of the IBC, 2016 who are undergoing the Corporate Insolvency
Resolution Process so as to enable them to comply with the provisions of GST
laws during the CIRP period.

® Finalisation of e-Wallet scheme up to 31^st
March, 2021.

® A few changes are also proposed in the GST
rates.

CIRCULARS

(a) Apportionment of ITC in cases of
business reorganisation u/s 18(3) of the CGST Act read with Rule 41(1) of the
CGST Rules.

[Circular No. 133/03/2020 dated
23^rd March, 2020.]

(b) Appeals during non-constitution
of the Appellate Tribunal.

[Circular No. 132/02/2020 dated
18^th March, 2020.]

(c) Special procedure for corporate debtors
under the provisions of the IBC, 2016 undergoing the Corporate Insolvency
Resolution Process.

[Notification No. 11/2020 Central
Tax dated 21^st March, 2020 and Circular No. 134/04/2020 dated 23^rd
March, 2020.]

CGST RULES AMENDMENTS

(i) Procedure
for reversal of ITC in respect of capital goods partly used for affecting
taxable supplies and partly for exempt supplies under Rule 43(1)(c).

[Sub-Rule amended w.e.f. 1^stApril, 2020. See Notification No. 16/2020 dated 23^rd March,
2020.]

(ii) GSTR9C (furnishing of audited
annual accounts and reconciliation statement) for F.Y. 2018-19 applicable to
only those registered persons whose aggregate turnover during F.Y. 2018-19 has
exceeded Rs. 5 crores.

[Amendment to Rule 80(3) of CGST
Rules, 2017.]

(iii) Ceiling to be fixed for the
value of export supply for the purpose of calculation of refund on zero-rated
supplies.

[Amendment to Rule 89 of CGST
Rules, 2017.]

(iv) To allow for sanction of refund
in both cash and credit in case of excess payment of tax.

[Amendment to Rule 92 of CGST
Rules, 2017.]

(v) To provide for recovery of
refund on export of goods where export proceeds are not realised within the
time prescribed under FEMA.

[New Rule 96B inserted in CGST
Rules, 2017.]

(vi) To operationalise Aadhaar
authentication for new taxpayers.

[Sub-Rule 4A inserted in Rule 8
of the CGST Rules, 2017 w.e.f. 1st April, 2020. Rule 9 and Rule 25 also amended
from the same date.]

RELIEF MEASURES

A press release dated 24^th
March, 2020 announced certain relief measures relating to statutory compliances
in view of COVID-19:

1. Those
having aggregate annual turnover less than Rs. 5 crores can file GSTR3B due in
March, April and May, 2020 by the last week of June, 2020. No interest, late
fee or penalty to be charged.

2. Others
can file returns due in March, April and May, 2020 by the last week of June,
2020 but the same would attract reduced rate of interest @ 9 % per annum from
15 days after due date (current interest rate is 18 % per annum). No late fee
and penalty to be charged if complied before / till 30^th June, 2020.

3. Date
for opting for composition scheme is extended till the last week of June, 2020.
Further, the last date for making payments for the quarter ending 31^st
March, 2020 and filing of return for 2019-20 by the composition dealers will be
extended till the last week of June, 2020.

4. Due
date for issue of notice, notification, approval order, sanction order, filing
of appeal, furnishing of return, statements, applications, reports, any other
documents, the time limit for any compliance under the GST laws where the time
limit is expiring between 20^th March, 2020 and 29^th June,
2020, shall be extended to 30^th June, 2020.

5. Necessary
legal circulars and legislative amendments to give effect to the aforesaid GST
relief shall follow with the approval of the GST Council.

INTEREST ON NET CASH LIABILITY

One of the important decisions taken
at the 39^th meeting of the GST Council is about liability to pay
interest by registered persons. Under the GST laws, interest is levied u/s 50
of the CGST Act. Section 50 reads as under:

‘(1) Every person who is liable
to pay tax in accordance with the provisions of this Act or the rules made
thereunder but fails to pay the tax or any part thereof to the Government
within the period prescribed, shall for the period for which the tax or any
part thereof remains unpaid, pay, on his own, interest at such rate, not
exceeding eighteen per cent., as may be notified by the Government on the
recommendations of the Council.

(2) The interest under
sub-section (1) shall be calculated in such manner as may be prescribed from
the day succeeding the day on which such tax was due to be paid.

(3) A taxable person who makes an
undue or excess claim of input tax credit under sub-section (10) of section 42,
or undue or excess reduction in output tax liability under sub-section (10) of
section 43, shall pay interest on such undue or excess claim, or on such undue
or excess reduction, as the case may be, at such rate not exceeding twenty-four
per cent, as may be notified by the Government on the recommendations of the
Council.’

The issue arose mainly on the
interpretation of section 50(1) which contemplates the levy of interest on
failure to pay tax within the prescribed period. The GST authorities interpreted
the above section to mean that interest is payable on gross outward liability.

Due to adjustment of ITC against
outward liability, the actual cash payment may be nil or less than the outward
liability. However, the authorities (mis)interpreted this to levy interest on
gross outward liability, i.e., without adjustment of ITC, for delayed period.

The matter had gone to different
High Courts. The Telangana High Court in the case of Megha Engineering
& Infrastructures Ltd. (2019-TIOL-893-HC Telangana-GST) upheld the
view of the GST authorities. The Court was of the opinion that ITC becomes due
to the taxable person upon filing return and not before. Therefore, the Court
held that the gross tax remained payable till the filing of return and,
accordingly, upheld interest liability on gross outward liability.

However, the Madras High Court took
a different view in the case of Refex Industries Limited
(2020-TIOL-382-HC-Mad-GST) and, considering the amendment in section
50(1), held that the interest is payable on cash payment and not on the ITC
component.

In the CGST Act an amendment has
been effected in section 50(1) by inserting the following proviso in
2019; it reads as under:

‘Provided that the interest on
tax payable in respect of supplies made during a tax period and declared in the
return for the said period furnished after the due date in accordance with the
provisions of section 39, except where such return is furnished after
commencement of any proceedings under section 73 or section 74 in respect of
the said period, shall be levied on that portion of the tax that is paid by
debiting the electronic cash ledger.’

However, the said section has not
yet been brought into operation. Therefore, confusion prevailed, more
particularly about the period up to implementation of the above proviso
as there is no mention about the date of application of the same. Besides,
although the proviso debars the application of the said proviso
in case of proceedings under sections 73 and 74, it is felt that there should not
be such exclusion in the matter of interest.

In its above meeting, the GST
Council has taken the decision to make interest payable on net cash liability
and also clarified that the said position will apply from 1^stJuly,
2017.

CONCLUSION

The above decision about interest is
most welcome and has been long awaited. Taxable persons have already started
receiving notices for huge amounts as per interest calculated on gross
liability. However, now the issue has been cleared and will bring much-awaited
respite to taxable persons.

Keeping in view
the intention of charging interest on net cash liability, it is also expected
that the said position will be made applicable even if the proceedings are u/s
73 or 74. We have to wait for the actual provision for clarity. The authorities
should bring in the provision concerned or make necessary changes in the above proviso
at the earliest.

BCAJ Admin

GOODS AND SERVICEs TAX (GST)

I. HIGH COURT

1. [2019
(31) GSTL 397 (Ker.)]

Relcon
Foundations (P) Ltd. vs. Asst. State Tax Officer, Kasargod

Date
of order: 8^th November, 2019

Goods and vehicle cannot be
detained or seized on the ground of non-filing of Form GSTR1 and Form GSTR3B

FACTS

The writ
petition was filed against the order for detention and notice proposing
confiscation of goods belonging to the petitioner which were detained in
transit on the ground of non-filing of Form GSTR1 and Form GSTR3B.

HELD

The Hon’ble
High Court of Kerala held that non-filing of Form GSTR1 and Form GSTR3B cannot
form the basis for issue of an order for detention of goods u/s 129 as well as
notice proposing confiscation of the goods, since the ingredients of the
offence covered u/s 130 were not satisfied in the instant case.

2. [2019
(31) GSTL 60 (Guj.)]

Thermax
Ltd. vs. Union of India

Date
of order: 11^th February, 2019

Central Excise Duty paid
erroneously should be treated as voluntary deposit and refund thereof should be
made in cash during GST regime instead of crediting it in CENVAT account

FACTS

The
petitioner exported boilers and therefore claimed rebate of excise duty which
was not required to be paid. The rebate claim was rejected by the revisional
authority; however, on the ground that Government cannot retain an amount which
is not due to it, it was directed to re-credit the amount in the petitioner’s
CENVAT credit account. However, with the introduction of GST, the CENVAT credit
account has become redundant, and therefore, the petitioner contested that
CENVAT credit should have been paid in cash.

HELD

The Hon’ble
Court held that duty which was not required to be paid needs to be treated as a
voluntary deposit. Hence, the Court relied on section 142(3) of the CGST Act
and directed the sanctioning authority to refund the amount of duty, which was
erroneously paid, in cash instead of crediting the same in the petitioner’s
CENVAT account.

II.
ADVANCE RULINGS

3. [2019
(31) GSTL 554 (AAR-GST)]

In
Re. Maarq Spaces Pvt. Ltd.

Date
of order: 30^th September, 2019

Supply of services by way of
development of land provided under a joint development agreement where the
title of the land rests with the landowner, shall be liable for GST and the
value of supply shall be the total revenue share as per provisions of Rule 31
of the CGST Rules, 2017

FACTS

The
applicant, a private limited company engaged in the business of property
development, entered into a joint development agreement with the landowners for
development of plots which included survey of land, clearing and levelling the
site, laying sewage / water pipelines, etc. The revenue accrued from the sale
of the plots was agreed to be shared amongst the landowners and the applicant
in the ratio of 75% for the landowners and 25% for the applicant.

The
applicant sought advance ruling in respect of two questions: whether the
activity of land development along with sale of land is a taxable supply, and
if such activity is a taxable supply, whether provisions of Rule 31 are
applicable in ascertaining the value of the land and supply of service. The
applicant submitted that as per section 2(30) of the CGST Act, 2017 defining
composite supply, the sale of land being the principal supply and land and
developmental activity being incidental to the sale of land, the transaction
undertaken by the applicant is excluded from the scope of ‘supply’ under Entry
No. 5 of Schedule III. However, if at all the transaction attracts GST, then
the value can only be determined as per Rule 31 of the CGST Rules, 2017.

HELD

The
authority of advance ruling, placing reliance on the salient provisions of the
agreement, inferred that the activity actually carried out by the applicant is
that of development of land and not sale of land. The provisions of the
agreement clearly indicate that the applicant had a right only over the share
of revenue from the sale of the plot of land and not over the land. As the
applicant cannot be considered as the owner of the plot, the transaction cannot
be considered as ‘sale of land’; therefore, it is not covered under Entry No. 5
of Schedule III of the CGST Act, 2017.

Thus, the
activities undertaken by the applicant as provided in the agreement amount to
supply of service to the landowners and are a taxable supply under GST. It was
further inferred by the authority that Rule 31 applies in the instant case and
the taxable value of the supply of services by the applicant to the landowners
is equal to the consideration received by the applicant, i.e., 25% of the sale
value of the plots.

4. [2019
(31) GSTL 154 (AAR – West Bengal)]

Rabi
Sankar Tah

Date
of order: 21^st October, 2019

Co-owner’s share of rental income
in jointly-owned property cannot be clubbed for determining the threshold limit
for GST registration

FACTS

The
applicant, one of the co-owners of a jointly-owned property, received his share
of rental income. The total rent received by all co-owners together exceeded
the threshold limit for obtaining GST registration u/s 22(1) of the CGST Act,
2017 but the share of each of the three co-owners did not cross the said
threshold limit. The applicant sought advance ruling on whether he and the
other two co-owners were to be treated as an association of persons (AOP) or a
body of individuals and, therefore, were a ‘person’ defined u/s 2(84) of the
GST Act and liable for GST registration.

HELD

The Authority of Advance Ruling relied on the ruling
of Elambrancheri Khaldoon, 2018 (18) GSTL 152 (AAR – GST) and
held that the co-owners of the property cannot be treated as an AOP when income
from renting was separately ascertained and assessed for income tax
individually in the hands of each co-owner. Thus, the threshold limit is to be
ascertained separately, depending on the individual gross turnover for GST
registration.

BCAJ Admin

Service Tax

I.
HIGH COURT

1. [2019
(29) GSTL 199 (Mad.)]

Shanmugasundaram
vs. Assistant Commissioner of C.Ex., Karur

Date
of order: 15^th July, 2019

Recovery proceedings cannot be
initiated where the order passed by Commissioner (Appeals) has not been served
to the petitioner

FACTS

Recovery was initiated by the
Department even though the petitioner had not received the order passed by the
Commissioner of Customs and Central Excise (Appeals). The disposal of the
appeal came to the knowledge of the
assessee only when the assessing authority approached the assessee and
initiated coercive action for recovery of service tax and penalty. There was no
acknowledgement from the postal department for service of the order upon the
petitioner. Hence, the writ petition was filed.

HELD

The Hon’ble Madras High Court
provided relief to the petitioner by allowing him to file an appeal challenging
the order of the Commissioner (Appeals) dated 28^th September, 2009
within a period of four weeks. The Assistant Commissioner was directed to keep
the recovery proceedings in abeyance for eight weeks from the date of the High
Court’s order. Further, the Tribunal was directed to hear and dispose of the
case once the appeal was filed within the stipulated time.

2. [2019
(28) GSTL 545 (Mad.)]

Vendhar
Movies vs. Jt. Dir., DG of GST
Intelligence, Chennai

Date
of order: 16^th April, 2019

Permanent / perpetual transfer of
copyright is outside the purview of service tax. Assignment of copyright cannot
be equated with relinquishment

FACTS

The
petitioners entered into various agreements with distributors, exhibitors and
television channels for assignment of exclusive rights for broadcast and
exhibition of various cinematographic films, both produced as well as purchased
by them. The rights so assigned were perpetual in nature, conferred permanently
and absolutely without any restriction or limitation.

Show cause notices /
orders-in-original were issued by the Service Tax Department disputing the
nature of the transfer of copyright on the basis that only specific copyrights
were assigned and that other copyrights were retained in the same
cinematographic films. Besides, the rights were assigned for 99 years.
Therefore, the transfer was ‘temporary’ in nature, attracting service tax. The
Department also relied upon the judgment of AGS Entertainment Pvt. Ltd. [2013
(32) STR 129 (Mad.)] to substantiate its contentions. The
Department further contested that the agreement entered into between the
parties for transfer of copyright contains the word ‘revocable’. Therefore, the
agreements were only a sham, designed to camouflage, and the true intent of the
petitioners was to enter into a temporary transaction.

While examining the impugned show
cause notices and the orders-in-original, the Hon’ble High Court specifically
clarified that the same were taken up since the stand taken in such show cause
notices and orders-in-original were not in consonance with the Finance Act,
1994 or the Copyright Act, 1957. Besides, the Court was not concerned with any
factual particulars, except for the limited purpose of appreciating and
adjudicating upon the legality of the impugned notices and orders.

HELD

The Hon’ble Madras High Court
concluded that perpetual transfer or a transfer for 99 years is permanent in
nature as it is in excess of the period of 60 years as set out under the
Copyright Act. As regards the usage of the term ‘revocable’, it was solely
restricted to those situations where the consideration for the right was not
fully remitted by the purchaser. The interpretation accorded by the Department
was wholly misconceived as section 21 of the Copyright Act itself uses the
phrase ‘all or any of the rights comprised in the copyrights in the work’.
Therefore, copyright in work may either comprise of ‘single right’ or ‘bundle
or rights’, some may be relinquished and others pursued and survive and, thus,
the transaction clearly stands outside the ambit of service tax. The Department
was given directions to initiate proceedings afresh in accordance with section
73 of the Finance Act, 1994 after considering the observations of the Court.

II.
TRIBUNAL

3. [2020-TIOL-349-CESTAT-Mad.]

M/s
Altom and D India Limited vs.
Commissioner of Central Excise and Service Tax

Date
of order: 12^th December, 2019

CENVAT credit of service tax on
group mediclaim policy of employees and their dependants is allowed

FACTS

A show cause
notice was issued disallowing input tax credit on the group mediclaim policy
for employees and their dependants on the grounds that the same had no nexus
with the manufacture or clearance of final products or with the provision of
output service by the assessee. It was alleged that such services were intended
for the personal consumption of the employees and so were ineligible.

HELD

The Tribunal, relying on the
decision in the case of M/s. Ganesan Builders Ltd. vs. Commissioner of
Service Tax, Chennai [2018-TIOL-2303-HC-Mad-ST] held that the denial of
CENVAT credit on group medical insurance policy on the dependants of employees
is bad and consequently the credit is allowed.

4. [2020-TIOL-350-CESTAT-Del.]

M/s Prakash Associates vs. Commissioner of
CGST

Date of order: 18^th December, 2019

In absence of a definite
consideration defined in the contract of service, the demand of service tax on any
income received is not justified

FACTS

The assessee is engaged in the
collection of toll and royalty on behalf of the State and Central Governments.
The consideration is a lump sum amount for the given period. In such activity,
the assessee may either collect more amount than the bid amount and make a
profit in the process, or may also incur a loss by collecting less amount. The
Revenue is of the view that any surplus amount collected would be commission
earned for providing toll / royalty collecting service to the Government and as
such is liable to tax. The demand being confirmed, the present appeal was
filed.

HELD

The Tribunal primarily noted that
there is no defined consideration. Consideration is an essential element or
pre-requisite in a contract of service. Under the contract, the assessee is not
entitled to retain any amount by way of commission, irrespective of the total
royalty amount collected. The assessee would incur losses in some years or earn
profits in some and therefore the understanding is on principal-to-principal
basis. Therefore, the demand is not sustainable.

5. [2020-TIOL-255-CESTAT-Hyd.]

Bharat
Heavy Electricals Ltd. vs. Commissioner of Central Tax

Date
of order: 23^rdDecember, 2019

There is no provision in law for
refund of unutilised input tax credit in cash

FACTS

The assessee is a public sector
company engaged in manufacturing various products and avails benefit of CENVAT
credit. Upon introduction of GST, the assessee migrated to the new regime from
the erstwhile service tax and Central Excise regime. As per the new provisions,
CENVAT credit lying in balance at the time of transition could be taken as
input service credit and utilised accordingly. As on June, 2017 the credit of
Education Cess, Secondary and Higher Education Cess, Swachh Bharat Cess and
Krishi Kalyan Cess was lying unutilised. A refund application was filed u/s 11B
of the Central Excise Act, 1944. The application was rejected by the original
authority on the ground that there was no legal provision under which refund
could have been sanctioned.

HELD

The Tribunal
primarily noted that section 11B allows refund of duty paid and not of CENVAT
credit. There is no scheme under which CENVAT credit can be refunded except
under Rule 5 of CENVAT Credit Rules, 2004 in respect of CENVAT credit utilised
in manufacture of exported goods or exported services. Thus, there is no
provision in law where CENVAT credit can be refunded in cash.

6. [2019
(31) GSTL 102 (Tri. Mum.)]

Executive
Engineer, Nagpur vs. Commissioner of C.Ex. & Cus., Nagpur

Date
of order: 13^th December, 2018

Service provider being a
government department not liable for imposition of penalty under sections 77
and 78 of Finance Act, 1944. Non-payment caused by lack of understanding and
absence of motive

FACTS

The appellant, a department of
the Government of Maharashtra, fabricates and erects gates of various types and
carries out inspection of ‘parts of gate’ manufactured by outside entities. The
appellant collected inspection charges along with service tax, which was not
deposited with the Government. Penalties under sections 77 and 78 of the
Finance Act, 1944 were imposed. It was the contention of the appellant that the
activity undertaken by them is not a taxable service.

HELD

It
was held that service tax collected must be deposited with the government irrespective
of whether the services provided are taxable or not. However, the appellant
being a department of the Government of Maharashtra, owing to lack of
understanding and absence of motive, penalties under sections 77 and 78 of the
Finance Act, 1994 were set aside.

BCAJ Admin

FROM THE PRESIDENT

My Dear Members,

I feel
very proud and satisfied as I write to you for the last time as President of
our illustrious Society. It is an honour and a privilege to have led the
Bombay Chartered Accountants’ Society during a memorable and
unprecedented year. We continue to march ahead and strive to achieve greater
heights of performance year after year by building on the excellent work done
by all previous Presidents. The last three months have been challenging and unmatched
for us in terms of conducting our normal activities of education, training and
spreading knowledge. But we converted all the challenges that came our way into
opportunities and continued with our endeavour of spreading knowledge with even
more vigour and zeal.

I am
happy to inform you that we quickly transited to an online platform and were
able to reach a much wider audience and get high profile and knowledgeable
speakers for the BCAS platform. All this was possible since there were
no geographical restrictions. To our immense satisfaction, our internal
assessment actually shows that we have been successful in delivering more
man-hours of training by way of live attendance and follow-up hits on our
YouTube channel. We managed to clock almost half of the man-hours of training
(during the three months of lockdown) that we were usually clocking in an
entire year through physical meetings. Things worked out best for us because we
made the best of how things worked out. I expect this trend to continue for
some more time yet and I thank all of you for supporting BCAS during
these testing times. This success is only because of the faith and the
patronage of all of you.

A balanced approach is required

It has
been more than three months into the national lockdown and work from home (WFH)
has caught the fancy of many, including some marquee IT and multinational
companies. However, according to a reported survey, some of the employees want
to get back to office. ‘The lack of human interaction is a problem – there’s
something about face-to-face interaction that can’t be replaced.’ According to
some HR professionals, there are groups of employees who enjoy working from the
office and want to get back there. At the same time, there are several
companies mulling the possibility of shifting to a complete WFH mode on a
permanent basis. According to them, productivity has gone up and a lot of
travel time is saved. But the question remains: does work from home really
work? According to the survey, it is premature to conclude whether WFH has
succeeded. The survey adds that social capital is missing and this is built by
social interactions while working together and knowing co-workers well enough
to establish a bond of human relationships and emotions.

Success
is achieved by teamwork and because co-workers have known and have intimately
interacted with each other for years. Banter over a cup of coffee during a
break is very much part of team-building and camaraderie and this social
capital is missing while working remotely from home. People will continue to
work from home, but in my view if a balanced view is not taken, they will
become robots lacking the all-important human touch. In time, fatigue will set
in and productivity may actually come down in the longer run. So, at least till
normalcy returns, we will have to adopt a hybrid or mixed model of WFH by
allowing some people to choose their preferred option. However, follow-up with
physical interactions (with all required safety norms) at regular intervals
should be integrated into the work culture.

Final Good-Bye!

On 6^thJuly, 2020 I complete my term as President of this esteemed institution
and I bid farewell to all of you with a great sense of happiness, satisfaction
and achievement. In the past twelve months I have tried to deliver my best to
the Society and tried to strengthen its existing goodwill, brand value
and reputation built over the years. During the year gone by, we strove to
increase our reach by reaching out to a much wider range of constituents beyond
our traditional cycle of influence. We tried out new formats for our
educational events, invited trainers from across fields and from a
cross-section of professional backgrounds and tried out new mediums of
dissimilating knowledge. We also had focused events on specific sectors,
emerging areas of practice and various non-technical but important areas of
personal and professional development. Besides serving our members,
organisationally also, the Society consolidated its position by various
measures of financial prudence, cost savings and infrastructure building. We
also worked earnestly to harness talent and build future leaders. At a personal
level, this tenure as President helped me further to develop leadership skills
and I have learnt how to handle different people and different situations more
efficiently.

Finally,
I wish incoming President Suhas Paranjpe and the new team all the very
best for the coming year. I have no doubt that it will be full of events and
innovative programmes.I am sure under his leadership our Society will
successfully venture into uncharted territory while continuing to flourish in
its traditional areas.

I started
this journey with anxiety, not knowing how the year will pan out but I created
some beautiful memories, made wonderful friends on the way and now I say good-bye
and a big THANK YOU for all your love, support and affection.

With Best
Regards,

CA Manish
Sampat

President

BCAJ Admin

FROM PUBLISHED ACCOUNTS

DISCLOSURES
RELATED TO IMPLEMENTATION OF Ind AS 116 – ‘LEASES’ FOR THE YEAR ENDED 31^ST MARCH, 2020

Compiler’s Note

The Ministry of
Company Affairs on 30^th March, 2019 notified Ind AS 116 – Leases. Under Ind AS 116 lessees have to recognise a lease
liability reflecting future lease payments and a ‘right-of-use asset’ for
almost all lease contracts. This is a significant change compared to Ind AS 17,
under which lessees were required to make a distinction between a finance lease
(on balance sheet) and an operating lease (off balance sheet). Ind AS 116 also
gives lessees optional exemptions for certain short-term leases and leases of
low-value assets.

Given below are
disclosures by a few companies for the above.

TCS LTD. (consolidated)

From
Notes forming part of Financial Statements

LEASES

A contract is, or contains, a lease if the
contract conveys the right to control the use of an identified asset for a
period of time in exchange for consideration.

Group as a lessee

The Group accounts for each lease component
within the contract as a lease separately from non-lease components of the
contract and allocates the consideration in the contract to each lease
component on the basis of the relative stand-alone price of the lease component
and the aggregate stand-alone price of the non-lease components. The Group
recognises right-of-use asset representing its right to use the underlying
asset for the lease term at the lease commencement date. The cost of the
right-of-use asset measured at inception shall comprise of the amount of the
initial measurement of the lease liability adjusted for any lease payments made
at or before the commencement date less any lease incentives received, plus any
initial direct costs incurred and an estimate of costs to be incurred by the
lessee in dismantling and removing the underlying asset or restoring the
underlying asset or site on which it is located. The right-of-use asset is
subsequently measured at cost less any accumulated depreciation, accumulated
impairment losses, if any, and adjusted for any re-measurement of the lease
liability. The right-of-use asset is depreciated using the straight-line method
from the commencement date over the shorter of lease term or useful life of
right-of-use asset. The estimated useful lives of right-of-use assets are
determined on the same basis as those of property, plant and equipment.
Right-of-use assets are tested for impairment whenever there is any indication
that their carrying amounts may not be recoverable. Impairment loss, if any, is
recognised in the statement of profit and loss.

The Group measures the lease liability at
the present value of the lease payments that are not paid at the commencement
date of the lease. The lease payments are discounted using the interest rate
implicit in the lease, if that rate can be readily determined. If that rate
cannot be readily determined, the Group uses incremental borrowing rate. For
leases with reasonably similar characteristics, the Group, on a lease-by-lease
basis, may adopt either the incremental borrowing rate specific to the lease or
the incremental borrowing rate for the portfolio as a whole. The lease payments
shall include fixed payments, variable lease payments, residual value
guarantees, exercise price of a purchase option where the Group is reasonably
certain to exercise that option and payments of penalties for terminating the
lease, if the lease term reflects the lessee exercising an option to terminate
the lease. The lease liability is subsequently re-measured by increasing the
carrying amount to reflect interest on the lease liability, reducing the
carrying amount to reflect the lease payments made and re-measuring the
carrying amount to reflect any reassessment or lease modifications or to
reflect revised in-substance fixed lease payments.

The Group recognises the amount of the re-measurement
of lease liability due to modification as an adjustment to the right-of-use
asset and statement of profit and loss depending upon the nature of
modification. Where the carrying amount of the right-of-use asset is reduced to
zero and there is a further reduction in the measurement of the lease
liability, the Group recognises any remaining amount of the re-measurement in
statement of profit and loss. The Group has elected not to apply the
requirements of Ind AS 116 – Leases to short-term leases of all assets
that have a lease term of 12 months or less and leases for which the underlying
asset is of low value. The lease payments associated with these leases are
recognised as an expense on a straight-line basis over the lease term.

GROUP AS A LESSOR

At the inception of the lease the Group
classifies each of its leases as either an operating lease or a finance lease.
The Group recognises lease payments received under operating leases as income
on a straight-line basis over the lease term. In case of a finance lease,
finance income is recognised over the lease term based on a pattern reflecting
a constant periodic rate of return on the lessor’s net investment in the lease.
When the Group is an intermediate lessor, it accounts for its interests in the head
lease and the sub-lease separately. It assesses the lease classification of a
sub-lease with reference to the right-of-use asset arising from the head lease,
not with reference to the underlying asset. If a head lease is a short-term
lease to which the Group applies the exemption described above, then it
classifies the sub-lease as an operating lease. If an arrangement contains
lease and non-lease components, the Group applies Ind AS 115 – Revenue
from contracts with customers to allocate the consideration in the contract.

TRANSITION TO IND AS 116

The Ministry of Corporate Affairs (‘MCA’)
through the Companies (Indian Accounting Standards) Amendment Rules, 2019 and
the Companies (Indian Accounting Standards) Second Amendment Rules, has
notified Ind AS 116 – Leases which replaces the existing lease standard,
Ind AS 17 – Leases and other interpretations. Ind AS 116 sets out the
principles for the recognition, measurement, presentation and disclosure of
leases for both lessees and lessors. It introduces a single, on-balance sheet
lease accounting model for lessees. The Group has adopted Ind AS 116, effective
annual reporting period beginning 1^stApril, 2019 and applied the
standard to its leases retrospectively, with the cumulative effect of initially
applying the standard, recognised on the date of initial application (1^st
April, 2019). Accordingly, the Group has not restated comparative information;
instead, the cumulative effect of initially applying this standard has been
recognised as an adjustment to the opening balance of retained earnings as on 1^st
April, 2019. Refer Note 2(h) – Significant accounting policies – Leases in the
Annual report of the Group for the year ended 31^st March, 2019, for
the policy as per Ind AS 17.

GROUP AS A LESSEE

Operating leases

For transition, the Group has elected not to
apply the requirements of Ind AS 116 to leases which are expiring within 12
months from the date of transition by class of asset and leases for which the
underlying asset is of low value on a lease-by-lease basis. The Group has also
used the practical expedient provided by the standard when applying Ind AS 116
to leases previously classified as operating leases under Ind AS 17 and
therefore, has not reassessed whether a contract, is or contains a lease, at
the date of initial application, relied on its assessment of whether leases are
onerous, applying Ind AS 37 immediately before the date of initial application
as an alternative to performing an impairment review, excluded initial direct
costs from measuring the right-of-use asset at the date of initial application
and used hindsight when determining the lease term if the contract contains
options to extend or terminate the lease. The Group has used a single discount
rate to a portfolio of leases with similar characteristics.

On transition,
the Group recognised a lease liability measured at the present value of the
remaining lease payments. The right-of-use asset is recognised at its carrying
amount as if the standard had been applied since the commencement of the lease,
but discounted using the lessee’s incremental borrowing rate as at 1^stApril,
2019. Accordingly, a right-of-use asset of Rs. 6,360 crores and lease liability
of Rs. 6,831 crores has been recognised. The cumulative effect on transition in
retained earnings net of taxes is Rs. 359 crores (including the deferred tax of
Rs. 170 crores). The principal portion of the lease payments has been disclosed
under cash flow from financing activities. The lease payments for operating
leases as per Ind AS 17 – Leases were earlier reported under cash flow
from operating activities. The weighted average incremental borrowing rate of
6.78% has been applied to lease liabilities recognised in the balance sheet at
the date of initial application. On application of Ind AS 116, the nature of
expenses has changed from lease rent in previous periods to depreciation cost
for the right-of-use asset, and finance cost for interest accrued on lease
liability. The difference between the future minimum lease rental commitments
towards non-cancellable operating leases and finance leases reported as at 31^st
March, 2019 compared to the lease liability as accounted as at 1^st
April, 2019 is primarily due to inclusion of present value of the lease
payments for the cancellable term of the leases, reduction due to discounting
of the lease liabilities as per the requirement of Ind AS 116 and exclusion of
the commitments for the leases to which the Group has chosen to apply the
practical expedient as per the standard.

Finance lease

The Group has leases that were classified as
finance leases applying Ind AS 17. For such leases, the carrying amount of the
right-of-use asset and the lease liability at the date of initial application
of Ind AS 116 is the carrying amount of the lease asset and lease liability on
the transition date as measured applying Ind AS 17. Accordingly, an amount of
Rs. 31 crores has been reclassified from property, plant and equipment to
right-of-use assets. An amount of Rs. 18 crores has been reclassified from
other current financial liabilities to lease liability – current and an amount
of Rs. 44 crores has been reclassified from borrowings – non-current to lease
liability – non-current.

Group as a lessor

The Group is not required to make any
adjustments on transition to Ind AS 116 for leases in which it acts as a
lessor, except for a sub-lease. The Group accounted for its leases in
accordance with Ind AS 116 from the date of initial application. The Group does
not have any significant impact on account of sub-lease on the application of
this standard.

Details of the right-to-use assets held by
the Group are as follows:

(Rs. crores)

Particulars

Additions for the year
ended 31^st March, 2020

Net carrying amount as
at 31^st March, 2020

Leasehold Land

474

690

Buildings

2,443

7,218

Leasehold Improvements

Computer Equipment

Vehicles

Office Equipment

2,951

7,994

Depreciation on right-of-use assets is as
follows:

(Rs. crores)

Particulars

Year ended 31^stMarch,
2020

Leasehold Land

Buildings

1,225

Leasehold Improvements

Computer Equipment

Vehicles

Office Equipment

1,268

The Group incurred Rs. 392 crores for the
year ended 31^st March, 2020 towards expenses relating to short-term
leases and leases of low-value assets. The total cash outflow for leases is Rs.
2,465 crores for the year ended 31^st March, 2020, including cash
outflow of short-term leases and leases of low-value assets. The Group has
lease term extension options that are not reflected in the measurement of lease
liabilities. The present value of future cash outflows for such extension
periods as at
31^stMarch, 2020 is Rs. 457 crores.

Lease contracts entered by the Group majorly
pertain to buildings taken on lease to conduct its business in the ordinary
course. The Group does not have any lease restrictions and commitment towards
variable rent as per the contract.

IMPACT OF COVID-19

The Group does not foresee any large-scale
contraction in demand which could result in significant down-sizing of its
employee base rendering the physical infrastructure redundant. The leases that
the Group has entered with lessors towards properties used as delivery centres
/ sales offices are long term in nature and no changes in terms of those leases
are expected due to Covid-19.

From
Auditors’ Report (consolidated)

Key Audit
Matters

Key Audit Matters	How our audit addressed the key audit matter
Adoption of Ind AS 116 – Leases As described in Note 9 to the consolidated financial statements, the Group has adopted Ind AS 116 – Leases (Ind AS 116) in the current year. The application and transition to this accounting standard is complex and is an area of focus in our audit since	Our audit procedures on adoption of Ind AS 116 include: u Assessed and tested new processes and controls in respect of the lease accounting standard (Ind AS 116);
the Group has a large number of leases with different contractual terms Ind AS 116 introduces a new lease accounting model, wherein lessees are required to recognise a right-of-use (ROU) asset and a lease liability arising from a lease on the balance sheet. The lease liabilities are initially measured by discounting future lease payments during the lease term as per the contract / arrangement. Adoption of the standard involves significant judgements and estimates, including determination of the discount rates and the lease term Additionally, the standard mandates detailed disclosures in respect of transition Refer Note 5(h) and Note 9 to the consolidated financial statements	u Assessed the Group’s evaluation on the identification of leases based on the contractual agreements and our knowledge of the business; u Involved our specialists to evaluate the reasonableness of the discount rates applied in determining the lease liabilities; u Upon transition as at 1^st April, 2019: • Evaluated the method of transition and related adjustments; • Tested completeness of the lease data by reconciling the Group’s operating lease commitments to data used in computing ROU asset and the lease liabilities u On a statistical sample, we performed the following procedures: u assessed the key terms and conditions of each lease with the underlying lease contracts; and u evaluated computation of lease liabilities and challenged the key estimates, such as discount rates and the lease term u Assessed and tested the presentation and disclosures relating to Ind AS 116, including disclosures relating to transition

Key
Audit Matters

How
our audit addressed the key audit matter

Adoption of Ind AS 116 – Leases

As described in Note 9 to the consolidated financial
statements, the Group has adopted Ind AS 116 – Leases (Ind AS 116) in
the current year. The application and transition to this accounting standard
is complex and is an area of focus in our audit since

Our audit procedures on adoption of Ind AS 116 include:

u
Assessed and tested new processes and
controls in respect of the lease accounting standard (Ind AS 116);

the Group has a large number of leases with different
contractual terms

Ind AS 116 introduces a new lease accounting model, wherein
lessees are required to recognise a right-of-use (ROU) asset and a lease
liability arising from a lease on the balance sheet. The lease liabilities
are initially measured by discounting future lease payments during the lease
term as per the contract / arrangement. Adoption of the standard involves
significant judgements and estimates, including determination of the discount
rates and the lease term

Additionally, the standard mandates detailed disclosures in
respect of transition

Refer Note 5(h) and Note 9 to the consolidated financial
statements

u Assessed the Group’s evaluation on the
identification of leases based on the contractual agreements and our
knowledge of the business;

u Involved our specialists to evaluate
the reasonableness of the discount rates applied in determining the lease
liabilities;

u Upon transition as at 1^st
April, 2019:

• Evaluated the method of transition and related adjustments;

• Tested completeness of the lease data by reconciling the
Group’s operating lease commitments to data used in computing ROU asset and
the lease liabilities

u On a statistical sample, we performed
the following procedures:

u
assessed the key terms and conditions of
each lease with the underlying lease contracts; and

u evaluated computation of lease
liabilities and challenged the key estimates, such as discount rates and the
lease term

u Assessed and tested the presentation
and disclosures relating to Ind AS 116, including disclosures relating to
transition

HINDUSTAN UNILEVER LTD. (standalone)

From
Notes forming part of Financial Statements

LEASES

The Company has adopted Ind AS 116 – Leases
effective 1^st April, 2019 using the modified retrospective method.
The Company has applied the standard to its leases with the cumulative impact
recognised on the date of initial application (1^stApril, 2019).
Accordingly, previous period information has not been restated.

The Company’s lease asset classes primarily
consist of leases for Land and Buildings and Plant & Machinery. The Company
assesses whether a contract is or contains a lease at inception of a contract.
A contract is, or contains, a lease if the contract conveys the right to
control the use of an identified asset for a period of time in exchange for
consideration. To assess whether a contract conveys the right to control the
use of an identified asset, the Company assesses whether:

(i) the contract involves the use of an identified
asset,

(ii) the Company has substantially all of the
economic benefits from use of the asset through the period of the lease, and

(iii) the Company has the right to direct the use of
the asset.

At the date of commencement of the lease,
the Company recognises a right-of-use asset (‘ROU’) and a corresponding lease
liability for all lease arrangements in which it is a lessee, except for leases
with a term of twelve months or less (short-term leases) and leases of
low-value assets. For these short-term and leases of low-value assets, the
Company recognises the lease payments as an operating expense on a
straight-line basis over the term of the lease.

The right-of-use assets are initially
recognised at cost, which comprises the initial amount of the lease liability
adjusted for any lease payments made at or prior to the commencement date of
the lease plus any initial direct costs less any lease incentives. They are
subsequently measured at cost less accumulated depreciation and impairment
losses, if any. Right-of-use assets are depreciated from the commencement date
on a straight-line basis over the shorter of the lease term and useful life of
the underlying asset.

The lease liability is initially measured at
the present value of the future lease payments. The lease payments are
discounted using the interest rate implicit in the lease or, if not readily
determinable, using the incremental borrowing rates. The lease liability is
subsequently re-measured by increasing the carrying amount to reflect interest
on the lease liability, reducing the carrying amount to reflect the lease
payments made.

A lease liability is re-measured upon the
occurrence of certain events such as a change in the lease term or a change in
an index or rate used to determine lease payments. The re-measurement normally
also adjusts the leased assets.

Lease liability and ROU asset have been
separately presented in the balance sheet and lease payments have been
classified as financing cash flows.

Following are the lease assets of the
Company:

(Rs. crores)

Particulars

Leasehold Land

Land & Building

Plant & Equipment

Total

Movements during the year

Balance as at 31^st March, 2019

–

Addition on account of transition to Ind AS 116 –
1^st April, 2019

–

146

527

673

Additions

–

268

212

480

Disposals

(2)

(98)

(34)

(134)

Balance as at 31^st March, 2020

316

705

1,046

Accumulated Depreciation

Additions

159

196

355

Disposals

–

(82)

(27)

(109)

Balance as at 31^stMarch, 2020

169

246

Net Block as at 31^st March, 2020

239

536

800

Notes:

(a) The Company has adopted Ind AS 116
effective 1^stApril, 2019 using the modified retrospective method.
The Company has applied the standard to its leases with the cumulative impact
recognised on the date of initial application (1^st April, 2019).
Accordingly, previous period information has not been restated.

This has resulted in recognising a
right-of-use asset of Rs. 673 crores and a corresponding lease liability of Rs.
725 crores. The difference of Rs. 35 crores (net of deferred tax asset created
of Rs. 17 crores) has been adjusted to retained earnings as at 1^stApril,
2019.

In the statement of profit and loss for the
current year, operating lease expenses which were recognised as other expenses
in previous periods is now recognised as depreciation expense for the
right-of-use asset and finance cost for interest accrued on lease liability.
The adoption of this standard did not have any significant impact on the profit
for the year and earnings per share. The weighted average incremental borrowing
rate of 8.5% has been applied to lease liabilities recognised in the balance
sheet at the date of initial application.

(b) The Company incurred Rs. 102 crores for
the year ended 31^st March, 2020 towards expenses relating to
short-term leases and leases of low-value assets. The total cash outflow for
leases is Rs. 528 crores for the year ended 31^st March, 2020,
including cash outflow of short-term leases and leases of low-value assets.
Interest on lease liabilities is Rs. 74 crores for the year.

(c) The Company’s leases mainly comprise of
land and buildings and plant and equipment. The Company leases land and
buildings for manufacturing and warehouse facilities. The Company also has
leases for equipment.

(d) The title deeds of leasehold land, net
block aggregating Rs. 1 crore (31^st March, 2019: Rs. 1 crore) are in
the process of perfection of title.

INFOSYS LTD. (consolidated)

From
Notes forming part of Financial Statements

LEASES

Ind AS 116 requires lessees to determine the
lease term as the non-cancellable period of a lease adjusted with any option to
extend or terminate the lease, if the use of such option is reasonably certain.
The Group makes an assessment on the expected lease term on a lease-by-lease
basis and thereby assesses whether it is reasonably certain that any options to
extend or terminate the contract will be exercised. In evaluating the lease
term, the Company considers factors such as any significant leasehold
improvements undertaken over the lease term, costs relating to the termination
of the lease and the importance of the underlying asset to Infosys’s operations
taking into account the location of the underlying asset and the availability
of suitable alternatives. The lease term in future periods is reassessed to
ensure that it reflects the current economic circumstances. After considering current
and future economic conditions, the Group has concluded that no changes are
required to the lease periods relating to the existing lease contracts (refer
to Note 2.19).

Note 2.19 Leases

ACCOUNTING POLICY

The Group as a lessee

The Group’s lease asset classes primarily
consist of leases for land and buildings. The Group assesses whether a contract
contains a lease at the inception of a contract. A contract is, or contains, a
lease if the contract conveys the right to control the use of an identified asset
for a period of time in exchange for consideration. To assess whether a
contract conveys the right to control the use of an identified asset, the Group
assesses whether:

(i) the contract involves the use of an identified
asset;

(ii) the Group has substantially all of the economic
benefits from use of the asset through the period of the lease, and

(iii) the Group has the right to direct the use of
the asset.

At the date of commencement of the lease,
the Group recognises a right-of-use (ROU) asset and a corresponding lease
liability for all lease arrangements in which it is a lessee, except for leases
with a term of 12 months or less (short-term leases) and low-value leases. For
these short-term and low-value leases, the Group recognises the lease payments
as an operating expense on a straight-line basis over the term of the lease.

Certain lease arrangements include the
option to extend or terminate the lease before the end of the lease term. ROU
assets and lease liabilities include these options when it is reasonably
certain that they will be exercised.

The ROU assets are initially recognised at
cost, which comprises the initial amount of the lease liability adjusted for
any lease payments made at or prior to the commencement date of the lease plus
any initial direct costs less any lease incentives. They are subsequently
measured at cost less accumulated depreciation and impairment losses.

ROU assets are depreciated from the
commencement date on a straight-line basis over the shorter of the lease term
and useful life of the underlying asset. ROU assets are evaluated for
recoverability whenever events or changes in circumstances indicate that their
carrying amounts may not be recoverable. For the purpose of impairment testing,
the recoverable amount (i.e. the higher of the fair value less cost to sell and
the value-in-use) is determined on an individual asset basis unless the asset
does not generate cash flows that are largely independent of those from other
assets. In such cases, the recoverable amount is determined for the CGU to
which the asset belongs.

The lease liability is initially measured at
amortised cost at the present value of the future lease payments. The lease
payments are discounted using the interest rate implicit in the lease or, if
not readily determinable, using the incremental borrowing rates in the country
of domicile of the leases. Lease liabilities are re-measured with a
corresponding adjustment to the related right of use asset if the Group changes
its assessment of whether it will exercise an extension or a termination
option. Lease liability and ROU asset have been separately presented in the
balance sheet and lease payments have been classified as financing cash flows.

The Group as a lessor

Leases for which the Group is a lessor are
classified as a finance or operating lease. Whenever the terms of the lease
transfer substantially all the risks and rewards of ownership to the lessee,
the contract is classified as a finance lease. All other leases are classified
as operating leases.

When the Group is an intermediate lessor, it
accounts for its interests in the head lease and the sub-lease separately. The
sub-lease is classified as a finance or operating lease by reference to the ROU
asset arising from the head lease.

For operating leases, rental income is
recognised on a straight-line basis over the term of the relevant lease.

Transition

Effective 1^stApril, 2019, the
Group adopted Ind AS 116 – Leases and applied the standard to all lease
contracts existing on 1^st April, 2019 using the modified
retrospective method and has taken the cumulative adjustment to retained
earnings, on the date of initial application. Consequently, the Group recorded
the lease liability at the present value of the lease payments discounted at
the incremental borrowing rate and the ROU asset at its carrying amount as if
the standard had been applied since the commencement date of the lease, but
discounted at the lessee’s incremental borrowing rate at the date of initial
application. Comparatives as at and for the year ended 31^st March,
2019 have not been retrospectively adjusted and therefore will continue to be
reported under the accounting policies included as part of our Annual Report
for the year ended 31^st March, 2019.

On transition, the adoption of the new
standard resulted in recognition of ‘Right of Use’ asset of Rs. 2,907 crores,
‘Net investment in sub-lease’ of ROU asset of Rs. 430 crores and a lease
liability of Rs. 3,598 crores. The cumulative effect of applying the standard,
amounting to Rs. 40 crores was debited to retained earnings, net of taxes. The
effect of this adoption is insignificant on the profit before tax, profit for
the period and earnings per share. Ind AS 116 has resulted in an increase in
cash inflows from operating activities and an increase in cash outflows from
financing activities on account of lease payments.

The following is the summary of practical
expedients elected on initial application:

(1) Applied a single discount rate to a portfolio
of leases of similar assets in similar economic environment with a similar end
date;

(2) Applied the exemption not to recognise ROU
assets and liabilities for leases with less than 12 months of lease term on the
date of initial application;

(3) Excluded the initial direct costs from the
measurement of the right-of-use asset at the date of initial application;

(4) Applied the practical expedient to grandfather
the assessment of which transactions are leases. Accordingly, Ind AS 116 is
applied only to contracts that were previously identified as leases under Ind
AS 17.

The difference
between the lease obligation recorded as of 31^st March, 2019 under
Ind AS 17 disclosed under Note 2.19 of the 2019 Annual Report and the value of
the lease liability as of 1^st April, 2019 is primarily on account of
inclusion of extension and termination options reasonably certain to be
exercised, in measuring the lease liability in accordance with Ind AS 116 and
discounting the lease liabilities to the present value under Ind AS 116. The
weighted average incremental borrowing rate applied to lease liabilities as at
1^st April, 2019 is 4.5%. The changes in the carrying value of right
of use assets for the year ended 31^stMarch, 2020 are as follows:

(Rs. crores)
Balance as of 1^st April, 2019	–	2,898	9	–	2,907
Reclassified on account of adoption of Ind AS 116	634	–	–	–	634
Additions ⁽¹⁾	1	1,064	6	49	1,120
Additions through business combination	–	177	10	–	187
Deletions	(3)	(130)	(1)	–	(134)
Depreciation	(6)	(540)	(9)	(8)	(563)
Translation difference	–	16	–	1	17
Balance as of 31^st March, 2020	626	3,485	15	42	4,168

(Rs. crores)

Particulars

Category
of ROU asset

Total

Land

Buildings

Vehicles

Companies

Balance as of
1^st April, 2019

–

2,898

–

2,907

Reclassified on account of adoption of Ind AS 116

634

–

634

Additions ⁽¹⁾

1,064

1,120

Additions through business combination

–

177

–

187

Deletions

(3)

(130)

(1)

–

(134)

Depreciation

(6)

(540)

(9)

(8)

(563)

Translation difference

–

Balance as of 31^st March, 2020

626

3,485

4,168

⁽¹⁾ Net
of lease incentives of Rs. 115 crores related to lease of buildings

The break-up of current and non-current
lease liabilities as on 31^st March, 2020 is as follows:

(Rs. crores)

Particulars

Amount

Current lease liabilities

619

Non-current lease liabilities

4,014

Total

4,633

The movement in lease liabilities during the
year ended 31^st March, 2020 is as follows:

(Rs. crores)

Particulars

Year ended
31^st March, 2020

Balance at the beginning

3,598

Additions

1,241

Additions through business combination

224

Deletions

(145)

Finance cost accrued during the period

170

Payment of lease liabilities

(639)

Translation difference

184

Balance at the end

4,633

The details regarding the contractual
maturities of lease liabilities as of 31^st March, 2020 on an
undiscounted basis are as follows:

(Rs. crores)

Particulars

Amount

Less than one year

796

One to five years

2,599

More than five years

2,075

Total

5,470

The Group does not face a significant
liquidity risk with regard to its lease liabilities as the current assets are
sufficient to meet the obligations related to lease liabilities as and when
they fall due.

Rental expense recorded for short-term
leases was Rs. 89 crores for the year ended 31^st March, 2020.

The aggregate depreciation on ROU assets has
been included under depreciation and amortisation expense in the Consolidated
Statement of Profit and Loss.

The movement in
the net investment in sub-lease of ROU assets during the year ended 31^st
March, 2020 is as follows:

(Rs. crores)

Particulars

Year ended
31^st March, 2020

Balance at the beginning

430

Interest income accrued during the period

Lease receipts

(46)

Translation difference

Balance at the end

433

The details regarding the contractual
maturities of net investment in sub-lease of ROU asset as on 31^stMarch,
2020 on an undiscounted basis are as follows:

(Rs. crores)

Particulars

Amount

Less than one year

One to five years

217

More than five years

244

Total

511

Leases not yet commenced to which Group is
committed are Rs. 655 crores for a lease term ranging from two to thirteen
years.

BCAJ Admin

ETHICS AND U

Arjun: Hari
Om Hari! Hari Om Hari! Hey Bhagwan, when is this lockdown going to
end? When will this Corona go away?

Shrikrishna:
Arjun, open your eyes. You are chanting my bhajan and murmuring
something. Hope everything is fine at home?

Arjun:
At home? I am fed up of this house arrest. Both Draupadi and Subhadra are
making me do all the household work. Sweeping the floor, cleaning the utensils,
helping in cooking…

Shrikrishna:
But you are familiar with all this!

Arjun:
What do you mean?

Shrikrishna:
You yourself keep saying – in office, you have to clean up the mess in the
clients’ accounts, you have to window-dress them and make them presentable…

Arjun:
Ha! Ha! True. But tell me, when are our offices going to restart functioning?

Shrikrishna:
Why? Do you think that you cannot function from home? You people talk of Work
from Home, don’t you?

Arjun:
Yes, but there is a limit to that. Work cannot be completed sitting at home.
Our staff is not available, clients’ data is not coming since their accountants
are also not attending work. Everything is paralysed.

Shrikrishna:
But in your management studies, you talk of converting problems into
opportunities. Now why don’t you implement those great ideas?

Arjun: All
that is all right in seminars in posh hotels. In practical life, it is
difficult.

Shrikrishna:
But have you even applied your mind to what fruitful things could be done?
There are many new things coming up in the field of ethics. Those are all very
essential for you to understand.

Arjun:
Really? How can I know them? Tell me some highlights at least.

Shrikrishna:
Arjun, during this lockdown, I have been meeting people almost every day and
telling them the principles of ethics.

Arjun: Don’t tell me! Then why
didn’t you come to my house?

Shrikrishna:
Arjun, on your television sets I am coming so frequently in different forms and
characters, Vishnu, Ram, Krishna, Yudhishthira, Bhishma through all those
serials. There I teach nothing but ethics.

Arjun: Yes.
But those serials are meant for children and retired people. Practical life
mein uska koi fayda nahi!

Shrikrishna:
You are mistaken, Paarth. Now, even internationally your ethics are
getting strengthened. Finance field mein paap bahut badh gaya hai. It
was you peoples’ job to control it, but instead you encouraged it. In
Mahabharata you Pandavas fought against the Kauravas; but now you are acting
hand-in-glove with them.

Arjun: Just
as you preached me the Geeta in the Mahabharata war, please explain to
me what is the new Geeta in our Code of Ethics.

Shrikrishna:
For this, you should know that your Institute has come out with three new
volumes of books on New Code of Ethics. The First Volume covers the
International Ethical Standards adapted by the Institute. It was earlier known
as Part A.

Arjun:
And the other two volumes?

Shrikrishna:
The Second Volume is the old Part B, but significantly revised. It contains
your CA Act, Rules, Regulations, ICAI pronouncements, notifications, guidelines
and so on, on ethics. And Volume 3 is the compilation of case laws.

Arjun:
Oh! So much new literature! But tell me any single item which is very
important.

Shrikrishna: One point
directly relevant to you is that now you can communicate with the previous
auditor on email. Earlier, only registered post was allowed or recommended.

Arjun:
But which email ID?

Shrikrishna:
The ID which is registered with the ICAI. In case you mail on his
ID known to you, but the previous auditor does not respond to your email, you
can get the ID from the ICAI.

Arjun:
Anything more important on this formality?

Shrikrishna:
This is not a mere formality. It is to protect your own interest. Further, if
the incoming auditor inquires about any negative findings in the audit, the
previous auditor is duty-bound to supply the important points to the incoming
auditor.

Arjun: Oh!

Shrikrishna:
Are you aware that during the lockdown the focus of all your
webinars has been on Ethics and Standards on Auditing (SAs). This has become
mandatory in your CPE hours.

Arjun:
I heard of this. But who has time to listen to all these things!

Shrikrishna:
Arrey! Just now you were saying you are sitting idle at home. Then why
don’t you listen to these useful presentations? You people ‘manage’ even your
CPE hours by just joining the webinars but never seriously listening.

Arjun:
Yes, Lord. What you say is right. But in our next few meetings please tell me
the highlights of this new Code of Ethics.

Shrikrishna:
Yes, Paarth. It will be my pleasure to do so.

Om Shanti

This
dialogue is based on the basic idea of the New Code of Ethics which is expected
to be effective from 1^stJuly, 2020. The next few write-ups will be
on important contents of the New Code.

BCAJ Admin

CORPORATE LAW CORNER

6. Mahesh Sureka vs. Marathe Hospitality [2020] 116 taxmann.com 552 (NCLT-Mum.) C.P.(IB) No. 3603/(MB)/2018 Date of order: 20^th March, 2020

Section 238 of the Insolvency and
Bankruptcy Code, 2016 – Assets attached by EOW were to be released in favour of
RP as non-obstante clause appearing in the later legislation would
precede the former – Transfer of assets to a partnership firm (where one of the
partners was a tax adviser of the corporate debtor) for an inadequate
consideration without prior consent of the mortgagee was a fraudulent
transaction and was set aside

FACTS

Insolvency
proceedings were admitted against the corporate debtor P Co on 14^th
March, 2018 on an application filed by U Bank (the ‘Financial Creditor’). One
of the properties of the corporate debtor was financed by way of mortgage by U
Bank. The corporate debtor had leased the said property to MH (a partnership
firm) on a long-term basis for a sum of Rs. 25,000 per month vide lease
deed dated 18^th May, 2016. Mr. AN, who was a partner in MH, was also
a tax adviser to the corporate debtor. Further, the said property was leased to
MH without obtaining the prior approval of U Bank.

The Resolution Professional (RP) learned
that one of the directors of the corporate debtor was in jail (in judicial
custody) and that the Economic Offences Wing (EOW) had attached several of the
properties of the corporate debtor which included its registered office. The RP
mentioned that due to the attachment of the registered office of the corporate
debtor and unavailability of the Directors and other staff members, it was
impossible to prepare essential details of the assets and liabilities of the
corporate debtor. The property mentioned above was also attached by the EOW.

Mr. AN contended that although it was the
duty of the corporate debtor before giving the said property on lease to seek
prior permission of U Bank, MH could not be prejudiced for the wrong-doings of
the corporate debtor. Further, as per section 46 of the Insolvency and
Bankruptcy Code, 2016 (the Code) the relevant time for avoidance of undervalued
transaction was one year prior to commencement of the Corporate Insolvency
Resolution Process (CIRP) of the corporate debtor. It was pleaded that since
the said lease agreement was entered into on 18^th May, 2016, and
hence was beyond the one-year period from the CIRP commencement date, it could
not be covered u/s 46 of the Code.

HELD

The Tribunal heard both the parties at
length. It observed that the lease rental for a period of ten years was a
paltry sum of Rs. 25,000 per month payable by the 10th of the subsequent month
and that the lease could be renewed for a further period by the lessee as per
the said agreement. The fact that Mr. AN was a partner in MH and a tax adviser
to the corporate debtor indicated that it was a case of preferred transaction.
The fact that there was no provision for an annual increment and the extension
was only at the prerogative of the lessee, leads to the conclusion that the
transaction was a fraudulent one.

The Tribunal
relied on the provisions of section 65A(2)(c) of the Transfer of Property Act,
1882 which provided that no lease shall contain a covenant for ‘renewal’. It
was observed that the lease agreement of the corporate debtor with a related
party MH provided for a total rent of a sum of Rs. 25,000 per month in respect
of huge commercial property measuring about 2,310 sq. metres along with a
two-storey building structure with no increase in rental for a period of ten
years. In addition, as per the lease agreement, there was a provision for
further extension at the will of the lessee. In view of this, the lease
agreement entered into between the corporate debtor and MH was held to be
illegal as per the relevant provisions of the Transfer of Property Act, 1882.

Besides, the mortgage deed signed by the
corporate debtor with U Bank provided that the corporate debtor could not let
or license its interest in the said property, or part with its possession,
unless it obtained the written consent of U Bank. Since the said consent was
not obtained, the Tribunal held that the transaction of lease was invalid and mala
fide.

The NCLT observed that the attachment of the
assets of the corporate debtor by the EOW would hamper the claim of the
creditors of the corporate debtor. Thus, to protect the interest of the bank
and the present creditors, NCLT directed the EOW and other Government
Departments to release the property and assets of the corporate debtor
currently attached with them so that the CIRP of the corporate debtor could be
conducted in the substantial public interest.

In the context of section 238 of the Code
which has a non-obstante clause, the Tribunal relied on the decision of
the Supreme Court in the case of Solidaire India Ltd. vs. Fairgrowth
Financial Services Pvt. Ltd., wherein it was held that where two statutes
contain the non-obstante clause, the latest statute would prevail.

Thus, the lease agreement was held as null
and void and the attachment of assets by the EOW was directed to be released in
favour of the RP for carrying out the CIRP in the best interest of the
creditors of the corporate debtor.

7. American Road Technology & Solutions
(P) Ltd. vs. Central Government, Hyderabad [2020] 115 taxmann.com 16 (NCL-Beng.) Date of order: 31^st December,
2019

Where company filed application for
revision of financial statements in F.Y. 2017-18, three preceding years for
purpose of revision of financial statements would be 2016-17, 2015-16 and
2014-15 (which was one of the years in which incorrect financial reporting had
been detected and in respect of which approval for revision had been sought),
since a true and fair picture of company’s finances would not emerge for F.Y.
2014-15 unless financial statements for 2012-13 and 2013-14 were also revised –
Application for revision of financial statements for years 2012 to 2015 was to
be allowed

FACTS

Company A Pvt. Ltd., the applicant, was
incorporated in the year 2012 under the Companies Act, 1956 with the Registrar
of Companies, Karnataka at Bangalore. Its business was mainly carried out in
Bangalore.

During the year 2014-15, the majority
shareholder was informed by one of the ex-senior employees that the affairs of
A Pvt. Ltd. are not run as per the provisions of the Companies Act and the
applicable rules and regulations, and further that there were several financial
irregularities and even falsification of accounts has taken place.

The majority shareholder and A Pvt. Ltd.
decided to appoint an independent auditor to conduct a forensic audit of the
company. The independent auditor submitted his investigation report. This
report was examined internally and expert views were also taken in consultation
with the independent auditor and the statutory auditor.

The statutory auditors had opined that A
Pvt. Ltd.’s records need improvement to ensure controls which are not
commensurate with the size of the company and the nature of its business, with
regard to execution of contracts and raising invoices.

The findings of
the statutory auditor were incorporated in the annual returns filed for the
financial year 2014-15 and it was noted that suspicious transactions have taken
place and falsification of accounts has been done. It was noted that the annual
returns and balance sheets for the years 2012-13, 2013-14 and 2014-15 were
filed without even reconciling the bank statements with the actual activities
of the company that have taken place during the relevant period.

After consideration of the independent
auditor’s report, the management had lodged various criminal proceedings. The
statutory auditor has advised A Pvt. Ltd. to move u/s 131 of the Companies Act,
2013 for the accounts to be redrafted for the period and recasting of the books
for the periods 2015-16 and 2016-17 to incorporate the changes in the opening
balances, subject to ratification by members in a general meeting. Accordingly,
the present petition was filed before the Tribunal.

Based on above factual matrix, the Tribunal
ordered notices to be issued to the respondents, namely, the Registrar of
Companies, the Regional Director, the Income Tax Officer concerned and the
auditor of the company.

The regional director (RD) submitted that
the company has filed the application u/s 131 of the Companies Act, 2013 for
revision of financial statement and board reports for the Financial Years
2012-13, 2013-14 and 2014-15. The RD raised an interesting issue that the application is not made for revision of any of
the three immediately preceding financial years but for all the earlier
years. Hence the same does not fall under the provisions of section 131
of the Act and that, too, for revision of financial statements to reflect
suspicious transactions and falsification of accounts that had taken place in
the company.

As per the Regional Director, u/s 131(2) of
Companies Act, 2013 the revisions must be confined to – (a) The correction in
respect of which the previous financial statement or report do not comply with
the provisions of section 129 or section 134; and (b) The making of any necessary
consequential alteration. He further stated that the petitioner company has
sought blanket revision of financial statements for the years 2012-13, 2013-14
and 2014-15 without actually specifying or limiting itself to any particular
entry or disclosure. Hence the petition is not maintainable. Further, the RD
reiterated that it appears that the revision of financial statements based on
alleged fraud will not fall within the ambit of section 134 of the Companies
Act, 2013.

HELD

The Tribunal, after considering the
objections raised by the RD, observed as under:

(i) The petition seeks approval for
voluntary revision of financial statements and board reports for the financial
years 2012-13, 2013-14 and 2014-15.

(ii) It is the contention of A Pvt. Ltd. that
this provision permits it to voluntarily revise its accounts for any three
preceding financial years, whereas the other respondents in these proceedings
have opposed this view and stated that the same is permitted only for any of
the three immediately preceding financial years and not beyond.

Section 131 of the Act reads as under:

Voluntary Revision of Financial
Statements or Board’s Report:

(1) If it appears to the directors of a
company that –

(a) the financial statement of the
company; or

(b) the report of the Board

do not comply with the provisions of
section 129 or section 134 they may prepare revised financial statement or a
revised report in respect of any of the
three preceding financial years after obtaining approval of the
Tribunal on an application made by the company in such form and manner as may
be prescribed and a copy of the order passed by the Tribunal shall be filed
with the Registrar…:’ (emphasis added).

The Tribunal observed that the petition is
filed on 22^nd January, 2018 and falls within the F.Y. 2017-18.
Section 131, even going by the contention of the respondent that the words ‘in
respect of any of the three preceding financial years’ should mean
‘immediately’ preceding three financial years, then such preceding three
financial years would be 2016-17, 2015-16 and 2014-15. Thus, F.Y. 2014-15,
which is one of the years in which the incorrect financial reporting has been
detected and in respect of which approval for revision has been sought, is
squarely covered by section 131.

The Tribunal
further observed that when a balance sheet is drawn for a particular year, it
brings forward balances of the preceding year/s, and as such will necessarily
impact the balance sheet for the Y.E. 31^st March, 2015, i.e., for
F.Y. 2014-15, and for this reason the years 2012-13 and 2013-14 will
necessarily have to be considered for revision of the accounts that are not
giving a true and fair picture of the accounts for these years, for the reasons
mentioned herein above. This accounting compulsion cannot be ignored.
Once this is made clear, the issue whether the accounts of the three F.Y.s
referred to in the petition could be revised or not in view of an
interpretation of section 131, becomes redundant and of mere academic interest.

In section 131
the term ‘immediately preceding’ is not used. Instead, the section speaks of ‘any
of the three preceding financial years‘.

In order to
determine the intent of the Legislature, it is necessary to look into the 57^th
Report of the Standing Committee on Finance on the Companies Bill, 2011. The
relevant portion of the said Report of the Standing Committee is extracted
below:

‘The change
proposes to provide procedural requirement in respect of revision in
accounts in certain cases. The present law is silent in respect of re-opening
or re-casting of accounts. In certain cases, particularly in cases relating
to fraud, there may be need to re-open / re-cast accounts to reflect true and
fair accounts. In case of Satyam, such re-casting was ordered
by the Court. The provisions in the Bill mandate such re-opening on the order
of the Court or Tribunal. In other cases the re-opening is being permitted,
through order of Tribunal, with adequate safeguards.’ (Emphasis supplied.)

The Tribunal
further observed that considering that the thrust of several provisions of the
Act is either to prevent financial misdemeanour or oppression and
mismanagement, all such provisions need to be understood and interpreted in
this light.

Since the
instant case is prima facie that of mismanagement, misreporting and
alleged fraud, the Tribunal observed that the section has to be interpreted in
the spirit of the Act and the exercise of correcting the same cannot become a
victim of interpretation of allowable time. Such time limits can at best be considered
to be advisory and not mandatory, since the same is only a procedural
requirement, as mentioned in the Standing Committee Report.

Thus, the
Tribunal observed that the words ‘in respect of any of the three preceding
financial years’ have to be read as any three previous years. It
further elaborated that even otherwise, the Tribunal is competent to initiate
reopening / revision of accounts u/s 130 in cases of the kind in hand, for
which no time limit is prescribed. It cannot be the case that if an application
is made u/s 131 where the grounds are similar to section 130, the accounts
prepared incorrectly, or when the affairs are
mismanaged, the revision of accounts would be prevented by any one view on time
limitation. Hence, in view of the totality of facts and circumstances, all
three years, i.e. F.Y.s 2012-13, 2013-14 and 2014-15, would be covered for
revision, not only because of the accounting compulsion, since F.Y. 2014-15 is
in any case covered, and the earlier years’ accounts have a bearing on the
same, but also as per the provision contained in section 131 of the Act.

The Tribunal
accordingly held that in the facts and circumstances of the case, this is a fit
case for granting approval u/s 131 to prepare revised financial statements and
/ or revised reports in respect of the F.Y.s 2012-13, 2013-14 and 2014-15 in
the case of A Pvt. Ltd. and the same was accordingly granted.

BCAJ Admin

GLIMPSES OF SUPREME COURT RULINGS

4. Seshasayee
Steels P. Ltd. vs. ACIT

[2020]
421 ITR 46 (SC)

Capital
Gains – Transfer – In order that the provisions of section 53A of the T.P. Act
be attracted, first and foremost the transferee must, in part performance of
the contract, have taken possession of the property or any part thereof; and
secondly, the transferee must have performed or be willing to perform his part
of the agreement – The expression ‘enabling the enjoyment of’ in section
2(47)(vi) must take colour from the earlier expression ‘transferring’, so that
it can be stated on the facts of a case that a de facto transfer of
immovable property has, in fact, taken place, making it clear that the de
facto owner’s rights stand extinguished – On the facts of the case, the
assessee’s rights in the said immovable property were extinguished on the
receipt of the last cheque, as also that the compromise deed could be stated to
be a transaction which had the effect of transferring the immovable property in
question

The
appellant-assessee entered into an agreement with Vijay Santhi Builders Limited
on 15^th May, 1998 to sell a property for a total sale consideration
of Rs. 5.5 crores.

Pursuant to
this agreement, a Power of Attorney (PoA) was executed on 27^th
November, 1998 by which the assessee appointed one Chandan Kumar, Director of
M/s Vijay Santhi Builders Ltd., to execute and join in execution of the
necessary number of sale agreements and / or sale deeds in respect of the
schedule mentioned property after developing the same into flats. The PoA also
enabled the builder to present before all the competent authorities such
documents as were necessary to enable development of the same and the sale
thereof to various persons.

The
appellant did not file any return for A.Y. 2004-2005. Apparently, it was
detected later by the A.O. that the agreement to sell had been entered into and
that, subsequently, a memorandum of compromise had also been entered into
between the parties dated 19^th July, 2003. Based on the discovery of
this fact, a notice dated 4^th November, 2008 issued u/s 148 was
served on the appellant. Even in response to this notice, no Income tax return
was filed. A notice dated 8^th September, 2009 was then issued u/s
142(1) fixing the case for hearing on 20^thSeptember, 2009. Once
again, the appellant did not turn up, as a result of which another notice dated
23^rd October, 2009 was issued; but this time, too, the assessee did
not turn up. So a third letter was issued on 11^th December, 2009
fixing the case for hearing on 22^nd December, 2009. In response to
this letter, the assessee by a letter dated 29^th December, 2009
sought time for one month.

Since time
bar was foremost in the mind of the A.O., the limitation falling on this
transaction by 31^st December, 2009, a best judgment assessment order
was then passed u/s 144 dated 31^stDecember, 2009. Vide this
order, the entire sale consideration was treated as a capital gain and brought
to tax.

An appeal
was preferred against this order. The Commissioner of Income Tax (Appeals), by
an order dated 28^th October, 2010, examined the three documents in
question and ultimately dismissed the appeal. The Income Tax Appellate
Tribunal, by an order dated 24^thJune, 2011, agreed with the CIT(A)
and found that on or about the date of the agreement to sell the conditions
mentioned in section 2(47)(v) of the Act could not be stated to have been
complied with, in that the very fact that the compromise deed was entered into
on 19^th July, 2003 would show that the obligations under the
agreement to sell were not carried out in their true letter and spirit. As a
result of this, section 53A of the Transfer of Property Act, 1882 could not
possibly be said to be attracted. What was then referred to was the memorandum
of compromise dated 19^th July, 2003 under which various amounts had
to be paid by the builder to the owner so that a complete extinguishment of the
owner’s rights in the property would then take place. The last two payments
under the compromise deed were contingent upon M/s Pioneer Homes also being
paid off, which apparently was done. The Appellate Tribunal held that the
transfer therefore took place during the A.Y. 2004-05 as the last cheque was
dated 25^th January, 2004.

The High
Court, by the impugned judgment dated 25^th January, 2012, adverted
to the concurrent findings of the authorities and stated that the three questions
of law that were set out were all answered in favour of the Revenue and against
the assessee.

The Supreme
Court observed that in order that the provisions of section 53A of the T.P. Act
be attracted, first and foremost the transferee must, in part performance of
the contract, have taken possession of the property or any part thereof.
Secondly, the transferee must have performed or be willing to perform his part
of the agreement. It is only if these two important conditions, among others,
are satisfied that the provisions of section 53A can be said to be attracted on
the facts of a given case.

According to
the Supreme Court, on a reading of the agreement to sell dated 15^th
May, 1998 it was clear that both the parties were entitled to specific performance
(Clause 14). Clause 16 was crucial and the expression used was that ‘the party
of the first part hereby gives “permission” to the party of the second part to
start construction on the land’. Clause 16, therefore, leads to the position
that a license was given to another upon the land for the purpose of developing
the land into flats and selling the same. Such license could not be said to be
‘possession’ within the meaning of section 53A, which is a legal concept and
which denotes control over the land and not actual physical occupation of the
land. This being the case, section 53A of the T.P. Act was not attracted to the
facts of this case for this reason alone.

Turning to
the argument of the assessee based on section 2(47)(vi) of the Income-tax Act,
the Supreme Court made a reference to its judgment in Commissioner of
Income Tax vs. Balbir Singh Maini (2018) 12 SCC 354 and applying the
test given in the aforesaid judgment, observed that it was clear that the
expression ‘enabling the enjoyment of’ must take colour from the earlier
expression ‘transferring’, so that it can be stated on the facts of a case that
a de facto transfer of immovable property has, in fact, taken place
making it clear that the de facto owner’s rights stand extinguished.
According to the Supreme Court, as on the date of the agreement to sell, the
owner’s rights were completely intact both as to ownership and to possession
even de facto, so that this section equally could not be said to be
attracted.

Coming to
the third argument of the appellant, the Supreme Court was of the view that
what has to be seen is the compromise deed and as to which pigeonhole such a
deed can possibly be said to fall into u/s 2(47). According to the Supreme
Court, a perusal of the compromise deed showed that the agreement to sell and
the PoA were confirmed and a sum of Rs. 50 lakhs was reduced from the total
consideration of Rs. 6.10 crores. Clause 3 of the said compromise deed
confirmed that the party of the first part, that is, the appellant, had received
a sum of Rs. 4,68,25,644 out of the agreed sale consideration. Clause 4
recorded that the balance Rs. 1.05 crores towards full and final settlement in
respect of the agreement entered into would then be paid by seven post-dated
cheques. Clause 5 then stated that the last two cheques would be presented only
upon due receipt of the discharge certificate from one M/s Pioneer Homes. In
this context, the ITAT had found that all the cheques mentioned in the
compromise deed had, in fact, been encashed. This being the case, it was clear
that the assessee’s rights in the said immovable property were extinguished on
the receipt of the last cheque, as also that the compromise deed could be
stated to be a transaction which had the effect of transferring the immovable property
in question.

According to
the Supreme Court, the pigeonhole, therefore, that would support the orders
under appeal would be section 2(47)(ii) and (vi) of the Act in the facts of the
present case. This being the case, the Supreme Court dismissed the appeal but
for the reasons stated by this judgment.

5. Maruti
Suzuki India Ltd. vs. Commissioner of Income Tax, Delhi

(2020)
421 ITR 510 (SC)

Business
expenditure – Deduction only on actual payment – The unutilised credit under
MODVAT scheme does not qualify for deductions u/s 43B of the Income-tax Act –
The sales tax paid by the assessee was debited to a separate account titled
‘Sales Tax recoverable account’ which could have set off sales tax against his
liability on the sales of finished goods, i.e., vehicles – Assessee cannot
claim deduction of unutilised balance in ‘Sales Tax recoverable account’

The assessee
company was engaged in the manufacture and sale of various Maruti cars and also
traded in spares and components of the vehicles. It acquired excisable raw
materials and inputs which were used in the manufacture of the vehicles. The
assessee had also been taking benefit of MODVAT credit on the raw material and
inputs used in the manufacturing.

At the end
of A.Y. 1999-2000, an amount of Rs. 69,93,00,428 was left as unutilised MODVAT
credit. In the return it was claimed that the company was eligible for
deduction u/s 43B as an allowable deduction. Similarly, the company claimed
deduction u/s 43B of an amount of Rs. 3,08,99,171 in respect of Sales Tax
Recoverable Account.

The A.O.
passed an assessment order dated 28^th March, 2002 and disallowed the
claim of deduction of Rs. 69,93,00,428 as well as of Rs. 3,08,99,171. Aggrieved
by this order, the assessee filed an appeal before the Commissioner of Income
Tax who also sustained the disallowance. An appeal to ITAT met with the same
fate. The ITAT took the view that the advance payment of Excise Duty which
represented unutilised MODVAT credit without incurring the liability of such
payment, was not an allowable deduction u/s 43B. The assessee filed an appeal
u/s 260A in the High Court. The Court answered the question relating to the
above noted disallowance in favour of the Revenue. Aggrieved by this judgment,
the assessee filed appeals before the Supreme Court.

According to
the Supreme Court, the following two questions arose for its consideration:

(i) Whether the ITAT had committed an error of
law in upholding the disallowance of the amount of Rs. 69,93,00,428 which
represented MODVAT credit of Excise Duty that remained unutilised by 31^st
March, 1999, i.e., the end of the relevant accounting year?

(ii) Whether the ITAT committed an error of law in
upholding the disallowance of Rs. 3,08,99,171 in respect of Sales Tax
Recoverable Account u/s 43B?

The Supreme
Court noted that the unutilised MODVAT credit on 31^st March, 1999 to
the credit of the assessee was Rs. 69,93,00,428. This credit was accumulated to
the account of the assessee due to the payment of Excise Duty on raw materials
and inputs which were supplied to it by the suppliers and reflected in the
invoices by which raw materials and inputs were supplied. The appellant was
entitled to utilise this credit in payment of Excise Duty to which the assessee
was liable in payment of Excise Duty on manufacture of its products.

According to
the Supreme Court, an analysis of the provision of section 43B indicated that
deduction thereunder was to be allowed on fulfilment of the following
conditions:

(a) there should be an actual payment of Excise
Duty whether ‘by way of tax, duty, cess or fee, by whatever name’;

(b) such payment has to be ‘under any law for the
time being in force’;

(d) irrespective of the method of accounting
regularly employed by the assessee, deduction shall be allowed while computing
the income tax for the previous year ‘in which (the) sum is actually paid’ by
the assessee;

(e) the expression ‘any such sum payable’ refers
to a sum for which the assessee incurred liability in the previous year even
though such sum might not have been payable within that year under the relevant
law.

According to
the Supreme Court, the crucial words in section 43B(a) were ‘any sum payable by
the assessee by way of tax, duty, cess or fee…’. One had therefore to examine
as to whether unutilised credit under the MODVAT scheme was a sum payable by
the assessee.

The Supreme
Court noted that the Excise Duty is levied under the Central Excise Act, 1944
and collected as per the Central Excise Rules, 1944. The taxable event is
manufacture and production of excisable articles and payment of duty is
relatable to the date of removal of such article from the factory. When the
appellant purchases raw materials and inputs for manufacture of vehicles, it
maintains a separate account containing the Excise Duty as mentioned in the
sale invoices. The credit of such Excise Duty paid by the appellant is to be
given to the appellant by virtue of Rules 57A to 57F of the Central Excise
Rules, 1944 as it then existed. The appellant was fully entitled to discharge
his liability to pay Excise Duty on vehicles manufactured by adjusting the
credit of Excise Duty earned by it as per the MODVAT scheme. The liability to
pay Excise Duty on the raw materials and inputs which are used by the appellant
is on the manufacturers of such raw materials and inputs manufactured by them
and not on the assessee.

The Supreme
Court held that as per section 43B(a) of the Income-tax Act, deduction is
allowed on ‘any sum payable by the assessee by way of tax, duty, cess or fee’.
The credit of Excise Duty earned by the appellant under the MODVAT scheme as
per Central Excise Rules, 1944 is not the sum payable by the assessee by way of
tax, duty, cess, etc. The scheme, u/s 43B, is to allow deduction when a sum is
payable by the assessee by way of tax, duty and cess and had been actually paid
by him. Furthermore, the deduction u/s 43B is allowable only when the sum is
actually paid by the assessee. In the present case, the Excise Duty leviable on
the appellant on the manufacture of vehicles was already adjusted in the
assessment year concerned from the credit of Excise Duty under the MODVAT
scheme. The unutilised credit in the MODVAT scheme cannot be treated as a sum
actually paid by the appellant. When the assessee pays the cost of raw
materials where the duty is embedded, it does not ipso facto mean that
the assessee is the one who is liable to pay Excise Duty on such raw material /
inputs. It is merely the incidence of Excise Duty that has shifted from the
manufacturer to the purchaser and not the liability for the same. The Supreme
Court, thus, concluded that the unutilised credit under the MODVAT scheme does
not qualify for deductions u/s 43B of the Income Tax Act.

The Supreme
Court thereafter dealt with the authorities relied upon by the assessee.

The Supreme
Court, dealing with the observations in Eicher Motors Ltd. and Anr. vs.
Union of India and Ors., (1999) 2 SCC 361 that the facility of credit
is as good as tax paid till tax is adjusted on future goods made in context of
57-F(4-A) of the Central Excise Rules, 1944, held that the said observation
cannot be read to mean that payment of Excise Duty by the appellant which was a
component of the sales invoice purchasing the raw material / inputs by the
appellant is also payment of Excise Duty on raw material / inputs.

The Supreme
Court observed that the question which was answered in Collector of
Central Excise, Pune and Ors. vs. Dai Ichi Karkaria Ltd. and Ors. (1999) 7 SCC
448 was entirely different to the one which had arisen in the present
case. In the above case, it was held that in determining the cost of the
excisable product covered by the MODVAT scheme u/s 4(1)(b) read with Rule 6 of
the Valuation Rules, the Excise Duty paid on raw material covered by the MODVAT
scheme is not to be included. The Court in the above case has laid down that
credit for the Excise Duty paid for the raw material can be used at any time
when making payment of Excise Duty on excisable products. The use of such
credit is at the time of payment of Excise Duty on the excisable product, i.e.,
at the time when the appellant is to pay Excise Duty on its manufactured
vehicles.

The Court
observed that in Berger Paints India Ltd. vs. Commissioner of Income Tax
(2004) 266 ITR 99, the claim of the assessee was that the entire sum of
Rs. 5,85,87,181 was the duties actually paid during the relevant previous year.
The above was not a case for unutilised MODVAT credit; hence, the said case
cannot be held to lay down any ratio with respect to allowable deduction
u/s 43B in respect of unutilised MODVAT credit.

Coming to
the second question, i.e. with regard to disallowance of Rs. 3,08,99,171 in
respect of the sales tax recoverable amount, the Supreme Court noted the fact
that the assessee pays sales tax on the purchase of raw materials and computers
used in the manufacture of cars. Though the sales tax paid is part of the cost
of raw materials, the assessee debits the purchases net of sales tax; the sales
tax paid is debited to a separate account titled ‘Sales Tax Recoverable A/c’.
Under the Haryana General Sales Tax Act, 1973 the assessee could set off such
sales tax against its liability on the sales of the finished goods, i.e. the
cars. Whenever the goods are sold, the tax on such sales is credited to the
aforesaid account.

According to
the Supreme Court, the High Court had rightly answered the above question in
favour of the Revenue relying on its discussion with respect to Question No. 1.
The sales tax paid by the appellant was debited to a separate account titled
‘Sales Tax recoverable account’. The assessee could have set off sales tax
against his liability on the sales of finished goods, i.e. vehicles. There was
no infirmity in the view of the High Court answering the above question.

Lastly, it was contended by the
assessee that the return for the assessment year in question was to be filed
before 30^th September, 1999 and the unutilised credit was, in fact,
fully utilised by 30^thApril, 1999 itself. It was submitted that
since the unutilised credit was utilised for payment of Excise Duty on the
manufactured vehicles, the said amount ought to have been allowed as
permissible deduction u/s 43B.

The Supreme
Court held that there was no liability to adjust the unutilised MODVAT credit
in the year in question, because had there been liability to pay Excise Duty by
the appellant on manufacture of vehicles, the unutilised MODVAT credit could have
been adjusted against the payment of such Excise Duty. In the present case, the
liability to pay Excise Duty of the assessee was incurred on the removal of
finished goods in the subsequent year, i.e., the year beginning from 1^st
April, 1999 and the unutilised MODVAT Credit as it was on 31^st
March, 1999, on which date the assessee was not liable to pay any more Excise
Duty. Hence, it was not a case where the appellant could claim benefit of the proviso
to section 43B.

The appeal was therefore dismissed.

BCAJ Admin

From The President

Dear Members,

India continues to witness a
spike in new cases of Covid-19 and mounting casualties. The number of active
cases is close to 30,000 patients as of date. The silver lining in India’s
casualty number, however, is our low fatality rate of 3.3%, which is almost as
low as South Korea and China. Our Nation continues to battle bravely to cope
with and against the spread of this pandemic. I take this opportunity to salute
the real heroes, warriors who are fighting this war for us, all the sanitation
workers, medical staff, health workers, police and other officials continue to
put their own life at risk for the safety of others.

Social distancing and lockdown is
the best option available to control the spread of the virus. Lockdown hurts
the economy but saving lives is more important at this stage. But the lives of
millions of migrant workers and daily wage earners also depends upon their
livelihood, and they can survive this lockdown only if the Government can
provide for their basic sustenance.

We have entered the third phase
of the lockdown, and by the time this message reaches you, the country would
have gone through more than 40 days of lockdown. These lockdowns have brought
most of the economic activities, investments, exports, discretionary
consumption and spending to a standstill. Only essential goods and services and
public services are allowed to operate, resulting in a substantial economic
loss to the country. Our economic growth had already slowed down before the
outbreak of this pandemic and now we are faced with this unprecedented problem.
Hopefully, soon there will be some relaxations and opening up of normal
activity in a phased manner over time. According to World Bank, Indian economy
is expected to grow 1.5 per cent to 2.8 per cent (and even that sounds
optimistic) in the financial year 2020-2021, which will be the slowest growth
rate recorded since the economic reforms of 1991. It is not whether we get
knocked down; it’s more important whether we get up. Our future is in our
hands, and I am confident that we will emerge stronger after this crisis and
will be well on our way to recovery much before the advent of the monsoon.

We at the BCAS, have also
converted this challenge into an opportunity and have immediately moved into
action to stay connected with our members. We have organised various online
events, lectures, courses and panel discussions. I am happy to inform you that
during this phase on the lockdown, we have successfully held more than 30
online events reaching out to approximately 20,000 viewers resulting in almost
40,000 person-hours of training. The videos of all these events are available
for viewing on our YouTube channel, free of cost. In these challenging times,
we are committed to our members and would also like to thank all our members
and online viewers for their continuous love and support. It is also heartening
to know that we added more than 1,500 new social media followers, and now we
have close to 37,000 social media followers in all. I would request all of you
to stay updated and connected with BCAS on our social media platforms
of LinkedIn, YouTube, Twitter and Facebook at bcasglobal.

Another challenge to our
profession this year will be the conduct of bank branch audits of public sector
banks (PSB). April has been the month where many of our fellow professionals
have been busy with these bank audits. This year, due to the lockdown executing
these audits has not been possible. There were representations made by the
Indian Banks’ Association to RBI to restrict with the number of bank branch
under audit and relaxation in the audit coverage to 60% of bank’s portfolio in
the current year; however, ICAI made representation on this matter, on the
grounds of scope limitation to do an audit objectively, detrimental to public
faith and against the law of the land and the auditing principles. On 27^th
April 2020, RBI has communicated to all PSB and relaxed the guidelines for bank
branches to be audited for FY 2019-2020. The revised guidelines continue to
cover the 90% of all funded and non-funded exposure of the bank and all
branches with advances of Rs. 20 crores and above to be compulsorily audited
but has relaxed the requirement of compulsory auditing 1/5th of the remaining
branches. This, in my view, will leave a considerable number of branches out of
the audit scope and may adversely affect our fellow professionals. The
unfortunate reality is that Bank branch audit fees form a significant portion
of fees for the profession.

Another challenge this year will
also be to conduct the audit remotely without visiting the branches. The IT
systems of many of the PSB are not robust enough and do not allow access to
their CBS network to the auditors. ICAI has come out with a detailed advisory
for conducting an audit under these circumstances. However, conducting audits
will not be easy, and there will be challenges in getting records and data and
verifying the same. Auditors will have to adopt different ‘remote’ audit
procedures of accessing and checking data on a virtual platform and at the same
time continuing to comply with the requirements of standards on auditing. It
might seem like auditing remotely is indeed a promising opportunity – but it
comes with its own set of challenges. All this when the role of the auditor is
already under increased scrutiny, and his work is put constantly under the
spotlight by both the public and regulators. Yes, it is true that some of the
frontline listed companies have declared their audited results as per the
schedule, and many of our fellow professionals are also part of this. I am sure
we as Auditors will rise to the occasion and discharge our responsibility and
obligations with flying colours.

I want to end with an appeal to
all our members, who have not renewed their membership and journal subscription
fees, to do so immediately, so that you can continue to benefit from all the
knowledge enhancing activities of your Society.

Take care and stay safe until we
meet again.

Namaste!!

CA Manish Sampat

President

BCAJ Admin

GLIMPSES OF SUPREME COURT RULINGS

1.
Universal Cables Ltd. vs. Commissioner
of Income Tax

Jabalpur (2020) 420 ITR 111 (SC)

Refund – Interest on refund of
TDS deducted erroneously – Deductor to be paid interest u/s 244A of the Act

The appellant, M/s Universal
Cables Ltd., erroneously deducted tax on interest payments made to IDBI with
regard to the provisions contained in section 194A(3)(iii)(b) of the Act. The
TDS was Rs. 7,06,022 on payment of interest to IDBI, Bombay. IDBI objected to
the deduction of income tax as no tax was required to be deducted in respect of
payments made to a financial corporation established by or under a Central /
State or provincial Act; as IDBI was covered under the same, no tax was
required to be deducted on the payment of interest made to it. In view of the
above, the appellant requested the Income-tax Officer (TDS) to refund the
amount of Rs. 7,06,022 which was erroneously deducted and credited to the
account of the Central Government. The Commissioner of Income-tax, Jabalpur, by
an order dated 2nd February, 1996 directed the Income-tax Officer (TDS) to
refund the said amount to the appellant.

After the
grant of refund, the appellant requested the Department to grant interest on
the refund u/s 244A of the Act. The Income-tax Officer (TDS) declined to grant
interest. On an appeal, the Commissioner of Income-tax (Appeals) directed the
Income-tax Officer (TDS) to grant interest u/s 244A of the Act on the refunded sum
from the date of payment to the Government treasury to the date of issue of
refund voucher. On an appeal by the Revenue, the Tribunal reversed the order of
the Commissioner of Income-tax (Appeals), holding that the appellant was not an
assessee under the Act but only a tax deductor and that the tax refunded by the
Department was not a refund as per section 237 of the Act and therefore was not
entitled to refund u/s 244A of the Act. The High Court dismissed the appeal of
the appellant.

On further appeal to the Supreme
Court, the appellant relied on the decision of the Supreme Court in Union
of India vs. Tata Chemicals Ltd. reported in (2014) 363 ITR 658,
in particular, paragraph 37 on page 675 of the said decision.

The Supreme Court held that from
the dictum in the said judgment, it was clear that there was no reason to deny
payment of interest to the deductor who had deducted tax at source and
deposited the same with the treasury. According to the Supreme Court, this
observation squarely applied to the appellant.

As a result, the Supreme Court
allowed the appeal of the appellant and directed the Department to pay interest
as prescribed u/s 244A of the Act as applicable at the relevant time at the
earliest.

2. Union of India (UOI) and Ors. vs. Gautam Khaitan

(2020) 420 ITR 140 (SC)

Undisclosed foreign income and
assets – In order to give benefit to the assessee(s) and to remove anomalies,
the date 1^st July, 2015 has been substituted in sub-section (3) of
section 1 of the Black Money Act in place of 1^st April, 2016 – By
doing so, the assessee(s), who desired to take the benefit of one-time
opportunity could have made declaration prior to 30^th September,
2015 and paid the tax and penalty prior to 31^stDecember, 2015

An appeal was filed before the
Supreme Court challenging the interim order passed by the Division Bench of the
Delhi High Court in Writ Petition (Crl.) No. 618 of 2019 dated 16^th
May, 2019 thereby restraining the appellants from taking and / or continuing
any action against the respondent pursuant to the order dated 22^nd
January, 2019 u/s 55 of the Black Money (Undisclosed Foreign Income and Assets)
and Imposition of Tax Act, 2015 (hereinafter referred to as the Black Money
Act).

According to the Supreme Court,
the short question that fell for its consideration was as to whether the High
Court was right in observing that in exercise of the powers under the
provisions of sections 85 and 86 of the Black Money Act, the Central Government
had made the said Act retrospectively applicable from 1^st July, 2015
and passed a restraint order.

The Supreme Court, from the
Statement of Objects and Reasons, observed that the Black Money Act had been
enacted for the following purposes:

(a) to unearth the black money stashed in foreign countries;

(b) to prevent unaccounted money going abroad;

(d) To prevent illegitimate income and assets kept outside the country
from being utilised in ways which are detrimental to India’s social, economic
and strategic interests and its national security.

The Black Money Act was passed by
Parliament on 11^thMay, 2015 and received Presidential assent on 26^th
May, 2015. Sub-section (3) of section 1 provides that save as otherwise
provided in the said Act, it shall come into force on the 1^st day of
April, 2016. However, by the notification / order notified on 1^st
July, 2015, which was impugned before the High Court, it had been provided that
the Black Money Act shall come into force on 1^st July, 2015, i.e.,
the date on which the order was issued under the provisions of sub-section (1)
of section 86 of the Black Money Act.

The Supreme Court noted that the
scheme of the Black Money Act is to provide stringent measures for curbing the
menace of black money. Various offences have been defined and stringent
punishments have also been provided. However, the scheme of the Black Money Act
also provided a one-time opportunity to make a declaration in respect of any
undisclosed asset located outside India and acquired from income chargeable to
tax under the Income-tax Act. Section 59 of the Black Money Act provides that
such a declaration was to be made on or after the date of commencement of the
Black Money Act, but on or before a date notified by the Central Government in
the Official Gazette. The date so notified for making a declaration is 30^th
September, 2015, whereas the date for payment of tax and penalty was notified
to be 31^st December, 2015. As such, an anomalous situation was
arising; if the date under sub-section (3) of section 1 of the Black Money Act
was to be retained as 1^st April, 2016, then the period for making a
declaration would have lapsed by 30^th September, 2015 and the date
for payment of tax and penalty would have also lapsed by 31^st
December, 2015.

However, in
view of the date originally prescribed by sub-section (3) of section 1 of the
Black Money Act, such a declaration could have been made only after 1^st
April, 2016. Therefore, in order to give the benefit to the assessee(s) and to
remove the anomalies, the date 1^st July, 2015 had been substituted
in sub-section (3) of section 1 of the Black Money Act in place of 1^st
April, 2016. According to the Supreme Court, this was done to enable the
assessee(s) desiring to take benefit of section 59 of the Black Money Act. By
doing so, the assessee(s) who desired to take the benefit of the one-time
opportunity could have made a declaration prior to 30^th September,
2015 and paid the tax and penalty prior to 31^st December, 2015.

According to the Supreme Court,
the penal provisions under sections 50 and 51 of the Black Money Act would come
into play only when an assessee fails to take benefit of section 59 and neither
discloses assets covered by the Black Money Act, nor pays the tax and penalty
thereon. The Supreme Court therefore concluded that the High Court was not
right in holding that by the notification / order impugned before it, the penal
provisions were made retrospectively applicable.

The Supreme Court also noted that
in the factual scenario of the present case, the assessment year in
consideration was 2019-2020 and the previous year relevant to the assessment
year was the year ending on 31^st March, 2019 and in that view of the
matter, the interim order passed by the High Court was not sustainable in law;
the same was quashed and set aside.

3. Dalmia Power Limited and
Ors. vs. ACIT

(2020) 420 ITR 339 (SC)

Amalgamation of companies –
Revised return of income filed after amalgamation beyond the due date of filing
revised return provided u/s 139(5) without seeking permission from Central
Board of Direct Taxes u/s 119(2)(b) is a valid return where the Scheme of
Arrangement and Amalgamation which is approved by NCLT so provides and is not
objected to by the Department.

The appellant No. 1, M/s Dalmia
Power Limited, was engaged in the business of building, operating, maintaining
and investing in power and power-related businesses directly or through
downstream companies. The appellant No. 2, M/s Dalmia Cement (Bharat) Limited,
was engaged in the business of manufacturing and selling of cement, generation
of power, maintaining and operating rail systems and solid waste management
systems which provide services to the cement business. The appellants had their
registered offices at Dalmiapuram Lalgudi Taluk, Dalmiapuram, District
Tiruchirappalli, Tamil Nadu.

The appellant No. 1 filed its
original return of income u/s 139(1) of the Act on 30^th September,
2016 for A.Y. 2016-2017, declaring a loss of Rs. 6,34,33,806. Similarly,
appellant No. 2 filed its original return of income u/s 139(1) of the Act on 30^th
November, 2016 for A.Y. 2016-2017 declaring NIL income (after setting off
brought forward loss amounting to Rs. 56,89,83,608 against total income of Rs.
56,89,83,608).

With a view to restructure and
consolidate their businesses and enable better realisation of the potential of
their businesses, which would yield beneficial results, enhanced value creation
for their shareholders, better security to their creditors and employees, the
appellants (also referred to as ‘Transferee Companies’ or ‘Amalgamated
Companies’) entered into four inter-connected Schemes of Arrangement and
Amalgamation with nine companies, viz., DCB Power Ventures Ltd., Adwetha Cement
Holdings Ltd., Odisha Cement Ltd., OCL India Ltd., Dalmia Cement East Ltd.,
Dalmia Bharat Cements Holdings Ltd., Shri Rangam Securities & Holdings
Ltd., Adhunik Cement Ltd. and Adhunik MSP Cement (Assam) Ltd. (also referred to
as ‘Transferor Companies’ or ‘Amalgamating Companies’) and their respective
shareholders and creditors.

The appointed date of the Schemes
was 1^st January, 2015 and these would come into effect from 30^th
October, 2018.

The Transferor and Transferee
Companies filed company petitions under sections 391 to 394 of the Companies
Act, 1956 before the Madras and Guwahati High Courts.

On the coming into force of the
Companies Act, 2013, the company petitions were transferred to NCLT, Chennai
and NCLT, Guwahati.

The Schemes were duly approved
and sanctioned by the NCLT, Guwahati vide orders dated 18^th May,
2017 and 30^th August, 2017. NCLT, Chennai sanctioned the Schemes
vide orders dated 16^th October, 2017, 20^th October, 2017,
26^th October, 2017, 28^th December, 2017, 10^th
January, 2018, 20^th April, 2018 and 1^st May, 2018.

The appellants / Transferee
Companies manually filed revised returns of income on 27^th November,
2018 with the Department after the Schemes were sanctioned and approval was
granted by the NCLT. The revised returns were based on the revised and modified
computations of total income and tax liability of the Transferor / Amalgamated
Companies. In the revised returns of income, the appellant No. 1 claimed losses
in the current year to be carried forward amounting to Rs. 2,44,11,837; whereas
appellant No. 2 claimed losses in the current year, to be carried forward,
amounting to Rs. 11,05,93,91,494.

The revised
returns were filed after the due date for filing revised returns of income u/s
139(5) for the A.Y. 2016-2017 since the NCLT passed the final order on 1^st
May, 2018. Consequentially, it was an impossibility to file the revised returns
before the prescribed date of 31^stMarch,
2018.

On 4^th December, 2018,
the Department issued a notice u/s 143(2) of the Income-tax Act to give effect
to the approval of the Scheme.

On 5^th December, 2018,
the Department recalled the notice dated 4^th December, 2018 on the
ground that the appellants had belatedly filed their revised returns without
obtaining permission from the Central Board of Direct Taxes (CBDT) for
condonation of delay u/s 119(2)(b) of the Act read with CBDT Circular No.
9/2015 dated 9^thJune, 2015.

Next, on 28^th
December, 2018, the Department passed an assessment order u/s 143(3) of the
Act, stating that in view of the Scheme of Arrangement and Amalgamation, the
notice issued u/s 143(2), and the assessment proceedings for A.Y. 2016-2017 had
become infructuous with respect to appellant No. 2.

The appellants filed writ
petitions before the Madras High Court praying for quashing of the order dated
5^thDecember, 2018 and for a direction to the Department to complete
the assessment for A.Y. 2015-2016 and A.Y. 2016-2017 after taking into account
the revised income tax returns filed on 27^th November, 2018, as well
as the orders dated 20^th April, 2018 and 1^st May, 2018
passed by the NCLT, Chennai approving the Schemes of Arrangement and
Amalgamation.

The learned Single Judge of the
Madras High Court, vide common judgment and order dated 30^th April,
2019 allowed the writ petitions filed by the appellants and quashed the order
dated 5^th December, 2018 passed by the Department and directed the
Department to receive the revised returns filed pursuant to the approval of the
Schemes of Arrangement and Amalgamation by the NCLT, Chennai and complete the
assessment for A.Y. 2015-2016 and A.Y. 2016-2017 in accordance with law within
a period of 12 weeks.

The Department filed writ appeals
under clause 15 of the Letters Patent Act challenging the judgment and order
dated 30^th April, 2019 passed by the Single Judge.

A Division Bench of the Madras
High Court, vide the impugned judgment dated 4^th July, 2019 allowed
the writ appeals and reversed the judgment of the Single Judge.

Aggrieved by the judgment of the
Division Bench, the appellants filed appeals before the Supreme Court on 9^th
August, 2019.

According to the Supreme Court,
the issue arising for consideration in the appeals was whether the Department
ought to have permitted the assessee companies (the appellants) to file the
revised income tax returns for the A.Y. 2016-2017 after the expiry of the due
date prescribed u/s 139(5) of the Act on account of the pendency of proceedings
for amalgamation of the assessee companies with other companies in the group
under sections 230-232 of the Companies Act, 2013.

The Supreme Court observed that a
perusal of the Scheme of Arrangement and Amalgamation showed that the
appellants were entitled to file revised returns of income after the prescribed
time limit for filing or revising the returns had lapsed without incurring any
liability on account of interest, penalty or any other sum.

The Court noted that in
compliance with section 230(5) of the Companies Act, 2013, notices under Form
No. CAA 3 under sub-rule (1) of Rule 8 of the Companies (Compromises,
Arrangements and Amalgamations) Rules, 2016 were sent to the Department.

Rule 8(3) of the Companies
(Compromises, Arrangements and Amalgamations) Rules, 2016 provides that any
representation made to the statutory authorities notified u/s 230(5) shall be
sent to the NCLT within a period of 30 days from the date of receipt of such
notice. In case no representation is received within 30 days, it shall be
presumed that the statutory authorities have no representation to make on the
proposed scheme of compromise or arrangement.

The Supreme Court noted that the
Department did not raise any objection within the stipulated period of 30 days
despite service of notice.

Pursuant thereto, the Schemes
were sanctioned by the NCLT. Accordingly, the Schemes attained statutory force
not only inter se the Transferor and Transferee Companies, but also in
rem, since there was no objection raised either by the statutory
authorities, the Department or other regulators or authorities likely to be
affected by the Schemes.

As a consequence, when the
companies merged and amalgamated with one another, the amalgamating companies
lost their separate identity and character and ceased to exist upon the
approval of the Schemes of Amalgamation.

Every scheme of arrangement and
amalgamation must provide for an appointed date. The appointed date is the date
on which the assets and liabilities of the transferor company vest in and stand
transferred to the transferee company. The Schemes come into effect from the
appointed date, unless modified by the Court.

The Supreme Court observed that
in Marshall Sons & Co. (India) Ltd. vs. ITO it had held that
where the Court does not prescribe any specific date but merely sanctions the
scheme presented, it would follow that the date of amalgamation / date of
transfer is the date specified in the scheme as ‘the transfer date’. It was
further held that pursuant to the Scheme of Arrangement and Amalgamation, the
assessment of the Transferee Company must take into account the income of both
the Transferor and the Transferee Companies.

The Court noted that in the
present case, appellant Nos. 1 and 2 / Transferee Companies filed their
original returns of income on 30^th September, 2016 and 30^th
November, 2016, respectively. Thereafter, they entered into Schemes of
Arrangement and Amalgamation with nine Transferor Companies in 2017. The
Schemes were finally sanctioned and approved by the NCLT, Chennai vide final
orders dated 20^th April, 2018 and 1^st May, 2018. The
appointed date as per the Schemes was 1^st January, 2015.
Consequently, the Transferor / Amalgamating Companies ceased to exist with
effect from the appointed date, and the assets, profits and losses, etc. were
transferred to the books of the appellants / Transferee Companies / Amalgamated
Companies.

The Schemes incorporated
provisions for filing the revised returns beyond the prescribed time limit
since the Schemes would come into force retrospectively from the appointed
date, i.e., 1^st January, 2015.

Accordingly, the appellants filed
their revised returns on 27^th November, 2018. The re-computation
would have a bearing on the total income of the appellants with respect to the
A.Y. 2016-2017, particularly on matters in relation to carrying forward losses,
unabsorbed depreciation, etc.

The counsel appearing for the
Department relied on sections 139(5) and 119(2)(b) of the Act read with
Circular No. 9 of 2015 issued by the Central Board of Direct Taxes to contend
that the appellant ought to have made an application for condonation of delay
and sought permission from the Central Board of Direct Taxes before filing the
revised returns beyond the statutory period of 31^st March, 2018. The
appellants having belatedly filed their revised returns on 27^th
November, 2018, which was beyond the due date of 31^st March, 2018
for the A.Y. 2016-17, the assessment could be done on the basis of the original
returns filed by the appellants.

According to the Supreme Court,
the provisions of section 139(5) were not applicable to the facts and
circumstances of the present case since the revised returns were not filed on
account of an omission or wrong statement or omission contained therein. The
delay occurred on account of the time taken to obtain sanction of the Schemes
of Arrangement and Amalgamation from the NCLT. In the facts of the present
case, it was an impossibility for the assessee companies to have filed the
revised returns of income for the A.Y. 2016-2017 before the due date of 31^stMarch, 2018 since the NCLT had passed the last orders granting approval
and sanction of the Schemes only on 22^nd April, 2018 and 1^st
May, 2018.

The Supreme Court further held
that a perusal of section 119(2)(b) showed that it was applicable in cases of
genuine hardship to admit an application, claim any exemption, deduction,
refund or any other relief under this Act after the expiry of the stipulated
period under the Act. This provision would not be applicable where an assessee
has restructured his business and filed a revised return of income with the
prior approval and sanction of the NCLT, without any objection from the
Department.

The Court observed that the rules
of procedure have been construed to be the handmaiden of justice. The purpose
of assessment proceedings is to assess the tax liability of an assessee
correctly in accordance with law.

According to the Supreme Court,
sub-section (1) of section 170 makes it clear that it is incumbent upon the
Department to assess the total income of the successor in respect of the
previous assessment year after the date of succession. In the present case, the
predecessor companies / transferor companies have been succeeded by the
appellants / transferee companies who have taken over their business along with
all assets, liabilities, profits and losses, etc. In view of the provisions of
section 170(1) of the Income-tax Act, the Department is required to assess the
income of the appellants after taking into account the revised returns filed
after the amalgamation of the companies.

According to the Court, the
learned Single Judge had rightly allowed the writ petitions. The Court set
aside the impugned judgment and order dated 4^th July, 2019 passed by
the learned Division Bench and restored the judgment dated 30^th
April, 2019 passed by the learned Single Judge, allowing the civil appeals.

The Supreme Court directed the
Department to receive the revised returns of income for A.Y. 2016-2017 filed by
the appellants and complete the assessment for A.Y. 2016-2017 after taking into
account the Schemes of Arrangement and Amalgamation as sanctioned by the NCLT.

Note: The
judgment of the Apex Court in the case of Marshall Sons & Co.
(India) Ltd. vs. ITO (223 ITR 809) was analysed by us in the column
‘Closements’ in the February, 1997 issue of this Journal.

BCAJ Admin

SOCIETY NEWS

HOLISTIC HEALTHY LIVING…

The Human Resource Development Committee organised
a Study Circle meeting on ‘Holistic Healthy Living
(Emotional Upliftment Through Healthy Mind)’ on 10th
December, 2019 at the BCAS Hall. The presentation was
made by Dr. Viral Thakkar, MBBS, MD.

Key takeaways from the talk were as follows: A holistic
and healthy life entails harmony between the mental,
emotional and physical states of an individual. Recent
research has started accepting what our ancient scriptures
had proved – that physical health depends on what and
how we think and feel. Hence, maintaining equilibrium
and balance in one’s mental, emotional and physical
constitution leads to an ideal life. If everyone can learn
how to manage stress gracefully, most of the diseases
would not exist. Dr. Thakkar emphasised: ‘Everyone is
capable of achieving optimum health by becoming one’s
own physician.’

The speaker also covered the following concepts:
(i) Psychosomatic fundamentals;
(ii) R ole of emotions and thoughts in maintaining healthy
physiology;
(iii) Brief introduction to Bach Flower Remedies and
handling emotional health;
(iv) A dvance technologies to diagnose emotional and
thought patterns like aura videography;
(v) Lifestyle tips; and
(vi) M editation.

The meeting was well attended and the participants said
they would welcome more such discussions.
Maximising yourself

The HRD Committee organised another Study Circle
meeting on ‘Maximising Yourself by Living a Holistic
Life: Let 2020 be the Beginning of a Defining Decade’
on 14th January, 2020 at the BCAS Hall. The presentation
was made by Mr. Shyam Lata.

The talk provoked the members present to think about
whether they were leveraging the physical, intellectual,
emotional and spiritual fronts of their lives to the maximum
level.

He went on to explain the following:
(a) Physically, some of the essential aspects of life are
exercise, diet and rest; a balance of these helps maximise
our potential;
(b) For intellectual balance, an important aspect is to
filter the information received continuously before arriving
at conclusions. This requires a carefully considered gap
between listening and responding to make the right
decisions;
(c) For emotional balance, an important aspect is to be
assertive – but not aggressive;
(d) For spiritual balance, one needs to practice ethics in
dealings with others.

The speaker summarised these concepts by explaining
Maslow’s Hierarchy of Needs.

ACHIEVING $5 TRILLION ECONOMY

BCAS, along with experts from CCI, organised ‘Experts’
Chat’ on ‘Current Economic Scenario – How India can
achieve US $5 Trillion Economy Target’ at the C.K.
Nayudu Hall, CCI, on 29th January.
Those who participated in the discussion were:
Dr. Ajit Ranade – Group Executive President and Chief
Economist, Aditya Birla Group; Mr. Shyam Srinivasan
– CEO and Managing Director, Federal Bank Ltd.; and
Mr. Dipan Mehta – Stock Market Analyst. BCAS Past
President Shariq Contractor was the Moderator.

At the outset, BCAS President Manish Sampat thanked
the President of the CCI and its Executive Committee
for their co-operation in organising the joint event. He
welcomed the members of both organisations and gave
a brief idea about the activities of the BCAS. He set the
tone for the meeting by narrating the difficult times that
the Indian economy was passing through and hoped that
the experts would enlighten those present about the path
to take to achieve the desired target.

Manish Sampat formally introduced Moderator Shariq
Contractor and then requested Treasurer Abhay Mehta
to do the honours for the experts. After the introduction
of the experts and presentation of mementoes to them, it
was time for the Moderator to take over.

Shariq Contractor set the ball rolling
by first describing the headwinds
and challenges facing the economy
and then said that at the current rate
of growth, in order to achieve a $5
trillion economy India would have to
grow at 11% a year. Was it possible
to achieve this in five years in the
opinion of the panellists? He also wondered whether
the yardstick of consumption-driven growth, which was
the model adopted by the western countries till now,
was valid in view of the changing paradigms in ecology,
environmental concerns and the need for consideration of
the ‘index of human values’.

The panellists were unanimous in their opinion that despite
challenges, it was good to have a goal to propel India in
the desired direction. The challenges of low growth across
the world, the falling Indian agricultural sector putting
pressure on the manufacturing and services sectors and
the depreciating rupee were indeed matters of concern
and could act as a roadblock. However, if there was a
goal followed by action, it could yield the desired result,
if not in the targeted period then at some later time. But
the panellists negated the thought that liquidity was a
roadblock in achieving growth.

According to Mr. Shyam Srinivasan,
the real problem was that investments
were not happening. It was not
a supply problem but a demand
problem that was ailing the economy.
Changing patterns of consumption
and behaviour of the millennials also
needed to be given due consideration
as they did not believe in permanent ownership but useand-
throw, renting and bartering. This was putting a drag
on the economy and the growth rate needed to factor in
this major change.

Mr. Dipan Mehta said that globally, as in India, demand
for institutional finance was reducing as there were many
more avenues of financing available through VC and PE
funding. Besides, orbit-changing business enterprises
were created by ideas that had the potential of catapulting the economy to a very high growth
rate with low seed funding. And there
was enough funding available to
back such ideas.

Shariq Contractor asked whether
chasing the coveted growth rate
posed a risk for India and whether it
could lead to more inequality in the system.

Dr. Ajit Ranade opined that this was
inevitable in the pursuit of growth
because gains from successful
business always went first to the top
order. Besides, some social ills like
pollution, ecological disorders and
environmental hazards were bound
to come as a package along with
growth. However, the wisest thing would be to balance
these factors.

Answering a question on building human capital to
leverage the demographic advantage, Dr. Ranade said
that skill development was indeed a problem and massive
resources were needed to build up the required skill to
achieve the target. In fact, according to the panellists,
more investments would be necessary for investing in
skill-building than plant and machinery or buildings. Mr.
Shyam Srinivasan said that 2% of CSR funds could be
mandatorily made to be spent on skill-building. However,
all panellists agreed that the current level of CSR funds at
Rs. 3 billion might be insufficient to meet the requirements.

To specific questions whether India could afford to follow
a growth model that could potentially compromise the
environment, the panellists were unanimous that it could
only be possible with due balance and ensuring that the
model was financially and economically viable.

One of the critical factors for success in achieving the
desired growth rate and measuring the performance was
the availability of reliable statistical data. The Moderator
asked whether the panellists were convinced about the
reliability of data. They replied that India had a healthy
tradition of maintaining data and the advantage of a wellbuilt
system. They affirmed that GDP metrics did not
leave out any major data in all three sectors. In fact, the
government was consistently trying to improve methods
of data capturing and sampling methods to extrapolate
data in real time for the right decision and direction.

Mr. Dipan Mehta said that the auditors deserved special praise from society for ensuring that corporates presented
their figures accurately. All agreed that India was indeed
following global standards on most parameters for
measuring its progress.

Answering a question about what should one expect from
the forthcoming budget to act as a catalyst for growth,
the response was that no further taxes and greater
transparency by government would be the key.

The chat on targeted issues was followed by a rapid-fire
question round which was well fielded by the panellists.
Overall, the tone was both positive and optimistic about
having a target and working towards achieving it.

INTERNATIONAL ECONOMICS STUDY GROUP

The International Economics Study Group held its meeting
on 10th February on ‘Analysis of Economic Aspect of
Budget 2020’. Shalin Divatia led the discussions and
presented his considered views on the subject.

He first highlighted a few prominent themes of Budget
2020, how the past few years had shaped the budget
(‘Why we are where we are today’) and then dwelt on
some critical highlights of the (then forthcoming) budget.

Clearly, he said, this budget was a continuity of the
approach of the Modi government over the past five
years. During the ten years from 2004-05 to 2013-14,
India consumed by ‘importing’ and Indian corporates
resorted to high leveraging. Heavy external borrowings,
coupled with high fiscal deficit and very high bank credit
growth, had pumped the economy which reflected in the
GDP growth. However, this also resulted in ballooning
inflation and unsustainable PSU bank NPAs, in addition
to the depreciation of the rupee in the forex market.

The Modi government had gone on a systematic and
sustained course-correction to put the economy back on
track with the focus on measures relating to governance
(IBC, use of technology and DBT), strengthing the
economy (review of import duties and rules of origin
under FTA , increase in import duties to protect MSME
and the scheme to encourage electronics goods
manufacturing) and tax reforms (GST had resulted in
lowering of the total indirect taxes). The endeavour
had been to put purchasing power back in the hands of
the common man, promoting ‘Make in India’ for Indian
consumption, to protect / attract manufacturing in India and promote the sustainable competitiveness of the
Indian economy.

Among the prominent themes of the budget were
governance, ease of living (through ‘Aspirational India’,
economic development and a caring society) and the
financial sector. Speaker Shalin Divatia also presented
details of major infra projects announced by the
government to achieve a $5 trillion economy and how the
fiscal deficit is planned to be kept in control in a holistic
manner, including pushing of specific disinvestment cases.

He explained that the Indian economy being very diverse
and with vast inequalities, initiatives that are good from the
larger perspective may negatively impact certain sectors
in the short term. He described how the era of ‘making’
money was over and that with many opportunities, money
would now have to be ‘earned’.

DIGITAL TAXATION

A lecture meeting on ‘Digital Taxation’ was held at the
BCAS Hall on 12th February. Mr. Rashmin Sanghvi, was
the faculty.

He started with an explanation on
how BlockChain has changed the
banking system in India and the
world. He then went on to explain
how the big MNCs of the West such
as Apple and so on are engaged in a
tax war.

The difference between ‘Country of Source’ and ‘Country
of Residence’ was explained with the example of Google
Inc. That, in turn, led to a discussion on how the concept
of PE (Permanent Establishment) is outdated and what
are the current changes that the OECD has brought in.
What happens when the OECD brings in changes and
how do these impact India?

Mr. Sanghvi also elaborated the principles of Base Erosion
Profit Shifting – Action Plans and how these would affect
domestic laws when they were implemented by the nations
accepting them. He described how the term ‘equalisation
levy’ came into the picture and how nations like India and
France had implemented a tax on the digital advertisements
of digital marketing companies which, without a presence
in India, used these to evade taxes.

The erudite speaker explained the changes in the Finance Bill, 2020 which addressed significant economic presence
and also the digital economy, which would bring a change
in the way finance and taxes would work.

It was an upbeat and informative meeting, with the
participants benefiting enormously from the discussions
and the insights provided.

ITF STUDY CIRCLE MEETING

The ITF Study Circle meeting on ‘Amendments of
International Taxation – Finance Bill 2020’ was held on
14th February.

The International Taxation Committee Study Circle
organised this meeting at the BCAS Hall. It was addressed
by Ms Divya Jokhakar.

She began by sharing her personal views on how the
Finance Bill has its pros and cons. She then explained
the reasons for the change in the existing provisions
of section 6 – Residential Status; section 206C – TCS;
and section 94B – Interest Limitation. She led the group
discussion by throwing in several interesting questions,
leading finally to the conclusion that there were still many
doubts and queries which the Finance Bill would be able
to answer when it was made into an Act.

Divya Johkakar’s Excel workings on how to claim tax
credit in the event of an individual turning into a deemed
resident of India, and also the workings of disallowance
u/s 94B, were well received.

‘10X SUCCESS AND PRO SPERITY MINDSET’

The Human Resources Development Committee
organised a Study Circle meeting on 17th February at
the BCAS Hall to discuss the subject ‘10X Success
and Prosperity Mindset’ which was conducted by
Mr. Arunaagiri Mudaaliar.

He explained that what a human being achieves in life
depends on his mindset. And mindset comprises of
beliefs and attitudes that can be fine-tuned for success
through effective training. Dr. Arunaagiri is a master in
helping individuals convert their beliefs and attitudes into
liberating, empowering beliefs and mindset to achieve
holistic prosperity in life.

In the ‘10X Success and Prosperity Mindset’ seminar,
the participants got first-hand information on the subject. Some of them claimed that they had experienced an
uplifting and positive feeling and enhanced energy at the
end of the seminar.

ANAL YTICS & AI – A GLO BAL PERSPECTIVE

A lecture meeting on ‘Analytics and AI – Global
Perspective and India Story’ was held on 20th February
at the BCAS Hall.

President Manish Sampat gave the opening remarks
and presented an overview of the seminar by explaining
the importance of Artificial Intelligence (AI). He also
introduced both the speakers, Mr. Jeffery Sorensen and
Deepjee Singhal.

Mr. Jeff Sorensen started the
session by highlighting various
points to be kept in mind at the time
of auditing and briefly described the
global perspective on audit analytics
and AI by listing the following points:
(i) Artificial Intelligence definition
(ii) Global development
(iii) T he audit perspective
(iv) A udit AI in practice
(v) H ow you can get started

‘AI is the branch of computer science concerned
with the automation of intelligent behaviour. AI is the
computational ability to achieve goals in the world,’
he said, before going on to describe some common
AI terms and concepts. He then explained Machine
Learning – which is a subset of AI – and a mathematical
model based on sample data.

He also described some key challenges for AI and global
development, which is a combination of faster computers
and smarter techniques. He described the global progress
on AI with examples from the fields of finance, healthcare,
automotive, retail, airlines / travel, security, lifestyle and
so on.

Further, he explained Audit Perspective, which applies
to audit – Automation and Robotic Process Automation
(RPA); audit apps; machine learning / deep learning for
auditors; goals of RPA; features of RPA and tasks for
RPAs; standardised, rule-based repetitive and machinereadable
inputs; and so on.

Considering the time limitation,
Deepjee Singhal, a member of the
BCAS Core Group, gave more time to
Mr. Sorensen to share his
experience.

In the limited time available to him,
Deepjee Singhal provided a brief
update on ‘the India Story’ and on Analytics and AI in the
context of internal audit.

He explained the future of Analytics and AI in India
and asserted that AI had a bright and promising future.
Further, he described, with examples, the presence of
AI in government, automotive, finance, restaurants,
etc. He also explained some key points of AI such as
the development of AI in India through auditing, audit
analytics, etc.

Both sessions were interesting and interactive. The
meeting was well attended and attracted a full house.

WOR KSHOP ON UNDERSTANDING MLI

A two-day workshop on ‘Understanding the MLI’
(Multilateral Instrument) was organised by the BCAS
at Hotel Orchid in Mumbai on 21st and 22nd February. The
objective of the workshop was to offer participants indepth
understanding of the MLI and its impact on Indian
tax treaties going forward.

The seminar received tremendous response with 112
participants of all generations, both members and nonmembers,
as also outstation participants from 16 cities
across India.

Manish Sampat, BCAS President, welcomed the
gathering and made the opening remarks. Dr. Mayur Nayak, Chairman of the International Tax Committee,
introduced the subject.

In the first session on Day 1, Mukesh Butani lucidly
explained the architecture of the MLI along with its basic
concepts, terminology and nuances in light of the BEPS
project of the OECD and its ‘Action Report 15’. His
presentation provided an insight into Part I of the MLI,
i.e., Article 1 (Scope of MLI) and Article 2 (Interpretation
of Terms). The session was chaired by BCAS Past
President Kishor Karia.

On the conclusion of the first session, the BCAS
publication, ‘Multilateral Instruments [MLI] (including an
overview of BEPS) – A Compendium,’ was launched by
BCAS Past President Pinakin Desai.

The day’s second session saw
Vishal Gada providing insights
into Part II of the MLI dealing with
hybrid mismatches. The case studies
presented by him provided practical
understanding to the participants
of the issues which are sought to
be tackled by the MLI and also the
issues that could possibly arise from its interpretation.
His presentation covered Article 3 (Transparent Entities),
Article 4 (Dual Resident Entities) and Article 5 (Application
of Methods for Elimination of Double Taxation) of the MLI.
This session was chaired by Dr. Mayur Nayak.

In the third session of
Day 1, Radhakishan
Rawal provided insights
on Part VII of the MLI
(Final Provisions), dealing
with how the MLI will be
interpreted, implemented,
amended, will enter into force, will enter into effect, relate to the protocols, etc.
His presentation covered Articles 27 to 39 of the MLI. The
session was chaired by Nilesh Kapadia.

The last session
of the day had H.
Padamchand Khincha
dealing with Articles
12 to 15 of the MLI,
which pertain to artificial
avoidance of Permanent
Establishment (PE)
status in light of BEPS
Action Report 7. He also enlightened the participants on
the amendments to the concept of ‘business connection’
proposed by the Finance Bill, 2020 and its impact on the
taxation of foreign enterprises operating in India through
digital means. Daksha Baxi chaired this session.

On Day 2, the first
session saw Geeta
Jani taking the stage
and enlightening the
participants about the
intricacies and nuances
of Articles 6 to 11 of the
MLI dealing with Treaty
Abuse in the backdrop
of BEPS Action Report 6. The case studies covered in
her presentation inter alia not only highlighted the various
issues that are expected to arise under Article 6 (Purpose
of a Covered Tax Agreement) and Article 7 (Prevention
of Treaty Abuse) of the MLI, but also provided possible
solutions and interpretations to deal with these issues.
This session was chaired by Tarunkumar Singhal.

In the second session on Day 2, Dr. Vinay Kumar Singh,
IRS dealt with the very important topic of synthesised texts of Indian tax treaties (post-MLI) issued by the Indian
tax authorities. His presentation provided insights into
the approach of Indian tax authorities to the MLI, the
non-binding nature of the synthesised texts and how the
same are expected to enhance the ease of interpreting
the MLI, which can otherwise be a daunting task. This
particular session was chaired by Anish Thacker.

The two-day workshop concluded
with a panel discussion on case
studies under MLI featuring Dr. Vinay
Kumar Singh, IRS, Sushil Lakhani
and Vispi Patel acted as panellist
and Moderator, respectively. Thanks
to their expert knowledge and rich
practical experience, they dealt with
the complicated issues arising in
the case studies and provided allround
inputs and arguments from
the perspective of both the taxpayer
and the tax authorities. The case
studies were prepared by Ganesh
Rajagopalan, Bhaumik Goda and
Karnik Gulati. They were guided and provided with
valuable inputs by Vispi Patel.

All the sessions were interactive, with the speakers
sharing their insights on their respective subjects and
issues. The participants benefited immensely from their
guidance and practical views. The Coordinators for the
workshop were Namrata Dedhia, Tarunkumar Singhal
and Abbas Jaorawala.

INTERACTIVE SESSION WITH STUDENTS

The BCAS Students’ Forum, an initiative of the HRD
Committee, organised an interactive session with
students on the subject ‘“Success in CA Exams’” on 23rd
February at RVG Hostel, Andheri (West), Mumbai.

The event was attended by Mr. Lalchand Choudhary (President, RVG Hostel), Mr. Rajesh Muni (Chairman, HRD Committee – BCAS), Mihir Sheth (Hon. Joint Secretary – BCAS), Narayan Pasari (Past President – BCAS) and Anand Kothari (Convener, HRD Committee – BCAS).

Ms Azvi Khalid (student co-ordinator) introduced the speakers, Dr. Mayur Nayak and Ashutosh Rathi, and shared brief details about the BCAS Students’ Forum. Rajesh Muni addressed the students and encouraged them to actively participate in the events organised by the Students’ Forum. Mr. Lalchand Choudhary was delighted to share students’ activities at RVG and said that he would be very happy to conduct more such programmes jointly with the BCAS for the benefit of the CA students’ community. Mihir Sheth and Narayan Pasari also motivated the students with words of encouragement.

Dr. Mayur Nayak shared his own inspiring journey as a CA student who failed to crack the final exams in the first attempt and thereafter secured an All-India Rank with his sheer determination, hard work and positive attitude. He focused on the ways to mentally prepare for the exams and how to accept failure. He gave tips to calm the mind while attempting the papers; and, while studying for the exams, learning a few deep breathing techniques. He explained that the biggest danger faced by students was not in setting their aim too high and falling short, but in setting their aim too low and achieving their mark.

Ms Drishti Bajaj (student co-ordinator) urged students to participate in the forthcoming Jal Erach Dastur CA Students’ Annual Day event, popularly known as ‘Tarang’ which offered an excellent platform to CA students to showcase their talent.

The second speaker of the day, Ashutosh Rathi, who has vast teaching experience, emphasised the importance of staying time-conscious; to ensure that they did not get distracted; he suggested maintaining a ‘Mission Chartered Diary’ creating a plan for the next day before going to sleep and logging hourly performance marks.

At the end of every day, the student needs to do selfanalysis and ask three Golden Questions to himself:
1) What worked?
2) What did not work?
3) What is the improvement plan for things that did not work?

Planning and time management played a crucial role in getting the best ROI on the time invested. A good and realistic plan kept the student focused, sorted and in charge. He also shared a six-step approach:

Step 1: A sk the Golden Question
Step 2: Zero-Based Budgeting – Subject-wise and
Chapter-wise Time Estimates
Step 3: Subject Scheduling (Macro)
Step 4: Week Scheduling
Step 5: D ay Scheduling
Step 6: Fortnightly Refinement

Ashutosh Rathi pointed out that planning was a dynamic process. Often, the target may not be accomplished for various reasons and it would require the student to refine his plans to make up for the lost time; for this it was best for the students to spend 30 minutes every two weeks to refine their strategy.

At the end of the session, he shared the inspiring story of Ms Rajani Gopala, India’s first visually impaired woman who achieved the milestone of becoming a CA by transforming her weaknesses into strengths and sympathy into empathy by sheer determination, hard work, planning, focus and perseverance. He also offered practical tips and tricks to be implemented to qualify as a CA and provided students with powerful affirmations to stay self-motivated.

Finally, Mr. Vedant Satya (student co-ordinator) briefed the participants about the forthcoming BCAS events and thanked the speakers for sharing their knowledge.

VIVAD SE VISHWAS

BCAS Past President Gautam Nayak chaired the Direct Tax Laws Study Circle meeting on the ‘Vivad se Vishwas’ Bill, 2020, at the BCAS Hall on 24th February. Advocate Devendra Jain was the Group Leader.

Devendra Jain gave a brief overview of the objects of the Bill and the reasons for its enactment. The cases in which the scheme will be applicable, along with important definitions, were discussed in detail. Cases wherein the declaration would be considered inapplicable were highlighted.

All the aforesaid points were discussed in light of the amendments to the Bill, which were passed on the day of the meeting.

Chairman Gautam Nayak gave practical insights on various issues from time to time in the course of the meeting. Both he and the Group Leader took questions from the floor throughout the session.

INDIRECT TAX STUDY CIRCLE

The Indirect Tax Law Study Circle held its meeting on ‘Issues concerning the applicability of section 50, rule 86A and section 43A of the CGST Act’ at the BCAS Conference Hall on 2nd March. More than 40 members attended the meeting.

The Group Leader and session chairman provided insights on the topic with wide coverage and gave a detailed analysis on it. He also answered many of the doubts raised by members. It was an interesting and interactive meeting which concluded with a vote of thanks to the Group Leader and the Mentor. On a demand from the members, it was decided to hold a continuation of the same meeting at a later date.

BCAJ Admin

MISCELLANEA

I. Technology

1.
Blockchain can protect privacy during
coronavirus crisis

Citizens the world over typically
demand their governments respond to catastrophes by reaching out and helping
people when they are most in need. The coronavirus pandemic is no different –
and political leaders know they must step up. But when institutions stretch out
a hand, should we blindly accept the way governments take so much new control
over our lives in exchange for their help?

It is clear there must be some
restrictions on normal life to fight a pandemic. But we risk the crisis
response becoming an overreach and imposing limits on personal freedoms that
could last long after the virus is defeated.

How much privacy are we willing
to sacrifice to protect populations from the virus? In Israel, the government
has authorised its security service to track mobile phone location data of
people suspected to have coronavirus using techniques originally deployed for
anti-terrorism surveillance. China took advantage of facial-recognition systems
to trace people’s movements in its anti-virus fight. And the United States is
engaging in public-private partnerships with the likes of Palantir, a
data-scraping company known for its predictive policing tools.

These emergency measures risk
normalising monitoring mechanisms in much the same way that the 9/11 terror
attacks triggered legislation enabling broad spying on citizens. That
ostensibly temporary legislation remains largely unchecked almost two decades
later.

But just as technology empowers
governments to ratchet up their surveillance, so can technology unleash
opportunities to protect people’s privacy – and help keep them safe. The
solution lies with Blockchain, a decentralised technology offering data
sovereignty that facilitates individuals choosing what data they are willing to
share and with whom.

By combining Blockchain and
secure hardware, smart devices can achieve their intended purpose while also
preserving privacy. For example, residents in an apartment building or a gated
neighbourhood can use a Blockchain-powered security camera and choose which
agencies receive the data generated by the camera. This is ‘privacy-by-design’
built to protect individuals.

It avoids data being held in any
central point such as a government or corporation, where all too often leaks
and hacks or profit-driven data-selling deprive people of any chance of
privacy. With Blockchain’s unique ability to store information in a decentralised
way, the data has no such vulnerability.

2. Human-centred
privacy protection

There is an
emerging philosophy in privacy spheres, which is ‘bring the code to the data,
not data to the code’. One technology that employs this is confidential computing
which combines encrypted data from users and open-source algorithms from
companies in a trusted, neutral hardware environment to run privacy-preserving
computations. This human-centred approach protects users’ privacy while still
providing the insights that governments need. It also ensures user data is only
used for its intended purpose, as the algorithms applied to the data can be
verified.

Blockchain
also plays an important role here. In these privacy-preserving computations,
Blockchain technology coordinates the activity – such as uploading or deleting
data – for various stakeholders in the decentralised process. Blockchain
ensures the data can always be audited, meaning the consumer who provided the
information will always be able to tell if their data has been used for the
purpose they intended it, and for that purpose alone.

3. Keep
safe and keep your privacy

Protecting data privacy in the
ongoing coronavirus crisis is a bigger concern than many people might realise.
Just as people have come over time to understand how important it is to wash
their hands with soap, so will people increasingly learn to practice data
hygiene to keep ownership of their own data.

People need to be aware that once
data is out there, it is impossible to fully rein it back in. Scraping data
that users voluntarily put on the internet is one thing. But leveraging fears
in a crisis to incentivise them to upload highly sensitive data that they never
intended to share is dangerous and permanent.

For example, U.S. President
Donald Trump directed anxious Americans to Google’s Project Baseline, citing
that it would help with coronavirus. But its Terms and Conditions state: ‘If
you withdraw your consent, information that has already been gathered will be
retained. Once you join, your membership could last indefinitely, or could be
ended at any time without your permission.’ Talk about giving up any rights to
your own data!

These kinds of crises initiatives
highlight how vulnerable we all are to surveillance and losing control of our
data. Still, the good news is that Blockchain means we do not have to trust a
government or a Google. Instead, we can rely on Blockchain to enable us to
share only what we want to share. In short, we can help keep ourselves safe –
and keep our privacy, too.

(Source: International Business
Times – Opinion by Raullen Chai, 26^th March, 2020

Raullen Chai is the co-founder
and CEO of IoTeX, a technology company that uses Blockchain to secure hardware
devices and data storage to build end-to-end encrypted device ecosystems for
the Internet of Trusted Things)

4.
E-commerce faring better now, issues
being resolved, says DPIIT Secretary

Secretary in the Department for
Promotion of Industry and Internal Trade (DPIIT) Guruprasad Mohapatra has said
that thanks to several follow-ups, relaxations have been given to e-commerce
players by the Home Ministry. The government has held several meetings with
them to resolve issues arising due to the lockdown and the situation is now
improving on a daily basis. ‘The e-commerce position is much better now than
what it was on Day One of the lockdown’.

E-commerce representatives had
shared the problems faced by them in the movement of essential goods by
delivery boys due to the lockdown.

Traders and e-commerce companies
had raised concerns over police beating up delivery boys in various states
while they were doing their duty.

Commerce and Industry Minister
Piyush Goyal had earlier said the government was committed to ensuring that
essential goods reached people in the most safe and convenient manner.

Home Secretary Ajay Bhalla and
the DPIIT Secretary also held detailed meetings with traders and e-commerce
firms in this regard.

The DPIIT has set up a control
room to monitor the real-time status of transportation and delivery of
essential commodities amid the coronavirus lockdown. It is also monitoring
difficulties being faced by various stakeholders.

(Source: Business Standard –
Press Trust of India, 4^th April, 2020)

II. Markets

5.
Coronavirus outbreak eats into stock
valuations, market plunges 34%

The Indian
stock market has plunged 34% from its record high. As a result, the
price-to-earnings (P/E) ratio for the Nifty50 Index has declined to 12.3 from
18 at the start of the year. The Nifty’s valuation is still slightly above the
2008-09 global financial crisis trough level, when it had fallen to 11.

However, a
record 50% of the Nifty stocks are currently trading at a single-digit P/E
ratio. So, is this a good time for bargain-hunting? Experts say such low valuations
are a signal that the market is pricing in huge disappointment in earnings due
to the demand shock created by the lockdowns to contain Covid-19.

Stocks whose
outlook is better haven’t got much cheaper. For example, Nestle India,
Hindustan Unilever, Asian Paints and Britannia still quote at valuations of
more than 40 times.

(Source: Business Standard – By
Samie Modak, 4^th April, 2020)

III. Business

6. Coronavirus
pandemic delivers a major blow to struggling shipping industry

The developing Covid-19-related
scene brings to light once again the symbiosis between the global shipping
industry and world economic growth.

The furious speed at which
Covid-19 has spread from the most populous of all continents, Asia, to Europe
and then to the US killing thousands of people, is sending the global economy
reeling. As country after country, including India is enforcing a comprehensive
lockdown of life the economic cost of which remains anybody’s guess, all
stakeholders of shipping and ports across the globe are scurrying for cover.
The possibility of a repeat of lockdowns in India and elsewhere cannot be
dismissed at this stage. Thanks to Covid-19, maritime operators are likely to
contend with a crisis bigger than what they faced in the wake of the economic
meltdown of 2008-09.

The developing Covid-19-related
scene brings to light once again the symbiosis between the global shipping
industry and world economic growth that, in turn, leaves a major impact on
merchandise and services trade among nations. International Monetary Fund (IMF)
Managing Director Kristalina Georgieva warns that the damage being wrought by
the Covid-19 pandemic could be the ‘gravest threat’ to the global economy since
the financial crisis more than a decade ago. Describing Covid-19 as the ‘No. 1
risk for the world economy with multidimensional ramifications’, ratings and
research organisation CRISIL has drastically cut the gross domestic product
(GDP) growth forecast for India for 2021 fiscal to 3.5% from the earlier 5.2%.

To the horror of maritime
operators, who are facing the greatest existential challenge in decades as
Covid-19 deals a major blow to trade, the Organisation for Economic
Co-operation and Development (OECD) says global growth this year could sink to
1.5% from 2.9% forecast ahead of the virus outbreak.

The World Trade Organisation
(WTO) goods trade barometer published on 17^th February showed the
real-time measure of trade trends at 95.5, down from 96.6 recorded in November,
2019, well below the baseline value of 100. This suggests below-trend growth in
goods trade. In WTO’s reckoning, services trade will remain under growing pressure
as well. What the two WTO readings, however, say only partly captures the
likely economic impact of Covid-19. The next couple of WTO barometer readings
of goods and services trade will invariably show further declines with their
consequential impact on shipping, ports and related services.

London-based analytics group, IHS
Markit, said in an early January report, well before coronavirus started
spreading its fangs across the globe and lockdowns in major trading
nations, that after global trade grew by
a disappointingly low 0.6% in 2018 and 0.3% in 2019, the ‘world merchandise
trade volume is forecast to grow 2.7% in 2020.’ If this happens, global
merchandise trade volume this year would reach 14.175 billion tonnes (bt) from
13.804 bt in 2019. But the IHS Markit forecast was based on world real GDP
growth of 2.5% in the current year, so trade growth prediction will also fall
on its face. Shipping is, therefore, destined to bear the brunt as around 90%
of world trade is carried by sea.

Headwinds buffeted global dry
bulk trade through most of last year. Trade tensions between the US and China
left in their trail collateral damage on many other trading nations. Major
mining disasters in Brazil and then weather-related disruptions in prominent
Australian mining regions upset iron ore and coal shipments. A toxic
combination of geopolitical tensions, trade restrictions and low GDP rise
restricted global trade growth to around 1% in 2019. As a result, points out
New York-based maritime consulting Seabury, global container cargo volume last
year amounted to around 152 million twenty-foot equivalent unit (TEU), a
piffling growth of 0.8% on 2018.

For both global shipping and
logistics giants Maersk and Hapag-Lloyd, India is an important centre for
delivery and receipt of cargoes in containers. What will be the precise impact
of the still unfolding pandemic on the shipping industry and ports is a subject
of speculation. Maersk of Denmark, which made a 2019 earnings forecast of $5.5
billion in February, has now decided to ‘suspend’ it. It says in a statement:
‘The current situation gives great uncertainties about global demand for
containers as a result of Covid-19 pandemic and the measures taken by
governments to contain the outbreak.’ Incidentally, several seafarers of Maersk
vessels suspected of coronavirus infection had to be evacuated for treatment in
the Chinese city of Ningbo.

In a tone similar to Maersk,
Germany headquartered Hapag-Lloyd says: ‘The year 2020 will be very unusual,
after we have seen that conditions in many markets have changed very rapidly in
recent weeks as a result of the coronavirus.’ China, on which the rest of the
world has become heavily dependent for supply of components and semi-finished
and finished products, claims to have controlled Covid-19. But the global
shipping crisis was progressively spawned by Chinese ports becoming
non-operational January onwards as logistics support, including movement of
goods-carrying trucks and wagons, came to a standstill due to the nationwide
lockdown. China is an important trading partner of India – our 2019 imports
from China were $74.72 billion and exports to that country $17.95 billion – and
major disruptions in sailings between the two countries upset the production
schedules of many companies here.

Hapag-Lloyd says China returning
to normal is ‘positive news’ for the shipping industry. But this is
‘considerably overshadowed’ by all the major economies of the West standing in
the throes of ‘collapse’. Such developments can only have serious consequences
for the shipping industry. Indian port operators are experiencing a drop in
cargo volumes since February and no one is certain about the turnaround time.
Container shipping lines are idling vessels at a record pace, resulting in
growing numbers of boxes being removed from the trade network, as they go on
cutting sailings on all major trade lanes.

Only a few
very large shipping lines with plenty of cash such as Cosco of China, Maersk
and Hapag-Lloyd will be able to weather the current storm, albeit
with profits taking a hit. But how will smaller Indian companies, forced to
cancel sailings generate cash to pay for chartered ships, ship maintenance and
staff salaries? In the current situation, New Delhi is left with no option but
to shelve the disinvestment of Shipping Corporation of India whose performance
has been uninspiring for a long time.

(Source:
Business Standard – By Kunal Bose, 2^nd April, 2020)

BCAJ Admin

STATISTICALLY SPEAKING

1. Key
India Fdi Sources In Top 10
Jurisdictions (April 2000 to September 2019)

Source: Economic Times

2. Big payouts
declared in February, 2020 post the Finance Bill, 2020 which proposes to
abolish Dividend Distribution Tax (DDT)

Source: Capitaline

3. Stock movements between 12^th
February and 12th March, 2020

Source: The Spectator Index

4. Operational
airports

Source: Airport Authority

5. Financial
Secrecy Index 2020

Jurisdiction

Secrecy Score

FDI rank*

FDI inflows in crores (Rs.) #

Cayman Islands

32,617

1,61,399

Switzerland

26,806

Hong Kong

25,041

Singapore

5,61,933

Luxembourg

17,768

Japan

1,85,787

The
Netherlands

1,78,365

British Virgin Islands

8,727

UAE

40,455

*ranked on secrecy score plus share in global
financial
services market

# April, 2000 to September, 2019

Source: Economic
Times, 20^thFebruary 2020 and Tax justice Network

BCAJ Admin

ETHICS AND U

Arjun: Oh my
Lord, please save me! Please save me! I totally surrender to Thee!

Shrikrishna: (Smiling);
Arrey Arjun, what happened? What is your panic about?

Arjun: Last time
you mentioned something about NOCLAR and I asked you whether it was some
disease. It really made me uneasy.

Shrikrishna: You are
talking about disease. Today, the only disease the world over is Corona!

Arjun: I am not
afraid of Corona. It will come and go but NOCLAR will stay forever on our
heads. Or even if Corona comes to me, I will myself go. So, no worries!

Shrikrishna: Ha! Ha!
Ha!

Arjun: Since you
have mentioned about Corona, tell me, how long will it stay? Can it be a good
excuse for seeking extension of time for payment of taxes?

Shrikrishna: (laughs)
Wah, Arjun! You are constantly thinking of extension of deadlines only. When
are you going to improve?

Arjun: Anyway,
tell me something more about NOCLAR.

Shrikrishna: See, this
is basically connected with the fundamental principles of integrity and
professional behaviour.

Arjun: But
reporting on non-compliances is dangerous. Both the entity as well as the
‘auditor’ will get into trouble.

Shrikrishna: Why? If
an accountant or auditor takes cognisance of it and acts accordingly, then
there is no problem for him.

Arjun: Agreed.
But the same non-compliances could be there in earlier years, too. And the CA
may not have reported on it.

Shrikrishna: But
Arjun, you need to start somewhere. Better late than never.

Arjun: But the
company will be ruined.

Shrikrishna: No,
Arjun, don’t jump to conclusions. Actually, it is meant for the betterment of
the company. It can take timely steps to set things right. Non-compliances
cannot continue perpetually. Some defaults, if continued, can cause serious
damage. They may lead to huge losses and penal consequences.

Arjun: True. We
are required to report on ‘going concern’. The non-compliances will soon make
the company itself ‘go away’.

Shrikrishna: You said
it! It’s like your health. Early detection of disease increases the chances of
cure – including diseases like cancer. For that matter, even Corona.

Arjun: But tell
me, what exactly are we supposed to do if we come across such non-compliance?

Shrikrishna: Look, if
you give early signals to the management, the serious damage can be avoided.
This will enhance the reputation of your profession. Look at the positive
aspect, my dear.

Arjun: Yes, I
agree. But tell me, how to tackle the situation?

Shrikrishna: In a few
situations NOCLAR may not apply – like where the default is minor and
inconsequential, more like a simple traffic offence or personal misbehaviour of
an employee.

Arjun: Yes. But
should we always qualify our report?

Shrikrishna: Not
necessarily. First, remember that it is not your duty to seek or search for
non-compliances. It should be the ones which you come across in the course of
your work.

Arjun: Good.

Shrikrishna: Then you
need to understand the matter well. Discuss it with the management or you may
seek legal opinion. Discuss and then decide whether any further action is
required.

Arjun: But what
if the management does not listen?

Shrikrishna: That is
more likely. Then create the evidence that you have drawn their attention. If
it is serious, then decide whether to report it to the appropriate authority.
But for all this, keep your documents perfectly in order in terms of the
relevant standard of auditing.

Arjun: Okay.
Understood. So, we need to tackle it tactfully, with a cool-head. We need not
panic nor rush to take further steps.

Shrikrishna: And in an
extreme situation you may even withdraw from the assignment.

Arjun: That’s a
good piece of advice! Thank you for enlightening me as usual.

Om Shanti

This
dialogue is a continuation of the concept of NOCLAR

BCAJ Admin

REPRESENTATION

1. Dated: 16^th March, 2020

To:Honourable Finance Minister
Ministry of Finance, Government of India, 128-A North Block, New Delhi

Subject: Representation for
extension of time-line of 31^st March 2020 for Vivad Se Vishwas
Scheme, 2020 (‘VSVS’)

Representation by: IMC Chamber of
Commerce and Industry; Bombay Chartered Accountants Society; Chartered
Accountants Association, Ahmedabad; Chartered Accountants Association, Surat,
Karnataka State Chartered Accountants Association; Lucknow Chartered
Accountants Society

Note: For full Text of the above Representation, visit
our website www.bcasonline.org

BCAJ Admin

CORPORATE LAW CORNER

1. Flat
Buyers’ Association Winter Hills-77 vs. Umang Realtech Pvt. Ltd.

Company Appeal (AT)(Ins.) No. 926 of 2019

Date of order: 4^th February, 2020

Insolvency and Bankruptcy Code, 2016 – Reverse Corporate
Insolvency Resolution Process is to be followed in the case of real estate
companies – The CIRP initiated for one project of a real estate company is
restricted to that project alone – It does not extend to the other assets or
projects of the said company

FACTS

R and A were allottees in the real
estate project of U Co. They moved an application u/s 7 of the Insolvency and
Bankruptcy Code, 2016 (Code) for initiating Corporate Insolvency Resolution
Process (CIRP) against U Co. NCLT passed an order admitting the application and
directed that R and A deposit a sum of Rs. 2 lakhs with the Interim Resolution
Professional (IRP). Under the Code, it is the duty of the IRP to keep the
company a going concern which would be very difficult in the facts of the
present case where Rs. 2 lakhs would be insufficient for the said purpose.

The typical issue for real estate
companies stems from the fact that while homebuyers / allottees are financial
creditors, the homes / projects are often assets of the corporate debtor that
are offered as security against loans taken from banks or Non-Banking Financial
Companies (NBFCs). The assets of the corporate debtor as per the Code cannot be
distributed, they are secured for secured creditors. On the contrary, the
assets of the corporate debtor are to be transferred in favour of the allottees
/ homebuyers and not to the secured creditors such as financial institutions /
banks / NBFCs.

Normally, the banks / financial
institutions / NBFCs also would not like to take the flats / apartments in
lieu of the money disbursed by them. On the other hand, the
‘unsecured creditors’ have a right over the assets of the corporate debtor,
i.e., the flats / apartments which constitute the assets of the company.

The NCLAT was to examine whether
during the CIRP a resolution could be reached without approval of the
third-party resolution plan.

One of the promoters, UH Co, agreed
to remain outside the CIRP but intended to play the role of a lender (financial
creditor) to ensure that the CIRP reaches success and the allottees take
possession of their flats / apartments during the CIRP without any third-party
intervention. The Flat Buyers’ Association of Winter Hills-77, Gurgaon also
accepted the aforesaid proposal. ‘JM Financial Credit Solutions Ltd.’, one of
the financial institutions, has also agreed to co-operate in terms of the
agreement on the condition that they will get 30% of the amount paid by the
allottees at the time of the registration of the flats / apartments.

The CIRP progressed and a number of
allottees took the possession of their flats and had the sale deeds registered
in their favour. UH Co invested a certain amount as an outside financial
creditor and as promoter co-operating with the IRP. The specific details of the
project were laid out before the NCLAT and which were also endorsed by the IRP.
The claim of JM Financials was also satisfied at the time of registration of
flats.

HELD

NCLAT
observed that there were some aspects which were typical to real estate
companies. The decisions of the Supreme Court in the cases of Committee
of Creditors of Essar Steel India Limited vs. Satish Kumar Gupta as
well as Pioneer Urban Land and Infrastructure Limited & Anr. vs.
Union of India were referred to. It was observed that ‘allottees’
(homebuyers) come within the meaning of ‘financial creditors’. They do not have
any expertise to assess the viability or feasibility of a corporate debtor.
They don’t have commercial wisdom like financial institutions / banks / NBFCs.
However, these allottees have been provided with voting rights for approval of
the plan. NCLAT observed that many such cases came to its notice where the
allottees were the sole financial creditors. However, it was not made clear as
to how they can assess the viability and feasibility of the ‘Resolution Plan’
or commercial aspect / functioning of the corporate debtor.

Further, it was observed that in a
CIRP against a real estate company if allottees (financial creditors), or
financial institutions / banks (other financial creditors), or operational
creditors of one project initiated a CIRP against the corporate debtor (the
real estate company), it is confined to the particular project. It cannot
affect any other project(s) of the same real estate company (corporate debtor)
in other places where separate plan(s) are approved by different authorities;
land and its owner(s) may be different and mainly the allottees (financial
creditors), financial institutions (financial creditors), operational creditors
are different for such separate projects. Accordingly, all the assets of the
corporate debtor are not to be maximised. CIRP should be on a project basis as
per plans approved by the Competent Authority. Any other allottees (financial
creditors), or financial institutions / banks (other financial creditors), or
operational creditors of other projects cannot file a claim before the IRP of
the other project of the corporate debtor and such claim cannot be entertained.

It was thus held that CIRP against a
real estate company (corporate debtor) is limited to a project as per the plan
approved by the Competent Authority and does not extend to other projects which
are separate and for which separate plans are approved.

Further,
a secured creditor such as a bank or financial institution, cannot be provided
with the asset (flat / apartment) in preference over the allottees (unsecured
financial creditors) for whom the project has been approved. Their claims are
to be satisfied by providing the flat / apartment. While satisfying the
allottees, one or other allottee may agree to opt for another flat / apartment
or one tower or another tower if not allotted otherwise. In such a case, their
agreements can be modified to that effect.

The prayer of any allottee asking
for a refund cannot be entertained in view of the decision of the Supreme Court
in the case of Pioneer Urban Land and Infrastructure Limited & Anr.
vs. Union of India & Ors. [(2019) SCC OnLine SC 1005]. However,
after offering allotment it is open to an allottee to request the IRP /
promoter, whoever is in charge, to find out a third party to purchase the said
flat / apartment and get the money back. After completion of the flats /
project or during the completion of the project, it is also open to an allottee
to reach an agreement with the promoter (not corporate debtor) for a refund of
the amount.

In a CIRP, NCLAT was of the view
that a ‘Reverse Corporate Insolvency Resolution Process’ could be followed in
cases of real estate infrastructure companies in the interest of the allottees
and survival of the real estate companies, and to ensure completion of projects
which provides employment to large numbers of unorganised workmen.

UH Co, in the facts of the present
case, was directed to co-operate with the IRP and disburse amounts (apart from
the amount already disbursed) from outside as lender (financial creditor) and
not as promoter, to ensure that the project is completed within the time frame
given by it. The flats / apartments should be completed in all aspects by 30^th
June, 2020. All internal fitouts for electricity, water connection should be
completed by 30^th July, 2020. The financial institutions / banks
should be paid simultaneously. Common areas such as swimming pool, clubhouse,
etc. as per the agreement be also completed by 30^th August, 2020.
The allottees are allowed to form a ‘Residents’ Welfare Association’ and get it
registered to empower them to claim the common areas. Only after getting the
certificate of completion from the Interim Resolution Professional / Resolution
Professional and approval of the Adjudicating Authority (National Company Law
Tribunal), unsold flats / apartments, etc. be handed over to the promoter / UH
Co.

If the ‘promoter’ fails to comply with the
undertaking and fails to invest as financial creditor, or does not co-operate
with the Interim Resolution Professional / Resolution Professional, the
Adjudicating Authority (National Company Law Tribunal) will complete the
Insolvency Resolution Process.

BCAJ Admin

ALLIED LAWS

1. Appeal
– High Court – Non-appearance of counsel – Matter dismissed by the High Court
on merits – Unjustified – Matter remanded [Civil Procedure Code, 1908, S. 100,
O. 41, R. 17]

Prabodh Ch. Das and Ors. vs. Mahamaya Das and Ors.; AIR 2020
SC 178

The question for consideration is whether the High Court is
justified in dismissing the second appeal on merits in the absence of the
learned counsel for the appellants. It was held that, with the explanation that
was introduced in Order 41 Rule 17(1) w.e.f. 1^st February, 1977 to
clarify the law by making an express provision that where the appellant does
not appear, the Court has no power to dismiss the appeal on merits – thus, Order
41 Rule 17(1) read with its explanation makes it explicit that the Court cannot
dismiss the appeal on merits where the appellant remains absent on the date
fixed for hearing.

In other words, if the appellant does not appear, the Court
may, if it deems fit, dismiss the appeal for default of appearance but it does
not have the power to dismiss the appeal on merits. Therefore, the impugned
judgment was set aside and it was directed to remit the matter to the High
Court for fresh disposal in accordance with the law.

2. Hindu
Undivided Family (HUF) – Recovery of debt – Auction sale – Coparcener
challenging sale as property mortgaged without his consent – Material produced
– Property purchased by mortgager in his own name for his own business –
Property never brought into the HUF – Bank would have every right to sell
property for recovery of loan [Recovery of Debts Due to Banks and Financial
Institutions Act, S. 25]

Abhimanyu Kumar Singh vs. Branch Manager, I.D.B.I. Bank Ltd.
and Ors.; AIR 2020 Patna 22

The petitioner filed a case that the property in question
which was mortgaged with the bank by his father and an equitable mortgage was
created by way of deposit of title deed, happened to be a joint Hindu family
property. The fact that the petitioner is a coparcener and the property in
question had been mortgaged without his consent, means that the 1/4^th
share of the petitioner cannot be attached and sold by auction.

The High Court held that the fact remains that the property
in question is in the individual name of the father of the petitioner
(mortgagor), the mutation and rent receipts remained in his individual name and
he could very well satisfy the bank that he happened to be the absolute owner
of the property and for his business he was mortgaging the land with the bank
by deposit of title deed.

Further, in a Hindu Undivided Family there would be a
presumption of jointness and the burden to prove that there was a partition
lies upon the person who claims the partition. It is well settled that even
within an HUF, a member of the family may create self-acquired and personal
property. It is only when such self-acquired property is brought into the
hotchpotch of the joint family that the property acquires the status of a joint
family property.

3. Partnership
– Dissolution– Partnership which is not at will cannot be terminated by notice
u/s 43 [Partnership Act, 1932, S. 43]

Manohar Daulatram Ghansharamani vs. Janardhan Prasad
Chaturvedi and Ors.; AIR 2019 Bombay 283

An issue arose with respect to the dissolution of a
partnership firm upon issuance of a notice u/s 43 of the Indian Partnership
Act, 1932. It was held that the terms of the partnership deed clearly stipulate
that the partnership was entered into for the purpose of developing the
property and constructing buildings. Thus, the partnership deed did not
expressly spell out a fixed term of duration. Nevertheless, the terms of the
contract indicate that the partnership was to end after completion of
construction of the buildings, obtaining completion certificates and execution
of conveyance in favour of the society. The terms of the contract thus imply
that the duration of the partnership was until completion of construction and
execution of conveyance. Further, the partnership deed also provides for
dissolution of partnership in the event of insolvency or death of any of the
partners.

Therefore, it was held that where a partnership deed which
contains a provision for duration of the partnership or for the determination
of the partnership, cannot be a partnership at will. As a corollary thereof,
the partnership that is not a partnership at will cannot be legally terminated
by a notice u/s 43 of the Partnership Act. Consequently, sending of notice u/s
43 of the Partnership Act, 1932 seeking dissolution of partnership is of no
consequence.

4. Will
– Onus to prove – None of the witnesses appeared before the Court to prove the
Will – Petitioner assured to produce the witnesses – No assistance taken from
Court to issue summons – Document in question cannot be said to be a validly
executed last Will [Succession Act, 1925, S. 222, S. 223, S. 246]

Chankaya vs. State and Ors.; AIR 2020 Delhi 30

A petition was filed u/s 226 of the Indian Succession Act,
1925 seeking grant of probate in respect of the document, purported to be the
validly executed last Will of deceased Shri D.C.S., grandfather of the
petitioner.

The petitioner has contended that he is aware of the
whereabouts of the witness and time and again assured that he would produce the
said witness before the Court. However, the same was not done. Later the
petitioner contended that the whereabouts of the witness was not known. The
petitioner did not exhaust all the remedies for producing the witness before
the Court. The petitioner could have resorted to Order 16 Rule 10 of the Civil
Procedure Code, 1908 for the purpose of seeking appearance of the attesting
witness. No assistance was taken from the Court to summon the said witness.

The Court held that, the burden of proof in the present case,
to prove the document claimed to be the validly executed last Will of the
deceased, lay on the petitioner who propounded the same. Indisputably, none of
the attesting witnesses had appeared before the Court to prove the Will. Thus, the
petitioner has failed to prove that the document is a Will executed by the late
Shri D.C.S. and accordingly the said issue is decided against the petitioner.
Therefore, the said Will has not been proved.

5. Writ
– Jurisdiction of High Court – Alternative remedy – Writ jurisdiction can be
exercised in respect of orders passed by the Armed Forces Tribunal (AFT) – No
blanket ban on exercise of writ jurisdiction because of alternative remedy
[Armed Forces Tribunal Act, 2007, S. 34, S. 15, Constitution of India, Art.
226]

Balkrishna Ram vs. Union of India; AIR 2020 SC 341

An issue arose before the Hon’ble Supreme Court whether an
appeal against an order of a single judge of a High Court deciding a case
related to an Armed Forces personnel pending before the High Court is required
to be transferred to the Armed Forces Tribunal, or should be heard by the High
Court. It was held that the principle that the High Court should not exercise
its extraordinary writ jurisdiction when an efficacious alternative remedy is
available, is a rule of prudence and not a rule of law. The writ courts
normally refrain from exercising their extraordinary power if the petitioner
has an alternative efficacious remedy. The existence of such a remedy, however,
does not mean that the jurisdiction of the High Court is ousted. At the same
time, it is a well-settled principle that such jurisdiction should not be
exercised when there is an alternative remedy available. The rule of
alternative remedy is a rule of discretion and not a rule of jurisdiction.
Merely because the Court may not exercise its discretion is not a ground to
hold that it has no jurisdiction. There may be cases where the High Court would
be justified in exercising its writ jurisdiction because of some glaring
illegality committed by the AFT.

One must also remember that
the alternative remedy must be efficacious and in case of a Non-Commissioned
Officer (NCO), or a Junior Commissioned Officer (JCO), to expect such a person
to approach the Supreme Court in every case may not be justified. It is
extremely difficult and beyond the monetary reach of an ordinary litigant to
approach the Supreme Court. Therefore, it will be for the High Court to decide
in the peculiar facts and circumstances of each case whether or not it should exercise
its extraordinary writ jurisdiction. There cannot be a blanket ban on the
exercise of such jurisdiction because that would effectively mean that the writ
court is denuded of its jurisdiction to entertain such writ petitions.

BCAJ Admin

FROM THE PRESIDENT

Dear Members,

As i write to you, india and the rest of the world is engaged in a ierce battle against the spread and damage caused due to COVID-19. Combating the coronavirus pandemic has created a war-like situation of complete lockdown, curfew and restrictions on movement of people and goods. Apart from the tragic human consequences, there is a complete standstill of business and economic activity resulting in uncertainty about the future of the global economy. There are also talks about an emergency type of situation with panic amongst citizens. This is a Black Swan event for the world. Amongst all the gloomy and negative propaganda on the event, we should learn and practice to think positively and act accordingly to overcome fear and negative thoughts that can cause depression, stress and a lot of unhappiness. We need to focus on the good things, inculcate positive thoughts, spend time with positive-thinking people, learn to enjoy nature, be thankful and have gratitude and above all keep faith and hope. Positive thoughts de-stress the mind, help in having a positive outlook, improve mental health, thus leading to living a successful and happy life.

Positives from the situation. As I see it, in these times of compulsory staying at home (social distancing), we have been able to do so many things that make us happy, which we had forgotten and used to do once upon a time. Most importantly, we now get to spend time with our children, parents and family. We have been running a race away from them and now is the time to match our pace with that of our family. Get the basics right and learn to enjoy and respect nature. Read, upgrade your skills, work on your itness, meditate, listen to music, cook, talk to long-lost friends, cousins. Learn to live and help others too.

India is grappling with the concept of ‘work from home’ (WFH), a work culture that is not yet very popular and accepted, particularly with the small and medium enterprises. WFH is changing the way we live and the way we work. Many of us proactively worked on technologies like cloud computing, remote access, VPN, network security, data backup and recovery and other such collaborative tools to prepare for WFH. If used wisely and appropriately, WFH has the potential of building a smart and effective remote workforce for business and our profession. This could lead to substantial reduction in overhead costs, increased productivity, boost employee morale and eficiencies, thus resulting in better customer satisfaction and thus proitability. Despite the challenges, one thing seems certain, that the time for WFH has come and more and more people would like to experiment with it.

CSR draft rules 2020: The MCA recently issued a draft of ‘The Companies (Corporate Social Responsibility Policy) Amendment Rules, 2020’. These Rules have proposed considerable and far-reaching changes in the existing Companies (CSR) Rules, 2014. The most signiicant and draconian change is in clause 4(1) – CSR implementation. The proposed new rule seeks to amend this to ‘CSR activities to be undertaken by the company itself or through a company established under section 8 of the Act, or any entity established under an Act of Parliament or a State legislature’. This amendment effectively makes registered societies and other public charitable trusts ineligible to carry out CSR activities, projects or programmes in future. This, I believe, is a potentially hazardous amendment. In India, historically, effective charitable work has been carried out by public charitable trusts and registered societies. Section 8 (or section 25 under the erstwhile Companies Act) are more recent phenomena. Charitable organisations depend heavily on donations and support from businesses and corporates in the form of CSR funds. I would like to believe that this is just a drafting error and will be corrected when the inal rules are notiied. However, looking at the recent trends and changes in various statutes (Income Tax Act, FCRA and others), it appears that the Government wants greater accountability, more transparency and stricter supervision of the NGO sector. We at the BCAS have made a strong representation seeking amendment to the draft CSR rules.

Normally, this is the time of year when all of us work towards inancial year-end compliances and prepare for the beginning of the new inancial year. However, this year is going to be completely different. A nationwide lockdown and the deferment of the statutory and regulatory compliances will ensure that March, 2020 will be a different and a once in a lifetime occurrence.

India’s strengths, lexibility and adaptability have withstood many such challenges in the past. Ancient Indian philosophy has encouraged us, as a human race, to adapt to new ideas, absorb shocks and face challenging circumstances with equanimity. Over the years, we have developed endurance and resilience to ight any eventuality. I am sure that we will bounce back quickly and emerge as a more powerful, united and happier Nation in the days to come.

Yes, this storm will also pass, humankind will survive, most of us will still be alive — but we will inhabit a different world.

Jai hind!

With Best Regards,
CA Manish Sampat
President

BCAJ Admin

FROM PUBLISHED ACCOUNTS

DISCLOSURES
IN INTERIM FINANCIAL RESULTS REGARDING IMPACT OF CORONA VIRUS

Compiler’s Note

The Financial Reporting
Council, UK, on 18^th February, 2020 issued an advice to companies
and auditors on corona virus risk disclosures. On similar lines, the US
Securities and Exchange Commission also issued a release dated 4^th
March, 2020 whereby besides extending the deadlines for regulatory filings by
45 days, it also asked companies affected by the corona virus to give adequate
disclosures. Given below are such disclosures by some companies.

Starbucks Corporation,
USA (quarter ended 29^th December, 2019)

Subsequent Event

In late January, 2020 we
closed more than half of our stores in China and continue to monitor and modify
the operating hours of all our stores in the market in response to the outbreak
of the corona virus. This is expected to be temporary. Given the dynamic nature
of these circumstances, the duration of business disruption, reduced customer
traffic and related financial impact cannot be reasonably estimated at this
time but are expected to materially affect our international segment and
consolidated results for the second quarter and full year of fiscal 2020.

Cathay Pacific Airways
Ltd., Hong Kong (annual results, 2019)

Event after the
reporting period

The outbreak of COVID-19
since January, 2020 has resulted in a challenging operational environment and
will adversely impact the group’s financial performance and liquidity position.
Travel demand has dropped substantially and the group has taken a number of
short-term measures in response, including aggressive reduction of passenger
capacity measured in Available Seat Kilometres (ASK) by approximately 30% for
February and 65% for March and April, with frequencies cut approximately 65%
and 75% over the same periods. Substantial passenger capacity and frequency
reduction is also likely for May as we continue to monitor and match market
demand.

As at the end of
February, passenger load factor had declined to approximately 50% and
year-on-year yield had also fallen significantly. It is difficult to predict
when these conditions will improve. However, the group is expected to incur a
substantial loss for the first half of 2020. The group’s available unrestricted
liquidity as at 31^st December, 2019 was HK$20 billion. The directors
believe that with the cost-saving measures being taken, the group’s strong
vendor relationships, as well as the group’s liquidity position and
availability of sources of funds, the group will remain a going concern.

Rio Tinto plc, UK
(Annual results 31^st December, 2019)

From Statement of
Risk Management (extracts)

There remain certain threats, such as natural disasters and
pandemics where there is limited capacity in the international insurance
markets to transfer such risks. We monitor closely such threats and develop
business resilience plans. We are currently closely monitoring the potential
short and medium-term impacts of the covid-19 virus, including, for example,
supply-chain, mobility, workforce, market demand and trade flow impacts, as
well as the resilience of global financial markets to support recovery. Any
longer term impacts will also be considered and monitored, as appropriate.

Marriott International
Inc., USA (year 31^st December, 2019)

Notes below results

Corona virus

Due to the uncertainty
regarding the duration and extent of the corona virus outbreak, Marriott cannot
fully estimate the financial impact from the virus, which could be material to
first quarter and full year 2020 results. As such, the company is providing a
base case outlook for the first quarter and full year 2020, which does not
reflect any impact from the outbreak. Assuming the current low occupancy rates
in the Asia-Pacific region continue, with no meaningful impact outside the
region, Marriott estimates the company could earn roughly $25 million in lower
fee revenue per month, compared to its 2020 base case outlook. Room additions
for the current year could also be delayed as a result of the corona virus
outbreak.

BCAJ Admin

GLIMPSES OF SUPREME COURT RULINGS

7. Sankalp Recreation Private Limited vs. Union of India and Ors. (2019) 418 ITR 673 (SC)

Purchase of immovable property by Central Government – In terms of an
auction where the Chief Commissioner reserves the right to reject any tender
form, including the highest bid, without assigning any reason – Cancellation
without reasons is not per se invalid especially when the Commissioner
had indicated the reasons for doing so to CBDT – So long as the auction process
is conducted in a bona fide manner and in public interest, a judicial
hands-off is mandated

A property admeasuring 1,053.5 square meters bearing Plot No. 27/A, Survey
No. 8, 9, 10, opposite Santacruz Police Station at the junction of Juhu Tara
Road and Linking Road, Santacruz (West), Mumbai 400054, although acquired by
the Union of India in 1994 u/s 269UD(1) of the Act, could only be sold in 2018.
Despite various attempts starting in 1994, several auctions conducted qua
the said property failed. Even an auction dated 27^th March, 2017
with a reserve price fixed of Rs. 32.11 crores failed to elicit a response from
any buyer. This being the case, Sankalp Recreation Pvt. Ltd., the appellant,
then made an offer to the Central Board of Direct Taxes to purchase the
aforesaid property for a sum of Rs. 32.11 crores. But this offer could not be
accepted because the CBDT stated that accepting such an offer by a private
treaty would be beyond their jurisdiction.

In the meanwhile, a fresh valuation report of the aforesaid property was
called for which was submitted on 4^th September, 2017 valuing the
property at Rs. 29,91,35,000. Pursuant to this, a brochure / catalogue was
circulated sometime in September, 2017.

The reserve price was fixed at Rs. 30 crores and the appellant was again
the sole bidder, offering Rs. 30.21 crores, or Rs. 21 lakhs above the reserve
price.In a letter dated 26^th September, 2017, the CCIT-2 sent a
report to the CBDT stating that although the bid of Rs. 30.21 crores offered by
the appellant was above the reserve price, it was less than the sum of Rs.
32.11 crores that had been offered by the same bidder earlier. In view of this,
a clarification was sought as to the future course of action.

On 20^th November, 2017, the CBDT directed that the auction
proceedings be kept in abeyance for the time being and appointed a valuer from
outside the State, viz., Mr. P. Ramaraj, District Valuation Officer, Chennai.
This valuer submitted a report on 23^rd February, 2018 valuing the
property at Rs. 31.07 crores because on 23^rd January, 2018 a cap had
been introduced in the TDR which would be available by way of FSI. Short of
this cap, the Chennai valuer valued the property at Rs. 36,51,59,000. Based on
this report, the property was put up for auction yet again.

Meanwhile, through a letter dated 4^th May, 2018, the earlier
auction which had yielded the sum of Rs. 30.21 crores from the appellant, was
treated as cancelled. The said letter specifically called upon the appellant to
participate in the upcoming auction to be conducted shortly.

The appellant, by a communication dated 12^th April, 2018,
referred to the return of the Demand Drafts of Rs. 7.5 crores and Rs. 5 lakhs
towards earnest money and caution money stating that the burden of interest
liability was continuing. The appellant made it clear that he would be
participating in a future auction and he was not exiting the auction
proceedings.

Pursuant to the valuation report, a notice for a public auction was
published on 10^th May, 2018 with the reserve price this time fixed
at Rs. 31.10 crores. On 17^th May, 2018 the Income tax Department
wrote to the appellant in which it intimated the fact that a fresh auction was
to be conducted on 30^thMay, 2018 and that the appellant should
participate in the same.

Meanwhile, the appellant, being aggrieved by the cancellation of the
auction process in which he was the highest bidder at Rs. 30.21 crores, filed a
writ petition in the High Court of Judicature at Bombay on 21^stMay,
2018. Two days later, on the 23^rd, the High Court permitted
Respondent Nos. 2 and 3 to conduct a fresh auction subject to refraining from
confirmation of the sale.

On 30^th May, 2018 the fresh auction was conducted and another
person (auction purchaser) was the sole bidder, with the bid being equal to the
reserve price of Rs. 31.10 crores.

Ultimately, by the impugned judgment dated 27^th July, 2018,
finding no infirmity in the auction process and finding that the cancellation,
though without reason, was not arbitrary, the High Court dismissed the writ
petition filed.

Before the Supreme Court, the learned counsel appearing on behalf of the
appellant urged that the cancellation being without reason was per se invalid in law and, therefore, ought to
have been set aside by the High Court. He also argued that the process of
conducting yet another auction after so many auctions had failed was itself
arbitrary and that as he was the highest bidder at Rs. 30.21 crores, that is,
Rs. 21 lakhs above the reserve price, the auction sale ought to have been
confirmed in his favour. Further, after citing a number of judgments, he made a
‘with-prejudice’ offer stating that he was willing to abide by the earlier
offer made by him of Rs. 32.11 crores.

The learned senior counsel appearing for auction purchaser urged that
there was no infirmity whatsoever in the
entire process. He highlighted the fact that under Clause 16 of the
brochure / catalogue, the Chief Commissioner reserved the right to reject any
tender form, including the highest bid, without assigning any reason. He, inter
alia, also made a ‘with-prejudice’ offer that his client would pay a sum of
Rs. 35 crores with an adjustment qua the earnest money that had been
deposited and lying with the Union of India, with a reasonable rate of interest
thereon.

The Supreme Court, referring to its earlier judgments which held that so
long as the auction process is conducted in a bona fide manner and in
the public interest a judicial hands-off is mandated, concluded that the
reasons disclosed both in the report dated 26^th September, 2017 and
the letter dated 6^th April, 2018 from the Government of India,
Ministry of Finance, to the Chief Commissioner of Income Tax made it clear that
there was no arbitrariness that was discernible in the entire auction process.
This being the case, the appeal had to be dismissed. The Supreme Court further
held that the offer made by the auction purchaser was very fair and directed
that from the figure of Rs. 35 crores, which would be paid within a period of
12 weeks directly to the Union treasury, a sum equivalent to interest of 9% on
the amount of Rs. 7.78 crores that was lying with the Union, calculated from
the date on which it was deposited with the Union till the date of the order,
be subtracted and the net figure be handed over as aforesaid.

8. Genpact India Private Limited vs. DCIT (2014) 419 ITR 440 (SC)

Appealable Orders – The contingencies detailed in (ii) and (iii) of section 246A(1)(a) arise
out of assessment proceedings u/s 143 or u/s 144 of the Act but the first
contingency is a standalone postulate and is not dependent purely on the
assessment proceedings either u/s 143 or u/s 144 of the Act – The expression
‘denies his liability to be assessed’ is quite comprehensive to take within its
fold every case where the assessee denies his liability to be assessed under
the Act

Alternative remedy – The High Court must not interfere if there is an
adequate, efficacious, alternative remedy available to the petitioner and he
has approached the High Court without availing the same unless he has made out
an exceptional case warranting such interference, or there exist sufficient
grounds to invoke the extraordinary jurisdiction under Article 226 – It cannot
be laid down as a proposition of law that once a petition is admitted, it could
never be dismissed on the ground of alternative remedy

Out of the opening share capital of 25,68,700 shares held by its sole
shareholder and holding company Genpact India Investment, Mauritius, the
appellant bought back 2,50,000 shares in May, 2013 at the rate of Rs. 32,000
per share for a total consideration of Rs. 800 crores.

On 10^th May, 2013, Chapter XIIDA consisting of sections
115QA, 115QB and 115QC was inserted in the Income-tax Act, 1961 (hereinafter
referred to as the Act) by the Finance Act, 2013 which came into effect from 1^stJune, 2013.

Some time later, on 10^th September, 2013, a scheme for
arrangement was approved by the High Court of Delhi in Company Petition No. 349
of 2013. Pursuant thereto, the appellant bought back another tranche of
7,50,000 shares at the rate of Rs. 35,000 per share for a total consideration
of Rs. 2,625 crores from Genpact India Investment, Mauritius.

In the income tax return for A.Y. 2014-15 filed on 28^th
November, 2014, the appellant stated that ‘Details of tax on distributed
profits of domestic companies and its payment’ were given in ‘Schedule DDT’
where the details of the aforesaid transactions were given but the liability to
pay any tax was denied.

A notice u/s 143(2) was issued to the appellant on 3^rdSeptember,
2015 seeking further explanation, pursuant to which requisite details were
furnished.

Vide his letter dated 28^th December, 2016, the assessee
submitted that the buyback of shares had been done in pursuance of the ‘scheme
of arrangement’ u/s 391 of the Companies Act, 1956 approved by the Hon’ble High
Court of Delhi and in such a manner that the same was not a buyback in terms of
section 115QA of the Act.

The matter was thereafter considered and an
assessment order was passed by the first respondent on 31^stDecember,
2016. As many as ten additions were made by the first respondent, one of them
being in respect of liability u/s 115QA of the Act. According to the first
respondent, section 115QA was introduced to provide that where shares are
bought back at a price higher than the price at which those shares were issued,
then the balance amount would be treated as distribution of income to the
shareholder and tax @20% would be payable by the company. Section 115QA was
applicable only to domestic unlisted companies.

Insofar as nine additions made by the first respondent were concerned,
an appeal was filed by the appellant. The appeal was decided in his favour but
a further challenge at the instance of the Revenue was under consideration.

As regards the issue concerning tax u/s 115QA, the appellant filed a
Writ Petition (Civil) No. 686 of 2017 in the High Court submitting, inter
alia, that the order passed by the first respondent was without
jurisdiction as buyback of shares in the instant case was in pursuance of the
‘scheme of arrangement’ approved by the High Court.

The High Court disposed of the petition with the following directions:

(i) The Court declines to entertain this writ petition under Article 226 of the Constitution against the
impugned demand raised by the Revenue by way of the impugned assessment order
u/s 115QA of the Act against the assessee;

(ii) The assessee is granted an opportunity to file
an appeal u/s 246A of the Act before the CIT(A) to challenge the impugned
assessment order only insofar as it creates a demand u/s 115QA;

(iii) If such an appeal is filed within ten days
from today, it will be considered on its own merits and a reasoned order
disposing of the appeal will be passed by the CIT(A) on all issues raised by
the assessee, not limited to the issues raised in the present petition as well
as on the response thereto by the Revenue in accordance with law;

(iv) The reasoned order shall be passed by the
CIT(A) not later than 31^st October, 2019. It will be communicated to
the petitioner within ten days thereafter. For a period of two weeks after the
date of such communication of order, the demand under the impugned assessment
order, if it is affirmed by the CIT(A) in appeal, will not be enforced against
the assessee;

(v) The
Court places on record the statement of the Revenue that it will not raise any
objection before the CIT(A) as to the maintainability of such an appeal and as
to the appeal being barred by limitation. The Court also takes on record the
statement of the Revenue that it will not enforce the demand in terms of the
impugned assessment order till the disposal of the above appeal. All of the
above is subject to the assessee filing the appeal before the CIT(A) within ten
days from today;

(vi) It is made clear that this Court has not
expressed any view whatsoever on the contentions of either party on the merits
of the case.

A challenge to the aforesaid view taken by the High
Court was raised by way of a Special Leave Petition No. 20728 of 2019 filed in
the Court on 26^th August, 2019. Within the time limit of ten days as
afforded by the High Court, an appeal was also preferred by the appellant
‘without prejudice’ on 30^th August,2019 against the ‘demand raised /
order passed u/s 115QA’. The aforesaid SLP came up before the Supreme Court on
6^th September, 2019, whereafter the matter was adjourned on a few
occasions and then taken up for final disposal.

The Supreme Court after going through the appeal
provisions observed that one of the key expressions appearing in section
246(1)(a) as well as in section 246A(1)(a) is ‘where the assessee denies his
liability to be assessed under this Act.’

It noted that a similar expression occurring in section 30 of the
Income-tax Act, 1922 came up for consideration before it in Commissioner
of Income Tax, U.P., Lucknow vs. Kanpur Coal Syndicate (1964) 53 ITR 225,
wherein it was concluded that the expression ‘denial of liability’ is
comprehensive enough to take in not only the total denial of liability but also
the liability to tax under particular circumstances.

The Court noted that the submission advanced on behalf of the appellant,
however, was that ‘denial of the assessee’s liability to be assessed’ in
section 246A is confined to his liability to be assessed u/s 143(3) and the
same has nothing to do with the liability to pay tax u/s 115QA. According to
the appellant, tax payable in respect of buyback of shares u/s 115QA is not a
tax payable on ‘total income’.

The Supreme Court considered the kinds of orders or situations that are
referred to in section 246(1)(a) of the Act, which are:

(i) An order against the assessee, where the assessee denies his
liability to be assessed under this Act, or

(ii) An intimation under sub-section (1) or sub-section (1B) of section
143 where the assessee objects to the making of adjustments, or

(iii) Any order of assessment under sub-section (3) of section 143 or
section 144, where the assessee objects:

to the amount of income assessed, or

to the amount of tax determined, or

to the amount of loss computed, or

to the status under which he is assessed.

According to the Supreme Court, the contingencies detailed in (ii) and
(iii) hereinabove arise out of assessment proceedings u/s 143 or section 144 of
the Act but the first contingency is a standalone postulate and is not
dependent purely on the assessment proceedings either u/s 143 or u/s 144 of the
Act. The expression ‘denies his liability to be assessed’ as held by this court
in Kanpur Coal Syndicate was quite comprehensive to take within
its fold every case where the assessee denies his liability to be assessed
under the Act.

The Supreme Court held that section 115QA stipulates that in case of
buyback of shares referred to in the provisions of the said section, the
company shall be liable to pay additional income tax at the rate of 20% on the
distributed income. Any determination in that behalf, be it regarding
quantification of the liability or the question whether such company is liable
or not, would be matters coming within the ambit of the first postulate
referred to hereinabove. Similar is the situation with respect to provisions of
section 246A(1)(a) where again, out of certain situations contemplated, one of
them is ‘an order against the assessee where the assessee denies his liability
to be assessed under this Act’. The computation and extent of liability is
determined under the provisions of section 115QA.Such determination under the
Act would squarely get covered under the said expression. There was no reason
why the scope of such expression be restricted and confined to issues arising
out of or touching upon assessment proceedings either u/s 143 or u/s 144.

The Court therefore rejected the submissions advanced by the appellant
and held that an appeal would be maintainable against the determination of
liability u/s 115QA of the Act. It thereafter dealt with the question whether
the High Court was justified in refusing to entertain the writ petition because
of the availability of adequate appellate remedy. According to the Supreme
Court, the law on the point was very clear and was summarised in Commissioner
of Income Tax and Ors. vs. Chhabil Dass Agarwal (2014) 1 SCC 603 as
under:

‘…It is settled law that non-entertainment of petitions under writ
jurisdiction by the High Court when an efficacious alternative remedy is
available is a Rule of self-imposed limitation. It is essentially a Rule of
policy, convenience and discretion rather than a Rule of law. Undoubtedly, it
is within the discretion of the High Court to grant relief under Article 226
despite the existence of an alternative remedy. However, the High Court must
not interfere if there is an adequate, efficacious, alternative remedy
available to the petitioner and he has approached the High Court without
availing the same unless he has made out an exceptional case warranting such
interference, or there exist sufficient grounds to invoke the extraordinary
jurisdiction under Article 226…’

The Supreme Court, referring to its various other
decisions, observed that while it can be said that it has recognised some
exceptions to the Rule of alternative remedy, i.e., where the statutory
authority has not acted in accordance with the provisions of the enactment in
question, or in defiance of the fundamental principles of judicial procedure,
or has resorted to invoke the provisions which are repealed, or when an order
has been passed in total violation of the principles of natural justice.
However, the Court further stated that the proposition laid down by it in many
cases that the High Court will not entertain a petition under Article 226 of
the Constitution if an effective alternative remedy is available to
the aggrieved person or the statute under which the action complained of has
been taken, itself contains a mechanism for redressal of grievance still holds
the field. Therefore, when a statutory forum is created by law for redressal of
grievances, a writ petition should not be entertained ignoring the statutory
dispensation.

Therefore, the Supreme Court did not find any infirmity in the approach
adopted by the High Court in refusing to entertain the writ petition. The
submission that once the threshold was crossed (i.e., the petition is
admitted)despite the preliminary objection being raised, the High Court ought
not to have considered the issue regarding alternate remedy may not be correct.
The first order dated 25^th January, 2017 passed by the High Court
did record the preliminary objection but was prima facie of the view
that the transactions defined in section 115QA were initially confined only to
those covered by section 77A of the Companies Act. Therefore, without rejecting
the preliminary objection, notice was issued in the matter. The subsequent
order undoubtedly made the earlier interim order absolute. However, the
preliminary objection having not been dealt with and disposed of, the matter
was still at large.

In State of U.P. vs. U.P. Rajya Khanij Vikas Nigam Sangharsh
Samiti and Ors. (2008) 12 SCC 675 the Supreme Court dealt with an issue
whether, after admission, the writ petition could not be dismissed on the
ground of alternate remedy and held that it cannot be laid down as a
proposition of law that once a petition is admitted, it could never be
dismissed on the ground of alternative remedy.

BCAJ Admin

FROM PUBLISHED ACCOUNTS

ILLUSTRATION OF AUDIT REPORT WITH ‘DISCLAIMER OF
OPINION’ AND ‘EMPHASIS OF MATTER’

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

From auditors’ report

Basis for Disclaimer of Opinion

We refer to Note 40 to the standalone financial statements 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^st March, 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, its associates and its joint venture. 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 were unable to determine the consequential implications arising
therefrom and whether any adjustments, restatement, disclosure or compliances
are necessary in respect of these transactions, investments and recoverable
amounts in the standalone financial statements of the Company.

Material uncertainty related to going concern

We draw attention to Note 41 to the standalone financial statements. 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.

Emphasis of matter

(a) We draw attention to Note 38 to the standalone financial
statements regarding the Scheme of Amalgamation (the Scheme) between Reliance
Infraprojects Limited (wholly owned subsidiary of the Company) and the Company
sanctioned by the Hon’ble 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^stMarch,
2019 has been credited to the standalone statement of profit and loss and an
equivalent amount has been transferred to the general reserve.

(b) We draw attention to Note 39 to the
standalone financial statements, 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^stApril,
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 overrides the relevant provisions 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^stMarch, 2019 as exceptional items
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 a 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 been
debited to the standalone statement of profit and loss and an equivalent amount
has been withdrawn from General Reserve.

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

(c) We draw attention to Note 7(a) to the
standalone financial statements 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 judgment 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.

Our opinion is not modified in respect of the above matters.

Auditor’s Responsibilities for the Audit of the Standalone Financial
Statements

Our responsibility is to conduct an audit of the standalone financial
statements in accordance with Standards on Auditing and to issue an auditor’s
report. However, because of the matter described in the Basis for Disclaimer of
Opinion section of our report, we were not able to obtain sufficient
appropriate audit evidence to provide a basis for an audit opinion on these
standalone financial statements.

We are independent of the Company in accordance with the Code of Ethics
and provisions of the Act that are relevant to our audit of the standalone
financial statements in India under the Act, and we have fulfilled our other
ethical responsibilities in accordance with the Code of Ethics and the
requirements under the Act.

Report on other legal and regulatory requirements

(1) As required by the
Companies (Auditors’ Report) Order, 2016 (the Order) issued by the Central
Government in terms of section 143 (11) of the Act, and except for the possible
effects, of the matter described in the Basis for Disclaimer of Opinion
section, we give in the ‘Annexure A’ a statement on the matters specified in
paragraphs 3 and 4 of the Order, to the extent applicable.

(2) (A) As required by
section 143(3) of the Act we report that:

(i) As described in the
Basis for Disclaimer of Opinion section, we were unable to obtain all the
information and explanations which to the best of our knowledge and belief were
necessary for the purposes of our audit.

(ii) Due to the effects /
possible effects of the matter described in the Basis for Disclaimer of Opinion
section, we are unable to state whether proper books of accounts as required by
law have been kept by the Company so far as it appears from our examination of
those books.

(iii) The
standalone balance sheet, the standalone statement of profit and loss
(including other comprehensive income), the standalone statement of changes in
equity and the standalone statement of cash flows dealt with by this report are
in agreement with the books of accounts.

(iv) Due to the effects /
possible effects of the matter described in the Basis for Disclaimer of Opinion
section, we are unable to state whether the financial statements comply with
the Indian Accounting Standards specified under section 133 of the Act.

(v) The matter described in
the Basis for Disclaimer of Opinion section and going concern matter described
in the material uncertainty related to going concern may have an adverse effect
on the functioning of the Company.

(vi) On the basis of the
written representations received from the directors as on 31^st
March, 2019 taken on record by the Board of Directors, none of the directors is
disqualified as on 31^st March, 2019 from being appointed as a
director in terms of section 164(2) of the Act.

(vii) The reservation relating
to maintenance of accounts and other matters connected therewith are as stated
in the Basis for Disclaimer Opinion section.

(viii) With respect to the
adequacy of the internal financial controls with reference to standalone
financial statements of the Company and the operating effectiveness of such
controls, refer to our separate Report in ‘Annexure B’.

(B) With respect to the other
matters to be included in the Auditors’ Report in accordance with Rule 11 of
the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best
of our information and according to the explanations given to us:

(i) Except for the possible
effects of the matter described in the Basis for Disclaimer of Opinion section,
the Company has disclosed the impact of pending litigations as at 31^st
March, 2019 on its financial position in its standalone financial statements –
Refer Note 32 to the standalone financial statements.

(ii) Except for the possible
effects of the matter described in the Basis for Disclaimer of Opinion section,
the Company did not have any long-term contracts including derivative contracts
for which there were any material foreseeable losses.

(iii) Other than for dividend
amounting to Rs. 0.05 crore pertaining to the financial year 2010-2011 which
could not be transferred on account of pendency of various investor legal
cases, there has been no delay in transferring amounts, required to be
transferred, to the Investor Education and Protection Fund by the Company.

(C) With respect to the
matter to be included in the Auditors’ Report under section 197(16) of the Act:
In our opinion and according to the information and explanations given to us,
the remuneration paid by the Company to its directors during the current year
is in accordance with the provisions of section 197 of the Act. The
remuneration paid to any director is not in excess of the limit laid down under
section 197 of the Act. The Ministry of Corporate Affairs has not prescribed
other details under section 197(16) of the Act which are required to be
commented upon by us.

From Notes to Financial Statements

7(a) 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^stMarch, 2019. RPower has
incurred a net loss (after impairment of certain assets) of Rs. 2,951.82 crores
for the year ended 31^st 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.

38. Scheme of amalgamation of
Reliance Infraprojects Limited (RInfl) with the Company

The Hon’ble High Court of Judicature of Bombay had sanctioned the Scheme
of Amalgamation of Reliance Infraprojects Limited (RInfl) with the Company on
30^th March, 2011 with the appointed date being 1^st April,
2010. As per the clause 2.3.7 of the Scheme, the Company, as determined by its
Board of Directors, is permitted to adjust foreign exchange / hedging /
derivative contract losses / gains debited / credited in the Statement of
Profit and Loss by a corresponding withdrawal from or credit to General
Reserve.

Pursuant to the option exercised under the above Scheme, net foreign
exchange gain of Rs. 192.24 crores for the year ended 31^stMarch,
2019 (net loss of Rs. 11.68 crore for the year ended 31^st March,
2018) has been credited / debited to the Statement of Profit and Loss and an
equivalent amount has been transferred to General Reserve. The Company has been
legally advised that crediting and debiting of the said amount in the Statement
of Profit and Loss is in accordance with Schedule III to the Act. Had such
transfer not been done, the Loss before tax for the year ended 31^st
March, 2019 would have been lower by Rs. 192.24 crores 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.

39. Exceptional items

Rs. crores

Particulars

Year ended 31^st
March, 2019

Year ended 31^st
March, 2018

Write off /
loss(profit) on sale of investments

2,446.61

(261.58)

Provision /
write-off / loss on sale of loans given and w/off of interest accrued thereon

8,410.99

190.39

Loss on
invocation of pledged shares

1,261.14

–

Loss on
transfer of Western Region System Strengthening Scheme (WRSS) – Transmission
Undertaking

–

198.50

Provision for
diminution in value of investments

678.62

–

Expenses /
(Income)

12,797.36

127.31

Less:
Withdrawn from General Reserve

6,616.02

411.50

Exceptional
items (net)

6,181.34

(284.19)

In terms of 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^stApril, 2013,
during the year ended 31^st March, 2019 an amount of Rs. 6,616.02
crores (31^stMarch, 2018 – Rs. 411.50 crores) has been withdrawn
from General Reserve and credited to the Statement of Profit and Loss against
the exceptional items of Rs. 12,797.36 crores (Rs. 127.31 crores for the year
ended 31^stMarch, 2018) as stated above which was debited to the
Statement of Profit and Loss. Had such withdrawal not been done, the loss
before tax for the year ended 31^stMarch, 2019 would have been
higher by Rs. 6,616.02 crores (31^stMarch, 2018 – Rs. 411.50 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.

40. 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 a 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^stMarch, 2019 was Rs. 7,082,96 crores (previous
year Rs. 10,936.62 crores) net of provision of 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 a related party.

Similarly, in the absence of full visibility on the assets and
liabilities of EPC Company and 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
(Nil for the financial year ended 31^stMarch, 2018) in respect of
the outstanding amount advanced to the EPC Company and the same has been
considered as an exceptional item. Given the huge opportunity in the EPC field,
particularly considering the Government of India’s thrust on the 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 activities 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.

41. During the year, the
Company has incurred net losses (after impairment of assets) of Rs. 913.39
crores. 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
financial statement of the Company has been prepared on a going concern basis.

From Directors’ Report

Auditors and Auditor’s Report

M/s Pathak H.D. & Associates, Chartered
Accountants, were appointed as statutory auditors of the Company to hold office
for a term of 4 (four) consecutive years at the 87^th Annual General
Meeting of the Company held on 27^thSeptember, 2016 until the
conclusion of the 91^stAnnual General Meeting of the Company. The
Company has received confirmation from M/s Pathak H.D. & Associates,
Chartered Accountants, that they are not disqualified from continuing as
auditors of the Company. M/s BSR & Co. LLP, Chartered Accountants, who were
appointed as statutory auditors of the Company at the 88^thAnnual
General Meeting of the Company, vide their letter dated 9^th August,
2019, have resigned as one of the statutory auditors of the Company with effect
from 9^th August, 2019. The other duly appointed statutory auditor,
M/s Pathak H.D. & Associates, who are statutory auditors of the Company
since the last nine financial years, i.e. from the financial year 2011 and
whose term is valid until the conclusion of the Annual General Meeting for the
year ended 31^st March, 2020, are continuing as the sole statutory
auditors of the Company.

The Auditors in their report to the members have given a Disclaimer of
Opinion for the reasons set out in the paragraph titled Basis of Disclaimer of
Opinion. The relevant facts and the factual position have been explained in
Note 40 of the Notes on Accounts. It has been explained that 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 a 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
inter-corporate deposits.

The activities of EPC Company have been impacted by
the reduced project activities of the companies of the Group. While the Company
is evaluating the categorisation of the nature of relationship, if any, with
the independent EPC Company, based on the analysis carried out in earlier
years, the EPC Company has not been treated as a related party. Given the huge
opportunity in the EPC field, particularly considering the Government of
India’s thrust on the 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 activities 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.

The observations and comments given by the Auditors in their report,
read together with notes on financial statements, are self-explanatory and
hence do not call for any further comments under section 134 of the Act.

BCAJ Admin

ETHICS AND U

Shrikrishna: Arjun, are you reading something? Shall we meet later?

Arjun: Bhagwan, please don’t say so. There is nothing more important in
my life than meeting you! Good that you came.

Shrikrishna: Why? What are you reading? I rarely see you referring to any book. Oh!
It’s a dictionary!

Arjun: Yes. Looking for a very strange word. I referred to three dictionaries,
but did not find it. It is an English word NOCLAR.

Shrikrishna: Where did you come across it?

Arjun: Yesterday, in some CPE seminar everybody around was talking about it.
They said it is very serious. Something like a disease.

Shrikrishna: (laughs) It is not a disease, but it will certainly make one Un-easy.

Arjun: What is it about? Is it going to add to our thankless burdens?

Shrikrishna: Yes, to some extent. It depends on how you take it.

Arjun: But why is that word not there in any dictionary?

Shrikrishna: Dear Paarth, it is only an acronym like your CARO. It means your
response to ‘Non-Compliances with Laws and Regulations’.

Arjun: Oh! Interesting. But wherever we go for audit, we see nothing but
non-compliance only. Anyway, what are we supposed to do then?

Shrikrishna: See, you know IESBA?

Arjun: Who is this ‘Yesba’?

Shrikrishna: (smiles) He is not a
person but a body – called International Ethics Standards Board for
Accountants. They issue guidelines for the Public Accountants (PA’s).

Arjun: Yes, our ICAI also has an ESB. What next?

Shrikrishna: While doing the audit or any other work of a company, if you come
across any non-compliance with any law or regulation which is of a very serious
nature, or which is illegal, then the question is how does a PA respond to it?
Whether he should act as a whistle-blower and expose the illegalities, or just
keep quiet?

Arjun: To tell you the truth, all these years, we CA’s have been keeping quiet
only. We never had the courage to speak out. That is why we are taken for a
ride.

Shrikrishna: I understand. You have a fear that you will lose your client. There is
a feeling of insecurity among the practising accountants like you. But remember
that NOCLAR applies not only to practising CAs, but it also covers the
accountants in employment.

Arjun: Baap-re! This is even more dangerous. Many accountants will have
to quit their jobs.

Shrikrishna: As an enlightened citizen and professional you cannot turn a blind eye
to the illegalities.

Arjun: That is exactly what Dhrutarashtra Uncle did in Mahabharata. If
he had done his duty conscientiously, the entire war and disaster could have
been avoided.

Shrikrishna: Wah, Arjun. What an apt example! That means you have understood
what NOCLAR is… I don’t have to explain it to you any further.

Arjun: No, Bhagwan, you can’t leave just like that. Please tell me what
exactly we are supposed to do? Since when will it be applicable? Where is it to
be reported? Does it cover fraud, corruption and bribery? Does it also include
money laundering? You need to tell me all this.

Shrikrishna: (smiles) Yes, dear. We need to discuss it in detail. All accountants
are now worried as to how they should tackle this. It will be very embarrassing
for anyone to expose the illegalities of the clients. It will be a serious threat
to the client as well as to the accountant.

Arjun: If it is so damaging then why bring this regulation at all.

Shrikrishna: Remember, Arjun, your
client as well as you yourself are a part of the society and the country. A company may have its vested self-interest in doing illegal acts. You as
auditors or service providers are indirect beneficiaries of the client’s business. But one must see whether such
illegal or irregular acts can be sustained by a client for a long time. Some
day or the other, the irregularities are bound to get exposed. Such acts cause
irreparable damage to the society and the country. If educated professionals
like you overlook or ignore these things, then you are breaching the trust
reposed in you. If such things continue, the social atmosphere will continue to
worsen.

Arjun: I agree. Is this the reason why some big firms are giving up a few
audit assignments? This is all very interesting. Tell me further.

Shrikrishna: I’m in a hurry. You please read it yourself. We will discuss it again
next time.

Om Shanti

This dialogue
is based on the new concept emerging in the profession – NOCLAR.

BCAJ Admin

CORPORATE LAW CORNER

10. Anand Rao Korada (Resolution
Professional) vs. Varsha Fabrics (P) Ltd. [2019] 111 taxmann.com 474 (SC) Civil Appeal Nos. 8800-8801 of 2019 Date of order: 18^thNovember,
2019

Sections 14, 231 and 238 of Insolvency and
Bankruptcy Code, 2016 – High Court cannot continue with auction proceedings to
sell the assets of corporate debtor if the proceedings under the Code have been
initiated and order declaring the moratorium has been passed by the NCLT

FACTS

I Co held shares in H Co. Pursuant to a
share purchase agreement (SPA) dated 10^thJuly, 2006 it sold its
entire shareholding in H Co to V Co, IF Co and M Co. H Co shut down its factory
on 8^th May, 2007. Subsequently, their stake in H Co was sold to IW
Co.

The workers of
H Co through their union (hereinafter referred to as the Union) filed writ
petitions before the Odisha High Court for cancellation of the SPA dated 10^thJuly, 2006 and payment of the arrears and current salaries of the
workmen. The High Court vide order dated 14^thMarch, 2012 directed
the Deputy Labour Commissioner to recover the workmen’s dues by sale of the
assets of H Co through a public auction. The Supreme Court in the said matter
passed an order dated 3^rd August, 2015 wherein it was directed that
the issue of quantifying the compensation payable to the workmen should be
determined by the Labour Court. In the event V Co, IF Co and M Co failed to pay
the compensation so determined, the assets of H Co would be sold in a public
auction and the proceeds would be used to disburse the arrears of workmen.

Pursuant to an order of the High Court dated
12^th January, 2017, the sale of a parcel of land of H CO was
completed and the amounts recovered compensated a portion of the total dues of
the workmen.

During the pendency of proceedings with the
High Court, N Co, a financial creditor of H Co, initiated corporate insolvency
resolution proceedings (CIRP) against H Co for default in payment of financial
debt. The National Company Law Tribunal (NCLT) admitted the petition and
declared a moratorium in accordance with the provisions of sections 13 and 15
of the Insolvency and Bankruptcy Code, 2016 (the Code) vide order dated 4^th
June, 2019.

The writ petitions came up for further
hearing and orders were passed by the High Court on 14^th August,
2019 and 5^th September, 2019. The Resolution Professional filed a
civil appeal to challenge the interim orders of the High Court on the ground
that since CIRP were already underway, the proceedings before the High Court
ought to be stayed.

HELD

The Supreme Court heard the parties at
length. It examined the provisions of sections 13, 14, 231 and 238 of the Code
and observed that section 238 gave an overriding effect to the Code over all
other laws. The provisions of the Code vested exclusive jurisdiction on the
NCLT and the NCLAT to deal with all issues pertaining to the insolvency process
of a corporate debtor and the mode and manner of disposal of its assets.
Further, section 231 of the Code bars the jurisdiction of civil courts in
respect of any matter in which the adjudicating authority, i.e. the NCLT or the
NCLAT, is empowered by the Code to pass any order.

In view of the said provisions, it was held
that the High Court ought not to have proceeded with the auction of the
property of H Co once the proceedings under the Code had commenced and an order
declaring moratorium was passed by the NCLT. It was observed that if the assets
of H Co were alienated during the pendency of the proceedings under the Code,
it would seriously jeopardise the interest of all the stakeholders.

The interim orders of the High Court were
set aside by the Supreme Court and it was held that the sale or liquidation of
assets of H Co would now be governed by the Code. Further, the union was
directed to file its claim under Regulation 9 of the Insolvency and Bankruptcy
Board of India (Insolvency Resolution Process for Corporate Persons)
Regulations, 2016 for payment of arrears, salaries and other dues before the
competent authority. All the parties were granted liberty to pursue the
available remedies in accordance with law.

11. Omega Finvest LLP vs. Direct News (P)
Ltd. [2019] 112 taxmann.com 297 (NCLT, N.Del.) C.P. (IB) No. 1478 (PB) of 2019 Date of order: 30^th September,
2019

Section 5 of Insolvency and Bankruptcy
Code, 2016 – Providing a place on lease for the purpose of carrying on
day-to-day activities was a supply of services – Lessor was an operational
creditor who was entitled to commence resolution proceedings when there was a
default in payment of rent

FACTS

D Co, a private
limited company, had entered into a lease agreement with S Co on 28^th
August, 2008. S Co was demerged into O Co and O Co was converted into an LLP in
the year 2012. In order to continue the lease of the premises, the parties had
entered into a lease deed dated 13^th July, 2016 for a period of
three years from 1^st July, 2016 to 30^th June, 2019. D Co
paid a sum of Rs. 1.25 crores to O Co pursuant to the lease deed. O Co submitted
that upon execution of the modification deed dated 14^th June, 2018,
D Co issued 13 post-dated cheques for payment of rent for each month from 1^stJune, 2018 to 30^th June, 2019 for a sum of Rs. 21,60,000,
inclusive of the base rent of Rs. 20,00,000 along with Goods and Services Tax @
18% amounting to Rs. 3,60,000. It is claimed by O Co that cheques issued
towards payment of rent for the months of April, 2019 and May, 2019 got
dishonoured.

O Co furnished a demand notice dated 28^th
May, 2019 to D Co u/s 8 of the Insolvency and Bankruptcy Code, 2016 (the Code).
O Co alleged that there was no reply to the notice so served.

D Co opposed the petition on the ground that
the debt claimed does not fall in the ambit of the definition of ‘operational
debt’ and therefore O Co was not an ‘operational creditor’. D Co further
submitted that a reply to the demand notice was communicated in due time. There
was prior communication to adjust the rent against the security deposit and
accordingly, it was alleged that there was a pre-existing dispute even before
notice u/s 8 was served.

HELD

The National Company Law Tribunal (NCLT)
heard both the sides at length. It examined the provisions of sections 5(20)
and 5(21) of the Code which define operational creditor and operational debt.
It was observed that in the facts of the present case, lease of premises was
for functioning of day-to-day operations and it was directly related to the
input and output of the supply of services by D Co. O Co had provided
infrastructure services to D Co for its functioning. Thus, leasing of premises
was held to be supply of services. Reliance was also placed on the report of
the Bankruptcy Law Reforms Committee dated 4^th November, 2015 which
also mentions that… ‘the lessor. that an entity rents out space from is an
operational creditor to whom the entity owes monthly rent’. It was held
that O Co was an ‘operational creditor’ within the meaning of section 5(20) of
the Code.

NCLT perused the communication between D Co
and O Co regarding adjustment of security deposit towards rent. The request for
adjustment was not met with by O Co and it proceeded to deposit the cheques
issued and the same were returned for want of sufficient funds.

NCLT also examined the provisions of the
rent agreement and observed that the security deposit had an entirely different
purpose. O Co had never agreed to adjust the rent from the security deposit.
The assumption of D Co that the agreement would extend to August, 2019 was
unfounded and the submission that there was a pre-existing dispute could not be
accepted.

As the default
stood established, NCLT proceeded to admit the petition
for initiating corporate insolvency resolution
process against D Co and declared a moratorium over its assets. An
interim resolution professional was also appointed.

12. Anil Syal
vs. Sanjeev Kapoor [2020] 113
taxmann.com 52 (NCLAT) Company Appeal
(AT)(Insolvency) No. 961 of 2019 Date of order:
8^th November, 2019

Sections 8 and 9 of the Insolvency and
Bankruptcy Code, 2016 – Dues claimed in the demand notice related to sister
concern of the corporate debtor and not the corporate debtor itself – Service
of such a notice was not valid – Application for initiating corporate
insolvency resolution proceedings was not maintainable for want of appropriate
notice

FACTS

A service
contract was entered into and executed between Sanjeev Kapoor, proprietor of
Kapoor Logistics (operational creditor) and Flywheel Logistics Solutions
Private Limited (corporate debtor) for running route vehicles in freight-line
haul operations between Pantnagar and Pune. Anil Syal is ex-director and
shareholder of the company Flywheel Logistics Solutions Pvt. Ltd. (corporate
debtor).

The operational creditor submitted that
Logistics Services were provided to the corporate debtor and pursuant to that
invoices were raised for the amount totalling Rs. 66,00,860 for the period
January, 2017 to August, 2017. Part payment of Rs. 35,68,484 was received from
the corporate debtor against the pending bills. Anil Syal stated that the balance
confirmation of Rs. 30 lakhs was admitted by the corporate debtor vide e-mail
dated 27^thJuly, 2018. But despite repeated e-mails and reminders,
the outstanding dues were not paid by the corporate debtor. The operational
creditor claimed that a demand notice was furnished calling upon the corporate
debtor to pay the total outstanding amount of Rs. 33,69,997.

The corporate debtor challenged the
submission stating that the demand notice and invoices were never received and
therefore the application was not maintainable for want of a valid demand
notice. Further, it was alleged that the demand notice was furnished to a
sister concern which was a separate legal entity by the name of Flywheel
Logistics Pvt. Ltd. having a different CIN and registered address, separate and
distinct from the corporate debtor. It was also submitted that the National
Company Law Tribunal (NCLT) which passed an order for initiation of the
corporate insolvency resolution process (CIRP) against the corporate debtor did
not take into account the evidence establishing a pre-existing dispute.

HELD

The National Company Law Appellate Tribunal
(NCLAT) observed that invoices were issued against M/s Flywheel Logistics Pvt.
Ltd. but the demand notice was issued to Flywheel Logistics Solutions Pvt. Ltd.
being the corporate debtor. The two are different corporate entities having
different CIN numbers and registered addresses.

NCLAT held that the operational creditor had
no right to claim dues relating to the invoices issued against ‘M/s Flywheel
Logistics Pvt. Ltd.’ from the corporate debtor, ‘M/s Flywheel Logistics
Solutions Pvt. Ltd.’ which is a separate corporate entity, having a different
CIN number.

It was observed that the mandatory primary
requirement for filing a petition u/s 9 of the Code was the service of the
demand notice u/s 8 of the Code. Since the demand notices related to the dues
of another corporate entity, it could not be treated as a valid and proper
service. The order passed by NCLT was thus set aside by NCLAT. It was further
held that this order would not prejudice the right of the operational creditor
to proceed against Flywheel Logistics Pvt. Ltd.

13. Indiavidual Learning (P) Ltd. vs.
Registrar of Companies [2019] 112 taxmann.com 101 (NCLT-Beng.) Date of order: 10^th October, 2019

In the Board
Report of the company filed with the ROC, certain matters were unintentionally
omitted to be reported – It could be permitted to revise the said Board Report
if the same would not prejudice the interests of the company, its shareholders
or stakeholders, or violate any provisions

FACTS

The Audited Financial Statements of I Pvt.
Ltd. (company), which included the Board’s Report for the financial year
2015-16, were approved by the Board of Directors. The Auditor’s Report attached
to the Financial Statements was sent to the shareholders of the company. The
same were laid before and adopted at the Annual General Meeting. The Audited
Financial Statements, together with the Board’s Report, was filed with the ROC
in due course.

It was brought
to the notice of the Bench that in the aforesaid Board’s
Report for the financial year 2015-16, certain matters to be covered in terms
of the provisions of section 134 of the Companies Act, 2013 were
unintentionally omitted to be reported. Those inadequacies were noticed by
the company later on, when it was reviewing the documents filed with the NCLT
in connection with a proposed reduction of share capital. It was further stated
in the petition that the inadequacies and omissions arising from non-compliance
of various applicable provisions happened purely due to inadvertence and no
part of it was prejudicial to the interests of any of the stakeholders.

A decision was taken at the meeting of the
Board of Directors of the company to revise the Board’s Report for the
financial year 2015-16, subject to approval of the Tribunal, and accordingly
the petition filed sought permission to revise the Board’s Report.

The notice of the petition was served on the
ROC concerned. Even though notice was served on the ROC and sufficient time
granted, ROC had not filed any response.

HELD

The proviso to section 131(1) of the
Companies Act, 2013 mandates that the Tribunal shall give notice to the
statutory authorities and it shall take into consideration the representations,
if any made by such authorities, before passing any order under this section.
Since ROC had not filed any representation on the petition, it appeared to the
Bench that it had no representation against the petition. Therefore, on the
principle of ease of doing business, it was held that orders are to be passed as
per merits of the case.

The inadequacies noticed in the Board’s
Report were as under:

(i) The financial highlights of the performance
of the company in terms of Rule 5(i) of the Companies (Accounts) Rules, 2014;

(ii) Details of subsidiaries, joint ventures or
associate companies in terms of Rule 5(iv) of the said Rules;

(iii) Details relating to deposits in terms of Rule
5(v) of the said Rules;

(iv) Details in respect of frauds reported by
auditors in terms of section 134(3)(ca) of the Companies Act, 2013;

(v) Disclosures on details of the Employee Stock
Option Scheme in terms of the Companies (Share Capital and Debentures) Rules,
2014;

(vi) The statutory auditor had made a qualification
stating that ‘no employee compensation expenses is accounted as required by
ICAI guidelines in absence of the fair value option, the impact on loss for the
year is not ascertained’. As per provisions of section 134(2)(f) of the
Companies Act, 2013, the Board was required to include in the Board’s Report
explanations or comments of the Board on every qualification, reservation or
adverse remark or disclaimer made by the Auditor in his report, if any.
However, there was an omission in this respect also since in the Board’s Report
dated 6^th September, 2016 no explanation was provided for the
adverse remarks / comments of the statutory auditors in their Report;

(vii) In terms of the provisions under the Sexual
Harassment of Women at Workplace (Prevention and Prohibition and Redressal)
Act, 2013 the company had to make certain disclosures on the complaints
received, if any, under the said Act. While the company had during the F.Y.
2015-16 complied with the requirements under the said Act, a statement to that
effect was omitted in the Board’s Report; and

(viii) In respect of the paragraph under
Directors’ Responsibility Statement in terms of section 134(3)(c) read with
section 134(5) of the Companies Act, 2013, the wording in the said paragraph
was not on the lines prescribed under the Act and, therefore, warranted a
correction.

On perusal of
the inadequacies of the Board’s Report as noticed and pointed out, it was
observed that they were not serious in nature and happened due to inadvertence
and if permitted to be revised as sought for, would not prejudice the interests
of the company, its shareholders, or stakeholders, or violate any provisions of
the Act. They have also declared that the company has been prompt in all annual
filings with the ROC in the past and all statutory registers and records were
maintained in accordance with the provisions of the Act. Therefore, considering
the fact that the instant petition is filed duly following the provisions of
the Act and the rules made thereunder and thus, by following the principle of
ease of doing business, the company petition is to be disposed of subject to
compliance of provisions of the applicable NCLT rules.

In the result, the company was permitted to
revise its Board’s Report for the financial year 2015-16 in terms of section
131(1) of the Companies Act, 2013.

However, it was made clear to the company
that the order would not absolve the company of any other violation(s)
committed by it and the statutory authorities were entitled to take appropriate
action in accordance with law.

BCAJ Admin

FROM PUBLISHED ACCOUNTS

Audit
Report and Critical Audit Matters paragraph in financial statements of Public
Company Accounting Oversight Board (PCAOB), United States

Compiler’s
Note

The PCAOB is a non-profit
corporation established by Congress to oversee the audits of public companies
in order to protect investors and the public interest by promoting informative,
accurate and independent audit reports. The PCAOB also oversees the audits of
brokers and dealers, including compliance reports filed pursuant to Federal
securities laws, to promote investor protection.

The five members of the PCAOB
Board, including the Chairman, are appointed to staggered five-year terms by
the U.S. Securities and Exchange Commission (SEC), after consultation with the
Chair of the Board of Governors of the Federal Reserve System and the Secretary
of the Treasury. The SEC has oversight authority over the PCAOB, including the
approval of the Board’s rules, standards and budget.

The mission of PCAOB is to
oversee the audits of public companies and SEC-registered brokers and dealers
in order to protect investors and further the public interest in the
preparation of informative, accurate and independent audit reports.

The vision of PCAOB is to be a
trusted leader that promotes high quality auditing through forward-looking,
responsive and innovative oversight. At all times we will act with integrity,
pursue excellence, operate with effectiveness, embrace collaboration and demand
accountability.

Given below is the audit report
of PCAOB for 31st December, 2019.

Opinions on the Financial Statements and Internal Control over
Financial Reporting

We have audited the accompanying
statements of financial position of the Public Company Accounting Oversight
Board (PCAOB) as of 31^st December, 2019 and 2018, and the related
statements of activities and cash flows for each of the years in the two-year
period ended 31^st December, 2019 and the related notes (collectively
referred to as the financial statements). We have also audited the PCAOB’s
internal control over financial reporting as of 31^st December, 2019
based on criteria established in Internal Control – Integrated Framework (2013)
issued by the Committee of Sponsoring Organisations of the Treadway Commission
(COSO).

In our opinion, the financial
statements referred to above present fairly, in all material respects, the
financial position of the PCAOB as of 31^st December, 2019 and 2018
and the results of its operations and its cash flows for each of the years in
the two-year period ended 31^st December, 2019 in conformity with
accounting principles generally accepted in the United States of America. Also,
in our opinion, the PCAOB maintained, in all material respects, effective
internal control over financial reporting as of 31^st December, 2019,
based on criteria established in Internal Control – Integrated Framework (2013)
issued by COSO.

Change in Accounting Principle

As discussed in Note 2 to the
financial statements, during the year ended 31^st December, 2019
PCAOB adopted Accounting Standards Update No. 2014-09, Revenue from
Contracts with Customers (Topic 606) and Accounting Standards Update No.
2018-08, Not-for-Profit Entities (Topic 958): Clarifying the Scope and
Accounting Guidance for Contributions Received and Contributions Made. Our
opinion is not modified with respect to these matters.

Basis for Opinion

The PCAOB’s management is
responsible for these financial statements, for maintaining effective internal
control over financial reporting and for its assessment of the effectiveness of
internal control over financial reporting included in the accompanying
Financial Reporting Management’s Report on Internal Control over Financial
Reporting. Our responsibility is to express an opinion on the PCAOB’s financial
statements and an opinion on the PCAOB’s internal control over financial
reporting based on our audits. We are required to be independent with respect
to the PCAOB in accordance with the relevant ethical requirements relating to
our audit.

We conducted our audits in
accordance with the auditing standards of the PCAOB. Those standards require
that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement, whether due
to error or fraud, and whether effective internal control over financial
reporting was maintained in all material respects.

Our audits of the financial
statements included performing procedures to assess the risks of material
misstatement of the financial statements, whether due to error or fraud, and
performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in
the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as
evaluating the overall presentation of the financial statements. Our audit of
internal control over financial reporting included obtaining an understanding
of internal control over financial reporting, assessing the risk that a
material weakness exists, and testing and evaluating the design and operating
effectiveness of internal control based on the assessed risk. Our audits also
included performing such other procedures as we considered necessary in the
circumstances. We believe that our audits provide a reasonable basis for our
opinions.

Definition and limitations of internal control over financial
reporting

A company’s internal control over
financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally
accepted accounting principles. PCAOB’s internal control over financial
reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the PCAOB; (2) provide
reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the PCAOB are
being made only in accordance with authorisations of management and directors
of the PCAOB; and (3) provide reasonable assurance regarding prevention or
timely detection of unauthorised acquisition, use or disposition of the PCAOB’s
assets that could have a material effect on the financial statements.

Because of its inherent
limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to
future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.

Critical audit matter

The critical audit matter
communicated below is a matter arising from the current period audit of the financial
statements that was communicated or required to be communicated to the board of
directors (1) relate to accounts or disclosures that are material to the
financial statements and (2) involved our especially challenging, subjective,
or complex judgments. The communication of critical audit matters does not
alter in any way our opinion on the financial statements, taken as a whole, and
we are not, by communicating the critical audit matter below, providing
separate opinions on the critical audit matters or on the accounts or
disclosures to which they relate.

Description of the matter

As disclosed
in Note 2, the PCAOB adopted ASU No. 2014-09, Revenue from Contracts with
Customers (Topic 606) (ASU 2014-09) during its fiscal year ended 31^stDecember,
2019. The core principle of this standard is that revenue should be recognised
to depict the transfer of promised goods or services to customers in an amount
that reflects the consideration to which the entity expects to be entitled in
exchange for those goods and services. Historically, the PCAOB has recognised
revenue related to support and annual fees in the year in which they are
assessed, registration fees in the year the application is submitted and
monetary penalties in the year the sanctions are effective. Management
evaluated its historical revenue recognition practices against the requirements
of ASU 2014-09 as part of its adoption of the standard.

Auditing the PCAOB’s adoption of
ASU 2014-09 required complex auditor judgment due to the nature and
characteristics of the PCAOB’s revenues.

How we addressed the matter in our audit

As part of its
consideration of ASU 2014-09, the PCAOB prepared an analysis of its revenue
sources against the concepts included within the standard. This analysis
included the following considerations:

The PCAOB’s revenues are derived from
issuers, broker dealers and public accounting firms. PCAOB does not have a
contract with any of these parties.

The amounts assessed to these parties by the
PCAOB have not been negotiated and these parties are not the direct
beneficiaries of the PCAOB’s services.

The assets transferred to the PCAOB by
issuers, broker dealers and public accounting firms are not transferred on a
voluntary basis.

Based upon its analysis, the
PCAOB concluded the majority of its revenue sources do not meet the criteria
specified to be specifically accounted for under ASU 2014-09. As a practical
alternative, PCAOB looked via analogy to the guidance of ASC 958 for when the
revenue amounts are determinable, they have a right to bill and collect such
amounts, and the amounts are realisable. Based on this analysis, PCAOB
concluded that its revenue should be recognised at the point of billing and, as
a result, recognition policies should remain consistent with historical
practice. In our audit of this conclusion, we performed the following:

We analysed applicable accounting guidance in
ASC 606 and ASC 958 based upon the specific facts and circumstances of the
PCAOB’s revenue types.

We analysed the realisability considerations
for each of the PCAOB’s revenue types.

We analysed applicable issuer, broker dealer
and public accounting firm appeal rights for each of the PCAOB’s revenue types.

We tested controls over the PCAOB’s revenue
recognition process.

In addition to the engagement
team personnel, we consulted with our firm’s revenue recognition subject matter
expert on the adoption of ASU 2014-09 based on the PCAOB’s specific fact
pattern. In addition, we evaluated the PCAOB’s disclosure included in Note 2 in
relation to this matter.

We
have served as the PCAOB’s auditor since 2006.

BCAJ Admin

SOCIETY NEWS

TALK ON ‘ACHIEVING SUCCESS – LIVING VALUES’

The H.R. Committee, along with the RVG Educational Foundation, organised a talk for the benefit of students and young members on 24^th November, 2019 at the RVG Hostel Auditorium. Mr. M.K. Ramanujam addressed the gathering on ‘Achieving Success – Living Values’ in his eloquent style and in an interactive session.

He started his talk by explaining the difference between success and happiness. Success, he said, invariably refers to targets, milestones, goals, etc. But happiness is born out of love, abundance and inspiration. Therefore, one ought to choose to do something out of inspiration and love for a subject, for a career, for one’s dreams and so on. ‘Success’ is a challenge because it is short-lived. One often postpones happiness till one achieves success. Happiness, on the other hand, flows from inspiration during the process of achieving it; and despite the challenges, one remains cheerful.

Mr. Ramanujam explained the acronym ‘PREMA’ and the most important concept of ‘Purpose’.

‘P’ Stands for positive emotions. One must venture out with positive emotions. Negative emotions are like Velcro that gets fixed to us easily. We should not be like Velcro but like a Teflon coating so that we are not stuck to negative emotions. For a daily practice of positive emotions it would be best to remember and note down at least three nice things that happened during the day and objectively assessing why these felt like positive happenings.

‘R’ Stands for Relationships. One must invest time, effort, energy and willingness in building relationships with nature, friends, teachers, seniors, the environment and everything around. They are the best support systems.

‘E’ stands for Engagement. Give your best. Introspect and ask yourself, why are you doing what you are doing? Put all your energy into whatever you are doing. Even if you are compelled to do certain things that you do not want to do (e.g., due to parents’ pressure), put in your best. Love what you do and do what you love. Put your 100% and think beyond your own self. Think what contributes to your happiness… Expand your horizon.

‘M’ stands for Meaning. In all that you do, you ought to have meaning for the self and for all those concerned
with it.

‘A’ stands for Achieving. You must complete what
you have begun. There is joy in finishing and
achieving things.

Purpose: Everything in the universe is driven by purpose. Align your work with the purpose. Clarity of ‘Why’ lightens the burden of ‘How’ and ‘What’. Purpose can be understood with deep introspection with ’Why’ and values can be understood by questioning ‘How’. Success is what others measure in you and happiness is what you measure in yourself.

One hundred and ten participants, including more than 80 students, attended and enjoyed the talk.

President Manish Sampat welcomed the participants and gave information about the Society and also shared its vision. Chairman Rajesh Muni provided a broad outline of the activities of the H.R. Committee, especially those carried out for the benefit of students. He invited and encouraged students to register and participate in the Study Circle and the Students’ annual programmes which enable students to showcase their talents.

Mr. Lalchand Chaudhari, President of the RVG Foundation, shared information about the number of chartered accountants who had benefited as alumni of the hostel. He also shared the ‘Vision 2024’ plan set out for RVG. Mukesh Trivedi proposed the vote of thanks.

WORKSHOP ON NBFCS

The NBFC sector has been facing several challenges of late. Apart from business and regulatory challenges, it is also confronted with challenges in Ind AS implementation and other compliances of ECL provisioning and disclosure, etc. Further, regulatory norms are also being notified on a frequent basis.

The Accounting and Auditing Committee of the BCAS has always been at the forefront in planning programmes for NBFCs in order to bolster them and to equip professionals to deal with challenges. Accordingly, the Committee conducted a ‘Workshop on NBFCs’ on 13^th December, 2019 at Hotel Orchid, Mumbai to have an in-depth discussion on the current developments in the field from the regulatory perspective and various issues arising from first-time Ind AS implementation.

It was structured into five sessions followed by a panel discussion. The technical sessions dealt with a variety of topics such as Key regulatory updates in the NBFC Sector, Financial Instruments, Applying the ECL Model and related disclosure requirements, Disclosure requirements under Schedule III of the Companies Act, 2013, Statutory audit aspects, followed by an interesting panel discussion on Challenges of first-time adoption of Ind AS.

The Workshop was attended by more than 80 persons, with increased participation from the industry.

The Workshop started with an inaugural address by Samir Kapadia, BCAS Hon. Joint Secretary, who stressed the importance of NBFCs in the overall development of the financial sector in India. Himanshu Kishnadwala, Chairman of the Committee, introduced the structure of the Workshop to the participants, the thought process behind its design and the need for such a Workshop.

The first session was conducted by Bhavesh Vora who dealt with the important aspects of key regulations surrounding NBFCs and the recent changes therein. While dealing with these, he also took participants on a journey of the NBFC sector over a period of time and gave valuable insights into the regulatory impact on various categories of NBFCs.

In the second session, Santosh Maller dealt with Financial Instruments, Classification of Financial Instruments based on the business models and the measurement of various Financial Instruments with several examples for ease of understanding.

Rukshad Daruvala, who conducted the third session, took up the key issues and requirements in applying the Expected Credit Loss (ECL) model dealing with the provisioning requirements of Advances of NBFCs.

Post lunch, Rukshad Daruvala was once again at the helm, at the session on Disclosure Requirements under Schedule III, including various critical disclosures required under the Ind AS regime.

The subject of Statutory Audit aspects was dealt with in the fifth session by Jayesh Gandhi. He discussed in detail the requirements while conducting audit of NBFCs and shared his vast experience with the participants as
he explained the importance of Audit in the current economic scenario.

In the final session, the challenges of first-time adoption of Ind AS were discussed by a panel comprising Govind Jain, Jayesh Gandhi and Haren Parekh. The discussion was ably moderated by Ashutosh Pednekar. It revolved around the first-time adoption challenges faced by the NBFC industry and the auditors’ perspective on the same. The panellists shared their practical experience on the subject for the benefit of all participants.

TRAINING SESSION FOR CA ARTICLE STUDENTS

The Students’ Forum under the auspices of the H.R.D. Committee organised a training session for CA article students on ‘Recent Developments in Income Tax’ on 10^thJanuary, 2020 at the BCAS Hall.

It was conducted by Jayna Shah. Ms Dhristhti Bajaj, the student coordinator, introduced the speakers and described the upcoming events for students.
Anand Kothari, Convener of the H.R.D. Committee, welcomed the speakers and presented them with a memento each.

Jayna Shah explained the various amendments in income tax such as the change in the corporate tax rate, introduction of faceless assessment, changes to boost cashless economy, new provisions and amendments in TDS provisions and so on. It was an interactive session and the speakers answered all the queries raised by the participants.

The training session ended with Student Study Circle Coordinator Dnyanesh Patade proposing the vote of thanks to the speakers and also to the participants.

NANI PALKHIWALA MEMORIAL LECTURE

The Nani Palkhiwala Memorial lecture meeting was organised jointly with the Forum of Free Enterprises at NCPA Tata Theatre on 16^th January, 2020.
Mr. N. Chandrasekaran, Chairman of Tata Sons Ltd., who was the guest speaker, dwelt on the subject ‘Building India for the Future’. Mr. Y.H. Malegam presided over the proceedings.

A documentary film, ‘Nani the Crusader’, was screened at the start of the meeting. It was based on the life of the late Mr. Nani Palkhiwala and showed glimpses of his life, his rise in the legal fraternity and the accolades that he won from all quarters on account of his brilliance. It also threw light on some of the major cases on Constitutional matters that he had won and that saved India’s democracy and shaped the country’s future.

The film screening was followed by the release of a book, ‘Essays & Reminiscences’ in honour of Mr. Palkhiwala. Mr. Arvind P. Datar, the general editor of the book, fondly recalled his vivid memories of the late stalwart.

Mr. Chandrasekaran spoke of suspicions and ‘micro-management’ of the economy as the impediments faced by businesses in India. He stressed on the need for creating a harmonious atmosphere by trusting and treating business as an essential pillar for
nation-building. The Tata group was an excellent example of how business can contribute to nation-building. Mr. Palkhiwala had set an example of how businesses, by maintaining their core values, could co-exist in a competitive economy and had helped government to build the present-day India. This happened because even his strictest criticism was taken in a positive spirit and with implicit trust by the government.

The core thrust of Mr. Chandrasekaran’s speech was how, with the co-operation of business and government, the vast potential of India could be tapped and the benefits of growth could reach the poorest segment of people to build a strong India, making its future
extremely bright.

Mr. Deepak Parekh, HDFC Bank Chairman, while proposing the vote of thanks, called for maintaining the values of the Indian Constitution. Pointing out that ‘while times and circumstances change, strong values and principles do not’, he said that while we should hold on to the learnings that Mr. Palkhiwala had left behind, it was important not to be consumed by ‘pessimism and doom-mongering’. Admitting that he was an optimist, he said he was confident about the future of India and that ‘our youth will see India’s best days’.

SEMINAR ON PRESUMPTIVE TAXATION

The Taxation Committee organised a seminar on ‘Presumptive Taxation’ with several distinguished speakers sharing their deep knowledge on the subject. It was held at the Walchand Hirachand Hall of the IMC on 18^th January, 2020. The event attracted overwhelming response and saw an attendance of 111 participants, including outstation participants from five different cities / towns. President Manish Sampat welcomed the attendees and gave the opening remarks.

The following topics were taken up for discussion by the speakers:

Sections 44AD and 44ADA: – • Purpose of the provision • How is it different from section 28 – 43CA • Assessee to offer business income under this section • Assessees who cannot offer income under presumptive taxation • Maintenance of books of accounts• Calculations of gross receipts• Determination of GR without BOA and case studies	Bhadresh Doshi
Sections 44AE, 44AF, 44BB, 44BBA, 44BBB – Purpose of the sections, applicabiltity, issues, recent jurisprudence – Interplay of tax audit – Case studies	Mehul Shah
Brain trust questions – Presumptive taxation issues –Issues concerning return of income, books of accounts, tax audit, assessments, penalties, ICDS, etc.	Gautam Nayak, Anil Sathe and Kinjal Bhuta

In the first session, Bhadresh Doshi highlighted the technical aspects of sections 44AD and 44ADA. He concentrated on various issues arising right from the time of the introduction of the presumptive taxation scheme under these two sections. He gave his views and insights on multiple issues and explained the jurisprudence affecting them. He advised participants to read and understand the section and scheme and not to rely on general perceptions.

On his part, Mehul Shah dwelt on the presumptive basis of taxation under sections 44AE, 44AF, 44BB, 44BBA and 44BBB. He explained sections with the help of case studies. It was a highly interactive session and the speaker answered all the questions posed by the participants.

Gautam Nayak, Anil Sathe and Kinjal Bhuta were the ‘brain trustees’ for the last session that was moderated by Ameet Patel. The ‘brain trustees’ were allotted specific questions based on various issues raised by BCAS members from time to time.

Starting the session, Gautam Nayak gave his views on whether presumptive taxation provisions under sections 44AD and 44ADA are qua assessee or qua income. He also responded to various issues raised by the participants pertaining to sections 44AD and 44ADA.

Anil Sathe gave his views on fundamental issues concerning the presumptive basis of taxation and responded to questions based on real examples. He also gave his views on issues concerning sections 44AE and 44BB.

Finally, Kinjal Bhuta shared her insights while addressing questions relating to important definitions such as eligible business, etc. under the presumptive basis of taxation. She also elaborated on the overall scheme and answered queries related to return of income for assessees adopting the presumptive basis of taxation.

All the sessions were interactive and the speakers shared their insightful views. The participants benefited immensely from the guidance and practical views on various issues offered by the faculties.

NFRA AND PCAOB – DISSECTING

PERFORMANCE EVALUATION OF AUDITS

A lecture meeting was organised on 22^nd January, 2020 in the BCAS Conference Hall to deal with the above topic. It was addressed by Chirag Doshi who went through the process of inspection by the Public Company Accounting Oversight Board (PCAOB) of a firm’s quality controls and review of audit assignments carried out by that firm.

He provided an overview of the functioning of the PCAOB with its top areas of focus during the exercise of a firm’s quality review process. The major focus areas were:

(i) System of quality control in firms;

(ii) Independence;

(iii) Recurring audit deficiencies relating to ICFR, Revenue Recognition, Allowance for loan losses, Other Accounting Estimates and ROMMs.

The review process is split into two parts, viz., Quality Control Review and Audit Engagement Review. The major focus is on compliance with auditing standards and not the accounting standards.

Chirag Doshi dwelt on the on-field procedure for review as well as the procedure after field reviews and highlighted the thorough professionalism and independence involved in the whole review process.

He then dealt with the National Financial Reporting Authority (NFRA) which has been constituted on the lines of the PCAOB with the objective of monitoring and enforcing compliance with auditing standards. For achieving this objective, the NFRA would be reviewing the working papers of the audit firms and other communication related to the audits to evaluate the sufficiency of the quality control system of the auditor.

Chirag Doshi went on to deal with the first report of NFRA in the form of an Audit Quality Review (AQR) Report in the case of the auditee, ‘IL&FS Financial Services Limited’ for the F.Y. 2017-18. The purpose of discussing the findings was to make the members aware of the necessity to document and to put on record the findings during the audit process in such a manner that it goes on to prove the independence of the auditor as well as displaying adequate professional scepticism during the conduct of the audit process.

He provided inputs for creating an in-house audit manual by small and medium-size firms for the efficient conduct of audit.

The meeting was well attended and attracted a full house.

FEMA STUDY CIRCLE

Here is a brief report on the FEMA Study Circle meeting held at the BCAS Conference Hall on 23^rd January, 2020.

Ms Mitali Pakle’s presentation was comprehensive and lucid in nature and covered a variety of case laws that made it easy for everyone to grasp the subject matter being discussed. In the course of her brief talk, the speaker managed to cover various aspects of the ECB Guidelines and made it quite interesting.

The discussion was further enriched by some thought-provoking questions that the participants posed and the answers provided by the speaker.

DTAA COURSE 2019-20

The 20^th Study Course on Double Taxation Avoidance Agreement was conducted at the BCAS Hall over nine days – 13^th, 14^th, 20^th and 21^st December, 2019 and 4^th, 5^th, 11^th, 12^th and 25^th January, 2020.

Thanks to regular feedback and continuous refinement, the Study Course was re-designed and covered all BEPS and MLIs along with the Articles of DTAA, FEMA / GAAR, Transfer Pricing, Source Rules under the Income-tax Act, 1961, TDS u/s 195, Substance vs. Form and other relevant provisions.

All the lectures delivered by 31 eminent faculties were very well received. The faculties were generous in sharing their experience by way of case studies on critical topics such as residence and PE, as well as the amendments sought to be made through the MLI.

The Study Course was attended by 73 participants from diverse backgrounds such as senior professionals, practising CAs, young professionals associated with big and SME accounting firms and so on. Apart from Mumbai, there were registrations from other cities such as Ahmedabad, Baroda, Chennai, Jaipur and Delhi. All of them contributed to making the course a huge success.

For those who came in late, the Study Course is an eagerly-awaited event amongst the practitioners of international taxation from all over the country and was well received and appreciated. It was coordinated by Maitri Ahuja and Mahesh Nayak.

‘INDIAN PRIVATE TRUSTS – TAX AND FEMA ASPECTS’

The International Taxation Committee arranged a meeting on ‘Indian Private Trusts – Tax and FEMA Aspects’ on 28^th January, 2020 at the BCAS Conference Hall. The meeting was led by Group Leader Naresh Ajwani who explained the far-reaching income tax and FEMA implications in case of trusts.

The speaker walked the audience through the provisions of income tax and FEMA on trusts and explained various basic terms, the genesis of trusts, kinds of trusts, ownership of trust property, AOP / BOI taxation, beneficial interest, beneficial ownership and other provisions. With the help of some simple illustrations, he explained various concepts and particulars – including terms that do not exist in Indian law such as ‘Trust is not a person’, ‘Grantor Trust’, ‘Trustee taxable as Representative Assessee’ and so on.

Naresh Ajwani also dealt with and answered queries raised by members of the audience. The meeting was interactive and the participants received enormous benefit from the discussion and the insights provided.

Acknowledging the importance of the subject, the Committee plans to host another meeting on trust provisions, details of which will be shared with members very soon.

FELICITATION OF YOUNG CAS AND ‘VISION 2020 – SHAPING THE FUTURE’ FOR NEWLY-QUALIFIED CAS

A special programme was organised for the newly-qualified Chartered Accountants (emerging successful from the November, 2019 examination) under the aegis of the Seminar, Public Relations and Membership Development (SPR&MD) Committee. But within a few days of the announcement, the online enrolments crossed the record figure of 300, forcing BCAS to close registrations!

The event was held at the BCAS Hall on Friday, 31^stJanuary, 2020. It attracted a full house of over 190 participants, including some walk-ins. They were greeted at the registration desk with a few BCAS publications – ‘Changing Paradigms for CSR in India’, a ‘Monograph Series’ containing five booklets on various laws, a copy of the BCAJ Journal of the last two months and BCAS membership forms.

The evening started with a one-on-one interactive session focussed on mentoring with eminent mentors, Nandita Parekh and Robin Banerjee. The participants were divided into two groups between the speakers so that they could interact and take help from them on all their queries, including guidance for future careers. These sessions were appreciated by all the newly-qualified CAs.

This was followed by an address by President Manish Sampat who talked about his early days as a qualified Chartered Accountant, the sound advice that he had received from his seniors to associate himself with the BCAS, the positive impact that the Society had had on his career as a CA – and to the present day when he heads the Society as President. He also briefed the new CAs on the various initiatives of the Society.

Narayan Pasari, Chairman of the SPR&MD Committee, pointed out that the youth or ‘yuva shakti’ is an integral part of the numerous activities organised by the BCAS. He appealed to the new CAs to become members of BCAS, benefit from it and play an active role in its innumerable activities. He pointed to the BCAS Referencer, the Annual RRC and the other programmes conducted in the last few months and said that youth had contributed significantly in all these events.

He proudly revealed that the BCAS is very active on social media and its handle @BCASGlobal has recently crossed the 33K mark; it also has 11K followers each on LinkedIn and YouTube.

The ‘Thought Leader’ for the evening, Nilesh Vikamsey, then took the floor and offered valuable advice to young CAs from the variegated learnings of his own life. He spoke at length on upcoming fields for CAs and stated that he believes ‘ABCD is the future’ – that is, Artificial Intelligence, Block Chains, Cyber Security and Data Analytics.

He also answered all the questions posed to him by the newly-minted CAs. He advised them to join the nearest Study Circles and pointed out that at an association like BCAS, the process of learning never stopped.

This was followed by a felicitation ceremony, with all the participants being presented with a memento by ‘Team BCAS’. The event showcased the vibrancy of the participants, many of whom showed great interest in signing up to become members of the Society.

Interestingly, some of the participants were eager to ask even more questions to their Mentors. The proceedings ended with a vote of thanks proposed by the coordinator, Rimple Dedhia.

18^TH RESIDENTIAL LEADERSHIP RETREAT

The 18^th Residential Retreat programme was held on 7^th and 8^thFebruary, 2020 on the theme ‘Future Begins Now’. Twenty-nine participants, including ten newcomers, had registered for the programme. The trainer, Mr. Deepak Shinde (a disciple of Shri Mahatria), had flown in from Bengaluru for the event.

A cool winter breeze flowing over the green, serene and spacious campus, amidst the shade of swaying trees and the chirping of birds, set the perfect tone for the Retreat, which was held at the Rambhau Mhalgi Prabodhini, Essel World Road, Uttan.

The programme commenced with the invocation prayer. President Manish Sampat welcomed the participants and shared information about the activities of the BCAS. He proudly narrated his journey at the Society which had begun many years ago as Convener of the Human Resource Committee. He complimented the participants and the organising team for devising such an interesting workshop.

Trainer Deepak Shinde discussed several important concepts and pointers of life with the participants over the two-day Retreat.

He opened with the story of Alexander the Great King and the Saint Diogene, driving home the point that to become king or to achieve something, one has to put in huge efforts. But to be like Saint Diogene (and in permanent bliss) one need not depend on external things. One can be in that state quite naturally. To be happy, one must adhere to right values. One can be an achiever, become successful and also remain blissful like a saint.

His advice was to always begin the day with the greeting ‘Happy Morning’. Doing this all 365 days of the year would turn it into a habit. And one would not need to depend on people, places, objects, time, or seasons to be happy. If one was dependent on such external factors, the happiness would be temporary and external factors would make one subservient and vulnerable to them.

‘We have a tendency to judge people with our own biased and limited vision. In doing so we miss to be in touch with people and miss happiness. One’s life must be full of happiness and love, such that the epithet on one’s grave describes one’s life with apt, inspiring and happy words.’

In the second session, Trainer Deepak Shinde spoke about perfect balance and alignment of the laws of nature and man’s tendency to interfere. He used the simile of a Rubik’s Cube. At the beginning it is perfectly balanced with each of six sides uniformly reflecting one colour. The moment one turns, twists and revolves the cube, the entire symmetry of colour and pattern gets disturbed. The learning from this is not to interfere with the well-aligned laws of nature.

He then moved to thoughts and words. One becomes as one thinks; similarly, as one feels, so one attracts. He discussed at length the power of positive words and prayers and said that cheerfulness, abundance, gratitude, appreciation, encouragement and inspiration bring happiness and energy.

The third, evening session, was conducted in the open amphitheatre area, in the lap of nature, and the Trainer discussed peace vs. prosperity. He emphasised that one must clearly define what one wants in life. To earn peace and goodwill, one may come under pressure to sacrifice one’s own space. On the other hand, to enjoy material wealth one may have to compromise with values, goodwill and peace. The question was how to balance both, peace and prosperity? By using positive words and feelings, one can be in harmony and have perfect balance, he stressed.

Practising grace. Grace is one’s ability to carry out an act without disturbing the environment. ‘With grace, accept the outcome of action, inaction and efforts as a gift of the Lord (prasad buddhi).’

Late in the evening on the first day, the participants enjoyed a brilliant campfire. Some of them took to singing and dancing to music. The relaxed participants appeared charged up for the next morning’s session.

The first session on the second day began quite early, at 7 o’clock, in an open area witnessing the rising sun and its golden glow. The discussion turned to ‘Faith’ and ‘Energy’. Faith is something invisible with strong conviction of its presence. Trainer Deepak Shinde called faith the thread of a kite flying high in the sky. It is the connection with the thread that keeps the kite (symbolising life) flying high in the sky.

He explained the ‘God concept’ with cause and effect principles. One draws energy from the effulgence of the sun and knowledge; exercise and sattvik food for the body, positive words and prayer for the mind; and reflection, contemplation and meditation for the intellect. Energy charges the sub-conscious mind. ‘Therefore, live with grace and align with nature with faith and receive energy’.

Narrating a conversation between Lord Rama and Hanuman, he shared the view that our faith in the Lord is much more powerful than the Lord. ‘God is the symbol of love. One need not have fear of the Lord.’

In the third session, the discussion focused on relations, expectations and situations. In life sometimes one may need to take a U-turn from one’s position. One ought to understand the people around, understand that man expects happiness and woman, love. But both love and happiness are complementary. Learn to say no without guilt and not to please others.

The two-day programme concluded with a vote of thanks.

BCAJ Admin

GOODS AND SERVICES TAX (GST)

I. SUPREME COURT

32. [2020 113 taxmann.com 422 (SC)] Nirmal Kumar Parsan vs. Commissioner of

Commercial Taxes Date of order: 21^st January, 2020

When the assessee imported the goods,
stored the same in a custom bonded warehouse and sold them to foreign-going
vessels for consumption on board, the State in which such warehouse is situated
shall have a right to levy sales tax on the same and the transaction does not
amount to sale in the course of import

FACTS

The principal question involved in
these appeals is whether the subject sales (of goods imported from a foreign
country and after unloading the same on the landmass of the State of West
Bengal, kept in the bonded warehouse without payment of customs duty) to
foreign-bound ships as ‘ship stores’ can be regarded as sale within the
territory of the State and therefore liable for sales tax under the West Bengal
Sales Tax Act, 1954 (‘the 1954 Act’).

After importing foreign-made
cigarettes, the appellants stored the same in the customs bonded warehouse
within the landmass of the State of West Bengal and some of those articles were
sold to the Master of a foreign-going ship as ship stores, without payment of customs
duty. The assessee contended that the process of import was not complete at the
time of sale to the foreign-going ship and the transaction was a sale in the
course of import. It further contended that there was no sale within the
State of West Bengal or even in India because the buyer had no right to consume
the goods before the ship crossed the territorial waters of India. According to
the authority, it was not a sale in the course of import. The High Court upheld
the decision of the Tribunal that the sales were within the territory of the
State of West Bengal and amenable to sales tax.

HELD

The Supreme Court referred to various
judgments and held that it is clear that the sale to be in the course of import
must be a sale of goods and, as a consequence of such sale, the goods must
actually be imported within the territory of India and further that the sale must be part and parcel of the
import so as to occasion import thereof. Indeed, for the purposes of the
Customs Act, only upon payment of customs duty are the goods cleared by the
customs authorities when import thereof can be regarded as complete. However,
that would be no impediment for levy of sales tax by the State concerned in
whose territory the goods had already landed / been unloaded and kept in the
bonded warehouse.

The Court further explained that for
seeking exemption it is necessary that the goods must be in the process of
being imported when the sale occurs, or the sale must occasion the import
thereof within the territory of India. The word ‘occasion’ is used to mean ‘to
cause’ or ‘to be the immediate cause of’. Thus, the sale which is to be
regarded as exempt from payment of sales tax is a sale that causes the import
to take place, or is the immediate cause of the import of goods. The Court
observed that in the present case the stated sales in no way occasioned import
of the goods into the territory of India. Moreover, there is no direct linkage
between the import of the goods and the sale in question to qualify as having
been made in the process or progress of the import.

In order to decide whether the stated
sales can be deemed to have taken place in the course of import of the goods
into the territory of India before the goods had crossed the customs
frontiers of India, which is the core requirement of section 5(2) of the
CST Act, the Court examined the expression ‘crossing the customs frontiers of
India’ as has been defined in section 2(ab) of the CST Act. The Court held that
going by the definition of ‘customs port’ or ‘land customs station’ as
applicable in the present case, it is the customs port or the land customs
station area appointed by the Central Government in terms of notification u/s
7.

The Court observed that the bonded
warehouses, where the goods were kept and the stated sales took place by
appropriation of the goods thereat, were not within the area notified as
customs port and / or land customs station u/s 7 of the Customs Act. The Court
also noted that there is nothing to indicate that the bonded warehouse, where
the stated goods were kept by the appellants and eventually sold, formed part
of the customs port / land customs station. Therefore, it held that as the
stated goods had travelled beyond the customs port / land customs station at
the relevant time, in law, it would mean that the goods had crossed the customs
frontiers of India for the purposes of the CST Act.

II. HIGH COURT

33. [2020 114 taxmann.com 122 (Delhi)] Pitambra Books (P) Ltd. vs. UOI Date of order: 21^stJanuary, 2020

High Court stayed
the operation of paragraph 8 of Circular No. 125/44/19-GST dated 18^th
November, 2019 which mandated periodicity in the filing of the refund claim
with a restriction that refund claim to be filed cannot spread across different
financial years

FACTS

The petitioner engaged in the business
of manufacturing and trading of books also exports its products, which is
categorised as zero-rated supplies as per section 16(1)(a) of the Integrated
Goods and Services Tax Act, 2017. The petitioner challenged Circular No.
37/11/2018-GST dated 15^th March, 2018 and Circular No. 125/44/19-GST
dated 18^th November, 2019 to the extent they provide that the period
for which refund claim is filed cannot spread across different financial years.
The petitioner submitted that the said clause restricts the claim of refund in
case it relates to different financial years causing serious financial hardship
as more than Rs. 30 crores of accrued and unutilised input tax credit that is
eligible for refund is now lying stuck. The petitioner submitted that as per
section 54(3) of the CGST Act, a person making zero-rated supplies can claim
refund of unutilised input tax credit at the end of any tax period by making a
refund application before the expiry of two years from the relevant date.
Hence, the aforesaid restriction is ultra vires the Act and the
provisions contained under it.

It was also argued that Rule 89(4) of
the CGST Rules containing the formula for calculating input tax for refund is
in contravention of section 16 of the IGST Act read with section 54 of the CGST
Act as the said Rule restricts the computation of the refund taking the basis
of ITC ‘availed during the relevant period’. The ‘relevant period’ has been
defined in Rule 89(4)(F) as the period for which the claim has been filed. It
was argued that the said circular to the extent it restricts the refund claims
only on monthly basis is contrary to the rights conferred by the Act.

The Revenue submitted that the refund
is subject to conditions and therefore the Government is well within its
jurisdiction to impose conditions by way of the impugned circular. Further, it
was submitted that u/s 2(106) of the GST Act, the ‘tax period’ has been defined
to mean a period for which a return is required to be filed. The return under
the Act has to be filed on a month-to-month basis and, therefore, the
petitioner does not have any right to claim refund for one financial year in
another year.

HELD

The Court called upon the Government to
file a detailed affidavit in reply; however, it gave a prima facie view
that the restriction pertaining to the spread of refund claim across different
financial years is arbitrary and that there is no rationale for such a
constraint. It further held that the entire concept of refund of ITC relating
to zero-rated supply would be obliterated in case the respondents are permitted
to put any limitation and condition that takes away the petitioner’s right to
claim a refund of all the taxes paid on the domestic purchases used for the
purpose of zero-rated supplies. The incentive given to the exporters would lose
its meaning and this would cause grave hardship to the exporters who are
earning valuable foreign exchange for the country. The respondents cannot,
artificially, act contrary to the fundamental spirit and object of the law and
contrive ways to deny the benefit which the substantive provisions of the law
confer on the taxpayers.

Thus, the Court held that the
petitioner has a strong prima facie case and it cannot be denied its
right to claim a refund which is visible from the mechanism provided under the
Act. Further, referring to the case of Pioneer India Electronics (P) Ltd.
vs. Union of India & Anr. ILR (2014) II DELHI 791, the Court observed
that circulars might mitigate rigors of law by granting administrative relief
beyond relevant provisions of the statute; however, the Central Government is
not empowered to withdraw benefits or impose stricter conditions than
postulated by the law. The High Court accordingly stayed paragraph 8 of Circular No. 125/44/2019-GST dated 18^th November,
2019 and also directed the respondents to either open the online portal so as
to enable the petitioner to file the tax refund electronically, or to accept the
same manually.

BCAJ Admin

SERVICE TAX

I.
HIGH COURT

26. [2020-TIOL-397-HC-AP-ST] Vasudha
Bommireddy vs. Assistant Commissioner
of Service Tax, Hyderabad Date of
order: 20^th December, 2019

Tax collected without
authority of law is liable to be refunded with interest

FACTS

A writ petition was filed for refund of
service tax consequent upon the decision of the Delhi High Court in Suresh
Kumar Bansal’s case, 2016-TIOL-1077-HC-DEL-ST, wherein it was
held that in respect of the composite contracts for purchase of immovable
property along with goods used therein and also a part of the undivided land,
service tax cannot be levied on the composite price as per the provisions of
the Act as the statute did not contain any mechanism to segregate / bifurcate
the value of goods and the cost of the land from the gross value for
determining the value of the service.

HELD

The Court noted that the refund (plea)
is filed within two months of the decision of the Delhi High Court. Article 265
of the Constitution of India provides that ‘no tax shall be levied or collected
except by authority of law’. Therefore, refund was sanctioned with interest of
9% per annum from the date of payment.

II. TRIBUNAL

27. [2020-TIOL-249-CESTAT-Ahm.] Surya
Shipping vs. Commissioner of Central Excise and Service Tax Date of
order: 22^nd August, 2019

The difference
between freight received and freight paid is not a service liable to service
tax

FACTS

The assessee is engaged in purchasing
space on ocean-going vessels from shipping companies and selling the same to
various exporters. The shipping companies raise invoices on the assessee for
freight and the assessee in turn raises its own invoices on the exporters for
the freight. The difference in freight represents the profit or loss, as the
case may be, in respect of the said activity of buying and selling space on the
ocean-going vessels. The Revenue claimed that the profit or excess freight is
taxable under Business Support Service. The demand was confirmed by the
Commissioner (Appeals). Hence, the present appeal was filed.

HELD

The Tribunal noted that there is no
service involved in such transaction as the purchase and sale of the space is
an activity of sale and purchase and hence not liable to service tax. Further,
relying on several judgments it is held that any amount charged for space on
ocean-going vessels, over and above the purchase price, is not liable to
service tax.

28. [2020-TIOL-324-CESTAT-Mad.] M/s
Broekman Logistics India Private Limited vs. Commissioner of GST and Central
Excise Date of
order: 31^stJanuary, 2020

The intention of
creating a Free Trade Zone is to give exemption from levy of all duties and
taxes and therefore by application of service tax rules, place of provision of
service rules, the activities undertaken by such units cannot be made taxable

FACTS

The appellants are engaged in the
business of logistics supply, chain management, clearing and forwarding,
licensed CHA, etc. They did not pay any service tax on the services provided by
them from the Free Trade Warehousing Zone (FTWZ) exclusively to foreign-based
clients. It was contended by the Revenue that the service does not qualify as
export of services, therefore tax is payable.

HELD

The Tribunal primarily noted that the
Special Economic Zone Act, 2005 provides for exemption from service tax.
Section 51 states that the Act will have overriding effect notwithstanding
anything inconsistent in any other law. The Act, therefore, overrides the
Finance Act, 1994. Accordingly, it was held that the Department cannot press
the application of service tax rules, place of provision of service rules or
other rules to hold that the appellant has not exported any service. The
meaning of service and export contained in the special legislation by which SEZ
or FTWZ has been created has to be given effect. Thus, the demand was set
aside.

29. [2020-TIOL-209-CESTAT-All.] M/s Radhey
Krishna Technobuild Pvt. Ltd. vs. Commissioner of Central Excise Date of
order: 17^th December, 2019

Electric meter
charges collected along with the sale of residential units is a bundled service
u/s 66F of the Finance Act, 1994; therefore, the electric charges collected is
also admissible for abatement

FACTS

During the time of sale of residential
units the assessee was also collecting some charges from the buyers under the
head ‘electric meter main load supply charges’ and was discharging service tax
by claiming an abatement. The Revenue opined that such charges collected were
other than the construction of residential complex service and therefore
abatement was inadmissible.

HELD

The Tribunal noted
that section 66F(3) of the Finance Act, 1994 provides that taxability of a
bundled service shall be determined if various elements of such services are
naturally bundled in the ordinary course of business. The charges for electric
meter main load supply were collected along with the consideration for sale of
residential unit and they were collected from every person to whom the
residential unit was sold; further, as explained, the same was for providing
electricity supply during power failure/s to the residents of the complex.
Therefore, such service is bundled service u/s 66F of the Finance Act, 1994.
Accordingly, the abatement is admissible and the demand is set aside.

BCAJ Admin

MISCELLANEA

I.
Technology

18. Amazon, Flipkart
challenge new Indian tax on online sellers

Amazon and Walmart’s Flipkart are among
online retailers demanding that India scale back a proposed tax on third-party
sellers on their platforms, saying the burden of compliance will hurt the
fledgling industry. The online retail industry is braced for a possible 1% tax
on each sale made by sellers on their platforms from April if the proposal is
approved by Parliament next month.

The move is part of a broader plan by
the government to increase tax revenues and counter a sharp economic slowdown
due to weakening consumer demand. But the tax will hurt the country’s fledgling
e-commerce sector, according to a presentation prepared by the Federation of
Indian Chambers of Commerce and Industry (FICCI) for the government.

The Finance Ministry declined to
comment. Some third-party sellers are also pushing back against the tax,
arguing that it would negatively impact their working capital, adding that they
already contribute to a nationwide sales tax.

This tax will be ‘extremely detrimental
to the growth and sustenance’ of small online sellers and make the model
‘unviable’, Unexo Life Sciences, a seller of healthcare products on Amazon’s
India website, said in an email to the Central Board of Direct Taxes. Online
vendors, or sellers with revenue of less than half a million rupees in the previous
year, as well as brick-and-mortar retailers, will be exempted from the new tax,
although they are subject to the nationwide sales tax.

The tax would apply to the income of
drivers on ride hailing firms, such Uber and Ola, as well as sales on restaurant
aggregators, including Zomato and Swiggy.

(Source:
in.reuters.com)

II. World News

19. Coronavirus could
damage global growth in 2020: IMF

The coronavirus epidemic could damage
global economic growth this year, the IMF Head said on Sunday, but a sharp and
rapid economic rebound could follow. ‘There may be a cut that we are still
hoping would be in the 0.1-0.2 percentage space,’ the MD of the International Monetary
Fund, Kristalina Georgieva, told the Global Women’s Forum in Dubai.

The full impact of the spreading disease
that has already killed more than 1,700 people would depend on how quickly it
was contained. ‘I advise everybody not to jump to premature conclusions. There
is still a great deal of uncertainty. We operate with scenarios, not yet with
projections, ask me in 10 days,’ Georgieva said.

In its January update to the World
Economic Outlook, the IMF lowered the global economic growth forecast in 2020
by 0.1 percentage point to 3.3%, following a 2.9% growth the previous year, the
lowest in a decade. The MD said it was ‘too early’ to assess the full impact of
the epidemic but acknowledged that it had already affected sectors such as
tourism and transportation.

‘It is too early to say because we don’t
yet quite know the nature of this virus. We don’t know how quickly China will
be able to contain it. We don’t know whether it will spread to the rest of the
world.’ If the disease is ‘contained rapidly, there can be a sharp drop and a
very rapid rebound’, in what is known as a V-shaped impact, she said.

Compared to the impact of the Severe
Acute Respiratory Syndrome (SARS) in 2002, she pointed out that China’s economy
then made up just 8.0% of the global economy. Now, that figure was 19%. The
trade agreement between the United States and China, the world’s first and
second economies, had reduced the disease’s impact on the global economy.

But the world should be concerned ‘about
sluggish growth’ impacted by uncertainty.
‘We are now stuck with low productivity growth, low economic growth, low
interest rates and low inflation,’ the IMF chief told the Dubai forum.

(Source:
www.business-standard.com)

III. Health

20. Coronavirus
disease advice for the public – Basic protective measures suggested by WHO

Wash your hands
frequently

Wash your hands frequently with soap and
water or use an alcohol-based hand-rub if your hands are not visibly dirty.

Why? Washing your hands with soap and
water or using alcohol-based hand-rub eliminates the virus if it is on your
hands.

Practice respiratory
hygiene

When coughing and sneezing, cover mouth
and nose with flexed elbow or tissue – discard tissue immediately into a closed
bin and clean your hands with alcohol-based hand-rub or soap and water.

Why? Covering your mouth and nose when
coughing and sneezing prevent the spread of germs and viruses. If you sneeze or
cough into your hands, you may contaminate objects or people that you touch.

Maintain social distancing

Maintain at least 1 metre (3 feet)
distance between yourself and other people, particularly those who are
coughing, sneezing and have a fever.

Why? When someone who is infected with a
respiratory disease like 2019-nCoV coughs or sneezes, that person projects
(ejects) small droplets containing the virus. If you are too close, you may
breathe in the virus.

Avoid touching eyes,
nose and mouth

Why? Your hands touch many surfaces
which may be contaminated with the virus. If you touch your eyes, nose or mouth
with your contaminated hands, you may transfer the virus from the surface to
yourself.

If you have fever,
cough and difficulty breathing, seek medical care early

Tell your health care provider if you
have travelled in an area in China where 2019-nCoV has been reported, or if you
have been in close contact with someone who has travelled from China and has
respiratory symptoms.

Why? Whenever you have fever, cough and
difficulty in breathing, it’s important to seek medical attention promptly as
this may be due to a respiratory infection, or any other serious condition.
Respiratory symptoms with fever can have a range of causes, and depending on
your personal travel history and circumstances, 2019-nCoV could be one of them.

If you have mild
respiratory symptoms and no travel history to or within China

In such a case, carefully practice basic
respiratory and hand hygiene and stay at home until you have recovered.

Practice general
hygiene measures when visiting live animal markets, wet markets or animal
product markets

Ensure regular hand washing with soap
and potable water after touching animals and animal products; avoid touching
eyes, nose or mouth with hands; and avoid contact with sick animals or spoiled
animal products. Strictly avoid any contact with other animals in the market
(such as stray cats and dogs, rodents, birds, bats). Avoid contact with
potentially contaminated animal waste or fluids on the soil or structures of
shops and market facilities.

Avoid consumption of
raw or undercooked animal products

Handle raw meat, milk or animal organs
with care to avoid cross-contamination with uncooked foods, as per good food
safety practices.

(Source: www.who.int)

21. Over 1 lakh
deaths in 29 cities due to air pollution: Study

While Environment Minister Prakash
Javadekar is often heard claiming that there is no correlation between air
pollution levels and premature deaths, the latest Indian study published in a
leading international journal suggests a close correlation.

In fact, over one lakh deaths in 29
Indian cities may be attributed to the rising PM 2.5 levels. According to a
study by two IIT Kanpur experts, published in the latest edition of the
environmental journal ‘Science of the Total Environment’, the national capital heads
the pack. Kolkata, Mumbai, Chennai and Ahmedabad are not far behind. Delhi tops
the list of 29 cities with a million plus population.

The study adds that Ischemic Heart
Disease (IHD) is the leading cause of death accounting for 58% of the PM
2.5-related premature deaths. The most affected are children under the age of
five and the ‘productive age group’ of 25-50 years, suggests the study titled
‘Cause and Age, Specific Premature Mortality Attributable to PM 2.5 Exposure:
An Analysis for Million Plus Cities’. This paper has used the 2016 data for the
29 cities as that is the latest year for which the registered all-cause death
data is available from the Civil Registration System. It is modelled on the
basis of the 2015 Global Burden of Disease report.

The study has been authored by air
pollution expert Mukesh Kumar of IIT Kanpur along with Prateik Saini. Kumar
also authored the 2015 report on sources of air pollution in Delhi. ‘While
studies have also been done earlier, this one is based on Ischemic Heart
Disease and actual measured data on PM 2.5-related mortality. The data is
age-specific and cause-specific and therefore helps us interpret and show the
clear correlation between pollution levels and death rate,” Kumar stated.

(Source: www.economictimes.com)

BCAJ Admin

LETTER TO THE EDITOR

12th February, 2020

The Editor

The Bombay
Chartered Accountant Journal

Jolly Bhavan
No. 2

New Marine
Lines

Mumbai 400
020

Dear Sir,

Re:
Article titled “Case study: Section 36(1)(iii) of the I.T. Act, 1961 with special reference to Proviso” in the January 2020
issue of the BCAJ

This has
reference to the above article published in your January, 2020 issue on page
Nos. 15 to 18.

I am not on the
subject of the article nor am I on the correctness or otherwise of the
conclusion of the article. I am writing this letter only on the narrow issue of
interpretation of the term “acquisition” discussed in this article on page 16
since it could be of general importance. If I am not mistaken, it is tried to
canvass in the article that the word “acquisition” used in the proviso
to clause (iii) of sub-section (1) of section 36 of the Income-tax Act, 1961
connotes acquisition of an asset from a third party and it does not
include an asset which is “self-created” or “self-constructed” or
“self-acquired”. This interpretation would apply irrespective of whether the
asset is work-in-progress (which is the subject of this article) or a capital asset, because the word employed in the proviso is “asset”.

If this interpretation
is applied to a capital asset like, say, a plant, it would lead to a strange
situation. For example, if a power generation company erects on its own a power
plant by buying various components, machines, spares, etc. from various third
parties and by utilising the services of outside technical consultants as well
as its own technicians, workers and employees, going by the interpretation
placed on the term “acquisition” in this article, the plant as a whole cannot
be called “acquired”, because the plant as a whole did not already exist (as is
stated in this article) over which the power generation company gains
possession; the plant is its own creation. It is therefore submitted that the
word “acquisition” used in the proviso would mean not merely a thing
acquired from a third party, but also a thing which is “self-created”,
“self-constructed” or “self-acquired”. The following observations of the
Gujarat High Court on the interpretation of the term “acquire” [though in the
context of the term “acquisition” used in section 48(ii)] in CIT vs.
Mohanbhai Pamabhai [1973] 91 ITR 393, 408-409 (Guj.) [later affirmed by
the Supreme Court in [1987] 165 ITR 166 (SC)] would throw light
on this issue:

“The word
‘acquire’, according to its plain natural meaning, is a word of very wide
import. It is not confined to obtaining of a thing from a third party.
When an assessee gains a thing by his own exertions or comes to own it or have
it by any recognised mode which would doubtless include the mode of
creation, he can be said to have acquired the thing. There
are various modes of acquisition by which a thing may be acquired by an
assessee and creation is one of them. When an assessee creates a
painting, sculpture or a building, he gains it, he comes to have
it or own it. He acquires the painting, sculpture or building
by creating it. When a capital asset is created by an assessee, it becomes his
property, he comes to own it and, therefore, he acquires it the moment it is
created. Creation or production of a capital asset is not foreign to the
concept of acquisition…” (Emphasis supplied)

Before making
the above observations, the Court took cognisance of the following meaning of
the term “acquire” given in Black’s Law Dictionary:

“To gain
by any means, usually by one’s own exertions; to get as one’s own; to obtain by search,
endeavour, practice, or purchase; receive or gain in whatever manner; come to
have.”¹ (Emphasis supplied)

With regards,

Yours truly,

Jignesh R. Shah

Advocate, High
Court

____________________________________________________

1 See also Advanced Law Lexicon by P. Ramanatha
Aiyar, 3^rd edition, 2005, page 73.

BCAJ Admin

GLIMPSES OF SUPREME COURT RULINGS

9. Purshottam
Khatri vs. Commissioner of Income Tax, Bhopal (2019)
419 ITR 475 (SC)

Appeal
to the High Court – Substantial question of law – The only entry on facts for
the High Court exercising its appellate jurisdiction u/s 260A of the Income-tax
Act, 1961 is in a case where the Tribunal’s judgment and findings therein are
perverse – The High Court otherwise cannot interfere with the Tribunal’s
judgment on facts

The assessee left
India in 1968 and was employed in Muscat and Dubai till the previous year
relevant to the assessment year 1992-93 and thereafter returned to India.

A
search was carried out u/s 132 of the Act in the premises of the assessee at
Bhopal for a period of 13 days from 18^th to 30^th October,
1996. Thereafter, an assessment was made u/s 158BC r/w/s 143(3) of the Act by
the A.O. on 29^thOctober, 1997 determining the total undisclosed
income for the block period 1^st April, 1986 to 18^th
October, 1996 at Rs. 2,10,48,043. One of the additions was of Rs. 1,03,50,020
in respect of an alleged unexplained part of the deposits in the NRE accounts.

The assessee filed an
appeal before the Income Tax Appellate Tribunal, Indore Bench (the Tribunal).
By an order dated 7^th July, 2000, the Tribunal deleted some of the
additions (including the aforesaid addition of Rs. 1,03,50,020) made by the
A.O. to the undisclosed income of the assessee and allowed the appeal in part.

The
Revenue filed an appeal before the High Court which, by a judgment dated 25^th
January, 2006, set aside the order of the Tribunal in which the Tribunal, after
looking at the exchange vouchers and other evidence produced by the assessee,
had held that the entire sum of $7,55,534 was explained, as a result of which
the sum of $3,14,534, equivalent to Rs. 1,03,49,720, could not be held to be
unexplained deposits.

Aggrieved, the
assessee filed an appeal before the Supreme Court.

The Supreme Court
noted that the impugned judgment had added as unexplained income a sum of Rs.
1.03 crores, basically on the ground that the assessee had been unable to
present declaration forms that had been filled by him at the time of his visits
to India from abroad. According to the Supreme Court, keeping in mind the fact
that these declaration forms were asked for long after such expenditure had
been incurred, it could not possibly be said that the Tribunal’s judgment and
findings therein were perverse, which was the only entry on facts for the High
Court exercising its appellate jurisdiction u/s 260A of the Income-tax Act,
1961.

The Supreme Court
held that the High Court ought not to have interfered with the Tribunal’s
judgment as no substantial question of law arose therefrom.

Accordingly, the
Supreme Court allowed the appeal and set aside the judgment of the High Court
and reinstated that of the appellate Tribunal.

10. H.S.
Ramchandra RA.O. vs. Commissioner of Income Tax and Ors. (2019)
419 ITR 480 (SC)

Capital
or revenue receipt – Amount received by the assessee for relinquishing
secretaryship could not be treated as a capital receipt – It might have been a
different matter had it been a case of life-time appointment

On 14^th
July, 2000 a search was conducted in the residential premises of the assessee.
During the course of the search proceedings the assessee had admitted that he
had received from Dr. K. R. Paramahamsa, Chairman of Paramahamsa Foundation
& Trust, Bangalore, a sum of Rs. 42 lakhs for relinquishing his life
membership and secretaryship in Jayanagar Education Society. The assessee,
pursuant to the said search, filed return for the block period 1^st
April, 1990 to 14^th July, 2000 on 24^th April, 2001
declaring undisclosed income as nil. In the said block return in the statement
enclosed to part III of the return pertaining to ‘total income and loss for the
A.Y. 1997-98’, the assessee had mentioned that he had treated Rs. 35,00,000
received from Dr. K.R. Paramahamsa for relinquishing two posts held by him in
Jayanagar Education Society as a capital receipt. The A.O., after calling upon
the assessee to justify the said claim and after considering the reply thereof,
held the amount of Rs. 37,54,266 as exigible to tax under the Act by treating
the same as income under the head ‘Income from other sources’ and raised the
demand accordingly by treating the said income as undisclosed income.

Aggrieved by this,
the assessee filed an appeal before the CIT(A) contending that the receipt of
Rs. 37,54,266 was for relinquishing life membership and secretaryship of the Jayanagar
Education Society by enclosing the copy of the proceedings of the executive
committee meetings held on 15^th September, 1996 and 2^nd
October, 1996 regarding change in management and his resignation to the
abovesaid two posts, and thus claimed the said amount received as capital
receipt and so not exigible to tax. The appellate authority, after considering
the contentions raised by the assessee, rejected the same and held that it is
to be treated as revenue receipt.

The assessee filed a
further appeal before the Tribunal which, after considering the contentions
raised by the assessee and the case law relied thereunder, came to the
conclusion that the amount of Rs. 37,54,266 was capital in nature and
accordingly allowed the appeal and reversed the findings of the first appellate
authority who had confirmed the finding of the A.O..

The Revenue had then
filed an appeal before the High Court which held that the amount received by
the assessee could not be treated as a capital receipt since to forego life
membership or secretaryship, there was no capital asset which had been
transferred by the assessee in favour of Dr. Paramahamsa. Further, the assessee
was not earning any income or making profit out of the said posts and, by
virtue of relinquishing the same, the assessee did not lose monetarily and as
such the amount received from Dr. Paramahamsa by the assessee could not be
termed or construed as capital receipt.

The assessee filed an
appeal before the Supreme Court. The Supreme Court observed that the issue
involved in the appeal was essentially questioning the finding of fact recorded
by the authorities below whether the amount received by the appellant in the
sum of Rs. 37,54,266 was a capital receipt or a revenue receipt in the hands of
the appellant.

The Supreme Court
noted that the authorities below had found that going by the admission of the
appellant, the amount received could not be treated as capital receipt but only
as revenue receipt. For that, the authorities had relied on the statement given
by the appellant. The substance of the admission was that the appellant was
holding the post of secretary of the institution [Paramahamsa Foundation (R)
Trust] until 1996 but he left the institution after new members were elected to
the managing committee. That being the case, according to the Supreme Court,
the question of the appellant invoking the principle of capital asset did not
arise. It may have been a different matter if it was a case of life-time
appointment of the appellant as secretary of the institution concerned. No such
evidence was produced by the appellant before the A.O. or before it (the
Supreme Court).

Taking an overall
view of the matter, the Supreme Court upheld the conclusion reached by the High
Court that the amount received in the hands of the appellant could not be
treated as capital receipt. Thus, the order of the A.O. was affirmed and the
appeal was dismissed.

11. Senior Bhosale Estate (HUF) vs.
Assistant Commissioner of Income Tax (2019)
419 ITR 732 (SC)

Appeal to the High Court – Limitation – Condonation of
delay of 1,754 days – Appellant(s) had asserted that they had no knowledge
about passing of order dated 29^th December, 2003 until they were
confronted with the auction notices in June, 2008 issued by the competent
authority – Unless that fact is refuted, the question of disbelieving the stand
taken by the appellant(s) on affidavit does not arise

The High Court had
dismissed the application of the appellant(s), a Hindu Undivided Family which
was under control of the Court of Wards, for condonation of delay of 1,754 days
in filing the appeal u/s 260A of the Act for the reason that the appellant(s) had
not monitored the actions of the Court of Wards, Nagpur who was managing the
properties of the appellant.

On an appeal before
it, the Supreme Court observed that the appellant(s) had asserted that they had
no knowledge about the passing of the order dated 29^th December,
2003 until they were confronted with the auction notices in June, 2008 issued
by the competent authority.

The
Supreme Court noted that soon thereafter, the appellant(s) filed appeal(s)
accompanied by the subject application(s) on 19^th July, 2008.
Notably, the respondent(s) did not expressly refute the stand taken by the
appellant(s) that they had no knowledge about the passing of the order dated 29^th
December, 2003 until June, 2008. According to the Supreme Court, unless that
fact is refuted, the question of disbelieving the stand taken by the
appellant(s) on affidavit does not arise and for which reason the High Court
should have shown indulgence to the appellant(s) by condoning the delay in
filing the concerned appeal(s). This aspect had been glossed over by the High
Court.

The
Supreme Court, therefore, allowed the appeals setting aside the impugned order
of the High Court and relegated the parties before the High Court by allowing
the civil application(s) filed by the appellant(s) for condonation of delay in
filing the appeal(s) concerned. As a result, the appeal(s) concerned stood
restored to the file of the High Court to be proceeded with in accordance with
the law.

BCAJ Admin

FROM THE PRESIDENT

Dear Members,

In my
message for the previous month, I had reached out to you, inviting suggestions
for initiatives which you would like BCAS to carry out. I am overwhelmed
by the response. I’m sure your feedback will go a long way in improving our
Society; we will try to implement the maximum possible suggestions.

ICAI Leadership: ICAI elected its new President and Vice-President for the term 2020-2021.
CA. Atul Kumar Gupta has been elected President and CA. Nihar
Jambusaria Vice-President with effect from 12^th February, 2020.
Both leaders are widely respected for their strong organisational skills, deep
insight into the affairs of the profession and for their enormous contribution
to the cause of our profession during their terms with the Central Council. We
congratulate them on their new roles and wish them all the best for achieving
enormous success in taking the profession to new peaks and measure up to the
expectations of all members. I look forward to working closely with the ICAI,
especially its new leaders, and strengthen the co-operation between the ICAI
and the BCAS. I am also proud to inform you that Nihar Jambusaria
is a life member of our Society since 1995.

BCAS
@ your Doorstep: This is another initiative of our Society wherein
we provide tailor-made training to our corporate members and other corporates
at their doorstep, deploying our faculty and expertise based on the corporate’s
training needs. I am happy to inform you that last month we conducted training
for the credit officers of a large public sector bank on understanding
financial statements of borrowers prepared under Ind AS, various disclosures
and understanding the various comments like audit modifications, emphasis of
matter, Key Audit Matters and other matters in an Auditor’s Report. The session
was very interactive and two live case studies of large corporate borrowers
(under financial stress) were discussed threadbare. These credit officers could
gain experience in better understanding the financial statements, thus
substantially improving their credit appraisal, supervision and monitoring
skills. Our efforts were well appreciated and we look forward to undertaking more
such training for corporates under our umbrella of ‘BCAS @ your Doorstep’.

MCA’s
Consultation Paper: In February, the Ministry of Corporate
Affairs issued a notice inviting suggestions and comments along with
justifications on a consultation paper to examine the existing provisions of
law and make suitable amendments therein to enhance audit independence and
accountability. This paper has raised several questions on burning and
sensitive issues such as economic concentration of audits, non-audit services to
audit clients, joint audits in case of larger companies and public interest
entities, proposed panel of auditors (like CAG / RBI / NFRA), imposition of
concurrent audits, restriction on the number of audit firms a group can have in
the whole of India, disclosure requirement on probability of default on the
lines of credit rating agencies, submitting quarterly returns to SEBI of
unlisted companies whose parent is listed, development of a ‘Composite Audit
Quality Index’ for auditors and audit firms to improve accountability,
resignation of auditors and other similar matters. The sole objective of this
was to solicit the views and comments of other Government Departments,
Regulatory Agencies and the general public on suggestions relating to
amendments in existing law to enhance audit independence, audit quality and
accountability. The Accounting and Auditing Committee of our Society met at
short notice, deliberated in detail on all the issues raised by this paper and
sent our response and representation to MCA well in time, keeping in mind the
interests of our members. The response of the Society has been mailed to all
the members and is also available for viewing on our website and all other
social media platforms.

CARO
2020:
This is issued with the objective of strengthening the corporate governance
framework under the Companies Act, 2013; under the powers conferred under
sub-section (11) of section 143 of the Companies Act, 2013. the Central
Government has notified the Companies (Auditor’s Report) Order, 2020 (CARO,
2020). The eligibility criteria in CARO, 2020 have not been changed and hence
it shall be applicable to all those companies on which CARO, 2016 has been
applicable. CARO 2020 has 21 clauses and 47 sub-clauses, thus enhanced
reporting requirements by the auditors including reporting on proceedings
initiated / pending if any against the company under the Benami Transactions
(Prohibition) Act, 1988; stricter reporting on discrepancies noticed on
physical verification of inventory; reporting on mismatches in physical stock
and those reported to lending banks / financial institutions; disclosure of
unrecorded transactions in income tax assessments; utilisation of funds; GST
dues payments and cash losses; declaration of company as wilful defaulter by any
lender; disclosure of whistle-blower complaints; any resignation of the
statutory auditors during the year, and so on. Reporting under CARO, 2020 would
necessitate enhanced due diligence, reporting responsibility and disclosures on
the part of auditors and has been designed to bring in greater transparency in
the financial state of affairs of companies. Members are requested to be well
informed and equipped to report under CARO, 2020 as it is applicable for audit
of financial statements of eligible companies for the financial years
commencing on or after 1^stApril, 2019.

Before
I sign off, let me offer my warm wishes to you and your family on the joyous
occasion of Holi! I wish with all my heart that it brings more colours to your
life.

With
Best Regards,

CA
Manish Sampat

President

BCAJ Admin

FROM PUBLISHED ACCOUNTS

KEY AUDIT
MATTERS PARAGRAPH FOR A COMPANY WHERE RESOLUTION PLAN IMPLEMENTED PURSUANT TO
CORPORATE INSOLVENCY RESOLUTION PROCESS

TATA STEEL BSL LTD.
(31-3-2019) (FORMERLY KNOWN AS BHUSHAN STEEL LTD.)

From auditors’ report

We have determined
the matters described below to be the key audit matters to be communicated in
our report:

Key audit matter

How our audit addressed the key audit
matter

Accounting
treatment for the effects of the Resolution Plan

(a) Refer Note 43
to the standalone financial statements for the details regarding the
Resolution Plan implemented in the company pursuant to a Corporate Insolvency
Resolution Process concluded during the year under Insolvency and Bankruptcy
Code, 2016

On 17^th
May, 2018, prior to the implementation of the Resolution Plan, the Company
had outstanding credit facilities from several financial institutions,
aggregating to Rs. 6,054,746.50 lakhs. The Company also had accrued dues
amounting to Rs. 110,627.58 lakhs towards operational creditors

Owing to the size
of the overdue credit facilities, multiplicity of contractual arrangements
and large number of operational creditors, determination of the carrying
amount of related liabilities at the date of approval of Resolution Plan was
a complex exercise

Further, comprehending the provisions
of the Resolution Plan and determining the appropriateness of the accounting
treatment thereof, more particularly the accounting treatment of de-recognition
of liabilities, required significant judgement and estimates, including
consideration of accounting principles to be applied for presentation of
difference between carrying amount of novated debt and consideration paid
there for

Accounting for
the effects of the Resolution Plan is considered by us to be a matter of most
significance due to its importance to intended users’ understanding of the
financial statements as a whole and materiality thereof

(b) Refer Note 43
to the standalone financial statements

Prior to the
approval of the Resolution Plan on 15^th May, 2018, the Company was
a party to certain litigations. Pursuant to the approval of the Resolution
Plan, it was determined that no amounts are payable in respect of those
litigations as they stand extinguished

The Company had
also made certain payments to the relevant authorities in respect of those
litigations which were presented as recoverable under ‘Other non-current
assets’ in the standalone financial statements

The estimates
related to expected outcome of litigations and recoverability

(a) We have performed the following
procedures to determine whether the effect of Resolution Plan has been
appropriately recognised in the financial statements:

Reviewed management’s process for
review and implementation of the Resolution Plan

Reviewed the provisions of the
Resolution Plan to understand the requirements of the said plan and evaluated
the possible impact of the same on the financial statements

Verified the balances of
liabilities as on the date of approval of Resolution Plan from supporting
documents and computations on a test check basis

Verified the underlying documents
supporting the receipt and payment of funds as per the Resolution Plan

Tested the implementation of
provisions of the Resolution Plan in computation of balances of liabilities
owed to financial and operational creditors

Evaluated whether the accounting
principles applied by the management fairly present the effects of the
Resolution Plan in financial statements in accordance with the principles of
Ind AS

Tested the related disclosures made
in notes to the financial statements in respect of the implementation of the
resolution plan

(b) We have performed the following
procedures to test the recoverability of payments made by the Company in
relation to litigations instituted against it prior to the approval of the
Resolution Plan:

Verified the underlying documents
related to litigations and other correspondences with the statutory
authorities

Involved direct and indirect tax
specialists to review the process used by the management to determine
estimates and to test the judgements applied by management in developing the
accounting estimates

Assessed management’s estimate of
recoverability, supported by an opinion obtained by the management from a
legal expert, by determining whether:

• The method of measurement used is
appropriate in the circumstances; and

of payments made in respect thereof have
high degree of inherent uncertainty due to insufficient judicial precedents
in India in respect of disposal of litigations involving companies admitted
to Corporate Insolvency Resolution Process

The application of significant
judgement in the aforementioned matters required substantial involvement of
senior personnel on the audit engagement including individuals with expertise
in accounting of financial instruments

• The assumptions used by management are
reasonable in light of the measurement principles of Ind AS

Determined whether the methods for
making estimates have been applied consistently

Evaluated whether the accounting
principles applied by the management fairly present the amounts recoverable from
relevant authorities in financial statements in accordance with the
principles of Ind AS

From Notes to Financial Statements

29. Exceptional Items

(Rs. in lakhs)

Particulars

Year ended 31^st March,
2019

Year ended 31^stMarch,
2018

(a)

Effects of implementation of Resolution Plan (refer sub-note [i])

315,927.27

–

(b)

Provision for impairment on property, plant and equipment and other
assets
(refer sub-note [ii])

(18,326.60)

(2,075,901.76)

(c)

Provision for impairment on financial assets

–

(23,833.52)

(d)

Other exceptional items

–

(2,34,732.49)

297,600.67

(2,334,467.77)

i) Effects of implementation of Resolution
Plan (refer Note 43 for details of effects of Resolution Plan)

Pursuant
to CIRP proceedings and implementation of Resolution Plan, there has been a
gain of Rs. 315,927.27 lakhs on account of the following:

(a) Operational creditors extinguishment –
Rs. 55,212.35 lakhs,

(b) Redemption of preference shares and
waiver of related interest obligation – Rs. 242,557.34 lakhs,

ii) Provision for impairment on property,
plant and equipment and other assets

(a) Provision for impairment of property,
plant and equipment – Rs. 5,219.23 lakhs [refer Note 3],

(b) Provision for impairment of certain
non-current advances – Rs. 17,837.52 lakhs,

iii) Exceptional items recognised in previous
year financial statements

(A) Provision for impairment on property, plant
and equipment and other assets includes:

(a) Provision for impairment of property,
plant and equipment (including CWIP) – Rs. 1,911,279.90 lakhs,

(b) De-recognition of Minimum Alternate Tax
credit Rs. 80,605.55 lakhs,

(d) Certain non-current advances Rs.
47,135.93 lakhs.

(B) Provision
for impairment on financial assets of Rs. 23,833.52 lakhs comprises:

(a) Expenditure incurred on development of
de-allocated coal mines of Rs. 14,833.52 lakhs, and

(b) Security deposits given to Bhushan
Energy Limited of Rs. 9,000.00 lakhs.

(C) Other exceptional items for the year
ended 31^st March, 2018 include prior period items of Rs. 201,909.65 lakhs comprising of the following:

(a)
Amortisation of leasehold land
accounted as operating lease – The Company has taken land properties on
operating lease in earlier years, which prior to year ended 31^st
March, 2018 were accounted as finance lease. Upon change in their
classification as operating lease, the cumulative effect of amortisation from
inception until the year ended 31^st March, 2017 has been recognised
in previous year’s profit or loss in ‘exceptional items’. Further, these
leasehold land properties were recognised at fair value on transition to Ind AS
as on 1^stApril, 2015 and such fair valuation adjustment has also
been reversed in previous year’s profit or loss in ‘exceptional items’.

(b)
Accounting effect of oxygen plant
accounted as finance lease – The Company entered into sale and lease-back
arrangement for oxygen plant in earlier years which was accounted as operating
lease. However, the terms of the lease require such arrangement to be
classified as finance lease. Consequently, the asset has been recognised with
corresponding finance lease obligation. Cumulative effect of reversal of
operating lease rentals and booking of depreciation and finance cost from
inception until the year ended 31^st March, 2017 has been recognised
in previous year’s profit or loss in ‘exceptional items’.

43. The corporate insolvency resolution
process (CIRP) was initiated pursuant to a petition filed by one of its
financial creditors, State Bank of India (SBI) under section 7 of the
Insolvency and Bankruptcy Code, 2016 (IBC). SBI filed the petition before the
National Company Law Tribunal, Principal Bench, New Delhi (Adjudicating
Authority) vide Company Petition No. (IB) – 201 (PB) / 2017 on 3^rd
July, 2017. The Adjudicating Authority admitted the said petition and the CIRP
for the Company commenced on 26^thJuly, 2017. The CIRP culminated
into the approval of the Resolution Plan submitted by Tata Steel Ltd (TSL) by
the Adjudicating Authority vide its order dated 15^thMay, 2018
(Order).

Accordingly,
keeping in view the order dated 15^th May, 2018:

i. On 18^th May, 2018
(Effective Date), Bamnipal Steel Limited (wholly-owned subsidiary of TSL)
(BNPL) deposited Rs. 3,513,258 lakhs for subscription to equity shares of the
Company, payment of CIRP cost and employee-related dues and payment to
financial creditors in terms of the approved Resolution Plan.

ii. The reconstituted board of
directors in its meeting held on 17^th May, 2018 approved allotment
of 794,428,986 fully-paid equity shares of Rs. 2 each to BNPL, aggregating to
Rs. 15,888.58 lakhs, representing 72.65% of the equity share capital of the
Company.

iii. The remaining amount of Rs. 3,497,369.42
lakhs was treated as Inter-Corporate Deposits.

iv. Out of the amount received from
BNPL, Rs. 3,258 lakhs was utilised towards payment of CIRP cost and
employee-related dues. The balance amount of Rs. 3,510,000 lakhs was paid to
the Financial Creditors between 18^th and 31^st May, 2018.

v. The financial creditors invoked the
pledge created in their favour by the erstwhile promoters of the Company over
67,654,810 equity shares of the Company held by them (Pledged Shares). The
market value of the pledged shares amounted to Rs. 18,157.58 lakhs and the same
has been recorded as an exceptional item in these financial statements. Refer
Note 29 for the details of exceptional items.

vi. The eligible financial creditors were
further allotted 72,496,036 equity shares at the face value of Rs. 2 each
aggregating to Rs. 1,449.92 lakhs.

vii. After adjusting the amounts as mentioned
in Para No. v. and vi. above, the balance due to the financial creditors,
amounting to Rs. 2,528,550.72 lakhs, was novated to BNPL for an aggregate
consideration of Rs. 10,000 lakhs. BNPL, in its capacity as the promoters of
TSBSL, has waived off the debts, less cost of novation, and the same has been
considered as capital contribution. Refer Note 14 for details of other equity.

viii.10% Redeemable Cumulative Preference shares
of Rs. 100 each amounting to Rs. 242,557.39 lakhs were redeemed for a total sum
of Rs. 4,700 only. Gain arising out of redemption of such preference shares has been recorded as an exceptional item in these financial statements. Refer
Note 29 for the details of exceptional items.

ix. In
respect of operational creditors, the Company has provided for liabilities
based on the amount of claims admitted pursuant to CIRP. Further, the Company
has proposed to pay an amount of Rs. 120,000 lakhs to operational creditors, in
the manner mentioned in the Resolution Plan, within 12 months from the closing
date (18^thMay, 2018), i.e., on or before 17^th May, 2019.
Accordingly, the Company has recognised a gain of Rs. 55,212.35 lakhs on
account of extinguishment of such financial liabilities as an exceptional items.

BCAJ Admin

ALLIED LAWS

19. Auction sale of secured assets – Bank
obliged to disclose any dues on secured assets in notice of sale – Failure of
disclosure – Auction purchaser cannot be fastened with the liability to pay the
same [SARFAESI Act, 2002, S. 13, 38]

Corporation Bank and Ors. vs. Jayesh Kumar
Jha; AIR 2019 Cal 328

The auction purchaser successfully
participated in the e-auction for the sale of an immovable property undertaken
by the bank through its officers under the provisions of the SARFAESI Act,
2002. On receipt of the consideration price fixed by the auction, the appellant
bank issued sale certificate in favour of the respondent in respect of the
property in question. The sale was free from all encumbrances.

Subsequent to this, the purchaser was
charged for payment of property tax and maintenance tax in respect of the
property for the period prior to the auction payable to the Kolkata Municipal
Corporation. Contending that he was not liable to pay any such tax or charge
levied for the period prior to the sale, the purchaser moved Court with a
prayer for issuance of a writ of mandamus directing the bank authorities
to set aside the letter under which it communicated to him that the bank was
not liable to any outstanding dues with a further writ of mandamus
directing the bank authorities to reimburse the amount paid by the purchaser
towards the outstanding property tax to the Kolkata Municipal Corporation with
interest.

The Court held that Rules 8 and 9 of the
Security Interest (Enforcement) Rules, 2002 deal with the stage anterior to the
issuance of sale certificate and delivery of possession. Rule 9(8) casts a duty
upon the authorised officer to deliver the property to the purchaser free from
encumbrances (or) requiring the purchaser to deposit money for discharging the
encumbrances. The ignorance of the second creditor regarding the encumbrance on
the property is no longer a good and acceptable defence in view of the
statutory provisions and various precedents by the Hon’ble Supreme Court and
different High Courts on the subject… The SARFAESI Act and the Rules have
replaced the rule of caveat emptor by caveat venditor. When a
property is put to sale, the bank is under statutory obligation to sell the
secured asset with a clear title free from any encumbrance. As the bank did not
disclose the pre-sale property tax dues which are a charge on the land or
building in respect of the secured asset, therefore, the bank has failed to discharge
its statutory obligation.

After completion of the sale and delivery of
possession, the auction purchaser-respondent cannot be fastened with the
liability to discharge such encumbrances.

20. Hindu law – Right in coparcenary
property – No document to show that property was purchased with the money of
the HUF – Partition taken place – Devolution of coparcenary property takes
place only when succession opens and not before that – Father of the plaintiff
(daughter) is still alive – Suit claiming right in coparcenary property was not maintainable [Hindu
Succession Act, 1956, S. 6]

Chandribai and Ors. vs. Tulsiram and Ors;
AIR 2019 MP 206

The plaintiff (daughter) filed a suit for
declaration as well as for setting aside the sale deed which had been executed
in favour of the defendant. It was alleged that the disputed property is
ancestral undivided property of the plaintiffs and the plaintiffs have right,
title and interest in the property since their birth. It was also alleged that
the property has been purchased by transfer of ancestral property and that it
continued to remain so.

The trial Court, after framing the issues
and recording the evidence, held that the plaintiffs have 1/6^th
share each in the disputed property and they are entitled for partition and
possession. The trial Court further held that the property is not a
self-acquired one. The 1^st Appellate Court reversed the judgment
passed by the trial Court.

The Hon’ble High
Court upheld the order of the 1^stAppellate
Court that there is no presumption of a property being joint family property
only on account of the existence of a joint Hindu family. The one who asserts
this has to prove that the property is a joint family property and the onus
would shift on the person who claims it to be self-acquired property to prove
that he purchased the property with his own funds and not out of the joint
family nucleus (corpus) that was available.

Further, it is significant to note that the
phrase ‘devolution of coparcenary property’ only takes place when succession
opens and not before that. It is well settled that succession opens on the
death of the karta. As a necessary corollary, the karta being
alive, the suit in issue was not maintainable.

21. Tenancy rights – Inheritance of tenancy
right is not applicable to a joint family [Bombay Rent Act, 1947, S. 5, 13, 15]

Vasant
Sadashiv Joshi. & Ors vs. Yeshwant Shankar Barve through Lrs & Ors.; WP
2371 of 1977; Date of order: 2^nd January, 2020 (Bom)(HC)(UR)

The petition was filed by a tenant who was
being evicted from the suit premises. The original tenant was his father and
upon his death the rent receipt came to be transferred in the name of the
petitioner. The premises was occupied by his cousin as the petitioner had moved
to an alternate accommodation. The petitioner argued that tenancy rights can be
inherited by any and every member of the joint family.

The Court held
that the provisions of the Bombay Rent Act, which pertain to tenancy rights
would not be applicable to a joint family unit. After the death of the original
tenant, tenancy rights cannot be inherited by any member of the family of the
deceased by claiming to be in a joint family set-up.

22. Will – Attestation – Signature of the
testator on the Will is undisputed where the attesting witnesses deposed that the testator came to them individually with his own
signed will and read it out to them after
which they attested it [Succession Act, 1925, S. 63]

Ganesan (D) through Lrs. vs. Kalanjiam and
Ors.; AIR 2019 SC 5682

The appellant filed a suit claiming share in
the suit properties asserting them to be joint family properties. The trial
Court held that the suit property was the self-acquired property of the
deceased who died intestate and the genuineness of the Will had not been
established in accordance with the law, entitling the appellant to 1/5^th
share. The appeal was allowed holding that the signature of the testator was
not in dispute and the testator was of sound mind. The second appeal by the
appellant was dismissed.

The Hon’ble Supreme Court held that where
the signature of the testator on the Will is undisputed and the Succession Act
requires an acknowledgement of execution by the testator followed by the
attestation of the Will in his presence, and where a testator asks a person to
attest his Will, it is a reasonable inference that he was admitting that the
Will had been executed by him.

There is no express prescription in the
statute that the testator must necessarily sign the Will in the presence of the
attesting witnesses only, or that the two attesting witnesses must put their
signatures on the Will simultaneously at the same time in the presence of each
other and the testator.

Both the attesting witnesses deposed that
the testator came to them individually with his own signed Will and read it out
to them, after which they attested the Will. Therefore, the appeal was
dismissed.

23. Power of attorney holder – Cannot depose
for principal by entering in his shoes – His testimony cannot be treated as
that of principal [Civil Procedure Code, 1908, O. 3, Rr 1,2]

Narmada Prasad vs. Bedilal Burman; AIR 2019
MP 660

In the instant
civil suit, the petitioner filed a power of attorney in favour of his son and
apprised the Court below specifically that his son will enter the witness box
on his behalf. In turn, the son, Jitendra Burman, entered the witness box,
deposed his statement and was cross-examined. The petitioner introduced his son
as power of attorney holder on the ground that he is suffering from an aliment
of forgetfulness because of which his memory was not in order and, therefore,
his son will depose on his behalf.

The Court held
that the son cannot be permitted to depose on behalf of the principal for the
acts done by him. As a necessary corollary, the son cannot be cross-examined on
those aspects in respect of the principal. Thus, the right to adduce evidence
by the power of attorney holder is available to a limited extent. By no stretch
of the imagination can the son be treated to be a representative of the
principal in all aspects and, therefore, it cannot be said that the stand of
the petitioner will deprive him from entering the witness box. In other words,
it is trite that no estoppel operates against the law.

BCAJ Admin

FROM THE PRESIDENT

Dear Members,

The Institute of Chartered Accountants of
India (ICAI) declared the results of the Chartered Accountants Final
Examination (old & new Course) held in November, 2019 on 16^th
January, 2020 and totally 14,591 newly-qualified CAs were added to our
fraternity. This is comparable to the 14,185 students that qualified earlier in
the CA Final examinations held in May, 2019. A comparison of % of students
passing in both groups in the old course has increased in the November, 2019
attempt as compared to May, 2019 from 7.63% to 10.19%.– whereas under the new
course the same has fallen from 20.85% to 15.12%. A point to be noted is that
this % was 9.09% (old course) and 9.83% (new course) in May, 2018 and 15.03%
(old course) and 16.44% (new course) in November, 2018: 14,969 & 9,243 newly-qualified
CAs were added in November, 2018 and May, 2018 respectively.

In order to sharpen the analytical and
comprehension skills of students and to have an objective assessment of their
performance in the examination, ICAI has introduced an assessment system in
which 30% of the questions asked in the examination of select papers are
multiple choice-based questions (MCQ) of 1 and 2 marks. Thus making scoring
possible even in certain theory subjects as compared to the previous paper
pattern and eliminating subjectivity in the assessment process to some extent.
This system was put in place for the May, 2019 examination for both
intermediate and final levels under both the old and new courses of education
and has been one of the major factors in improved performance of the students
resulting in better results.

However, there is a rising concern about a
substantial decline in the number of fresh students entering our profession.
There has been an almost 70% drop in the students’ registrations for the CA
course in the last five years from 141,241 in FY 2015 to only 45,048 in FY
2019. This reduction in the number of new students wanting to enter our
profession is a worrying factor considering the fact that there are less than 3
lacs Chartered Accountants out of which only 138,874 are in practice (as on
01/04/2019) in a country with an estimated population of 1.37 billion people.
One of the possible reasons could be increased competition from other similar
courses in finance such as ACCA, CFA and CPA etc. Another reason could probably
be the structure of the entire examination system, where entry is relatively
easy but final qualification much more difficult. This creates uncertainty and therefore discourages newer entrants from taking up this course.

Recent developments in the profession have
also attracted negative publicity discouraging students from entering this
profession. Lastly, I believe that there is a perception that other professions
like MBA, Law, etc. are more contemporary and offer better earnings prospects.
This should be an area of concern for us and the Institute along with the
entire CA fraternity needs to work together to bring in changes to address
these concerns and meet the needs and aspiration of the young aspiring
students.

In my view, Chartered Accountancy is a very
respected and an evergreen course having lots of opportunities, great prospects
and a very bright future.

BCAS is reaching out: Our Society has a strong legacy of ethical values, culture of financial
discipline and focus on quality of service to its members. We also believe that
today our Society needs to increase its reach and circle of influence by
expanding beyond the traditional service delivery channels. We recognise the
facts that the demographic profile and preferences of our members are changing
and we need to embrace technology to stay relevant and deliver the best to our
stake holders. In this endeavour, we at the BCAS have taken many
initiatives like: (1) organising joint events with other professional, trade
and industry bodies, (2) organising lecture meetings in the suburbs, (3)
exploring maximum opportunities of having events outside Mumbai, (4)
digitisation of our course contents and educational materials (including the
publications and the Journal) (5) tailormade industry specific training
and educational programmes.

We are open to co-operate, coordinate and
collaborate with other like-minded organisations within and outside the city of
Mumbai. Please free to get in touch with me or write to me at president@bcasonline.org
for any initiative in which you would like BCAS to participate.

I very strongly believe that effective
implementation of your constructive suggestions and honest feedback will go a
long way in BCAS maintaining its vibrancy, position of eminence and inspirational
leadership for a long time to come.

CA Manish Sampat

President

BCAJ Admin

GOODS AND SERVICES TAX (GST)

I. HIGH
COURT

30. [(2020) 117 TMI 209] Om
Sai Traders vs. State Tax Officer, R/Special Civil Application No. 7395 of
2020; (Gujarat High Court) Date
of order: 15^th June, 2020

Article
226, sections 129 and 130– No interference of High Court warranted to order on
validity of show cause notice and authority to adjudicate the notice in
accordance with law

FACTS

The
applicant was engaged in the business of trading of various goods, especially
tobacco, and had purchased unmanufactured tobacco from the supplier. While
transporting the goods, the original vehicle broke down four to five km. from
the destination. Another vehicle was arranged and the goods were transported to
the destination. However, just before the said vehicle could reach there, it
was intercepted by the authorities and the goods were seized. Thereafter, an
undated show cause notice u/s 130 of the CGST Act, 2017 was also issued.

Aggrieved
by this act, the applicant challenged it by way of a writ petition before the
Gujarat High Court; he claimed that the act of the authorities in detaining the
goods u/s 129 of the CGST Act, 2017 was wrongful and that the issuance of an
undated show cause notice was wholly illegal, erroneous and without authority
of law.

HELD

The Hon’ble High Court held and agreed to not interfere
with the impugned show cause notice issued by the authority u/s 130 on merits
and permitted the authority to adjudicate the said notice in accordance with
the law. Further, the Court directed the authority to release the goods upon
deposit of an amount of Rs. 10,00,000 and furnishing of a bank guarantee of Rs.
7,00,000 by the applicant.

31. [(2020) 117 taxmann.com 195] Amba
Industrial Corporation vs. UOI

CWP No. 8213 of 2020 (O&M); (Punjab &
Haryana) Date
of order: 18^th June, 2020

Section
140 read with Rule 117 – Technical difficulties cannot be restricted only to
difficulties faced by or on the part of the Department but would also include
any such technical difficulty faced by the assessee as well

FACTS

The
petitioner is engaged in the business of S.S. flats. They were to carry forward
the unutilised
CENVAT Credit in terms of section 140 of CGST Act read with Rule 117. However,
they failed to upload TRAN-1 by the last date, i.e. 27^th December,
2017. The respondent extended the date of uploading TRAN-1 till 30^th
June, 2020, but only for those who could not submit the declaration by the due
date on account of technical difficulties, thereby denying the petitioner the
opportunity to file their TRAN-1. The petitioner challenged Rule 117(1A) as
being ultra vires and sought direction to be given to the respondent to
permit the petitioner to upload TRAN-1 form or avail Input Tax Credit (ITC) in
monthly return GSTR3B.

HELD

The
Hon’ble High Court relied upon the decision of Adfert Technologies (P)
Ltd. vs. UOI [2019] 111 taxmann.com 27 and the Delhi High Court in Brand
Equity Treaties vs. Union of India 2020-TIOL-900-HC-Del-GST. The Court
found that the technical difficulties cannot be restricted only to difficulties
faced by or on the part of the respondent but would also include any such
technical difficulty faced by the taxpayer as well. However, the petitioner had
challenged the vires of Rule 117(1A); but the Court did not find it appropriate
to interfere as the petitioner was entitled to carry forward CENVAT Credit
accrued under the Central Excise Act, 1944.

But
the repeated extensions of the last date of filing TRAN-1 vindicated the
petitioner’s claim that denial of credit to those dealers who were unable to
furnish evidence of an attempt to upload TRAN-1 would amount to violation of
Article 14 as well as Article 300A of the Constitution of India. Therefore, the
respondents were directed to permit the petitioner to upload TRAN-1 on or
before 30^th June, 2020 and in case the petitioner failed to do so,
the petitioner was given liberty to avail ITC in GSTR3B of July, 2020.

32. [2020 (5) TMI 602] [(2020)117
taxmann.com 94 (Del.)] SKH
Sheet Metals Components vs. UOI W.P.(C)
No. 13151 of 2019 Date of order: 16^th June, 2020

Article
226, article 14, section 140 read with Rule 117 – On account of a bona fide
or inadvertent mistake, assessee permitted to revise TRAN-1 form and transition
entire Input Tax Credit (ITC)

FACTS

The
petitioner had sought for transition of ITC that had accrued and vested in its
favour under the erstwhile regime by filing the statutory form GST TRAN-I.
However, on submission of the said form, the petitioner realised that CENVAT
credit of Rs. 5,51,33,699 comprising of Central Excise and service tax of Rs.
3,86,54,605 and Rs. 1,64,79,082, respectively, were not displayed in the
electronic credit ledger (ECL). On a suggestion given by the respondents, the
appellant filed a revised declaration in form GST TRAN-1 on 27^th
December, 2017 and it reflected the correct figures. However, the amount was
still not transferred to the ECL and was shown as blocked credit.

Thereafter,
the petitioner made various representations towards availing the benefit of the
Circular which granted relief to taxpayers who had faced IT glitches at the
stage of filing an original or revised return on the GSTN portal to resolve the
issue. But no proper response was received from the respondent’s office. The
petitioner, therefore, filed a writ petition (No. 712/2018) before the Bombay
High Court. The Court disposed of the petition with a direction to the
petitioner to file a representation before the authorities concerned in terms
of the 32^nd Council Meeting.

Accordingly,
the petitioner filed yet another representation before the respondents, but the
case was rejected without assigning any reasons. The petitioners thereafter
requested the respondents to provide them with reasons for denial; again, no
response was received. Thereafter, the petitioner filed an RTI application
requesting to know the reasons for the rejection, but even this request was
turned down.

Thus,
the present petition was filed against this act of the respondents in denying
the petitioner’s vested right of transitional credit without any basis. Writ of
mandamus was sought for issuance of direction to the respondents to allow the
petitioner to avail the short transitioning of ITC amounting to Rs. 5,51,33,699
based on Brand Equities Treaties Ltd. vs. Union of India (2020) 116
taxmann.com 415 (Delhi) and Micromax Informatics Ltd. vs. Union
of India [WP(C) No. 196/2019] thereby also bringing to the attention of
the Hon’ble High Court that form GST TRAN-1 was filed before the specified
date.

The
respondents in their counter affidavit denied the applicability of benefit to
the petitioner as per the case of Brand Equities Treaties Ltd. (Supra)
and stated that the petitioner fell into the category of ‘the taxpayer has
successfully filed TRAN-1, but no technical error has been found’ and that
since the petitioner did not encounter any technical glitch on the portal, his
request to file revised TRAN-1 was not accepted and that the discrepancy in ECL
is because of human error. The benefit of the Circular was not extended to the
petitioner.

HELD

The
Hon’ble High Court discarded the submission made by the respondent that the
benefit of the judgment of Brand Equity (Supra) is no longer
available and held that the said decision is not entirely resting on the fact
that the statute (the CGST Act, 2017) did not prescribe for any time limit for
availing the transition of the ITC and that there are several other grounds and
reasons enumerated in the said decision that continue to apply with full rigour
regardless of the amendment to section 140 of the CGST Act, 2017. Based on the
above, the petitioner was permitted to revise the TRAN-1 form on or before 30^th
June, 2020 and transition the entire ITC; the respondents were directed to file
revised declaration TRAN-1 electronically or to accept the same manually and
thereafter process the claims in accordance with the law.

II. AUTHORITY FOR ADVANCE RULING

33. [2020-TIOL-166-AAR-GST] Apsara
Co-operative Housing Society Limited Date
of order: 17^th March, 2020

Society
is making a supply to its members in terms of the GST law and therefore the
contributions received from the members are leviable to GST

FACTS

The
applicant is a co-operative housing society formed by its members. They raise
funds by collecting contributions from the members. The contributions include
property tax, common electricity charges, water charges, contribution to
repairs and maintenance, etc. The question before the Authority is whether the
said activity of collection of contributions qualifies as a supply u/s 7(1) of
the Central Goods and Services Tax Act, 2017.

HELD

The
Authority primarily noted that the activities of managing, maintaining and
administering the property of the society, raising funds for achieving the
objects of the society, undertaking and providing any social, cultural or
recreation activities can clearly be considered as rendering of supply of
service provided to the members. Further, it was noted that the definition of
‘person’ provided in section 2(84)(i) specifically includes ‘a co-operative
society’. Therefore, the members and the society are distinct persons and thus
the transaction is a supply leviable to GST.

Note: In this context readers
may refer to the decisions of the Maharashtra AAAR in the case of Rotary
Club of Mumbai Queens Necklace [2020-TIOL-09-AAAR-GST] and
[2019-TIOL-72-AAAR-GST] wherein it is held that membership fees
received cannot be considered as a consideration received in the course or
furtherance of business and therefore is not liable for GST.

34.
[2020-TIOL-172-AAR-GST] High Tech Refrigeration and Air Conditioning Industries

Date
of order: 25^th June, 2020

Goods supplied in the State on behalf of the client
situated outside the State is an interstate supply leviable to IGST

FACTS

The
question before the Authority is whether fixing of air conditioner and VRV
system in Goa on behalf of a client registered outside Goa is an intra-state supply leviable to CGST and
SGST or an interstate supply leviable to IGST.

HELD

Since
the location of the supplier is Goa but goods are supplied on behalf of a
registered person outside Goa to a place in Goa, the place of supply would be
outside Goa as per section 10(1)(b) of the Integrated Goods and Services Tax
Act, 2017. Thus the nature of supply is to be treated as a supply of goods in
the course of interstate trade or commerce and IGST is payable.

35.
[2020-TIOL-144-AAR-GST] M/s Amba Township Pvt. Ltd. Date of order: 19^th May, 2020

Though the Sector is separately under the RERA Act, 2016
as a separate project, the same cannot be considered as a standalone housing
project since it shares common land, common facilities and common entrance

FACTS

The
applicant is engaged in construction of residential and commercial premises on
works contract basis. They are engaged in construction and development of a
township in a phased manner. At present, Sector-4 of the township is being
constructed which is divided into two parts – Part A and Part B. The Sector is
registered under the RERA Act, 2016 as three independent projects / phases.
Part-B of Sector-4 is a separate project in itself and also separately
registered under the RERA Act, 2016 as a ‘Real Estate Project’. ‘Part-B’ is
independent of the other projects within its Phase and Township and has its
separate facilities like parking, foyer, electricity connection, water supply,
etc. The said part is used for affordable housing and thus the question before
the Authority is whether the reduced rate of tax provided in Notification No.
11/2017-Central Tax (Rate) Entry Number 3(v)(da) is applicable.

HELD

The
Authority noted that Part-B of Sector-4 of the township cannot be considered as
a standalone housing project since it shares common land, common facilities and
common entrance with Part-A of Sector-4 of the township and since 50% of
FAR/FSI of the entire housing project of Sector-4 comprising of Part-A and
Part-B has not been used for construction of dwelling units with carpet area of
not more than 60 square metres, the said housing project cannot be considered
as an ‘affordable housing project’. Therefore, the applicant is not eligible
for the benefit of reduced rate as provided under Entry Number 3(v)(da) of the
Notification No. 11/2017-Central Tax (Rate) as amended by Notification No.
01/2018-Central Tax (Rate) dated 25^th January, 2018 available for
houses constructed with a carpet area of 60 square metres per house.

36.
[2020-TIOL-156-AAR-GST] M/s Liberty Translines Date of order: 5^th March, 2020

For a single transaction and same movement of goods,
there cannot be multiple consignment notes. The entire risk of transportation
is with the person who has entered into a contract with the client and
therefore merely providing vehicles does not qualify as Goods Transport Agency
service

FACTS

The
applicant, owner of various goods transport vehicles, is in the business of
road transportation and registered as a Goods Transport Agency. A company named
POSCO has sub-contracted a specific assignment of transportation service to the
applicant. The applicant proposes to issue a consignment note to POSCO who in
turn will issue a second consignment note to the final client for the same
transportation of goods by road for the very consignment by the same vehicle.
The question before the Authority is whether the applicant can issue a
consignment note and charge GST @ 12% under forward charge.

HELD

The
Authority primarily noted that the contract is to undertake transportation of
goods given by the consignee / consignor to POSCO and not to the applicant. The
consignor / consignee may not be aware that the actual transportation is
undertaken by someone else. The role of the applicant is to just provide the
vehicle as and when called for. Thus the transaction is more in the nature of
hiring of vehicles and not that of Goods Transport Operator. Accordingly, it is
held that the applicant is providing the transportation service but not as GTA
but only as a truck owner. For a single transaction and the same movement of
goods, there cannot be multiple consignment notes. Thus, the applicant cannot
charge GST @ 12% since it is not a Goods Transport Agency.

37.
[(2020) 5
TMI 580] M/s Sai Motors KAR ADRG 32/2020; (AAR, Karnataka) Date of order: 20^th May, 2020

Notification No. 01/2017-Central Tax (Rate) dated 28^th
June, 2017 – The retrofitted vehicle merits classification under heading
87112019 and hence attracts GST @ 28% and also eligible for Input Tax Credit if
used for further supply of such vehicles

FACTS

The
applicant is in the business of supplying two-wheelers. It purchases vehicles
from M/s Hero Motocorp Ltd. under HSN 87112019 liable to GST at 28%. The
retro-fitment fittings under HSN 87131090 liable to GST at 5% are fixed to the
vehicles purchased and sold to the disabled persons. Currently, the applicant
charges two rates on such supplies, i.e. at 28% and 5% for the vehicles and the
retro-fitment, respectively. The applicant had sought advance ruling seeking
clarification for the classification of such supply under HSN 87131090 liable
at GST 5% and whether ITC in respect of vehicles purchased from M/s Hero
Motocorp Ltd. will be eligible to him.

HELD

The
AAR relied upon the Notification No. 01/2017-Central Tax (Rate) dated 28^th
June, 2017 and held that the supply of retrofitted vehicles by the applicant
falls under the HSN 87131090 and hence he shall charge 5% GST to his customers.
In respect of eligibility of ITC on purchase of vehicles, the AAR held that ITC
in respect of such purchases shall be eligible to the applicant since the said
purchases are in the furtherance of supply of vehicles as prescribed in the
exceptions to blocked credit stated in 17(5)(a).

38.
[(2020) 5
TMI 604] M/s Dolphine Die Cast (P) Ltd. KAR ADRG 35/2020; (AAR, Karnataka) Date of order: 20^th May, 2020

Sections 2(5), 8, 10 of IGST Act, 2017 – Place of supply
in case of export / import transactions without movement of goods shall be
location of the goods at the time of delivery to the recipient

FACTS

The
applicant is engaged in the business of manufacturing and export of aluminium
and zinc die castings. It first manufactures the die, retains it and uses it
for the manufacture and supply of aluminium and zinc die castings for which it
raises an invoice in the name of the overseas customer in foreign currency,
although it does not physically export it. Similarly, the applicant is involved
in the import of aluminium casting and pressure die casting components wherein
the Thailand supplier raises the tax invoice though the die is not physically
imported by the applicant. Therefore, an advance ruling has been sought by the
applicant in respect of taxability of the transactions and the procedure to be
followed for discharging GST liability.

HELD

After
discussing the provisions of place of supply under the IGST Act, 2017 and of
the time of supply under the CGST Act, 2017 along with the definitions of
import and export, the AAR was of the view that the applicant’s transaction
with its overseas customer shall not be counted as export because it does not
fulfil the conditions prescribed for export as the place of supply is in India
due to non-movement of goods, and hence the applicant shall charge applicable
CGST / SGST on its invoice because the said transaction amounts to intra-state
supply. In respect of the transaction relating to import by the applicant, the
AAR held that until the said goods are not brought to India it shall not be
construed as import and in case the applicant instructs the vendor to scrap it outside
India, then such a transaction is not liable to GST as ‘out and out sales’ are
out of the purview of GST.

BCAJ Admin

VAT

5. Brida Roadlines Pvt. Ltd. vs. Union Territory of
Daman & Diu [(2019)
2 GSTL (STC) 38] (Bombay
High Court)

Whether
the Commissioner of VAT is empowered under the law to hear second appeal

FACTS

The
dealer was assessed under the Daman and Diu VAT law. The A.O. imposed maximum
penalty u/s 10(d) r/w/s 10A of the CST Act, 1956. The assessee filed a first appeal
against the same, which was dismissed. The second appeal was filed with the Commissioner of VAT, Daman
& Diu, which was also dismissed. The power of the Commissioner entertaining
the second appeal was thereafter challenged before the Bombay High Court.

HELD

The
Commissioner of VAT had no power to hear the second appeal. The power was with
the Administrative Tribunal, Daman & Diu. The order passed by the
Commissioner in the second appeal was quashed by the Court.

6. Ricoh India Limited vs. State of Maharashtra [(2019)
GSTL (VAT) 120] (Bombay High Court)

Whether
Multi-Functional Printers and their parts and spares were covered by the Entry
No. C-56 of the MVAT Act, 2002 read with the Notification or the Residuary
Entry No. 102 of the said Act

FACTS

The
appellant was an importer and reseller of Multi-Functional Printers and their
parts and spares. They had applied for determination to the Commissioner of
Sales Tax, Maharashtra State. The Commissioner determined the same as falling
under the residuary entry and hence liable to VAT at 12.5%. The same was
challenged before the Tribunal; however, it confirmed the decision of the
Commissioner. The appellant thereafter approached the High Court at Bombay.

HELD

The
Court agreed that the Multi-Functional Printers were covered by the Automatic
Data Processing Machines and Units thereof falling under Entry No. 84.71 of the
Central Excise Tariff Act. However, the Court observed that even though the
Notification Entry under the VAT Act refers to the Central Excise Tariff, the
Notes stated under the said entry under the MVAT Act are not similar. The Court
further observed that the impugned product was covered by Note Nos. 2 and 4.
The printers were imported and assessed to duty under the ‘Others’ category and
the said category was not covered under Notes in the MVAT Act. The decision of
the Tribunal as regards classification was thus upheld. The classification of
the parts and spares done under the residuary entry by the Tribunal was also
upheld.

7. Bharati Airtel Limited
vs. Mira-Bhayander Municipal Corporation & others [(2019)
1 Gstl (Misc.) 138 (Bom.)]

Is
Local Body Tax (LBT) under clause ‘aaa’ of sub-section 2 of section 127 of the
Maharashtra Municipal Corporations Act, 1949 recoverable on SIM cards, recharge
coupons and e-recharge on their entry into the limits of a municipal
corporation?

FACTS

By
a license agreement dated 28^th September, 2001 entered into between
the Hon’ble President of India through the Department of Telecommunications,
Ministry of Communication, Government of India on one part, and the petitioner
company on the other part, a licence was granted to the petitioner u/s 4 of the
Indian Telegraph Act, 1885 to set up and operate cellular mobile phone services
in Mumbai and Maharashtra Telegraph Circle on the terms and conditions set out
therein. In accordance with the said agreement, the petitioner is providing telecommunication
services including mobile telephony, text messaging, voice messaging, access to
internet, etc., to the members of the public in Global System for Mobile
communication (GSM) format which involves GSM wireless modem which works with
GSM wireless network. The customers of the petitioner avail of the services by
using mobile handsets.

It
was stated that the SIM (Subscriber Identification Module) card is provided by
the petitioner which is a plastic / paper card encrypted with the unique number
which is known as International Mobile Subscriber Identification (IMSI). The
SIM card enables the subscriber access to the telecommunication service
provided by the petitioner. The contention in the petition was that the SIM
card does not have any utility or intrinsic value by itself. The petitioner
provides either pre-paid or post-paid services. In case of pre-paid services,
the subscriber can renew the services through the recharge coupon / card or
e-recharge.

HELD

By
incorporating clause ‘aaa’ in sub-section 2 of section 127 of the said Act by
the Bombay Provincial Municipal Corporation and Bombay Village Panchayat
Amendment Act, 2009 a provision was made for levy of LBT in lieu of cess
or octroi. The State Government by a notification dated 25^th March, 2010
notified the Bombay Provincial Municipal Corporations (Local Body Tax) Rules,
2010 (for short, LBT Rules). The LBT Rules provide a mechanism for the levy and
collection of LBT and the rates of LBT. In exercise of the power under clause ‘aaa’ of sub-section 2 of section
127 of the said Act, the State Government directed various municipal
corporations in the State, including the Corporation, to levy LBT on the entry
of goods into the limits of the city for consumption, use or sale in lieu of
octroi or cess with effect from 1^stApril, 2010.

On
18^th February, 2011 another notification was issued by the State
Government in exercise of the powers u/s 99B read with sections 152B and 152C
of the said Act by which the rates of LBT to be levied by the Corporation on
entry of various categories of goods into the limits of the city for the
financial year 2011 were notified. One of the items included in Schedule A to
the said notification is SIM cards (Tariff Item No. 8542 10 10).

The
case made out in the petition was that the petitioner and its distributors were
compelled to register themselves under the LBT Rules. They did so under
protest. It was alleged that neither the petitioner nor its distributors paid
any LBT on SIM cards or recharge coupons or e-recharge. The case made out in
the petition is that in October, 2010 the officers of the first respondent
visited the premises of various distributors of the petitioner and called upon
them to pay LBT on SIM cards and recharge coupons on the basis of the amount /
value of talk time mentioned. By a communication dated 30^th October,
2010 the petitioner informed the first respondent that the SIM cards, recharge
coupons and e-recharge were not goods which could be subjected to LBT and, in
fact, the petitioners are paying service tax on providing telecommunication services.
On 28^th March, 2013 the State Government issued a notification
fixing a rate of 3.5% on ‘SIM cards, memory cards, activation / renewal slips
whether recharged online or otherwise’.

The
challenge in this petition under article 226 of the Constitution of India was
to the action of the first respondent of assessing, levying and recovering LBT
on SIM cards, recharge coupons and e-recharge brought into the limits of the
first respondent. There is a consequential challenge to the notification dated
28^th March, 2013 issued by the State Government.

The
SIM cards are normally made of plastic or paper. They are capable of being
bought and sold and have utility value. The SIM cards are also capable of being
transferred, stored and possessed. The concept of sales tax and LBT are not the
same. LBT can be levied on the goods brought within the limits of a municipal
corporation even if the same are not sold but are brought either for
consumption or use. Going by what is held by the Apex Court in paragraph 11 referred
to (paragraph 12 in 10GSTR) of its decision in the case of Idea Mobile
Communication Ltd. [2011] 43 VST 1 (SC); [2011] 10GSTR 12 (SC); [2011] 12 SCC
608, SIM cards are capable of being used by putting the same in a
mobile phone handset. A SIM is a portable memory chip used in cellular
telephones. It is a tiny encoded circuit board which is fitted into the cell
phones at the time of signing on as a subscriber.

Even
assuming that by itself a SIM card has no intrinsic sale value, considering the
nature of its use it has a value in terms of money apart from its value as a
portable memory chip. Even recharge vouchers which are made of paper or plastic
are capable of being bought, sold and used. They can be transferred, stored and
possessed. The recharge vouchers or cards made up of paper or plastic may have
little value by themselves, but the same are capable of being used and their
use has value as the holder thereof can get talk time or internet data which
has a value in terms of money. SIM cards and recharge vouchers are tangible
goods which are capable of being brought into the limits of a city. The same
are capable of being used after they are brought into the limits of a city.
Hence, the same will be goods within the meaning of clause 25 of section 2 of
the said Act.

In
the decision of the Apex Court in the case of Idea Mobile Communication
Ltd. (Supra), the Court had come to the conclusion that a SIM card has
no intrinsic sale value and therefore sales tax is not payable. But the Apex
Court has not considered the question whether SIM cards are capable of being
used which is a relevant consideration for charging LBT.

The
Schedule under the rules framed under the said Act provide for levy of LBT on
the following items:

Group
II: ‘133. All types of mobile phones, pager, I-pad, I-pod, tablet and all sorts
of means of communication and their components, spare parts and accessories.
SIM card, memory card, activation / renewal slips / vouchers whether recharged
online or otherwise’ (emphasis added).

As
far as e-recharge is concerned, by no stretch of imagination can it be said
that e-recharge is capable of being brought into the limits of a city. In
clause 133 quoted above, e-recharge is not specifically included. Assuming that
it is included, it is nothing but an electronic download by use of internet.
Hence, e-recharge cannot be subject to levy of LBT. E-recharge is capable of
being used but it cannot be said that by downloading e-recharge through
internet, e-recharge is brought into the limits of a municipal corporation.
Hence, LBT cannot be recovered on e-recharge.

Coming
back to SIM cards and recharge coupons / cards, as held earlier, the same will
be covered by the definition of ‘goods’ under sub-section 25 of section 2 of
the said Act. The charging section for LBT under the said Act is section 152P.
LBT is leviable on the entry of goods into the limits of a city for
consumption, use or sale. Hence, the corporation was well within its powers to
levy LBT on SIM cards and recharge vouchers in physical form. Thus, the
petition partly succeeded.

BCAJ Admin

Service Tax

I. HIGH COURT

23. [2020-TIOL-1128-HC-Del.-ST] Bsa Citi Courier Pvt. Ltd. vs. Commissioner of Central
Goods and Services Tax Date of order: 2^nd July, 2020

An application under Sabka Vishwas (Legacy Dispute Resolution)
Scheme, 2019 cannot be rejected without giving an opportunity of being heard

FACTS

The petitioner challenged the communication
dated 5^th March, 2020 whereby the declaration filed under the Sabka
Vishwas (Legacy Dispute Resolution) Scheme 2019 only for waiver of interest
from April, 2015 to June, 2017 has been rejected without affording any
opportunity of hearing and by stating that – ‘the date of communication
declared is 5^th September, 2019 which is beyond the cut-off date (i.e.,
30^th June, 2019). Therefore, the application cannot be accepted u/s
125(1)(e) of Chapter V of the Finance Act, 2019’. Revenue submits that the
quantification in the present case was done post 30^th June, 2019 and
was communicated to the petitioner for the first time on 5^th
September, 2019. Therefore, they cannot rely on the internal correspondences /
communications between different departments of Revenue to contend that the
quantification took place in March, 2019.

HELD

The High Court noted that the impugned communication dated 5^th
March, 2020 has been issued without giving an opportunity of hearing to the
petitioner and without considering the case as put forward. Consequently, the
present writ petition and pending application are disposed of by setting aside
the order / communication dated 5^thMarch, 2020 and by directing the
respondent to give a hearing to the petitioner.

II. TRIBUNAL

24. [2020-TIOL-1039-CESTAT-Mad.-LB] Commissioner of Service Tax vs. M/s Repco Home Finance
Ltd. Date of order: 8^th June, 2020

Foreclosure charge recovered from customers for premature termination of
loan is in the nature of damages and cannot be considered as a consideration
for a contract leviable to service tax under banking and financial services

FACTS

Divergent views have been expressed by Division Benches of the Tribunal
on the issue of whether foreclosure charges levied by banks and non-banking
financial companies on premature termination of loans are liable to service tax
under the head ‘Banking and other financial services’. The matter has therefore
been placed before the larger Bench.

HELD

The Bench primarily noted that service tax would be leviable only when
an activity is considered to be a service and such service classifies as a
‘taxable service’ defined in section 65(105) of the Finance Act. It is clear
from the definition of ‘consideration’ that only an amount that is payable for
the taxable service will be considered as ‘consideration’. Any amount charged
which has no nexus with the taxable service and is not a consideration for the
service provided does not become part of the value which is taxable u/s 67.
Consideration must flow from the service recipient to the service provider and
should accrue to the benefit of the service provider. There is marked
distinction between ‘conditions to a contract’ and ‘considerations for
the contract’. A service recipient may be required to fulfil certain
conditions contained in the contract but that would not necessarily mean that
this value would form part of the value of taxable services that are provided.

As per section 2(d) of the Indian Contract Act, 1872 consideration
should flow at the desire of the promisor. Thus, if the consideration is not at
the desire of the promisor, it ceases to be a consideration. The banks and
non-banking financial companies are the promisors and the borrowers are the
promisees. The contractual relationship between the banks and non-banking
financial companies and the customers is repayment of the loan amount over an
agreed period. The banks and non-banking financial companies would not desire
premature termination of the loan advanced by them as it is in ‘their interest’
that the loan runs the entire agreed tenure, for the banks thrive on interest earned
from lending activities. As premature termination of a loan results in loss of
future interest income, the banks charge an amount for foreclosure of loan to
compensate for the loss in interest income. It is the customer who has taken
the loan who moves for foreclosure of the loan by making the payment of the
loan amount before the stipulated period, thereby breaching the promise to
service the loan for the agreed period of time.

This results in a
unilateral act of the borrower in repudiating the contract and consequently
breach of one of the essential terms of the loan agreement. A breach of
contract may give rise to a claim for damages. The ‘expectation interest’ is a
popular measure for damages arising out of breach of contract. The foreclosure
charges, therefore, are not a consideration for performance of lending services
but are imposed as a condition of the contract to compensate for the loss of
‘expectations interest’ when the loan agreement is terminated prematurely.
Therefore, foreclosure charges are recovered as compensation for disruption of
a service and not towards ‘lending’ services. The phrase ‘in relation to
lending’ cannot be so stretched as to bring within its ambit even activities
which terminate the activity. Therefore, service tax cannot be levied on the
foreclosure charges levied by the banks and non-banking financial companies on
premature termination of loans under ‘Banking and other financial services’ as
defined u/s 65 (12) of the Finance Act.

BCAJ Admin

SOCIETY NEWS

7^TH YOUTH RESIDENTIAL REFRESHER COURSE

The 7^th YRRC was organised by the Human Resource Development Committee of the Bombay Chartered Accountants’ Society from 29^th to 31^st May, 2020. Considering the unusual circumstances of the nationwide lockdown due to the Covid-19 pandemic, a unique online RRC was conceptualised, wherein a wide variety of topics was organised across five sessions and ten hours over a three-day refresher course – all this from the comfort of the participants’ homes.

‘Seven Chakras of the Professional World’, the theme of the event, was meant to cover seven different aspects of the profession – World, Nation, Business, Network, Me, Mind and Soul. A perfect blend of knowledge, the YRRC provided a great opportunity to all the participants to expand their horizons. It sought to present different online networking activities for interaction amongst the global participants.

A glimpse into the events of the YRRC.

The YRRC covered 14 different topics addressed by a stellar line-up of speakers from across the world as under:

	*Topic*	*Speaker*
1	Leadership	Niranjan Hiranandani, Mumbai
2	Entrepreneurship	David Wittenberg, Mumbai
3	The world has tipped: Are you prepared?	Raj Nair, Mumbai
4	Story of a shy boy from Gujarat to senior position in BCAS	Kanu Doshi, Mumbai
5	World economics	H.E. Zulfiquar Ghadiali, Abu Dhabi
6	Indian economics	Dr. Shubhda Rao, Mumbai
7	The role of development finance institutions and how to access funding for projects in emerging markets	Jeffery Stoddard, Washington D.C.
8	Networking from home	Manoj Gurshahani, Mumbai
9	Is work your identity?	Avatar Lila, Mumbai
10	Image management	Mihika Bhanot, Pune
11	Voice improvement & modulation	Dr. Manisha Soni, Mumbai
12	Sustainability of happiness	Padma Shri T.N. Manoharan, Chennai
13	Building resilience	Shubhika Bilkha, Mumbai
14	Living with the unknown – Anecdotal renderings from a lifetime experience of the unknown	Lt.-Gen. Syed Ata Hasnain, New Delhi

The content and the presentations by the speakers were clearly a class apart. They delivered their points and ideas with great clarity. They got the participants thinking on whether to be an entrepreneur or do a job in an industry or become an ‘intrapreneur’ (a new concept well explained). The participants obtained a better understanding of what skills one must possess to be a leader and how world economies play their role in shaping one’s life. We are all now at least aware of how to be ready for the world that has already tipped. One of the key learnings for the participants was ‘How to Network Digitally’, especially in the times of Covid and in our lives thereafter. They also got a glimpse into the concepts of voice modulation and image management as well as their importance in our personal and professional lives. The participants were given deep insights into and made aware of the importance of being prepared for any unforeseen situation, be it a war-room or a boardroom.

Their sensitivities tickled, the participants came up with interesting questions that were addressed extensively by the speakers, and yet left everyone wanting more. In fact, all the scheduled breaks between speakers were invariably used in extracting even more out of the knowledgeable speakers.

The event had over 150 participants from 26 cities across the world, with technology diminishing the distance between their locations.

Agra	Bhilwara	Jaipur	Mumbai	Porbandar
Ahmedabad	Birganj (Nepal)	Jamnagar	Nagpur	Pune
Aurangabad	Chennai	Nairobi	Nashik	Thane
Bangalore	Coimbatore	Lucknow	Navi Mumbai	Vadodara
Bareilly	Hyderabad	Margao	Navsari	Varanasi

The participants also took active part in the after-hours sessions like the ‘People Tambola’; ‘Lost on the Island’ – a strategy game; and a Relay Video challenge called ‘YRRC’s Got Talent’. Though there was no physical interaction between the people, all these activities ensured optimum networking. At the end of the YRRC, everyone had made some new friends in the profession whose support they could draw upon at any time. For participation in these networking activities, the participants were divided into six teams and points were awarded to the teams for the different activities.

At the closing session, participants were already asking about the next YRRC! They truly appreciated the concept and execution of the event. It was an event that was truly ‘By the Youth, Of the Youth and For the Youth’. The participants bid farewell to one another and promised to stay connected digitally.

The Team – Behind the Scenes

Top L-R: Ankit Gudhka, Prajit Gandhi, Namrata Dedhia, Anand Kothari

Middle L-R: Namrata Shah, Virag Shah, Dhruv Shah, Kinjal Bhuta

Bottom L-R: Sneh Bhuta, Naushad Panjwani

In Circle: Gaurav Save

DEEPAK PAREKH DELIVERS FOUNDING DAY LECTURE

For the first time in the history of the Bombay Chartered Accountants’ Society, the Founding Day lecture was delivered online before a virtual audience. It was the 72^ndFounding Day and the programme lined up for the evening was a mouth-watering one – a talk by the inimitable Mr. Deepak Parekh, Chairman of HDFC and a qualified Chartered Accountant.

Organised with the help of the software called ZOOM, the meeting was held on 6^th July and was witnessed by 135 online viewers – plus another 2,500 enthusiasts who watched it on YouTube.

The subject itself was intriguing, ‘CAs in Uncharted Times’, and the speaker was a stalwart in every sense of the term.

President Manish Sampat performed three functions. He welcomed the speaker, gave the viewers a brief background of the activities of the BCAS and also introduced the speaker.

Mr. Parekh started his talk by complimenting the Society on its leadership in the profession and said that 72 years was indeed a very long time for an institution to sustain its reputation and retain its values. He also lauded BCAS for the illustrious speakers that it had invited for its Founding Day lectures in previous years.

He pointed out that the world was going through unprecedented times with no past model against which to benchmark it. In such times, decision-making was difficult because the future was just not predictable. Therefore, the need of the hour was ‘inclusive leadership’ which could help institutions to sail through. This would be possible only through collaboration and the free flow of information between individuals and institutions rather than by working in silos.

Recalling an oft-repeated dictum, he said that there were decades when nothing happened and then there were weeks when decades happened. Therefore it was imperative to understand that the time had come to reset skills. At the same time, there was a silver lining in the current situation – it was time to accept the reality of staying at home and using that as an opportunity to develop patience and to spend quality time with near and dear ones.

In such unchartered times, CAs, especially auditors, would have to be willing to meet the challenges in respect of internal controls and possibly redefine their work so that scams do not get uncovered later. Several recent experiences of large-scale frauds had pointed to the need for auditors to become more intuitive and ensure that valuations are conservative and the concept of ‘going concern’ in the changed paradigm is not compromised. This would go a long way to help protect the interests of all stakeholders. India, despite its much acclaimed developments on many fronts, had not made much progress on human health economy to tackle crises of such enormity and scale as posed by the coronavirus pandemic.

Mr. Parekh said that India was seeing its fourth recession in recent times. But unlike the previous recessions which were due to agricultural failure, the current recession was of a different dimension. The fiscal deficit was high, corporate performance was subdued and the realty sector was saddled with stock that was difficult to liquidate. However, the positive aspect was that India could see some green shoots thanks to the bumper crop, current account surplus, and maintenance of investment grade status by credit rating agencies, low interest rates and increased FII inflows resulting in a robust foreign exchange reserve balance.

He lamented the fact that rating agencies were being unfair to India in not giving due credence to these facts. Liquidity was returning to NBFCs, global crude rates were at their lowest and GST collections were showing steady signs of returning to normal levels. Under these circumstances, there were sufficient new opportunities such as Environment Social Governance (ESG) and technology-oriented new areas such as Data Analytics, IT Audit, Artificial Intelligence and Big Data for small and medium CA firms and the CAs must make efforts to adopt them. The vast data collected and available will need analysis and none better than CAs would be able to do justice to it. He firmly believed that there was enough room for the SME sector to co-exist with the ‘Big 4’. He, however, agreed that there was need to improve the compensation standards for CAs to ensure better quality work and to justify the responsibilities, risks and liabilities that they undertake.

Overall, Mr. Parekh exuded an aura of positivity, asserting that India and its CAs had a very bright future. A significant difference would be made by the resilience of the Indian people and the strength and ability of domestic consumption to help the economy to bounce back.

The vote of thanks was proposed by Hon Jt. Secretary Mihir Sheth.

VIRTUAL TALK ON ‘INSPIRED LIVING’

Dr. Mayur B. Nayak conducted an inspiring virtual session ‘Inspired Living’ for the Study Circle of the Human Resource Development Committee on 14^th July.

He started by pointing out that the human body is made up of five basic elements of nature, namely, earth, water, fire, air and space known as Panch Mahabhutas in Sanskrit. These exist in different proportions. For example, our body consists 72% of water.

Balancing these five elements is of utmost importance for good health. Such a balance can be attained by the practice of yoga / exercises, mudras, pranayama, through natural sources, diet variations and meditation.

Drawing an analogy, Dr. Mayur pointed out that the five elements could be said to be related to five different aspects of the human personality, namely, (i) Physical, (ii) Mental and Emotional, (iii) Intellectual – Personal and Professional, (iv) Social, and (v) Spiritual.

Earth element was linked to the physical dimension of one’s personality. Hence it was important to remain grounded and physically fit for taking a major leap in life. Emphasis was placed on the three key Pranayamas, viz., Anulom Vilom, Bhastrika (followed by Sheetali) and Kapal Bhati to increase one’s immunity to fight the current corona pandemic. By chanting the ‘Omkar’ mantra properly, one can control the movement of energy in one’s body. Participants were taught the correct way of deep breathing to reduce stress and tension.

The second element water was linked to the mental and emotional dimensions of one’s personality. One must replace fear with faith, hatred with love, and shame with freedom to attain emotional maturity. A unique 3A constitution of ‘Accept, Adjust and Appreciate’ was shared with the participants to help improve the inter-personal relationships. ‘Respond and not react’ was given as the mantra to control anger.

Fire element was linked to the intellectual dimension of one’s personality, leading to personal and professional growth. One must ignite the fire of passion to succeed in life. The first step is to do a SWOT analysis, followed by developing a right attitude in life. Self-belief is the key to success. One must try and explore the hidden potential within, Dr. Mayur said.

Air element was linked to the social dimension of one’s personality. The emphasis was on spreading one’s fragrance through good deeds. Giving is the nature of the Divine. It was revealed that one can give many things apart from money, such as smile, love,
hope, blessings, support, hugs, moral support, education, time, appreciation, happiness and so on. Covid-19
had offered a lot of opportunities to give. And for giving one must develop love and compassion in one’s heart.

Finally, the space element is linked to spiritual growth. The difference between spirituality and science / religion was explained. Eight steps of Astang Yoga to attain nirvana were highlighted. Spirituality as a way of life was explained with a detailed elaboration of the spiritual values of life. Emphasis was placed on meditation as a panacea for balanced growth in all dimensions of the personality to live an inspired life.

The talk comprised of an audio-visual presentation, followed by a Q&A session.

The speaker, Dr. Mayur Nayak, also gave some lessons to be practised at home for ‘Inspired Living’. The Study Circle was well attended by over 70 participants. The presentation is available on the YouTube Channel of the BCAS.

BCAJ Admin

REGULATORY REFERENCER

DIRECT TAX

1. CBDT further extends
tax compliance, other due dates under the Taxation and Other Laws
(Relaxation of Certain Provisions) Ordinance, 2020. [Notification No. 35 of 2020
dated 24^th June, 2020.]

2. Income-tax (13th
Amendment) Rules, 2020 – Rule 2BB amended to prescribe exemptions which
can continue to be claimed by an assessee opting for the new taxation regime
prescribed u/s 115BAC of
the Act. [Notification No. 38 of 2020 dated 26^th June, 2020.]

3. Income-tax (16^th
Amendment) Rules, 2020 – Rule 31A amended. It notifies amendments in
TDS statement under Form 26Q with respect to sections 194A, 194J, 194K, 194LBA,
194N, 194-O,
197A and 200. [Notification No. 43 of 2020 dated 3^rd July, 2020.]

4. CBDT further relaxes
the time frame prescribed under second proviso to section 143(1) and
directs that all validly-filed returns up to A.Y. 2017-18 with refund claims,
which could not be processed u/s 143(1) and have become time-barred, subject to
the exceptions, can be processed now with prior administrative approval of Pr.
CCIT/CCIT by 31^st October, 2020.
[F No. 225/98/2020ITA-II dated 10^th July, 2020.]

5. One-time relaxation
granted for verification of returns for A.Ys. 2015-16, 2016-17, 2017-18,
2018-19 and 2019-20, which were uploaded electronically by the taxpayer within
the time allowed u/s 139 of the Act and which have remained incomplete due to
non-submission of ITR-V Form for verification. Such returns can be verified by
sending a duly signed physical copy of ITR-V to CPC, Bengaluru through speed
post or through EVC/OTP modes. Such verification process must be completed by
30^th September, 2020. CBDT further directs that such returns shall
be processed by 31^st December, 2020 and intimation of processing of
such returns shall be sent to the taxpayer. [Circular No. 13/2020 dated 13^th
July, 2020.]

ACCOUNTS AND AUDIT

A. The timeline for
submission of financial results for the quarter / half-year / financial year
ending 31^st March, 2020 by listed entities (Regulation 33 of the
LODR Regulations) has been further extended by a month to 31^st July,
2020 on account of the pandemic. [SEBI Circular No.
SEBI/HO/CFD/CMD1/CIR/P/2020/106 dated 24^thJune, 2020.]

B. Guidance Note on The
Companies (Auditor’s Report) Order, 2020 – The ICAI has issued a Guidance
Note on CARO, 2020 (applicable for audits of F.Y. 2020-21 and onwards) to
enable auditors to comply with its reporting requirements. [ICAI Guidance
Note issued on 1^stJuly, 2020.]

C. Applicability of the
revised edition of Code of Ethics – The following provisions of Volume – I
of Code of Ethics, 2020 is deferred till further notification: (a)
Responding to NOCLAR; (b) Fees – relative size; and (c) Taxation services to
audit clients. [ICAI announcement dated 1^st July, 2020.]

D. Extension of timeline for finalisation of audited accounts by
applicable NBFCs – Applicable
NBFCs shall finalise their balance sheet within a period of three months from
the date to which it pertains, or any date as notified by SEBI for submission
of financial results by listed entities. [RBI Notification No.
RBI/2020-21/11 dated 6^thJuly, 2020.]

E. Guidance on Accounting
for expenditure on CSR Activities – The ICAI has issued a Technical
Guide on Accounting for Expenditure on Corporate Social Responsibility
Activities with the objective of providing guidance on related recognition,
measurement, accounting, presentation and disclosures aspects. [ICAI
Technical Guide issued on 6^th July, 2020.]

F. Extension of the last date of filing Form
NFRA-2 – The time limit for
filing Form NFRA-2 for F.Y. 2018-19 will now be 270 days from the date of
deployment of the form on the NFRA Website. [MCA General Circular No.
26/2020 dated 6^th July, 2020.]

BCAJ Admin

MISCELLANEA

I.
Business News

19. An emoji is worth a thousand words

On the day dedicated to the little pictures that save a
thousand characters on phone and computer keypads – 17^th July –
hopefully, people remembered that thanks to emojis the world is going back to
the days of unfettered, unlettered visual communication. Language has come full
circle from our most ancient ancestors’ parietal art to the graphic novels and
emojis of our times, obviating the need for letters, numbers and punctuation
marks. As emojis make further inroads into our written communication, the only
people who may have reason to grumble are grammarians and pedants, as this mode
disregards all rules and, indeed, language itself.

The purists could conceivably have retained some clout if
emoticons had prevailed as they use letters, numbers and punctuation marks. But
they are now increasingly irrelevant as in the expanding emoji world there is
simply no need to know words such
as hippopotomonstrosesquippedaliophobia or its correct spelling, much less
devise a pictographic equivalent for it.

Esperanto has been trying for 133 years to become the world’s
preferred auxiliary language, but in one-eighth of that time – especially since
2010 – emojis have already found their way into well over 90% of online
communication. With its ability to express emotions as well as an idea, emojis
are clearly the text-best thing to verbal conversation.

(Source: ET Bureau – 18^th
July, 2020)

II.
Business

20. Global real estate
investment plunged by 33% in first half of the year

KEY POINTS

(1) The largest decline was
seen in the Asia Pacific region, down 45%,

(2) By sector, investments
in hotels suffered the steepest drop, down 59% on a global basis,

(3) Industrial properties
showed the most resilience, with investments slipping by only 4%.

Cross-border investments in
global real estate plunged by 33% in the first half of the year compared to the
first half of 2019, according to a report released by Savills, the London-based
global real estate services provider.

The largest declines were
seen in the Asia Pacific region, down 45%, and the Americas, down 36%.

By sector, investments in
hotels suffered the steepest drop, down 59% on a global basis. Investments in
retail properties and office spaces plunged 41% and 40%, respectively.

Industrial properties
showed the most resilience, with investments slipping by only 4%.

Interestingly, investments
in residential properties in Asia Pacific actually surged by 105% – partly
boosted by the purchase of a Japanese apartment portfolio by Blackstone Group
for about $3 billion in February, 2020.

‘Overall, the global 33%
fall in real estate investment activity so far this year is less than the decrease
at the start of the global financial crisis in the first half of 2008, when
real estate investment volumes across the world fell by 49% and continued
falling until mid-2009,’ said Sophie Chick, Director of Savills World Research
team. ‘Unsurprisingly, those asset classes that have been most [affected] by
social distancing measures have been hit hardest, while industrial and
residential, which is a long-term income play, have been impacted least.’

By region, Europe, the
Middle East and Africa, or EMEA, saw only a 19% decline in investments.

‘The huge increase in
entity-level deals in EMEA has helped insulate that market from the biggest
falls as some buyers have used this period for opportunistic M&A or equity
deals,’ Chick explained.

Simon Hope, Savills’s head
of global capital markets, added, ‘Volumes are expected to remain well below
pre-pandemic levels for the rest of 2020 as investors wait for market clarity.
However, certain sectors are expected to outperform as investors focus on
secure assets, namely logistics, residential and life sciences.’

Hope also noted that
looking ahead, ‘there seems to be general consensus across G8 governments
around the world to build their way out of this downturn, turning on a tap of
capital for infrastructure projects. This generally bodes well for the real
estate industry as it potentially creates more assets to invest in as well as
reducing unemployment rates.’

(Source:
International Business Times – By Palash Ghosh, 20^th July, 2020)

III.
Financial accounting news

21. How U.K. audit scandals pushed Big Four toward
split: QuickTake

A spate of scandals has put accounting firms in the U.K. on
the back foot. The collapse of Carillion Plc and subsequently Thomas Cook Group
Plc, have been among cases that raised questions about auditing standards at
the so-called Big Four firms. In response, Deloitte, Ernst & Young, KPMG
and PricewaterhouseCoopers have agreed to separate their auditing and
consulting departments by 2024 to avert possible conflicts of interest, a move
that critics say does not go far enough.

1. How bad have things got?

Bad enough that the U.K. government promised to reform the
audit industry after a Parliamentary report two years ago into the collapse of
Carillion, a major outsourcing company. The report panned Carillion’s
accounting methods, KPMG’s soft audits and weak accounting regulation.
Sidetracked by Brexit, a general election and the coronavirus pandemic, the
government has yet to follow through. In the meantime, the accounting firms
have taken action along with the regulator, the Financial Reporting Council,
partly to pre-empt government moves.

2. What have they agreed to?

The plan, announced on 6^th July, to split
consultants from auditors aims to ensure the Big Four won’t baulk at tough
audits so as not to jeopardise lucrative consulting contracts at the same
companies. In the regulator’s words, the firms need to do a better job of
backing ‘auditors making tough decisions.’ The deal is a significant concession
by the Big Four, which fiercely opposed splitting auditing functions. However,
it doesn’t convincingly address conflicts of interest between supposedly
independent auditors selling consulting work to their clients. Under the deal,
the auditors can still earn close to half of their revenues from consulting,
staff can switch between audit and consulting positions, and auditors are under
the control of the firm’s chief executive officer who also oversees the
consulting divisions.

3. Will it work?

Unlikely. Richard Murphy, an accountant and economics
professor at City University in London, says this is a cosmetic exercise
designed to make the Big Four look more independent but ignores the lack of
independence and competition that have blighted audit quality in the U.K.
Critics say the voluntary agreement lacks regulatory muscle and will not be
enforceable. Some groups have said that it will fail to stimulate competition
from smaller firms or make auditors more independent of their clients.

4. What about the regulator?

The FRC has powers to sanction firms and individual
accountants for deficient auditing, and does so. Without legislation, however,
the agreement isn’t legally enforceable and has been criticised for allowing
the big firms to continue offering consulting services. The move was taken
partially to pre-empt lawmakers from weighing in with their own, likely
tougher, solution.

5. Why the need for reform?

The Carillion collapse in 2018 that shocked lawmakers into
action came after the government refused to bail it out, costing almost 3,000
jobs and leaving 30,000 suppliers and sub-contractors with 2 billion pounds
($2.5 billion) in unpaid bills. Administrators liquidating its assets believe
KPMG’s auditing was negligent in relation to its long-term construction
contracts and goodwill. Thomas Cook collapsed in September, 2019, leading to
9,000 job losses in the U.K. and leaving 150,000 tourists stuck overseas. That
also sparked an investigation by the FRC into auditor Ernst & Young.

6. Have things improved since then?

No. Middle Eastern hospital operator NMC Health Plc, listed
in London, started unravelling this year after unearthing undisclosed debt amid
allegations of fraud, leading to the departure of top executives. The FRC
opened a probe into Ernst & Young’s auditing of NMC’s financial statements.
And in Germany the admission by payments company Wirecard AG in June that 1.9
billion euros ($2.2 billion) it had reported as assets probably never existed
led to the resignation of Chief Executive Officer Markus Braun and his
subsequent arrest, with the company filing for court protection from creditors.
Ernst & Young’s refusal to greenlight Wirecard’s long-delayed 2019
financial report followed reports by the Financial Times raising
questions about Wirecard’s accounting practices. Ernst & Young called it an
‘elaborate’ fraud that even a very rigorous probe may not have discovered.

7. What will the government do?

The U.K. government has promised to replace the FRC with a
new regulator, the Audit, Reporting and Governance Authority, as recommended by
an independent report in 2018. Unlike the FRC, this will be a statutory body
with legal powers granted by Parliament to regulate the big accounting firms
directly. The government still says it will act on the findings of three
reports it commissioned after Carillion’s collapse. Beyond the
accounting-consulting split, the recommendations included requiring large listed
companies on the FTSE 350, such as Aviva Plc and Tesco Plc, to use joint
auditors to help bring other firms into the market and creating a distinct
auditing, as opposed to accounting, profession. All these moves would require
legislation, however, and Parliament may not have the time to pass the
necessary laws.

8. Does this sound familiar?

Yes, it’s reminiscent of regulatory action taken in
Washington almost two decades ago. Since 2002, auditors of publicly-traded
companies in the U.S. operate under strict rules that bar them from providing
most consulting services to their audit clients. The Sarbanes-Oxley Act was
part of Congress’s response to accounting scandals that brought down Arthur
Andersen LLP and its clients Enron Corp. and WorldCom Inc. It also imposed
audit regulations and created the Public Company Accounting Oversight Board,
which enforces standards and annually inspects the largest firms. U.S.
regulators are increasingly concerned about the patchwork of regulations in
force around the world. Securities and Exchange Commission chief Jay Clayton
said in December that he wants more financial reporting and audit uniformity
worldwide.

9. What’s next in the U.K.?

The Big Four have promised to submit plans to the FRC by
October next year, before a split effective in 2024. That gives the government
time to pass legislation and audit reform proposals may be released in the
coming months. Though legislation would supersede the agreement, there is
speculation the government could use this pact as a reason to put audit reform
on the back burner.

(Source: Bloomberg Tax – By Guy
Collins, Hugo Miller, 17^th July, 2020)

BCAJ Admin

RECENT DEVELOPMENTS IN GST

NOTIFICATIONS

(1) One-time waiver of late
fees – Notification No. 52/2020-Central Tax, dated 24^th June, 2020

Non-filers of GST
returns for the period July, 2017 to January, 2020 who file their returns
before 30^th September, 2020 shall not be required to pay any late
fees. Further, the revised dates for filing GSTR3B for taxpayers with turnover
less than Rs. 5 crores for the months June and July, 2020 have been extended as
follows:

June, 2020 –

Group A States = 23^rdSeptember, 2020

Group B States = 25^th
September, 2020

July, 2020 –

Group A States = 27^th
September, 2020

Group B States = 29^th
September, 2020

(2) Capping of maximum late
fee – Notification No. 57/2020-Central Tax, dated 30^th June, 2020

Notification No.
52/2020-Central Tax is amended and a new proviso is added vide
this Notification to cap the maximum amount of late fee payable by late filers
of GSTR3B for the period starting from February, 2020 and up to July, 2020. The
maximum late fee payable for the above periods shall be Rs. 500 per return, if
the returns are filed after the due date but before 30^th September,
2020.

(3) SMS facility for Nil
returns – Notification No. 58/2020-Central Tax, dated 1^st July, 2020

This Notification has amended the CGST rules to provide for filing of
Nil GSTR1 or GSTR3B using Short Messaging Service (SMS) directly, using OTP
authentication.

CIRCULARS

(i) Clarifications on Covid-19
– Relief measures Circular No. 141/11/2020-GST

By the above Circular, the CBIC has clarified some doubts regarding the
Covid-19 relief measures provided by the Government. It has been clarified that
the interest shall be payable as per the interest applicable across different
time periods. For example, if GSTR3B for the month of April, 2020 is filed on
28^th June, 2020, where the original due date was 20^th
May, the conditional extended filing date was 4^th June, 2020, the
interest will be payable as follows:

No. of days
delay = 39

Interest = Nil for
15 days (up to 4^th June, 2020)

9% for 20 days (up to 24^th June, 2020)

18% for 4 days (up to 28^th June, 2020)

ADVANCE RULINGS

(A) Rate of tax
on mehandi /
henna

Sunil Kumar Gehlot (Sunil Kumar & Co.) (Order No.
RAJ/AAR/2020-21/01, dated 6^th May, 2020)

The issue regarding
rate of tax on henna was before the learned AAR, Rajasthan. The applicant
wishes to start manufacturing mehandi / henna powder.

The applicant
submitted that the classification dispute as regards mehandi / henna
powder was prevalent since the days of the Central Excise Laws and the
confusion continued to persist in the GST era. He further submitted that while
selecting the commodities at the time of filing the registration application,
the HSN Code 14041019 specifically mentions ‘Henna Powder’ and so the applicant
has mentioned the classification of the product under Chapter 14 and,
accordingly, the rate of GST applicable is 5%.

The applicant
stated that the rate on henna powder was decided at 5% since the inception of
GST. He produced the agenda list of the fitment committee for the consideration
of the GST Council. In that, it could be seen from Agenda Item No. 10 that the
rate was decided to be kept at 5%. He produced the relevant extracts and
supporting documents for the consideration of the AAR.

The AAR considered
the above arguments and heard the jurisdictional officers for their views. They
had relied on Wikipedia for the meaning / definition of the word ‘henna / mehandi’
and observed that henna and mehandi are the same product with different
names and are obtained from the mehandi tree by grinding its leaves.

They further
observed that tariff items 14041011 to 14041090 have been omitted from the
Customs Tariff Act, 1975 and hence no such tariff item is available in the said
Act. In view of the above, the question of classification of products under
discussion under 14041011 does not arise.

The learned AAR
observed that it is a well-known fact that henna / mehandi powder has a
natural property of dyeing / tanning and is generally used as hair dye.
Therefore, the product is rightly classified under Chapter Heading 3305 as
preparations for use on hair and covered under amended Notification No.
41/2017-CT(R) dated 14^thNovember, 2017 and shall attract GST @ 18%.

(B) Sale of land
plot with basic amenities

Shri Dipesh Anilkumar Naik (Order No. GUJ/GAAR/R/11/2020, dated 19^th
May, 2020)

The applicant has
submitted that he has a vacant land outside the municipal area of the town on
which he has some proposed business activity and has all the necessary
approvals for the project from the Plan Passing Authority (i.e., zilla
panchayat). The applicant has further submitted that as per the said
Authority, the seller of land is required to develop the primary amenities like
sewerage and drainage line, water line, electricity line, land levelling for
road, pipeline facilities for drinking water, street lights, telephone line,
etc. The applicant also submitted that they will sell the individual plots to
different buyers without any construction on the same but by providing the
primary amenities as mentioned above, which are the mandatory requirements of
the Plan Passing Authority.

The applicant
wished to know the applicability of GST on the proposed sale of plots with the
amenities as mandated by the Authority.

The AAR referred to
Schedule III to the GST Act. This Schedule sets out the activities or
transactions which are treated as neither a supply of goods nor as supply of
services. Therein, Entry 5 covers sale of land which is excluded from GST levy.
On the basis of this entry, the AAR observed that where the nature of activity
is that of only sale of immoveable property of a plot, it is excluded from GST
levy.

Further, the AAR
found that the plotted development is a scheme which involves forming land into
a layout after obtaining necessary plan approval from the Development
Authority, get all other permissions required to take up, commence and complete
what would be the layout, comprising of individual sites. In the activity of
plot development, the following are done – levelling the land, construction of
boundary wall, construction of roads, laying of underground cables and water
pipelines, laying of underground sewerage lines with sewage treatment plants,
development of landscaped gardens, drainage system, water harvesting system,
demarcation of individual plots, construction of overhead tanks and other
infrastructure works.

In addition, common
amenities like garden, community hall, etc. are also offered in some schemes.
The sale of such sites is done to the end customers who may construct houses /
villas on the plots.

The AAR noted that
sellers charge the rates on super built-up basis and not the actual measurement
of the plots. The super built-up area includes the area used for common amenities,
roads, water tank and other infrastructure on a proportionate basis. Thus, in
effect, the seller is collecting charges towards the land as well as the common
amenities, roads, water tank and other infrastructure on a proportionate basis.
In other words, such common amenities, roads, water tank and other
infrastructure are an intrinsic part of the plot allotted to the buyer.

The AAR held that
the above indicates that the sale of a developed plot is not equivalent to the
sale of land but is a different transaction. Sale of such plotted development
was tantamount to rendering of service. This view has also been taken by the
Supreme Court in the case of M/s Narne Construction P. Ltd. reported at
2013 (29) STR 3 (SC).

He further held
that the activity of the sale of developed plots would be covered under the
clause ‘construction of a complex intended for sale to a buyer’ as contained in
Schedule II to the CGST Act. Thus, the AAR ruled that the said activity is
covered under ‘construction services’ and GST is payable on the sale of
developed plots in terms of the CGST Act / Rules and relevant Notifications
issued from time to time.

Jay Jalaram Enterprises (Order No. GUJ/GAAR/R/03/2020, dated 11^thMarch, 2020)

The applicant was involved in the manufacture and supply of the above
item. The popcorn is sold in a sealed plastic bag bearing a registered brand
name ‘[J.J.’s] Popcorn’, under the Trade Marks Act, 1999.

The applicant submitted that their product is manufactured by using corn
/ maize grains. The raw grain is heated in an electric machine / oven @ 180/200
degrees temperature and due to the heat so given to the grains, they turn into
puffed corns / popcorns which are known in Gujarati as ‘dhani’ and are similar
to puffed rice which is known as ‘murmura’. They are then sieved so as to
remove the grains that remained unpuffed. During the process, salt, edible oil
and turmeric powder are mixed in required quantities. Thereafter, the product
is packed in plastic pouches in quantities of 15 grams.

The applicant contended that its product, which is popularly known as
popcorn, is nothing but corn / maize, which is a cereal, falling under Chapter
10. They placed reliance on a judgment delivered by the Apex Court in M/s
Alladi Venkateshwaralu and others vs. Government of A.P. (1978) 41 STC 394 (SC),
wherein it was held that the term ‘atukulu’ (parched rice) and ‘muramaralu’
(puffed rice) are ‘rice’. Applying the same ratio, the applicant further
submitted that the term used in the above entry as maize (corn) also includes
puffed maize / popcorn as being a cereal within its meaning and therefore
[J.J.’s] Popcorn is covered in Entry No. 50 in the above tariff item 1005 of
Schedule I and is taxable accordingly. The applicant also submitted that though
this judgment is under the provisions of the Central Sales Tax Act, 1956, it is
still relevant as it used to be in earlier times for determining the
classification of commodities. The principle laid down therein is that a cereal
grain, even after applying the process of heating, does not lose its basic
characteristics and thus it remains the same grain and this principle is also
applicable squarely to maize as popcorn.

The AAR relied on the classification notes to Notification No.
1/2017-CT(R) which provides as follows:

‘Explanation – For the purposes of this
notification, –

(i) ……………

(ii) ………….…

(iii) “Tariff item”, “sub-heading”, “heading” and
“Chapter” shall mean, respectively, a tariff item, sub-heading, heading and
chapter as specified in the First Schedule to the Customs Tariff Act, 1975 (51
of 1975).

(iv) The rules for the interpretation of the First
Schedule to the Customs Tariff Act, 1975 (51 of 1975), including the Section
and Chapter Notes and the General Explanatory Notes of the First Schedule
shall, so far as may be, apply to the interpretation of this notification.’

The AAR further relied on the decision of the Hon’ble Supreme Court in
the case of L.M.L. Ltd. vs. Commissioner of Customs [Civil Appeal No.
3764 of 2003, decided on 21^stSeptember, 2010 reported at 2010 (258)
ELT 321 (S.C.)]. It held as follows:

‘12. In Collector of Central Excise, Shillong vs.
Woodcrafts Products Ltd. reported in (1995) 3 SCC 454, it was held by this Court that as expressly
stated in the statements of objects and reasons of the Central Excise Tariff
Act, 1985, the Central Excise Tariffs are based on the Harmonious System of
Nomenclature (HSN) and the internationally accepted nomenclature was taken into
account to reduce disputes on account of tariff classification. Accordingly,
for resolving any dispute relating to tariff classification, a safe guide is
the internationally accepted nomenclature emerging from the Harmonious System
of Nomenclature (HSN). Although the decision in the case of Woodcraft Products
(Supra) dealt with the interpretation of the provisions of the Central
Excise Tariff, there can be no doubt that the HSN Explanatory Notes are a
dependable guide even while interpreting the Customs Tariff.’

Relying on the above interpretation rules, the AAR observed that the
goods in question is ready-to-eat prepared food and fits the description as
‘Prepared foods obtained by the roasting of cereal’. This description attracts
classification under Chapter Sub-Heading 1904 10 of the First Schedule to the
Customs Tariff Act, 1975.

The AAR mentioned that there is no specific entry for the product
‘popcorn’ in Notification No. 1/2017-Central Tax (Rate) dated 28^th
June, 2017. But there is an entry most akin to the product and process (Chapter
heading 1904) at Sr. No. 15 of Schedule III of Notification No. 1/2017-CT(R)
dated 28^th June, 2017 and attracts 9% CGST and 9% SGST, or 18% IGST.

As against the applicant’s contention that the product be classified as
maize, the AAR held that Note 1(A) to Chapter 10 clearly mentions that ‘the
products specified in the headings of this Chapter are to be classified in
those headings only if grains are present, whether or not in the ear or on the
stalk’. The applicant’s product loses the presence of grain in it, so it does
not deserve to be classified in that heading.

The applicant had also clarified that to make the
heated maize more palatable, salt, turmeric and some oil was added to it; this
makes it clear that the product is not grain but processed food.

BCAJ Admin

CORPORATE LAW CORNER

14. Maharashtra
Seamless Ltd. vs. Padmanabhan Venkatesh [2020] 113
taxmann.com 421 (SC) Civil Appeal Nos.
4242, 4967, 4968 of 2019 Date of order: 22^nd
January, 2020

Insolvency
and Bankruptcy Code, 2016 – There is no provision in the Code which stipulates
that amount approved in the resolution plan should match the liquidation value
– Once approved, resolution plan cannot be withdrawn under provisions of
section 12A of the Code

FACTS

U
Co, the corporate debtor, had a total debt of Rs. 1,897 crores out of which Rs.
1,652 crores comprised of term loans from two entities of Deutsche Bank. There
was also debt on account of working capital borrowing of Rs. 245 crores from Indian
Bank. Indian Bank initiated the Corporate Insolvency Resolution Process (CIRP)
against U Co by filing an application u/s 7 of the Insolvency and Bankruptcy
Code, 2016 (the Code).

The
National Company Law Tribunal (NCLT), by an order passed on 21^st January,
2019, approved the resolution plan submitted by M Co in an application filed by
the Resolution Professional (RP). The resolution plan included an upfront
payment of Rs. 477 crores. Ancillary directions were issued by the NCLT while
giving approval to the said resolution plan with the finding that the said plan
met all the requirements of section 30(2) of the Code.

P,
who was one of the promoters of U Co, and Indian Bank filed an appeal with the
National Company Law Appellate Tribunal (NCLAT). M Co also filed an appeal
before NCLAT seeking directions upon U Co, as also the police and
administrative authorities, for effective implementation of the resolution
plan. The grievance of M Co in that proceeding was that they were not being
given access to the assets of U Co.

The
complaint of P, one of the original promoters, and the bank before the NCLAT
was primarily that the approval of the resolution plan amounting to Rs. 477
crores was giving the resolution applicant a windfall as they would get assets valued
at Rs. 597.54 crores at a much lower amount. The other ground urged by the bank
was that Area Projects Consultants Private Limited, one of the resolution
applicants, had made a revised offer of Rs. 490 crores which was more than the
amount offered by M Co.

The
application was disposed of with a direction to extend co-operation to M Co. In
the course of hearing, M Co agreed to pay operational creditors at the same
rate (25%) as financial creditors. NCLAT also ordered that the upfront payment
agreed to by M Co be increased from Rs. 477 crores to Rs. 597.54 crores (being
the average liquidation value) by paying an additional Rs. 120.54 crores.
Failure to make the payment would set aside the order of NCLT approving the
resolution plan. The plan could be implemented only when M Co made the revised
payment.

Aggrieved, M Co filed an appeal before the Supreme Court
seeking withdrawal of the resolution plan and a refund of the sum deposited in
terms of the resolution plan along with interest. M Co argued that in order to
take over the corporate debtor, they had availed of substantial term loan
facility and deposited the sum of Rs. 477 crores for resolution of U Co, but
because of delay in implementation of the resolution plan, they were compelled
to bear the interest burden. Further, the export orders that they had accepted
in anticipation of successful implementation of the resolution plan were
cancelled, as a result of which the takeover of U CO had become unworkable. It
was also argued that NCLAT had exceeded its jurisdiction in directing matching
of liquidation value in the resolution plan.

On
the other hand, the banks, while supporting the main appeal of M Co, resisted
the plea for withdrawal of the resolution plan and refund of the sum already
remitted by M Co. It was argued that the only route through which a resolution
applicant can travel back after admission of the resolution plan was under the
auspices of section 12A of the Code.

HELD

The
Supreme Court heard the arguments put forth by both the sides. The primary
issues before it were two-fold. The first one was whether or not the scheme of
the Code contemplates that the sum forming part of the resolution plan should
match the liquidation value. The second issue was whether section 12A is the
applicable route through which a successful resolution applicant can retreat.

The
Supreme Court observed that M Co in the appeal sought to sustain the resolution
plan but its prayer in the interlocutory application was refund of the amount
remitted, coupled with the plea for withdrawal of the resolution plan. Its main
case in the appeal was that the final decision on the resolution plan should be
left to the commercial wisdom of the Committee of Creditors and there was no
requirement that the resolution plan should match the maximised asset value of
the corporate debtors.

The
Court observed that substantial arguments were advanced before the NCLT over
its failure to maintain parity between the financial creditors and the
operational creditors on the aspect of clearing dues. It was also observed that
section 30(2)(b) of the Code specified the manner in which a resolution plan
shall provide for payment to the operational creditors. The Court relied on its
own decision in the case of Committee of Creditors of Essar Steel India
Limited vs. Satish Kumar Gupta [Civil Appeal Nos. 8766-8767 of 2019]
wherein it was concluded that section 30(2)(b) of the Code referred to section
53 not in the context of priority of payment of creditors, but only to provide
for a minimum payment to operational creditors. However, that did not in any
manner limit the Committee of Creditors (CoC) from classifying creditors as
financial or operational and as secured or unsecured. Since M Co had agreed
before NCLAT to clear the dues of operational creditors in percentage at par
with the financial creditors, the controversy on there being no provision in
the resolution plan for operational creditors was rendered only academic.

It
was observed that NCLT relied on section 31 of the Code in approving the
resolution plan. Indian Bank and P relied on Clause 35 of The Insolvency and
Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons)
Regulations, 2016. The law did not prescribe any provision which stipulates
that the bid of a resolution applicant had to match the liquidation value
arrived at in the manner provided in clause 35. The object behind prescribing
the valuation process was to assist the CoC in taking a decision on a
resolution plan properly. Once a resolution plan was approved by the CoC, the
statutory mandate on the NCLT u/s 31(1) of the Code was to ascertain that the
resolution plan met the requirements of sections 30(3) and 30(4). The Supreme
Court held that it did not find any breach of the said provisions in the order
of the NCLT in approving the resolution plan.

The
Court held that NCLAT had proceeded on an equitable perception rather than
commercial wisdom. It ought to cede ground to the commercial wisdom of the
creditors rather than assess the resolution plan on the basis of quantitative
analysis. The case of M Co in their appeal was that they wanted to run the
company and infuse more funds. In such circumstances, the Court held that NCLAT
ought not to have interfered with the order of the NCLT and direct the successful
resolution applicant to enhance their fund inflow upfront.

As
regards withdrawal of plan by M Co, it was observed that the manner
contemplated by approaching the Supreme Court was incorrect. The exit route
prescribed in section 12A is not applicable to a resolution applicant. The
procedure envisaged in the said provision only applies to applicants invoking
sections 7, 9 and 10 of the Code. Having appealed against the NCLAT order with
the object of implementing the resolution plan, M Co could not be permitted to
take a contrary stand in an application filed in connection with the very same
appeal. The Supreme Court did not engage in the judicial exercise to determine
the question as to whether, after having been successful in a CIRP, an
applicant altogether forfeits its right to withdraw from such process.

The
appeal filed by M Co was allowed and the order passed by the NCLT on 21^st
January, 2019 was upheld. The Resolution Professional was directed to take
physical possession of the assets of the corporate debtor and hand these over
to M Co within a period of four weeks.

15. Icchapurti Global
Buildcon (P) Ltd. vs. Registrar of Companies, Mumbai [2020] 113
taxmann.com 481 (NCLT, Mum.) Date of order: 11^th
December, 2019

ROC struck off the name of petitioner company from
Register of Companies on account of its failure to furnish financial statements
– In view of fact that petitioner company was in operation, it had assets and
current liabilities and, moreover, in case relief sought was not granted, grave
hardship and irreparable loss and damage would be caused to it, application
filed by petitioner seeking to restore its name in Register of Companies is to
be allowed

FACTS

I
Pvt. Ltd. (the Company) was incorporated on 27^th September, 2012
under the Companies Act, 1956 as a private company limited by shares with the
Registrar of Companies, Mumbai. The name of the Company was struck off from the
Register of Companies maintained by the Registrar of Companies (ROC) due to
defaults in statutory compliances, namely, failure to file financial statements
and annual returns for three years from the financial year ended 31^st
March, 2015 to 31^stMarch, 2017.

The
Company filed an application before the Bench to restore its name in the
Register of Companies.

It
was brought to the notice of the Bench (by the Company) that:

(i) the Company has failed to file its financial statements and annual
returns for three years 2014-15 to 2016-2017;

(ii) the Company is a closely-held company and is a going concern and in
continuous operation;

(iii) it is evident from the audited financials for the defaulting
period that the Company was a going concern at the time when its name was
struck off by the ROC and that it was generating income. The Company had
current assets and liabilities.

The
Company also submitted copies of audited accounts for the financial years from
31^st March, 2015 to 31^stMarch, 2017, copies of
acknowledgement of Income-tax Returns filed for the assessment years 2015-16 to
2017-18, copies of bank statements to show that it is a going concern, actively
involved in business and is in continuous operation. The Company further
submitted that if its name was restored, it undertakes to file all the pending
statutory documents from the financial years 2014-15 till date along with the
filing fees and the additional fees, as applicable on the date of actual
filing.

From
the response filed by the ROC, the Bench gathered that the name of the company
was struck off for its failure to file statutory documents since 31^st
March, 2015, as mandatorily required under the statute.

The
Bench perused the financials filed during the course of the proceedings and
noted that the Company is in operation and has its assets and current
liabilities.

HELD

The
Bench came to the conclusion that unless the relief sought is granted to the
Company, grave hardship and irreparable loss and damage shall be caused to it.
Given the above set of facts, the Bench was satisfied that the prayer sought by
the Company deserves to be allowed.

The
Bench allowed the appeal of the Company on the following terms:

(a) The ROC was directed to restore the name of the
Company in the Register of Companies subject to payment of a sum of Rs. 1,00,000
as cost payable in the account of the ‘Prime Minister’s National Relief Fund’;
and

(b) The Company shall file all its pending financial statements and
annual returns with all the applicable fees and late fees with the ROC within
30 days from the date of receipt of a copy of the order, failing which the
order will stand vacated automatically.

BCAJ Admin

BOOK REVIEW

BRIDGITAL NATION: SOLVING TECHNOLOGY’S
PEOPLE PROBLEM – By N. Chandrasekaran and Roopa Purushothaman

The authors of this book are as
illustrious as they come. While Mr. N. Chandrasekaran is the Chairman of the
Board, Tata Sons Pvt. Ltd., Ms Roopa Purushothaman is Chief Economist and Head
of Policy Advocacy at the Tata Group.

Its theme is India @ 2030 and the
probable situation is best described as follows: India is among the top three
economies of the world. All Indians use advanced technology to do their work,
or to get their job done. All Indians have access to quality jobs, better
healthcare and skill-based education. Technology and human beings co-exist in a
mutually-beneficial ecosystem.

This reality is possible. It is within
reach. With Bridgital.

The book provides an interesting
perspective on what might be an effective means of tapping India’s vast
underutilised human resource base. It advocates three transformational
requirements, Technology, Talent and Vision as important
foundations to help solve people’s problems with major technological
transformation.

It is also an attempt to understand how
technology could help India navigate this crucial transition period. It is
apparent that there are two primary challenges that need urgent attention: Jobs
and access to vital services. Whether in education, healthcare, the
judiciary or any other field, the problems remain the same – both resources and
skilled people are scarce. And this is what holds India back from reaching its
full potential. The authors say these issues can be labelled India’s Twin
Challenges: Jobs and Access.

JOBS

India has a massive jobs challenge on
its hands. It is expected that 90 million people will come of working age
between 2020 and 2030. In other words, the number of Indians reaching working
age will be four times that of the US, Brazil and Indonesia combined. India’s
particular challenge is the existing levels of skill and education. For
example, only one in around 50 workers has any kind of formal vocational
training.

ACCESS

But jobs are only one half of the
problem. The other is a critical shortage of access to vital services. We may
not know it by name, but we are living witnesses to the access challenge – the
overcrowded classrooms and doctors’ waiting rooms; the legal cases that go on
for decades; and countless middlemen and agencies that help make sense of it
all.

The access challenge puts services such
as quality healthcare and education out of the reach of millions, a situation
that has arisen in large part because there aren’t enough qualified people.

Addressing this challenge will bear
fruit almost immediately. It will mean shorter wait times. It will mean faster
justice. It will mean better quality healthcare and education. It will make
people feel less like a crowd, more like they matter. It will improve the
quality of life.

According to the authors, the twin
challenges can be addressed with the help of two strategies to be
complemented with a Bridgital approach:

(1) Bringing women to the workforce
(the ‘XX’ factor)

The authors observe that in India a
woman’s path from education to work is often permanently interrupted – by
marriage, family wishes, children, societal pressures. According to the data,
nearly 120 million women in India have at least a secondary education but do
not participate in the workforce.

Women will form an important part of
the pool of Bridgital workers. What will it take to bring them to work?
Smart policies focused on childcare provision and parental leave, and promoting
attitudinal shifts in society around working women are good places to begin.
The last decade of experience and research has brought this opportunity to the
fore. India now needs to shift gears and understand better how to make paid
work available to and worthwhile for women. With a more balanced educational
profile, the country can address a key part of the skills gap it faces. For
this to happen, the access barriers to women’s employment need a serious
overhaul.

(2) Entrepreneurs everywhere:
Preparing the ground for thriving entrepreneurship throughout the country

Capturing India’s entrepreneurial
spirit means a transformation of vision away from the culture of
micro-management. The fact is that the country must embrace SME growth. Growth
will come not from pushing hard, but from removing the obstacles that confront
SMEs.

A certain level of judicious
risk-taking accompanies this growth mindset. SMEs require supervision, not
suspicion. Smart risk management doesn’t force more control, more rules and
more policies, but improves oversight of existing rules while simplifying them.

Entrepreneurship can flourish
everywhere through the development of Bridgital clusters that integrate
and extend a range of digital business services to which many SMEs lack access.
Bridgital clusters, coupled with greater use of digital governance to
transform the relationship between SMEs and the bureaucracy can positively
channel the entrepreneurial spirit inherent throughout the nation.

‘BRIDGITAL’
NATION

India needs a new approach that views Artificial
Intelligence (AI) and automation as a human aid, not a replacement for human
intervention. If this is done, automation in India will look nothing like
it does anywhere else and it is this approach that is called ‘Bridgital’.
By turning a challenge into an opportunity, by seeing India’s access
challenge as the engine of employment generation, it builds a
technology-based bridge between the dual parts of the Indian economy.

The authors very aptly suggest that
technology alone isn’t the answer; it has to be configured and adapted to the
demands of the situation. Bridgital works best when roles and services
are deconstructed and re-imagined and when the delivery of the tasks they
contain is redesigned.

In the Bridgital world,
technology does not disrupt an existing market as much as it creates an
entirely new one. When services are re-imagined through twenty first century
technological advances, an additional layer of workers emerges who can
intermediate both technology and existing resources for larger numbers of
people.

The authors again and again reiterate
that the future will be one of humans and technology working together. It’s
this future India will have to anticipate, design and prepare for, keeping its
young workforce, limited infrastructure and linguistic and cultural differences
in mind.

Bridgital provides the unprecedented ‘bridge’
between jobs and access, while the ‘XX’ factor and ‘Everywhere
Entrepreneurship’ bolster both sides of the scale, thus multiplying the impact
on jobs and access. India needs to solve the twin challenges for hundreds of
millions, but the beauty of a technology-driven approach is that scale can take
hold.

Bridgital will provide new opportunities to meet
the needs of small and medium businesses.

ROLE OF
EDUCATION

A combination of education and exposure
can improve awareness and acceptance of entrepreneurship as a viable career
path. The goal of entrepreneurship education isn’t simply to make it more
appealing, but to change the way the students think. The right curriculum can
improve non-academic skills such as creativity, persistence and teamwork and
can encourage comfort with risk-taking. These skills are crucial to success in
a future of work that is likely to be deeply entrepreneurial in spirit.

Entrepreneurship education is different
from core school subjects which are traditionally teacher-led and tested with
exams. With entrepreneurship education, the focus is not as much on learning
concepts as it is about building skills such as the ability to collaborate and
communicate. These skills cannot be taught and tested like core subjects but
can be developed through a learning-by-doing approach.

DATA PRIVACY

The authors recognise that data
privacy, the foundation of any Bridgital approach, is a necessity.
India is in the process of recognising individuals’ rights over their personal
data. As it does so, it needs to ensure that data can be accessed only by
people who are authorised to do so, but without stifling researchers who need
it. At the same time, India requires an authority that can provide redress for
unauthorised access to data.

To summarise, this book is a perfect
combination of an expert in technology sitting with an economist to write
digital solutions to India’s economic problems.

One felt, while
hearing the 2020 Budget speech of the Finance Minister, that she was deeply
impressed by the book, especially the boost to the concept of ‘entrepreneurs
everywhere’.

The book has narrated real-life
situations (with names changed) to show how digital solutions have successfully
tackled several challenges, such as the transformations at AIIMS and Kolar
which prove that the principles that underpin Bridgital can be applied
anywhere and by anyone, whether in the fields of agriculture, logistics, judiciary,
education or financial services.

Finally, let’s recall the Prime Minister’s statement while releasing the
book: ‘Technology is the bridge between aspiration and achievement. When
technology becomes a bridge, it leads to transparency and targeted delivery’.

BCAJ Admin

FROM THE PRESIDENT

My Dear Members,

This is my first
communication to you through this column and I must tell you that I feel
honoured and humbled on being elected President of our Society for the
year 2020-21. I assure you with a deep sense of commitment that with such an
enthusiastic team of Office-Bearers and Managing Committee members, I will do
my best to continue the good work done year after year by Team BCAS in
the best interests of our members. I also convey my deep and sincere thanks to
all past presidents and seniors for reposing their trust and faith in me and
considering me fit to take up this prestigious and responsible position. Some
of my thoughts for the year are elaborately expressed in the Annual Plan
published elsewhere in this Journal.

I consider myself and my
team to be extremely fortunate that our term started with the 72^nd
Founding Day lecture delivered by the incomparable Mr. Deepak Parekh, CA
and Chairman of HDFC Limited. He showered accolades on us by stating that

72 years is a very long
period for a voluntary organisation, not just to exist, but to thrive

You have all stayed
true to your vision of BCAS. I was surprised to see how apt is your
vision statement of being a principle-centred and learning-oriented organisation
which is proactive to change, and

It is this vision
that has held this group together over the years.

So motivating and
encouraging! His statement that he is not the owner of HDFC but just an
employee till recently was so humbling. It is such simplicity, ethical
entrepreneurship and vision that can create large and globally-respected
organisations and brands.

Since mid-March, 2020, we
have conducted almost the entire range of events from lecture meetings and
panel discussions to workshops, and even virtual Residential Refresher / study
courses (including group discussions), in this manner. It is observed that
digital makes the contents and the participants much more systematic,
structured and disciplined. The faculties are at ease with knowledge-sharing
from their own location without hectic travelling and logistics issues. The
personal touch and warmth, fellowship and recreation is surely missed in case
of RRCs and other residential programmes, however, the commitment, dedication
and hard work of the volunteers remain the same with the change of platform
from physical to digital.

In retrospect, how true
are the words of the wise who said: Reinvention is never easy. One must devise
an entirely new way of working, without the reassurance that comes with
replicating already existing best practices. This isn’t just about finding new
applications for the technology; India needs to anticipate its impact as well.
Yet, this is precisely how every previous transformation has played out
and it is this attitude of flexibility, courage and judicious risk-taking that
will let India be in the forefront of the Fourth Industrial Revolution.*

The CA exams for May, 2020
were postponed and finally cancelled, to be merged with the November exams.
This raises the issue of preparedness for the future possibilities of
conducting CA exams online. I am sure the regulators have moved into action
mode to convert this challenge into an opportunity.

August is full of
festivities like Janmashtami, Ganeshotsav and Independence Day. It would be
advisable to restrict ourselves and celebrate within the family. Today, the
health, safety and well-being of one’s self as well as of others are of utmost
importance. We can pray to Lord Ganesha to free us from this unprecedented
situation so that next year we would celebrate in a normal manner. For
Independence Day we can seek our independence – physical and psychological –
from the lockdown situation so that normalcy returns to our lives.

Friends, please feel free
to write to me at president@bcasonline.org.

Bridgital Nation –
Solving Technology’s People Problem, by N. Chandrasekaran and Roopa Purushothaman

With Best Regards,

CA
Suhas Paranjpe

President

BCAJ Admin

FROM PUBLISHED ACCOUNTS

DISCLOSURES RELATED TO EXCEPTIONAL
ITEMS

Compiler’s Note

DISCLOSURES RELATED TO EXCEPTIONAL
ITEMS

COMPILER’S NOTE

For the year ended 31^st
March, 2020 many companies have considered losses related to Covid-19 and other
losses / gains as ‘Exceptional’ and made corresponding disclosures. Given below
are ‘Exceptional Disclosures’ by a few companies.

RELIANCE INDUSTRIES LTD. (CONSOLIDATED)

From Notes to Financial
Statements

EXCEPTIONAL ITEM

Covid-19 has significant impact on business operations of the
Company. Further, there is substantial drop in oil prices accompanied with
unprecedented demand destruction. The Company based on its assessment has
determined the impact of such exceptional circumstances on its financial
statements and the same has been disclosed separately as ‘Exceptional Item’ of
Rs. 4,245 crores, net of taxes of Rs. 99 crores, in the Statement of Profit and
Loss for the year ended 31^st March, 2020 [also read with Note C(J)
of Critical Accounting Judgements and Key Sources of Estimation Uncertainty
above].
In addition to the above, the Group has also recognised Rs. 53 crores against
erstwhile subsidiary GAPCO liability and Rs. 146 crores (net of tax Rs. 49
crores) for Adjusted Gross Revenue (AGR) dues of Reliance Jio Infocomm Limited,
as part of exceptional item.

HINDUSTAN UNILEVER LTD. (CONSOLIDATED)

From Notes to Financial
Statements

EXCEPTIONAL ITEMS (NET)

(Rs.
in crores)ear ended

31^st March, 2020	Year ended 31^st March, 2019
i) Profit on disposal of surplus properties	46	–
ii) Fair valuation of contingent consideration payable (refer Note 42) (not reproduced)	26	–
Total exceptional income (A)	72	–
i) Fair valuation of contingent consideration payable (refer Note 42) (not reproduced)	–	(57)
ii) Acquisition and disposal related cost	(132)	(30)
iii) Restructuring and other costs	(140)	(141)
Total exceptional expenditure (B)	(272)	(228)
Exceptional items (net) (A+B)	(200)	(228)

31^st
March, 2020

Year ended

31^st March,
2019

i) Profit on disposal of surplus properties

–

ii) Fair valuation of contingent consideration payable (refer
Note 42) (not reproduced)

–

Total exceptional income (A)

–

i) Fair valuation of contingent consideration payable (refer
Note 42) (not reproduced)

–

(57)

ii) Acquisition and disposal related cost

(132)

(30)

iii) Restructuring and other costs

(140)

(141)

Total exceptional expenditure (B)

(272)

(228)

Exceptional items (net) (A+B)

(200)

(228)

ADANI ENTERPRISES LTD. (CONSOLIDATED)

From Notes to Financial
Statements

36. EXCEPTIONAL ITEMS

(Rs.
in crores)

Particulars

For the year ended 31^st
March, 2020

For the year ended 31^st
March, 2019

Write-off of unsuccessful exploration project
[Note (a)]

(129.73)

–

Price escalation claim and interest thereon [Note (b)]

328.48

–

Net gain on sale of investments in subsidiaries / associates
/ jointly controlled entities [Note (c)]

–

537.82

Impairment of non-current assets [Note (d)]

–

(670.80)

Stamp duty expense (e)

–

(25.00)

198.75

(157.98)

(a) During the
current year ended 31^st March, 2020 one of the subsidiaries which is
engaged in oil and natural gas exploration business had written off one of its
blocks due to commercial unviability of the project.

(b) During the
current year ended 31^st March, 2020 the Company has received a
favourable order from the Hon’ble Supreme Court with respect to its claim of
price escalation in mining business. Pursuant to the favourable order, the
Company recognised cumulative revenue and interest thereon since the financial
year 2013-14.

(c) As decided in the
Board meeting dated 23^rd February, 2019 and as subsequently approved
by shareholders, the Company has divested its investment in agri-logistics and
thermal energy entities in order to consolidate operations within single
business segment of Adani Group and bring in more focus of efficient
operations. Accordingly, the Company has completed sale of its investment in
these entities on 28^th March, 2019 and has recognised net gain of
Rs. 510.26 crores. The gain is recognised after adjusting impairment of
non-current assets of Rs. 464.63 crores in energy business entities as per
independent valuation reports. During the previous year, the Company also
recognised gain of Rs. 27.56 crores on sale of investment in other subsidiaries
/ associates / jointly controlled entities.

(d) During the
previous year, two subsidiaries in Australia have recognised impairment of
non-current assets of Rs. 670.80 crores due to continuous delay in regulatory
approval process and various legal challenges.

(e) During the previous year, stamp duty of Rs. 25 crores
was paid on account of Composite Scheme of Arrangement for the demerger of the
renewable power undertaking from the Company.

BRITANNIA INDUSTRIES LTD. (STANDALONE)

From Notes to Financial
Statements

NOTE 34 EXCEPTIONAL ITEMS
[(INCOME) / EXPENSE]

(Rs. in crores)

Particulars	31^st March, 2020	31^st March, 2019
Reversal of provision for diminution in value of investments in subsidiaries [Refer note below]	(35.00)	–
Provision for diminution in value of investments in subsidiaries [Refer note below]	16.00	–
	(19.00)	–

Particulars

31^st
March, 2020

31^st
March, 2019

Reversal of provision for diminution in value of investments
in subsidiaries [Refer note below]

(35.00)

–

Provision for diminution in value of investments in
subsidiaries [Refer note below]

16.00

–

(19.00)

–

Note: During the year, in accordance with Ind AS 36 – Impairment
of Assets, the Company has, based on its assessment of the business
performance of Britannia and Associates (Mauritius) Private Limited and its
step-down subsidiaries in the Middle East, reversed Rs. 35 crores provision for
diminution in the value of investments in equity shares. Further, the Company
has provided Rs. 16 crores for diminution in the value of investments in equity
shares of Ganges Valley Foods Private Limited which has shut down its factory
operations and announced a Voluntary Retirement Scheme (VRS) for its employees.

BRITANNIA INDUSTRIES LTD. (CONSOLIDATED)

From Notes to Financial
Statements

EXCEPTIONAL ITEMS pertain to voluntary retirement cost
incurred in one of the subsidiaries of the Company.

GLAXO SMITHKLINE PHARMACEUTICALS LTD. (CONSOLIDATED)

From Notes to Financial
Statements

EXCEPTIONAL ITEMS (NET)

(Rs.
in lakhs)

Particulars

Year ended
31^st March, 2020

Year ended
31^st March, 2019

Profit on sale of property

546,30.28

43,39.13

Impairment of assets
[Refer note 3(b)]

(637,42.85)

–

Associated cost to impairment [Refer note 3(b)]

(40,33.00)

–

Provision for product recall [Refer note (a) below]

(108,08.80)

–

Redundancy costs
[Refer note (b) below]

(76,14.63)

(20,07.75)

Impairment of capital
work-in-progress

(26,31.00)

–

Sale of brands

50.69

5,38.53

(341,49.31)

28,69.91

Notes:

(a) The Ultimate Holding Company has been contacted by
regulatory authorities regarding the detection of geno-toxic nitrosamine NDMA
in ranitidine products. Based on the information received and correspondence
with regulatory authorities, the Ultimate Holding Company made the decision to
suspend the release, distribution and supply of all dose forms of ranitidine
hydrochloride products to all markets, including India, as a precautionary
action. The Group manufactures Ranitidine Hydrochloride IP Tablets 150 mg. and
300 mg. (Zinetac) for supply to the Indian market. Further, as a precautionary
action, the Group made the decision to initiate a voluntary pharmacy / retail
level recall of the Zinetac products from the Indian market.

Consequently, the Group recognised provisions of Rs.
108,08.80 lakhs relating to estimates of loss on account of sales returns,
stocks withdrawn and inventories held including incidental costs thereto and
other related costs.

(b) Rs. 59,14.63 lakhs (previous year Rs. 20,07.75 lakhs) is
on account of restructuring of manufacturing and commercial organisation and
Rs. 17,00.00 lakhs is a charge on account of outstanding litigation matter.

TATA CHEMICALS LTD.
(STANDALONE)

Discontinued Operations

(I) Disposal of consumer products business

The National Company Law
Tribunal (‘NCLT’), Mumbai and NCLT, Kolkata on 10^th January, 2020
and 8^th January, 2020, respectively, sanctioned the Scheme of
Arrangement amongst Tata Consumer Products Limited (formerly Tata Global
Beverages Limited) (‘TCPL’) and the Company and their respective shareholders
and creditors (‘the Scheme’) for the demerger of the Consumer Products Business
Unit (‘CPB’) of the Company to TCPL. The Scheme became effective on 7^th
February, 2020 upon filing of the certified copies of the NCLT Orders
sanctioning the Scheme with the respective jurisdictional Registrar of
Companies. Pursuant to the Scheme becoming effective, the CPB is demerged from
the Company and transferred to and vested in TCPL with effect from 1^st
April, 2019, i.e., the Appointed Date.

As per the clarification
issued by Ministry of Corporate Affairs vide Circular No. 09/2019 dated
21^st August, 2019 (MCA Circular), the Company has recognised the
effect of the demerger on 1^st April, 2019 and debited the fair value
as at 1^st April, 2019 of demerged undertaking, i.e. fair value of
net assets of CPB to be distributed to the shareholders of the Company,
amounting to Rs. 6,307.97 crores to the retained earnings in the Statement of
Changes in Equity as dividend distribution. The difference in the fair value
and the carrying amount of net assets of CPB as at 1^stApril, 2019
is recognised as gain on demerger of CPB in the Statement of Profit and Loss as
an exceptional item, amounting to Rs. 6,220.15 crores (net of transaction cost)
during the year ended 31^st March, 2020. Accordingly, the operations
of CPB have been reclassified as discontinued operations for the year ended 31^st
March, 2020. Accordingly, the operations of CPB have been reclassified as
discontinued operations for the year ended 31^stMarch, 2019 and
comparative information in the Statement of Profit and Loss account has been
restated in accordance with Ind AS 105.

TATA CONSUMER PRODUCTS LTD.

Exceptional Items (Net)

(Rs.
crores)

Particulars

2020

2019

Expenditure

Expenses in connection with acquisition of businesses (Refer
note 40)

51.81

–

51.81

–

IIFL FINANCE LTD. (STANDALONE)

Exceptional Items

(i) During the year
ended 31^st March, 2020 the Company has transferred its mortgage loan
business undertaking with its respective assets and liabilities as a going
concern on a slump sale basis to IIFL Home Finance Limited (formerly known as
‘India Infoline Housing Finance Limited’), a wholly-owned subsidiary of the
Company, w.e.f. 30^th June, 2019. The profit on sale aggregating to
Rs. 15.04 million has been disclosed as exceptional item.

(ii) During the year
ended 31^st March, 2020 the Company has transferred its microfinance
business undertaking with its respective assets and liabilities as a going
concern on a slump sale basis to Samasta Microfinance Limited as a subsidiary
Company w.e.f. 31^st October, 2019. The profit on sale aggregating to
Rs. 31.02 million has been disclosed as exceptional item.

(iii) During the previous year ended March, 2019
the Company executed definitive agreement for the sale of its ‘vehicle
financing business’ as a going concern on a slump sale basis to IndoStar
Capital Finance Limited (‘Indostar’). The profit on sale aggregating to Rs.
1,153.30 million has been disclosed as an exceptional item. In terms of the
business transfer agreement, the Company will be receiving the outstanding
purchase consideration of Rs. 20,177.78 million from Indostar in 12 (twelve) equal
monthly instalments from the closing date 31^st March, 2019 with
interest.

BCAJ Admin

ETHICS AND U

Arjun: Hey Bhagwan, you have a habit of staying too close to your Bhaktas
(devotees). But I request you to please keep yourself a little away from me.

Shrikrishna (smiling): Why? Anything wrong with me? Or with you?

Arjun: No. But better to maintain social distancing in this corona pandemic.

Shrikrishna: Arrey Arjun, this pandemic has occurred only because you people
have kept ME at a distance. Come close to ME and you will be free from all
worries.

Arjun: Really? But you keep on causing headaches to us by talking about this Code
of Ethics. You were telling me about the New Code of Ethics. Good that the New
Code has come now.

Shrikrishna: Oh, surprising! You were always cursing the Code of Ethics and how is it
that even without knowing about the New Code, you say it is good?

Arjun: Yes. As it is we never studied the old code seriously. Whatever we learnt
at the time of the exam, we have forgotten. Now we can directly go for the New
Code.

Shrikrishna (smiling): No, Arjun. The New Code is not replacing the old code. It is in
addition to the existing code, with some changes.

Arjun: Oh my God! Actually, I am fed up with these virtual meetings of study
circles. Every alternate day they are boring us with this New Code.

Shrikrishna: Last time I had started telling you about the New Code, and you wanted to
know more.

Arjun: Yes. Instead of listening to those lectures, it is better that you tell me
about it. I register there just to
get CPE.

Shrikrishna: That is unethical, Paarth. You are not truthful to yourself!

Arjun: Anyway, tell me, the New Code has become effective from 1^stof
July, right?

Shrikrishna: Yes. But the good news for you is that some of the aspects have been
deferred.

Arjun: Arrey
waah! Very good. So no need to know about them!
What are those topics?

Shrikrishna:
Last time I told you about NOCLAR.

Arjun: Yes, non-compliance of Laws and Regulations.

Shrikrishna: Yes. Basically it was applicable only to the listed companies. But it has
been deferred.

Arjun: What next?

Shrikrishna: The one of your interest is about the taxation services to audit clients.

Arjun: Good. And what was that 15% fees point?

Shrikrishna: If out of your total
fees, more than 15% is received from one single audit client for two
successive years, then you need to communicate it to that client.

Arjun: And what will the client do? Will he remove us? What is the logic?

Shrikrishna: See, you should not be independent but appear to be
independent. If you are heavily depending on one single client, you are likely
to compromise on the quality of audit. It is a self-interest threat.

Arjun: True. You need to broad-base your practice.

Shrikrishna: So, for example, your major fee, say 60 to 70%, is from one audit client,
you are supposed to tell this to that client and demonstrate that you are truly
independent.

Arjun: What else is postponed?

Shrikrishna: The non-audit services like management consultancy services to the audit
client. Similarly, under Indian circumstances, auditors are commonly rendering
taxation services. So that is also deferred.

Arjun: Any more postponement so that we don’t need to bother about it?

Shrikrishna: The independence standards which were adapted from the International
Ethical Standards have also been deferred.

Arjun: Good. Now next time please tell me what is immediately implemented. We
will keep that in mind while doing this year’s audit.

Shrikrishna: Yes, dear. Surely, I will.

Om Shanti!

Note: This
dialogue is based on implementation of the New Code of Ethics w.e.f. 1^st
July, 2020.

One who is bent on courting his death will not take kindly to
sage counsel given by his well-wishers
— (Valmiki Raamaayan 3.53.17)

BCAJ Admin

Service Tax

I. HIGH COURT

15. [2020] 117 taxmann.com 46 (Mad.) MIOT Hospitals Ltd. vs. State of Tamil Nadu Date of order: 28^th May, 2020

The medical
/ health care services that involve fitting out or implanting of prosthetics
into the physiology or the body of the patient for the alleviation of pain or
improvement of the life of the patient in the course of medical / surgical
procedure can be construed as ‘works contract’. At the same time, dispensing of
medicines to such patients while they undergo treatment as inpatients in the
hospital cannot come within the purview of the definition of ‘works contract’

FACTS

In this
writ petition, the issue before the High Court was whether private hospitals
are liable to pay VAT on the stents, valves, medicines, X-rays and other goods
used while treating the inhouse patients. The petitioner did not charge any
amount separately towards the cost of these items and charged a consolidated
amount to the patients towards the cost of medical treatments. The VAT
Department argued that purported deemed sale of stents, valves, hip replacement
and knee replacement, etc., in the course of the provision of medical services
by the petitioners is ‘works contract’ within the meaning of section 2(43) of
the Tamil Nadu Value Added Tax Act, 2006.

HELD

The High Court referred to
the 61^st Law Commission Report and the decision of the Hon’ble
Supreme Court in the case of Larsen & Toubro Ltd. vs. State of
Karnataka and Ors. [2013] 65 VST 1 (SC) to observe that the concept of
‘works contract’ contained in Article 366(29A)(b) takes within its fold all
genre of works contract and is not restricted to one species of contract to
provide for labour and service alone. Referring to the illustration in
paragraph 44 of the BSNL case, the Court held that although the
Supreme Court has held that sub-clauses of Article 366(29A) do not cover
hospital services, there is no legal basis to follow the said conclusion any
longer in the light of the subsequent decisions of the Apex Court. It further
held that a simple treatment with medicines cannot be equated with complicated
medical procedures undertaken by the petitioners involving skill and use of expensive
prosthetics and the use of laboratory testing equipment. Even if the dominant
intention of the contract was not to transfer the property in goods and rather
rendering of service, or the ultimate transaction was a transfer of movable
property, it is open to the states to levy sales tax on the materials used in
such contract if such contract otherwise has elements of a ‘works contract’.

In constitutional terms, it
is a transfer either in goods or in some other form. The Court distinguished
the decision in the case of the Tata Main Hospital case stating
the reason that the decision pertains to the period prior to the 46^th
Constitutional Amendment and ‘dominant test’ does not survive thereafter in
respect of works contracts. The decision rendered by the full bench of the
Kerala High Court in the case of Aswini Hospital Pvt. Ltd. and Ors.
and the Allahabad High Court in the case of M/s International Hospital
Pvt. Ltd. were disagreed with on the ground that there is no discussion
as to how the conclusions therein were arrived at when indeed the very purpose
expanding the scope of the expression ‘tax on the sale or purchase of goods’ in
Article 366(29A) by the 46^th Amendment to the Constitution and the
corresponding statutory amendments to the definitions in the respective tax
enactments of the States, were to include a transaction which involves not only
sale but also deemed sale which was traditionally not considered as ‘sale’.

The Hon’ble Single Judge also
disagreed with the reasoning given in the decision of the Punjab & Haryana
High Court in M/s Fortis Healthcare Ltd. vs. State of Punjab on
the ground that it runs not only contrary to the express language in Article
366(29A) of the Constitution of India, but also to the ratio of the
Hon’ble Supreme Court in BSNL vs. Union of India (2003) 6 SCC 1
itself. It further held that an example / illustration in paragraphs 44 and 45
of the BSNL decision which appears to be the basis of the relief
in the four mentioned cases cannot be applied to the kind of hospital / medical
service provided by the petitioners. The Hon’ble Court also expressed a view
that in all the four judgments, these Courts have not examined the point of
view of ‘works contract’.

The Court accordingly held
that fitting out or implanting of prosthetics into the physiology or the body
of the patient for the alleviation of pain or improvement of the life of the
patient in the course of medical / surgical procedure can be construed as
‘works contract’. However, the Court also held that dispensing of medicines to
such patients while they undergo treatment as inpatients in the hospital cannot
come within the purview of the definition of ‘works contract’. Consequently, no
tax can be demanded on the value of such medicine.

Note:
At paragraph 149 of the Order, the Hon’ble Court has indicated that various
decisions relied upon by the petitioners dealing with taxability of single
economic supply, although not relevant in VAT regime due to the Constitutional
mandate of Article 366(29A), may become relevant in the GST regime. Therefore,
this decision may be distinguished while deciding the applicability of GST on
similar service.

II. TRIBUNAL

16. [2020-TIOL-870-CESTAT-Chd.] M/s DLF Project Ltd. vs. Commissioner of Central Excise and Service Tax Date of order: 21^st October, 2019

In absence
of consideration, no service tax is leviable on corporate guarantee given to
banks / financial institutions on behalf of holding company / associate
enterprises

FACTS

During the course of audit it
was found that the appellant has provided corporate guarantee to various banks
/ financial institutions on behalf of their holding companies / associate
enterprises / joint venture and other loan facilities. The Revenue alleges that
such activity is taxable under Banking and Finance Institution Services.
Further, the appellant has also collected certain charges on account of prime
location of the flats and other relevant charges from the flat owners but did
not pay service tax thereon. On pointing out by the Revenue, the entire amount
was paid with interest. Later, a show cause notice (SCN) was issued demanding
service tax on corporate guarantee and to impose penalty on account of
non-payment of service tax on preferential location charges. The demand was
confirmed and therefore the present appeal is filed.

HELD

The Tribunal primarily noted
that no consideration is received either from the financial institutions or
from their associates for providing corporate guarantee. It was also noted that
the demand raised in the SCN is on the basis of assumption and presumption,
presuming that their associates have received the loan facilities from the
financial institution at lower rate; therefore, the differential amount of
interest is consideration, but there is no such evidence produced by the
Revenue on service tax before or after 1^st July, 2012. Further, with
reference to preferential location charges, since the tax and interest is paid
before the issuance of the SCN, section 73(3) of the Finance Act, 1994 is
applicable and the penalty is set aside.

17. [2020-TIOL-858-CESTAT-Bang.] Hotel Moti Mahal vs. Commissioner of Central Excise and Service
Tax Date of order: 29^th May, 2020

Service tax
can only be levied when there is a service provider, service receiver and
consideration. It cannot be assumed that consideration is inbuilt merely on the
basis of assumptions and presumptions

FACTS

The appellants are a
restaurant having banquet halls. They sometimes charge only for the food served
and do not charge any rentals for the banquet halls. The argument of the
Department is that any prudent man can understand that without any function no
person can stay in the hotel for the entire day and have mid-morning tea with
biscuit, buffet lunch, evening tea with biscuit and dinner. Further, though no
separate rent was collected for the function hall, charges were recovered for
use of LCD projector, laptop, white board, mike system, podium, etc., and
service charge on the same was paid. The Revenue alleges that the organisation
of functions is evident by the usage of LCD projector, etc., and the rent for
the function hall is inbuilt in the value of the food served in the function;
and therefore service tax is liable to be paid on such rent.

HELD

The Tribunal primarily noted
that the demand is based on surmises and conjectures. The two major surmises
were that with the usage of LCD display, etc., it is evident that the banquet
halls were let out temporarily for a day and that the charges for the same are
inbuilt into the bill raised towards the food charges and this inbuilt value
needs to be treated as consideration towards the ‘Mandap Keeper’ services provided.

But the Tribunal held that it
is not open to the Revenue to decide the taxability of a new entry merely on
the basis of imagination. For any service to be held to be taxable there should
be a service provider, service recipient and consideration for the service. It
cannot be imagined that such consideration was inbuilt. It is incumbent upon
Revenue to show such consideration in quantifiable terms in order to levy
service tax, though on a discounted value. It was noted that they have
discharged VAT on the food supplied and have also discharged service tax on the
items like LCD projector, etc., allowed to be used. Revenue could not place any
proof in the form of a bill, etc., to substantiate the allegation that the
banquet halls were rented out for a consideration. Therefore, since the
Department’s stand is not substantiated, the appeal is allowed.

18. [2020-TIOL-824-CESTAT-Del.] Man Trucks India Pvt. Ltd. vs. CCE, C and ST Date of order: 24^th February, 2020

Discount
extended against sales made for not providing after sales service is not a
service liable for service tax

FACTS

The assessee is engaged in
manufacturing heavy commercial vehicles falling under Chapter 87. It entered
into an agreement with a foreign company for supply of heavy commercial
vehicles. The transaction involved sale of heavy commercial vehicles by the
appellant to a company in Germany and thereafter by the latter to its buyers.
The agreement clearly provides that no after sales service would be provided.
Since the after sales service is to be provided by the foreign company itself,
they extended a price reduction to the foreign company on the sale of each
heavy commercial vehicle. A show cause notice was issued to the assessee,
proposing duty demand on the discounts allowed by the assessee for the relevant
period. The demand had been raised under reverse charge and on account of being
a declared service for agreeing to refrain from providing warranty services. On
adjudication, the demands were partly dropped. Hence the present appeal.

HELD

The Tribunal noted that the
assessee’s role is limited to the sale of trucks and spare parts thereof. The
agreement clearly provides that they would not be responsible for rendering any
after-sale services. The agreement provides that the assessee will provide a
discount in respect of any truck sold to the foreign company, it does not
entail that the foreign company is rendering after sales service on behalf of
the assessee. The after-sale service is agreed to be provided by the foreign
company on its own account. The discount offered is simply an adjustment in the
price of the goods sold and is not provision of any service. Thus the service
provided cannot be classified as business auxiliary service. The discount was
offered only because they were not providing warranty and after sales service.
Hence the demand cannot be sustained.

19. [2020-TIOL-807-CESTAT-Del.] M/s Shivani Textiles Ltd. vs. Commissioner of Central TaxDate of order: 13^th March, 2020

VCES
application cannot be rejected merely on the ground of clerical errors

FACTS

The assessee made a clerical
error in filing the VCES application. As per the gross taxable receipts, the
gross tax payable including cess was calculated at Rs. 27,05,933. However, due
to an error, it failed to adjust or reduce the gross amount of tax payable with
the amount of tax already paid of Rs. 5,68,859 paid during the period 18^th
October, 2012 to 29^th March, 2013. Thus, the actual tax dues to be
reflected in Form VCES-1 should have been Rs. 27,05,933 (-) Rs. 5,68,859, or
Rs. 21,37,074. However, the appellant wrongly reflected Rs. 27,05,933.
Admittedly, it deposited Rs. 14,28,439 on or before 31^st December,
2013 which is a little more than the amount of Rs. 13,52,967 required to be
deposited as per Form VCES-2, and an amount of Rs. 12,77,497 during the period
1^st January, 2014 to 30^th June, 2014, which is also in
compliance with the deposit of full tax as required to be paid before 30^th
June, 2014. Accordingly, against the amount payable of Rs. 27,05,933, it has
deposited Rs. 27,32,038.

HELD

The
Tribunal noted that the benefit of VCES 2013 has been denied by Revenue for the
simple clerical error in filling Form VCES-1. The assessee has admittedly
deposited the declared amount of tax dues and it cannot be asked to deposit
more tax which will be against the provisions of service tax law, as well as
Article 265 of the Constitution of India. Accordingly, the impugned order is
set aside and the benefit of the scheme is allowed to the assessee.

20. [2020] 117 taxmann.com 69 (CESTAT-Bang.) Karnataka Industrial Areas Development Board vs. CCT Date of order: 9^th June, 2020

Karnataka
Industrial Areas Development Board is a statutory body discharging the
statutory function as per the KIAD Act, 1966 and hence is not liable to pay
service tax

FACTS

The appellant, M/s Karnataka
Industrial Areas Development Board (KIADB) is established by the Karnataka
Industrial Areas Development Act, 1966 (KIAD Act, 1966). They were engaged in
providing various services such as renting of immovable property services,
construction of commercial and residential complexes, business support
services, management, maintenance or repair services, manpower recruitment and
supply services, works contract services, etc., to various clients. It appeared
that they did not obtain any registration under service tax for the said
services. The appellant contended that they are performing sovereign functions
and hence are not liable to pay service tax.

HELD

The Hon’ble Tribunal examined
various provisions contained in the KIAD Act, including the Preamble, the
provisions dealing with the establishment and incorporation, constitution,
functions, powers of the board, directions of the state government, board’s
fund and application of the board’s assets, accounts and audit, etc. On
examination of the said provisions, the Tribunal held that the appellant is a
state undertaking and the creature of a statute to exercise the power of ’eminent
domain’. The appellant is engaged in discharging statutory functions under an
act of the Legislature, viz., the KIAD Act, 1966. It is a statutory body
performing statutory functions and exercising statutory powers. Since it is
carrying out the objectives of the Act, it cannot be treated as a service
provider under the Finance Act, 1994. The appellant has undertaken various
activities and functions in the state of Karnataka as per the directions of the
State Government given from time to time under the provisions of the Act and
hence its activities cannot be considered as a taxable service and no service
tax can be levied for these activities.

The Tribunal relied upon the
decision of the Bombay High Court in the case of CCE, Nashik vs.
Maharashtra Industrial Development Corporation [2018 (9) GSTL 372 (Bom.)]
and the Delhi Tribunal’s decision in the case of Employee Provident Fund
Organisation vs. CST [2017 (4) GSTL 294 (Tri.)(Del.)] to hold that
statutory authorities performing statutory functions are not liable to pay
service tax. It observed that the functions of the MIDC under the MID Act, 1961
are more or less identical with the functions of the appellant KIADB under the
KIAD Act, 1966. Hence, relying on MIDC’s case, the Tribunal held that when the
maintenance of an industrial area itself is held to be a statutory function,
then the main function of acquisition of land, development of such land into
industrial area and allotment of such land on lease-cum-sale basis by the
appellant would certainly be a statutory function and does not attract levy of
service tax. By the same analogy, other functions being incidental cannot be
brought into the tax net.

The Tribunal did not follow
the decision of the Allahabad High Court in the case of the Greater Noida
Industrial Development Authority on the ground that it has been stayed
by the Hon’ble Supreme Court as reported in 2015 (40) STR J231 (SC).
The Allahabad High Court had held that if the sovereign / public authority
provides a service, which is not in the nature of the statutory activity and
the same is undertaken for consideration (not statutory fee), then in such
cases, service tax would be leviable as long as the activity undertaken falls
within the scope of taxable service as defined in the Finance Act, 1994. It
also relied upon the decision in the case of KIADB and Anr. vs. Prakash
Dal Mill and others [(2011) 6 SCC 714] wherein the Court observed that
the amount of fees and deposits collected by the KIADB is based on principles
of rationality and reasonableness. It cannot fix prices arbitrarily. The
fixation of price by the Board is always under the authority of law.

Lastly, referring to the
decisions in the case of Balmer Lawrie & Co. Ltd. vs. Partha Sarathi
Sen Roy [2013 (8) SCC 345]; MD, HSIDC vs. Hari Om Enterprises [AIR 2009 SC 218];
and Jilubhainanbhai Khachar vs. State of Gujarat [1995 Supp (1) SCC 596],
the Hon’ble Tribunal held that the ratio of the said decisions
considering the scope of ’eminent domain’ and sovereign function are applied to
the facts of the present case, and hence the appellant is a creature of the
statute to exercise the power of ’eminent domain’ and the eminent domain is a
sovereign function not attracting service tax.

21. [2020-TIOL-882-CESTAT-Chd.] Wave Beverages Pvt. Ltd. vs. Commissioner of Central Excise and
Service Tax Date of order: 26^th February, 2020

The act of
promotion of beverage leads to incidental promotion of concentrate; however,
such promotion cannot be made liable to tax under business auxiliary service

FACTS

The appellants are engaged in
the distribution and sale of non-alcoholic beverages under the brand name The
Coca Cola Company. As per the agreement, they are required to take steps for
advertising, marketing and promoting the sale of beverages. Show cause notices
were issued alleging that while undertaking the sales promotion programme for
the beverages, the concentrate owned by The Coca Cola Company was also getting
marketed as the same was linked to the promotion of the brand name and thus the
remuneration received from them is taxable as business auxiliary services (BAS)
of ‘promotion or marketing of goods produced or provided by or belonging to the
client’ chargeable to service tax.

HELD

The Tribunal noted that in
every sales promotion activity undertaken by the manufacturer of finished
products, it will amount to sales promotion of the raw material as well. This
is neither the intention nor the rationale of ‘Business Auxiliary Service’. By
stating that the goods, namely concentrate, was transferred for use by M/s Coca
Cola India Pvt. Ltd. to the appellant for consideration, a fact not in dispute,
the sale of the goods in terms of the Central Excise Act, 1944 has occurred.
Accordingly, the demand is set aside.

22. [2020-TIOL-881-CESTAT-Chd.] M/s Interglobe Aviation Limited vs. CST Service Tax Date of order: 22^nd October, 2019

Charges
recovered for excess baggage is an integral part of passenger transportation
service; cannot be taxable under transportation of goods by air service. CENVAT
credit is allowable on activities of setting up prior to 1^st April,
2011. Reimbursement of expenses is not liable to service tax in view of the
decision of the Apex Court in the case of Intercontinental Consultants and
Technocrats Private Limited

FACTS

The issue relates to charges
levied for excess baggage carried by passengers in regular flights. The Revenue
has demanded service tax under the head transportation by air service. The
second issue relates to CENVAT credit in respect of services availed prior to
the start of their actual business operations. The last issue deals with the
service of manpower recruitment and supply agency service, where the service is
received from a foreign agency and tax is paid under reverse charge. The issue
is whether reimbursement of insurance charges for pilots is includible in
value.

HELD

The Tribunal, relying on the
case of Kingfisher Airlines Limited [2015-TIOL-2329-CESTAT-Mum.]
held that the charges for excess baggage is an integral part of transportation
of passengers by air and therefore cannot be taxable under the category of
transportation of goods service. In the second issue, the Tribunal, relying on
the decision in Vamona Developers Pvt. Ltd. [2015-TIOL-2705-CESTAT-Mum.],
allowed the CENVAT credit. Lastly, relying on the decision in Intercontinental
Consultants and Technocrats Pvt. Ltd. [2013 (29) STR 9 (Del)], the
demand on reimbursement of expenses is set aside.

BCAJ Admin

RECENT DEVELOPMENTS IN GST

NOTIFICATIONS

(1) Registration of IRP / RP – Notification No. 39/2020-Central Tax,
dated 5^th May, 2020

Special procedure
for registration of IRP / RP as distinct person in case of corporate debtors is
provided by the above Notification, which amends the original Notification
dated 21^st March, 2020.

(2) Nil return
by SMS – Notification No. 44/2020-Central Tax, dated 8^th June, 2020

The government has
provided facility of filing Nil returns in form 3B by SMS, for which Rule 67 is
amended by the above Notification. The facility is now effective. This is a
welcome facility for taxpayers.

(3) Merger of Union Territories – Notification No. 45/2020-Central
Tax, dated 9^th June, 2020

Vide Notification No. 10/2020 dated 21^st March, 2020 the
procedure to be followed on account of merger of the Union territories of Daman
and Diu and Dadra-Nagar Haveli till 31^st May, 2020 was prescribed.
By the above Notification, the said procedure is extended till 31^stJuly,
2020.

(4) Rejection of
refund applications – Notification No. 46/2020-Central Tax, dated 9^th
June, 2020

Section 54(7) of
the CGST Act provides for passing of orders for rejection of refund
applications in part or full. There is a time limit for rejection of such
applications. By the above Notification, it is provided that if the time limit
for rejection, as mentioned in section 54(7), falls between 20^thMarch,
2020 and 29^th June, 2020, it shall be deemed to be extended to 15
days from the date of receipt of reply to notice or 30^th June, 2020,
whichever is later. This is to overcome the lockdown effect.

(5) Validity of E-way bill – Notification No. 47/2020-Central Tax,
dated 9^th June, 2020

By the above
Notification, the earlier Notification No. 35/2020 dated 5^th May,
2020 is amended. The validity period of E-way bills generated on or before 24^th
March, 2020 (whose validity expired on or after 20^th March, 2020),
is extended till 30^th June, 2020.

CIRCULARS

(i) Registration of IRP / CIRP
– Circular No. 138/08/2020-GST, dated 6^th May, 2020

By the above
Circular, more clarifications and explanations are given about the registration
of IRP / CIRP in case of corporate debtors. The Circular is basically to bring
uniformity and remove difficulties.

(ii) ITC for the purpose of
refund – Circular No. 139/09/2020-GST, dated 10^th June, 2020

The above Circular
is issued to clarify about ITC entitlement in respect of grant of refund. By a previous
Circular, No. 125/44/2019 dated 18^th November, 2019, wide benefit
was given, in the sense that in addition to invoices reflected in Form 2A,
refund was also granted for non-reflected invoices if copies of non-reflected
invoices were uploaded with the application. Thus, the applicant could get full
refund, including non-reflected invoices. However, this new Circular restricts
the ITC entitlement for refund to the extent of the invoices reflected in 2A.
Thus, there is curtailment in refund. This is said to be done in view of Rule
36(4).

(iii) Director’s salary vis-à-vis RCM – Circular No.
140/10/2020-GST, dated 12^th June, 2020

This is one of the
beneficial circulars. Due to advance rulings in different cases, it was
emerging that even in respect of salary paid to a director (who was also an
employee of the company), RCM liability was attracted. By the above Circular,
it is now clarified that no RCM liability is attracted in respect of salary
paid to a director. However, such salary should be accounted as ‘Salaries’ in
the books and which is covered by section 192 of the Income-tax Act for the
purpose of TDS. If any other amounts are paid, such as professional fees, etc.,
the RCM liability will remain. The effect of the adverse AR, particularly of
the Rajasthan AR in the case of Clay Crafts India Pvt. Ltd. (Raj
AAR/2019-20/33; date of order: 20^thFebruary, 2020) gets
nullified.

ADVANCE RULINGS

(A) Rate of tax on ‘Gift vouchers / Gift cards’

Kalyan Jewellers India Limited (Order No. 52/ARA/2019; dated 25^th
November, 2019)

The issue regarding
rate of tax on the above cards was before the learned AAR, Tamil Nadu. There
were different cards and the nature of the cards is described in the AR as
under.

Features of
three different pre-paid instruments

Closed System of PPI:
Transactions are between only two parties. One party, the issuer, issues PPIs
to customers. The PPI holder / customer makes purchases only from the issuer.
There is no cash withdrawal. These PPIs cannot be utilised for third-party
services / sales. The PPI holder / customer can purchase jewels from the issuer
only on redemption of the PPI; here the ‘applicant’ is an issuer of PPIs to
customers.

Semi-Closed system of
PPIs: Transactions are between more than two parties. The third party issues
PPIs to customers, who use PPIs at a group of clearly identified merchant
locations having a third party M/s. Qwick Cilver Solution, based in Bangalore,
(that) issues PPIs to customers who can redeem the same with the applicant or
any other outlets identified by the applicant.

Open System of PPIs:
These PPIs are issued by banks and are used at any merchant location for
purchase of goods and services, including facilitation of cash withdrawals at
ATM / Point of Sales (POSs) / Business correspondents (BCs). This type of PPI
is not applicable to the applicant.

The levy of Central
Excise and service tax did not apply on PPIs. The levy of octroi on ‘Sodexo
Meal Vouchers’ was not sustained by the Hon’ble Supreme Court in the case of Sodexo
vs. Maharashtra.

The party submitted
a copy of a sample gift voucher which had the brand name of the applicant
‘Kalyan’, ‘Gift Voucher’ with the value of the money equivalent. In the terms
and conditions, it states the date of validity of the voucher. The voucher
cannot be exchanged for cash and no refunds will be given. It has to be
produced in original at the store. No duplicate will be issued in case of loss.
It is not a legal tender.

The applicant also
explained accounting entries regarding the vouchers. When a gift voucher is
sold, it is shown on the liability side in ‘Gift voucher liability account’.
When the gift voucher is redeemed, the ‘Gift voucher liability account’ is
debited and ‘sale’ account is credited. The main argument of the applicant was
that the above cards are actionable claim or equivalent to money, being
governed by the Payment and Settlement Systems Act, 2007.

Thus, the argument
of the applicant was that the above cards are excluded from GST vide
Entry 6 in Schedule III to the CGST Act. Citing judgments, including in the
case of Sodexo India Private Limited, it was argued that they are
not goods. Further, citing the judgment in the case of the Delhi Chit
Fund Associations (43 GST 524 SC) it was also contended that it is not
a service.

The learned AAR
considered the above arguments. In relation to the argument that the cards are
actionable claim, he observed as under:

‘In this case, the gift voucher / gift card is an instrument squarely
covered under the definition of “payment instrument” under Payment and
Settlement Systems Act, 2007. It is not a claim to a debt nor does it give a
beneficial interest in any movable property to the bearer of the instrument. In
fact, if the holder of the gift card / voucher loses or misplaces it and is
unable to produce it before the applicant’s stores before the time limit
specified on the card / voucher, the instrument itself becomes invalid. Then
the customer cannot use it to pay for any goods. Thus, it is not an actionable
claim as defined under Transfer of Property Act. It is only an instrument
accepted as consideration / part consideration while purchasing the goods from
the issuer and the identity of the supplier is established in the PPI.’

Thus, the
contention about actionable claim is rejected. The AAR also made reference to
the minutes of the GST Council wherein this issue was discussed. The AAR
observed that the cards are movable property and therefore they are goods. He
held that the applicant is supplying the cards to customers directly or through
a distribution channel, against consideration.

Accordingly, the
AAR held that the cards are liable to GST. About the time of supply, he
observed that the cards are not against identifiable goods; therefore, the time
of supply will be the date of redemption of the card.

Regarding the rate
of tax, the AAR held that the cards are made from either paper or plastic and
can be read electronically. It is held that paper voucher is printed material
and covered by CTH 4911 9990 liable to tax at 12% under item at Sr. No. 132 of
Schedule II of Notification No. 1/2017 CT-Rate dated 28^th June,
2017. In case of plastic cards readable electronically, the AAR held that they
are covered by CTH 8533 and liable to tax at 18% under item at Sr. No. 382 of
Schedule III of Notification No. 1/2017 CT-Rate dated 28^th June,
2017.

Complier’s
note

In the above AR,
the rate of tax is decided as per the media on which the card is supplied, such
as plastic or paper, etc. However, the card itself has no importance. It has
intrinsic value, i.e., it confers the right to the customer to avail goods
against the cards. So the cards can be said to be intangible goods, as they are
conferring rights. Under such circumstances, only one rate should apply to both
types of cards. This aspect has not come up in the above AR and remains open
for future.

(B) Inclusion / exclusion from turnover

Anil Kumar Agrawal (AR No. KAR ADRG 30/2020; dated 4^th
May, 2020)

This application
before the Karnataka AAR was filed by the applicant who was not registered. He
was interested in knowing as to which of the items were part of turnover and
which were not part of turnover. The items presented for determination were as
under:

‘a) Partner’s
salary as partner from my partnership firm

b) Salary as
director from private limited company

c) Interest
income on partner’s fixed capital credited to partner’s capital account

d) Interest
income on partner’s variable capital credited to partner’s capital account

e) Interest
received on loan given

f) Interest
received on advance given

g) Interest
accumulated along with deposit / fixed deposit

h) Interest
income received on deposit / fixed deposit

i) Interest
received on debentures

j) Interest
accumulated on debentures

k) Interest
on Post Office deposits

l) Interest income on National Savings
Certificates (NSCs)

m) Interest
income credited in PF account

n) Accumulated
interest (along with principal) received on
closure of PF account

o) Interest
income on PPF

p) Interest
income on National Pension Scheme (NPS)

q) Receipt of
maturity proceeds of life insurance policies

r) Dividend
on shares

s) Rent on
commercial property

t) Residential
rent

u) Capital
gain / loss on sale of shares’

The applicant
submitted his list, saying that income received towards salary as partner of
firm and salary as director are not includible in turnover. It was also
submitted that the rent towards residential property is part of aggregate
turnover for registration.

The AAR referred to
the definition of ‘aggregate turnover’ in the CGST Act and also the meaning of
‘Supply’ as given in section 7 of the said Act. Applying defined criteria, the
AAR held as under in respect of the above items.

In respect of
interest income from different sources mentioned in (c), (d), (e), (f), (g),
(h), (i), (j), (k), (l), (m), (n), (o), (p) in the list given above, the AAR
held that the said income is out of deposits and loans extended by the
applicant. He held that giving loans, etc. is service against consideration in
the form of interest. Such interest is exempt under Entry 27(a) of the
Notification No. 12/2017-Central Tax (Rate) dated 28^th June, 2017.
The AAR also held that the actual amount of loans, deposits, etc. is the value
of service and this is includible in the aggregate turnover for registration.

In respect of
amounts received from the firm, the AAR observed that all documents are not
provided. However, it held that if it is in the form of salary, then it will be
outside the scope of the CGST Act. Further, the share of profit from the firm
is also not includible as it is application of money.

The issue about
salary as director was not decided for want of documents. However, it is
observed that if the income is as a non-Executive Director, then it is part of
aggregate turnover. If the salary is as Executive Director, then it will not be
includible in the turnover. (In this respect the readers can refer to Circular
No. 140/10/2020-GST dated 12^th June, 2020.)

In respect of
rental income for commercial property, the AAR held that it is taxable supply
and part of aggregate turnover. Regarding rental income from residential
property, though it is exempt, it is to be added for deciding the aggregate
turnover.

As for the income
out of dividend on shares and capital gain / loss on shares, the AAR observed
that they are related to securities and since securities are outside the
purview of GST, the above will also be outside GST. In respect of receipt of
money on maturity of insurance policies, it is return of money and there is no
element of service between the policy holder and the insurance company. Thus,
the above items were held to be not includible in the aggregate turnover.

Complier’s
note

In relation to
interest income on loans, deposits, etc., the AAR has held that the actual
value of deposit, loan, etc. will be the value of service. However, the
interest is the consideration for supply and hence such interest should be
value of supply. The above issue requires reconsideration.

(C) Classification of whole wheat parota and Malabar parota

ID Fresh Food (India) Pvt. Ltd. (AAR No. KAR ADRG 38/2020; dated 22^nd
May, 2020)

The applicant was
involved in the preparation and supply of the above items. As per the
applicant, the above products fall in the category of ‘khakhra, plain chapatti
or roti’ covered by Entry No. 99A of Schedule I to the Notification No.
1/2017-Central Tax(Rate) dated 28^th June, 2017 as amended vide
Notification No. 34/2017-Central Tax(Rate) dated 13^th October, 2017
and hence liable to tax at 5%.

The nature of the product is described as under: ‘The product consists
(of) the ingredients of refined wheat flour (maida), RO purified water,
edible vegetable oil, edible vegetable fat and edible vegetable salt. After
adding all the ingredients, the product will be subjected to heat treatment on
a pan or tawa for making it available for consumption.’

The applicant
referred to classification under Custom Tariff Act, 1975 and suggested that the
above products fall under Chapter 1905.

However, the Karnataka AAR held that the
products will not fall in Chapter 1905 but in Chapter 2106. He also held that
Entry 99A cannot cover the above products as they do not fall within the
description given in the said Entry, i.e., ‘khakhra, plain chapatti or roti’.
The AAR held that the products are described as parota and hence they
are neither ‘khakhra, plain chapatti or roti’. The products are further
distinguished on the ground that ‘khakhra, plain chapatti or roti’ are ready
for consumption, whereas the impugned products require further processing
before consumption. Therefore, the learned AAR held that the products do not
fall in Entry 99A of Schedule I.

BCAJ Admin

MISCELLANEA

I. Technology

14. Apple claims ‘half a trillion dollars’
App Store economy

Apple has said that more than
85% of that figure occurred via transactions from which it did not take a
commission. The announcement comes at a time when Apple and other US tech
giants are facing increased anti-competition scrutiny. A leading developer has
also called on the iPhone-maker to lower the fees it charges, ahead of its
annual developers’ conference next week.

The study was commissioned by
Apple but carried out by economists at the Boston-based consultancy Analysis
Group. It surveyed billings and sales related to apps running on the tech
firm’s iOS, Mac, Watch and Apple TV platforms.

These included:

in-app advertising via
apps such as Twitter and Pinterest,

the sale of physical
goods via apps such as Asos and Amazon,

the sale of digital goods
and services via apps including Mario Kart Tour and Tinder,

travel bookings via apps
such as Uber and British Airways,

food deliveries via apps
including Just Eat and Deliveroo,

subscriptions to media
apps including The Times newspaper and Netflix, and

subscriptions to work
apps including Zoom and Slack.

The report attempted to
account for spending that occurred externally but led to content being used
within an app – for example, a direct payment to Spotify, whose songs were then
listened to via its iPhone app. Likewise, it subtracted a proportion of the
charge of in-app purchases whose content was used elsewhere – for example, a
Now TV subscription taken out via Sky’s app, if most of the shows were then
watched directly on a TV’s own app.

In total, the economists said
$519 billion (£406 billion) had been generated via Apple’s software eco-system.
The figure excludes sales generated by the Android and Windows versions of the
same products. Physical goods and offline services accounted for the biggest
share of the sum – $413 billion. By contrast, digital goods and services, from
which Apple typically takes a 30% cut, accounted for $61 billion.

(Source:
bbc.com)

15. How Elon Musk aims to revolutionise
battery technology

Elon Musk has perhaps the
most exciting portfolio of businesses on the planet. There’s SpaceX with its
mission to Mars and Tesla with its super-fast hi-tech electric cars. He claims
his Hyperloop concept could revolutionise public transport. And even his Boring
Company is kind of interesting – it aims to find new ways to dig tunnels. So
which one will end up changing the world most? His battery business is also in
contention. But the compact, lightweight lithium batteries that mean you can
now stream movies on wafer-thin phones, will soon be powering much more of your
life. Yet the market certainly seems to reckon that they are the future. Just
look at the Tesla’s share price. Last week, it briefly nudged ahead of Toyota
to become the world’s most valuable car firm, even though the Japanese giant
sold 30 times as many vehicles last year.

One reason is that Elon Musk
has been teasing investors and rivals with the promise of ‘battery day’
sometime soon, at which he will announce a series of advancements in battery
tech. And cars are not the only vast new battery market. You might have seen a
story about how the world is slowly weaning itself off coal. Well, gigantic
batteries connected to our electricity grids are going to be central to the
great renewable energy revolution, too.

The first of these was
announced just last week when the Chinese battery-maker that supplies most of
the major car makers, including Tesla, revealed it had produced the first
‘million mile battery’. Contemporary Amperex Technology (CATL) says its new battery
is capable of powering a vehicle for more than a million miles (1.2 million, to
be precise – or 1.9 million km.) over a 16-year lifespan. Most car batteries
offer warranties for 60,000-150,000 miles over a three-to-eight-year period.
This is a huge improvement in battery life, but will cost just 10% more than
existing products.

Having a
battery you never need to change is obviously good news for the electric car
industry. But longer-lasting batteries are also essential for what’s known as
‘stationary’ storage, too. These are the batteries we can attach to wind
turbines or solar panels so that renewable energy is available when the sun
isn’t shining or the wind isn’t blowing. Fairly soon, you might even want a
stationary battery in your home to store cheap off-peak electricity, or to
collect the power your own solar panels generate.

(Source:
bbc.com)

II. World News

16. US
cities are losing 36 million trees a year

If you’re looking for a
reason to care about tree loss, this summer’s record-breaking heat waves might
be it. Trees can lower summer daytime temperatures by as much as 10 degrees
Fahrenheit, according to a recent study.

But tree cover in US cities
is shrinking. A study published last year by the US Forest Service found that
we lost 36 million trees annually from urban and rural communities over a
five-year period. That’s a 1% drop from 2009 to 2014.

If we continue on this path,
‘cities will become warmer, more polluted and generally more unhealthy for
inhabitants,’ said David Nowak, a senior US Forest Service scientist and
co-author of the study.

Nowak says there are many
reasons our tree canopy is declining, including hurricanes, tornadoes, fires,
insects and disease. But the one reason for tree loss that humans can control
is sensible development.

‘We see the tree cover being
swapped out for impervious cover, which means when we look at the photographs,
what was there is now replaced with a parking lot or a building,’ Nowak said.
More than 80% of the US population lives in urban areas, and most Americans
live in forested regions along the East and West coasts,’ Nowak says.

‘Every time we put a road
down, we put a building and we cut a tree or add a tree, it not only affects
that site, it affects the region.’ The study placed a value on tree loss based
on trees’ role in air pollution removal and energy conservation. The lost value
amounted to $96 million a year.

(Source:
cnn.com)

17. STEC
bags Rs. 1,126-crore civil contract Package 4 of Delhi-Meerut RRTS Line

Chinese multinational civil construction
firm Shanghai Tunnel Engineering Co. Ltd. (STEC) has emerged as the lowest
bidder among five for the construction of the 5.6 km. underground section
between New Ashok Nagar and Sahibabad of the Delhi-Meerut RRTS corridor.

When the National Capital
Region Transport Corporation Limited (NCRTC) opened financial bids for the
Delhi-Ghaziabad-Meerut RRTS corridor, a total of five national and
multinational bidders participated in the tender process. As per the results of
the financial bids disclosed by NCRTC, the position of the bidders is as under:

Shanghai Tunnel
Engineering Co. Ltd. (STEC): Rs. 1,126 crores (L-1);

Larsen & Toubro Ltd.
(L&T): Rs. 1,170 crores (L-2);

Gulermak Agir Sanayi
Insaatve Taahhut AS (Gulermak): Rs. 1, 326 crores (L-3);

Tata Projects Ltd. – SKEC
JV: Rs. 1.346 crores (CL-4);

Afcons Infrastructure
Ltd.: Rs. 1,400 crores (L-5).

NCRTC had invited global bids
for the first underground civil construction package (CDM/CN/COR-OF/086) in
November last year and the technical bids for this contract package were opened
recently.

The scope of work includes
design and construction of tunnels by TBM from near New Ashok Nagar DN Ramp to
Sahibabad UP Ramp and One Underground station at Anand Vihar by Cut and Cover
Method (including architectural finishing and design, supply, installation,
testing and commissioning of electrical and mechanical systems, including fire
detection and suppression systems and hydraulic systems) on the
Delhi-Ghaziabad-Meerut RRTS Corridor.

After issuance of the letter
of acceptance (LoA) by NCRTC, STEC has to complete the tunnelling work by TBM
through the cut-and-cover method. This is the first underground contract
package issued by the NCRTC.

(Source:
urbantransportnews.com)

18. 57% investors say Big-4 auditors have
no credibility: IIAS survey

In more trouble for the
auditing fraternity, an investor survey has found that 57% of large investors
and sell-side analysts do not have any faith in the Big-4 audit firms as they
have lost credibility.

According to the survey by
Institutional Investor Advisory Services of 63 large investors and sell-side
analysts numbering 89, conducted online from 13^th to 21^st
April, as many as 57% of each of them have found ‘the Big-4 audit firms having
lost their credibility with investors and are therefore open to move beyond
them if they were banned’.

Between qualified and
unqualified accounts, 73% support qualified accounts because they feel that at
least they got to hear auditor concerns and if they asked for lean accounts,
the risk was that the auditors would be muzzled. It can be noted that ever
since the Satyam Computers scandal came out in January, 2009, the audit world,
especially the Big-4, have been under fire from the regulators.

While market watchdog
Securities and Exchange Board had banned PwC in 2018 from auditing listed
companies for two years in the Satyam scam, the Securities Appellate Tribunal
quashed the ban and SEBI challenged it. In June, 2019 the Reserve Bank of India
barred S.R. Batliboi & Company, an affiliate of EY, from carrying out
statutory audit of commercial banks for a year after it found several lapses in
the books of Yes Bank.

In the CG Power fraud, the
NCLT had thrown out the report prepared by Viash Associates, terming it as
unprofessional and full of ifs and buts. On top of these, there have been
frequent resignations of auditors, creating doubts on the quality of the audits
that are being presented to investors and also many instances of divergent audit
reports.

This is despite 77% believing
that ‘only unqualified accounts are true and fair’ as one gets to hear auditor
concerns. Meanwhile, the survey also found that 78% of the investors, who
normally clamour for dividends, in the poll preferred companies retaining cash
and fortifying their balance sheet this year as the economy is in shambles.

Similarly, 57% also see
promoters subscribing to warrants as a sign of confidence in the company and
its operations. However, equity dilution remains a concern for investors with
46% being uncomfortable if dilution exceeded 5% without disclosure regarding
how funds will be used and 30% putting this threshold at 10%.

(Source: Economictimes.com)

BCAJ Admin

LETTER TO THE EDITOR

Dear Sir,

The
article MAKING A WILL WHEN UNDER LOCKDOWN, by Dr. Anup Shah (appearing under the feature LAWS AND
BUSINESS on Page 125 in the BCAJ issue of May, 2020), was timely,
informative and useful.

I
refer to the statement ‘It is important to note that the attesting witnesses
need not know the contents of the Will. All that they attest is the testator’s
signature and nothing more.’

My
request: Can the duties and liabilities of witnesses (in general for all deeds)
be covered by the author in a future issue of the BCAJ? That would be
very helpful.

Thanks,

Vinayak Pai

BCAJ Admin

ALLIED LAWS

14. Covid-19 – Lockdown – Banks cannot
classify firms as NPAs – RBI guidelines

Anant Raj Ltd.
vs. Yes Bank Ltd.; W.P.(C) Urgent 5/2020; Date of order: 6^th April,
2020 (Delhi)(HC)(UR)

The petitioner had approached the Court
seeking a direction against Yes Bank from taking coercive / adverse steps
against it, including but not limited to declaring its account as a
Non-Performing Asset (NPA). The petitioner contended that it failed to pay the
instalment which fell due on 1^st January, 2020 (the subject matter
of the present petition) because of adverse economic conditions brought about
by the effects of the Covid-19 pandemic.

The High Court
held that classification of the account of the petitioner as an NPA cannot be
done in view of the RBI Circular related to moratorium of loan repayments. It
held that a prima facie reading of the Statement on Development and
Regulatory Policies issued by the RBI on 27^th March, 2020 along with
the Regulatory Package indicates the intention of RBI to maintain the status
quo as on 1^st March, 2020 for all accounts. The Court further
observed that before classification as NPA, an account has to be classified as
SMA-2 and any account which is classified as SMA-2 on 1^st March,
2020 cannot be further downgraded to an NPA after the issuance of the
Notification. The status has to be maintained as it was on 1^st
March, 2020.

Thus, the Court granted interim protection
from the account being declared as an NPA. However, it was clarified that the
stipulated interest and penal charges shall continue to accrue on the
outstanding payment even during the moratorium period.

15. Covid-19 –
Lockdown – Period of the moratorium – Will not include period of lockdown

Transcon Skycity Pvt. Ltd. and Ors. vs.
ICICI & Ors.; W.P. LD VC No. 28 of 2020; Date of order: 11^th
April, 2020 (SC)(UR)

A petition was filed before the Supreme
Court as to whether the moratorium period is excluded in the computation of the
90-day period for determining NPA for amounts that fell due prior to 1^stMarch,
2020 and which remain unpaid or in default. The Court at the outset observed
that its scope for adjudication, at that particular juncture, was restricted
only to the aspect of urgent ad interim relief and issues like
maintainability were kept open for adjudication at an appropriate time.

The Hon’ble Court held that the period
during which there is a lockdown will not be reckoned by ICICI Bank for the
purposes of computation of the 90-day NPA declaration period. If the lockdown
is lifted at an earlier date than 31^st May, 2020, then this
protection will cease on the date of lifting of the lockdown and the computing
and reckoning of the remainder of the 90-day period will start from that
earlier lifting of the lockdown-ending date. The moratorium period of 1^st
March, 2020 to 31^st May, 2020 under the RBI Covid-19 regulatory
package does not per se give the petitioners any additional benefits in
regard to the prior defaults, i.e. those that occurred before 1^st
March, 2020. Thus, the relief to the petitioners is co-terminus with the
lockdown period.

The Court also
opined that this order will not serve as a precedent for any other case in
regard to any other borrower who is in default or any other bank. Each of these
cases will have to be assessed on its own merits. The question as to whether
the petitioners are entitled to the benefit of the entire moratorium period in
respect of the prior defaults of January and February, 2020 was left open.

16. Employment – Ministry of Home Affairs Order – Payment of wages
during lockdown – Negotiable [Disaster Management Act, 2005, S.10; Constitution
of India, 1949, Art. 14, Art. 19, Art. 300A]

Ficus Pax Pvt. Ltd. vs. UOI; W.P.(C) Diary
No. 10983 of 2020; Date of order: 12^th June, 2020 (SC)(UR)

A petition was filed by an association of
employers and a private limited company challenging the validity of the Order
of the Ministry of Home Affairs dated 29^th March, 2020 stating that
all the employers, be they in the industry or in the shops and commercial
establishments, shall make payment of wages of their workers at their work
places on the due date, without any deduction for the period their
establishments are under closure during the lockdown.

The Hon’ble Supreme Court held that no
industry can survive without the workers. Thus, employers and employees need to
negotiate and settle among themselves. If they are not able to do so, they need
to approach the labour authorities concerned to sort out the issues.

17. Family Law –
Maintenance on divorce – Wife entitled to maintenance – Even if she runs a
business and earns income [Hindu Marriage Act, 1955, S.12, S.13; Code of
Criminal Procedure, 1973, S.125]

Sanjay Damodar Kale vs. Kalyani Sanjay Kale
(Ms); RA No. 164 of 2019; Date of order: 26^th May, 2020
(Bom)(HC)(UR)

The couple got
married on 12^th November, 1997 in accordance with Hindu religious
rites and ceremonies. According to the applicant, the wife, since the inception
of marital life the respondent husband treated her with extreme cruelty. She
was dropped at her parental home at Satara in the month of January, 1999 by her
husband. Despite repeated assurances, the respondent did not come to fetch her
back to her marital home. In April, 2007 the respondent expressed his desire to
obtain divorce from the applicant. Although the applicant claimed to have
resisted in the beginning, she signed the documents for a divorce petition by
mutual consent as the respondent assured the applicant that he would continue
to maintain the marital relationship with her despite a paper decree of
divorce.

Despite the decree of dissolution of
marriage, the respondent continued to visit the applicant at her apartment and
had marital relations as well. But from September, 2012 the respondent-husband
stopped visiting the applicant’s house. The applicant-wife claimed the
respondent made no provision for her maintenance and livelihood as she had no
source of income. Hence, the applicant filed an application u/s 125 of the
Criminal Procedure Code for award of maintenance at the rate of Rs. 50,000 per
month. The Family Court allowed the application holding that the respondent has
refused or neglected to maintain the applicant who is unable to maintain
herself, despite the respondent having sufficient means to maintain her.

The Bombay High Court held that the claim of
the applicant that she had no source of income ought to have been accepted by
the learned Judge, Family Court with a pinch of salt. The tenor of the evidence
and the material on the record suggests that the applicant was carrying on the
business of Kalyani Beauty Parlour and Training Institute to sustain her
livelihood. Further, in this inflationary economy, where the prices of
commodities and services are increasing day by day, the income from the
business of beauty parlour, which has an element of seasonality, may not be
sufficient to support the livelihood of the applicant and afford her to
maintain the same standard of living to which she was accustomed before the
decree of divorce. Thus, the Court concluded that Rs. 12,000 per month would be
a reasonable amount to support the applicant wife instead of Rs. 15,000 awarded
by the Family Court (against the original claim / prayer for Rs. 50,000) as the applicant’s source of income was not
adequately considered by the Family Court Judge.

18. Interpretation of terms and conditions
of document(s) – Constitutes substantial question of law – High Court required
to exercise power – Matter remanded to the High Court [Code of Civil Procedure,
1908, S.100]

Rajendra Lalit Kumar Agrawal vs. Ratna
Ashok Muranjan; (2019) 3 Supreme Court Cases 378

The appellant is the plaintiff whereas the
respondents are the defendants. The appellant filed a civil suit against the
respondents for specific performance of the contract in relation to the suit
property. The suit was based on an agreement dated 8^thAugust, 1984.
The trial Court passed an order dated 5^th July, 2004 favouring the
appellant and passed a decree for specific performance of the contract against
the respondents. On appeal by the respondents, the District Court vide
order dated 10^th November, 2016 allowed the prayer of the
respondents, thereby dismissing the suit. The appellant filed a second appeal
before the High Court. The High Court dismissed the second appeal, too, holding
that it did not involve any substantial question of law as is required to be
made out u/s 100 of the Code of Civil Procedure, 1908 (Code).

On an appeal before the Supreme Court, it
was held that interpretation of terms and conditions of document(s) constitutes
a substantial question of law within the meaning of section 100 of the Code,
especially when both parties admit to the document. The Apex Court also held
the High Court could have framed questions on the issues, which were material
for grant or refusal of specific performance keeping in view the requirements
of section 16 of the Specific Relief Act. Therefore, the order of the High
Court was set aside and the matter was remanded back to the High Court.

19. Will – Mutual Will – Effect from – Death
of either testator – The beneficiaries do not have to wait till the death of
both the executants to enforce their rights [Hindu Succession Act, 1956]

Vickram Bahl & Anr. vs. Siddhartha
Bahl; CS(OS) 78/2016 & IAs Nos. 2362/2016, 12095/2016, 15767/2018 and
15768/2018; Date of order: 25^th April, 2020 (Delhi)(HC)

Late Wing
Commander N.N. Bahl and his wife Mrs. Sundri Bahl executed a Joint Will dated
31^st March, 2006. As per the Will, after the demise of one spouse
the entire property will ‘rest’ in the other spouse and no one else shall have
any right or interest until the demise of both the testators. Further, as per
the Will after the demise of both the testators their eldest son,
grand-daughter (daughter of the eldest son) and younger son will have ownership
rights as per their respective shares. The eldest son along with his daughter
filed a suit seeking permanent injunction against his mother and brother from
dispossessing them from their respective share of the property under the Will.

The Court held that Mrs. Sundri N. Bahl
having accepted the said Will, is bound by it. Since the rights in favour of
the ultimate beneficiary under the mutual Will are crystallised on the demise
of either of the executants and during the lifetime of the executant of the
Will, i.e. Mrs. Sundri Bahl, the beneficiaries do not have to wait till the
death of both the executants to enforce their rights.

BCAJ Admin

GOODS AND SERVICES TAX (GST)

I.
HIGH COURT

5. [2020 116 taxmann.com 36 (Guj.)]

Anopsinh Kiritsinh Sarvaiya vs. State of Gujarat

Date of order: 6^th February, 2020

When tax authorities have reason
to believe that the goods liable for confiscation on the ground of
contravention of law or any document or material useful for any proceeding is
secreted at any place (godown), the right course of action is to seize and
confiscate the goods and proceed against the owners of the goods and not to
seal the godown indefinitely to prejudice the owner of the godown

FACTS

The petitioner had given his
godown on rent to five parties to store agricultural produce. The State Tax
authorities visited the godown and in the exercise of power u/s 67 of the Act,
placed their seal on the godown based on the information that the five dealers,
jointly in occupation of the godown and who had stored their goods in it, had
contravened the provisions of the Act and the Rules. The Sealing Memo recorded
reasons like availing wrong Input Tax Credit, collecting tax wrongly and not
depositing it with the government, neglecting the search team and non-co-operation
in the process, etc. The petitioner moved Court seeking relief against the
action of the state’s officers and release of the godown.

HELD

The Court noted that section 67
empowers the proper officer to cause search at any place and seize the goods,
documents or books or things if he has reasons to believe that any goods liable
to confiscation, or any documents or books useful or relevant to any
proceedings are secreted at such place. Accordingly, it was held that if it is
the case of the Department that the five dealers have stored goods or other
articles which are liable to confiscation, then the authorities could have
seized such goods and documents a long time back and once the goods and other
articles were seized from the premises then there could be no good reason to
keep the godown in a sealed condition. The Court, therefore, issued directions
to remove the seal and proceed against the dealer/s.

6. [2020
(32) GSTL 338 (All.)]

Ice Cream Manufacturers Association vs.
Union of India

Date
of order: 24^th October, 2019

Classification of ice creams at
par with pan masala and tobacco products for composition scheme under
GST is not without any rationale and, therefore, is not arbitrary or
unreasonable or irrational

FACTS

The present writ petition is
filed against composition scheme notifications (Notification No. 08 of 2017-C.T.
dated 27^th July, 2017 and No. 14 of 2019-C.T. dated 7^thMarch,
2019) stating that ice cream cannot be treated at par with pan masala
and tobacco products as consumption of ice cream does not have ill-effects. It
leads to heavy taxation without any reasonable classification thereby making
such treatment unjust, unreasonable and violative of Article 14 of the
Constitution of India.

HELD

Relying upon the ratios
laid down by the Hon’ble Supreme Court in various cases, the Court listed the
principle that there is always presumption in favour of the constitutionality
of a law. No enactment can be struck down by just saying that it is arbitrary,
unreasonable or irrational; the Court is not concerned with the wisdom or
non-wisdom, the justice or injustice of the law; hardship is not relevant for
the constitutional validity of a fiscal statue or economic law. In the field of
taxation, the legislature enjoys greater latitude for classification. Thus, it
was held that such classification of ice creams was not without any rationale
and, consequently, the writ petition filed by the petitioner was dismissed.

II.
APPELLATE AUTHORITY

7. [2020
114 taxmann.com 453 (AA-GST-HP)]

Godrej
Consumer Products Ltd. vs. ACST & E-cum Proper Officer Circle, Baddi

Date
of order: 11^th February, 2020

While preparing E-way bill, the
supplier keyed in the wrong distance which reduced the validity of E-way bill
and caused it to expire while the goods were in transit. The appellant
authority, relying upon other documents accompanying the consignment, granted
relief from additional tax demand holding that benefit of CBEC Circular No.
64/38/2018-GST dated 14^thSeptember, 2018 and the State Circular No.
12-25/2018-19-EXN dated 13^th March, 2019 be granted to the appellant
as the error is minor in nature

FACTS

The appellant had placed an order
on the supplier for the supply of certain goods from Puducherry to Himachal
Pradesh. The supplier issued a valid invoice and also generated the E-way bill
online and handed over the goods to the transporter for transportation. When
the consignment was intercepted, the authorities noticed that the E-way bill
had expired. Consequently, the Department passed a detention order and seized
the goods along with the vehicle. The appellant representative attended in
person before the authority and explained that the consignment was accompanied
with proper invoices along with the E-way bill; however, due to a typographical
error while generating the E-way bill, it had mentioned an approximate distance
of 20 km. instead of 2,000 km. As a
result, the validity of the E-way bill is perfectly correct and consistent with
the invoice and the consignment. However, the Department did not appreciate the
fact and demanded a penalty.

HELD

The appellate authority noted
that there is no dispute as regards the quantity of the goods, tax invoice and
the E-way bill issued by the supplier which is legally required to be carried
along with the truck. Further, the E-way bill contained all the required
information in Part A as well as Part B as prescribed under E-way bill rules.
Thus, the appellant’s truck was carrying all the legal documents including the
E-way bill, and the said bill duly contained all the information which had to
be filled under Rule 138 of CGST/HPGST Rule 2017; however, due to a
typographical error, the approximate distance was mentioned as 20 km. instead
of 2,000 km. Owing to the said error, the validity of the E-way bill got
generated for only one day and expired before the goods reached the
destination.

The appellant authority referred
to paragraph 5 of the CBEC Circular 64/38/2018-GST dated 14^th
September, 2018 and the decision of Sabitha Riyaz vs. the Union of India
[WP (C) 34874 of 2018] and [2018 (11) TMI 213 – Kerala High Court] in
which it was held that ?if the error in E-way bill is minor apart from being
typographical, then it stands covered and exempted under the Circular No.
64/38/2018-GST, dated 14^th September, 2018’. The appellant authority
also observed that as per paragraph 6 of the said Circular in case of minor
errors mentioned in paragraph 5, penalty to the tune of Rs. 500 each u/s 125 of
the CGST Act and the respective state GST Act should be imposed (Rs. 1,000
under the IGST Act) in Form GST DRC-07
for every consignment. The appellate authority accordingly directed the refund
of additional demand and imposed a nominal penalty as per the said Circular.

III.
AUTHORITY OF ADVANCE RULING

8. [2020-TIOL-64-AAR-GST]

Clay
Craft India Pvt. Ltd. [AAR-Rajasthan]

Date
of order: 26^th February, 2020

Services provided by directors of
company are liable to GST under reverse charge

FACTS

The applicant informed that its
Board of directors was performing all
the duties and responsibilities as required under the law and the directors
were working as employees for which they were being compensated by way of
regular salary and other allowances as per company policy and as per their
employment contract. They are also deducting TDS on their salary and applying
the PF laws. A ruling is sought as to whether GST is payable under RCM in
respect of the salary paid to the directors of the company and whether the
situation would change if the director is also a part-time director in another
company.

HELD

The authority primarily noted
point No. 6 of Notification No. 13/2017-Central Tax (Rate) and held that it is
very clear that the services rendered by the directors to the company for which
consideration is paid to them under ‘any head’ is liable to GST under reverse
charge mechanism. Moreover, it was noted that consideration paid to the
directors is against the supply of services provided by them to the applicant
company and are not covered under Clause (1) of Schedule III of the CGST Act,
2017 as directors are not employees of the company. Further, it was held that
the situation remains the same in the second situation as well and the company
is liable to GST under reverse charge.

Note: The
decision states that there cannot exist an employer-employee relationship in
case of services provided by directors and it will be liable to GST under
reverse charge. The decision appears to be controversial considering the
relevant provisions of the Companies Act, 2013 in this regard. The decision is
likely to be appealed against. The readers are advised to refer to the decision
in the case of Allied Blenders and Distillers Private Ltd. [2019 (24)
GSTL 207 (Trib.-Mum.)] which is in favour of the assessee in the
service tax regime.

9. [2020-TIOL-66-AAR-GST]

M/s
Latest Developers Advisory Ltd. [AAR-Rajasthan]

Date
of order: 9^th January, 2020

Supply of maintenance services
and supply of water even though through different contracts by a resident
welfare association are directly related to each other

FACTS

The applicant enters into an
agreement with society / owners’ association / individual customers for
maintenance services for common area maintenance (CAM) and levies GST for providing such services. In
another area which lacks proper water supply, the applicant would be entering
into a contract (Contract-II) with individual members for supply of water for
personal use and for which purpose they would be sourcing the same through
tanker water suppliers; in the absence of any meters, water charges may be
collected based on square foot area occupied by such customers and an invoice
would be issued accordingly. A ruling is sought to know as to whether they
would be required to pay GST on water charges so collected from the customers
under Contract-II; and whether exemption would be available as prescribed in S.
No. 99 [Water – Heading 2201] of 02/2017-Central Tax (Rate).

HELD

The authority noted that the
applicant is involved in two agreements where Contract-I is for maintenance
services provided to the residents’ welfare association (RWA) and Contract-II
is for supply of water to individuals residing in the RWA. GST on services
provided to its resident members is @18% when each unit household in the society
pays more than Rs. 7,500 per month. The authority observed that the applicant
seems to have bifurcated the services provided to the society in order to
escape the condition of Rs. 7,500 per month per member or it might be crossing
the GST registration threshold limit of Rs. 20 lakhs.

It was noted that as a general
practice the maintenance services are inclusive of supply of water and hence
supply of water provided through a separate agreement raises a suspicion. Even
though the applicant may have a separate agreement for supply of water and for
receiving charges on the basis of square foot occupancy, it is not possible to
supply water to each apartment separately as mentioned in Contract-II because
the apartments do not have their own separate water storage tanks. Thus, both
contracts appear to be directly linked to each other as there is no case of
direct supply of water by the applicant to individual residents of the society;
therefore, the applicant is required to pay the GST as applicable on Contract-I.

10. [2020
116 taxmann.com 102]

Hitachi
Power Europe GmbH (AAR-Uttar Pradesh)

Date
of order: 11^th September, 2019

A project office of a foreign
company in India is a mere extension of the head office. Further, expat
employees of the foreign company working through project office are also the
employees of the project office and any accounting entry passed in the books of
a project office for salary paid to such expat employees out of funds of a
foreign company would not attract GST. And further the services provided by
expat employees to the project office would not attract GST due to
employer-employee relationship

FACTS

The applicant
is a German company and has been awarded contracts for the supply of goods and
supervisory services in relation to certain mega power projects in India. The
applicant constituted three project offices for undertaking an onshore portion
of the project in India. For carrying out the projects in India, the expat
employees (employees of the head office) would work out from the project office
in India. As the project office is not a separate legal entity and merely an
extension of the head office in India, these expat employees are employees of
the project office. The question raised by the applicant was whether GST is
applicable to the accounting entry made for the purpose of Indian accounting
requirements in the books of accounts of the project office for the salary cost
of the expat employees.

HELD

The AAR noted
that the PAN and TAN for the project office have been issued by the Income-tax
Department in the name of the foreign company. Further, the applicant has
obtained registration under the Companies Act, 2013 as a ‘Foreign Company’ by
mentioning its name as ‘Hitachi Power Europe GmbH’. Besides, the parties in
India have entered into an agreement with the foreign company and, in turn, as
per RBI guidelines, the foreign company has opened its project office in India
to undertake / complete the contractual obligations. It was also observed that
as per the FEMA regulations any shortfall of funds for meeting any liability in
India will be met by inward remittance from abroad and the project will be
funded directly by such inward remittance. AAR also verified the same from the
financial statements of the project office.

Based on the same,
the AAR held that the project office is merely an extension of the foreign
company in India to undertake the project in India and limited to undertaking
compliances required under various tax and regulatory requirements in India;
and hence the transactions between the foreign company and the project office
are an intra-company affair. The AAR further held that the project office is
treating the expat employees as its own employees in various regulatory / tax
matters and an ‘employee-employer relation exists between the project office
and the expat employees’. The AAR also relied upon Schedule III which provides
that the services by an employee to the employer in the course of or in
relation to his employment shall be treated neither as a supply of goods nor a
supply of service. Accordingly, the AAR held that the service provided by the
expat employees to the project office falls under the category of ‘Services by
an employee to the employer in the course of or in relation to his employment’.
Accordingly, no GST is leviable on the salary paid to the expat employees and
reflected in the books of accounts of the project office.

11. [2020 (32) GSTL 435]

KSR & Company (AAR-Andhra Pradesh)

Date of order: 14^th February, 2019

Input Tax
Credit restriction under sections 17(5)(c) and 17(5)(d) will not apply on goods
and services used in execution of works contract for construction of road

FACTS

The applicant
is supplying works contract services of construction of road to the government
of Andhra Pradesh to make special repairs to feeder road wherein the scope of
work includes construction of granular sub-base by providing HBG material and
spreading uniform layers with motor grader or by other approved means. Advance
ruling is sought on whether they are eligible for Input Tax Credit on GST paid
on goods or services in execution of ‘Works Contracts’ specifically in
construction of roads for the government.

HELD

Concurring
with the applicant, the Authority of Advance Ruling held that as per section
17(5)(c) of the CGST Act, 2017 since the applicant is in the same line of
business, i.e., works contract services, Input Tax Credit is allowed on goods
and services used for providing works contract services. The authority opined
that the work executed by the applicant is for the state of Andhra Pradesh and
not for themselves and, thus, not ineligible even as per section 17(5)(d) of
the CGST Act, 2017.

IV. APPELLATE AUTHORITY OF ADVANCE RULING

12. [2020
(32) GSTL 751]

Specsmakers
Pvt. Ltd. (App. AAR Tamil Nadu)

Date
of order: 13^th November, 2019

Provisos to Rule
28 need not be applied seriatim. Second proviso to Rule 28 is not
subordinate to first proviso to Rule 28 of the Central Goods and
Services Tax Rules, 2017

FACTS

The appellant is in the business
of spectacle frames, sun-glass lenses, etc. and procures raw material locally
and by way of imports. His main office is located in Tamil Nadu and he has
branches in various other states to which he transfers the materials so
procured. In order to determine the valuation in such transfer cases, the
appellant had sought advance ruling whereby it was decided that the value of
supply shall be open market value as per Rule 28(a) of the Central Goods and
Services Tax Rules, 2017 rejecting the appellant’s contention of applicability
of the second proviso to Rule 28(a). It was specifically observed by the
advance ruling authority that both the provisos to Rule 28 shall be read
together. Aggrieved by the above, the present appeal was filed by the
appellant.

HELD

The
Appellate Authority of Advance Ruling observed that when an ‘open market value’
is available, sub-rules (b) and (c) of Rule 28 of the Rules may not be
applicable but the same is not the case with the provisos to Rule 28. Considering
the construction of Rule 28, the Appellate Authority of Advance Ruling held
that the law provides the taxpayer with an option to adopt 90% of the price
charged as value to be adopted initially (i.e., supply between distinct
persons) and, in the alternative, in case full ITC is available to the
recipient as credit, the value declared in the invoice is deemed as ‘open
market value’. The second proviso is not subordinate to the first, but
is independently operative. Applying the above to the specific facts and
circumstances of the case at hand, the Appellate Authority of Advance Ruling
held that the Appellant may adopt the value for supply to distinct person as
per the second proviso to Rule 28.

BCAJ Admin

VAT

1. Pfizer
Products India Pvt. Ltd. vs. State of
Maharashtra & Others

Writ
petition No. 3149 of 2019

Date
of order: 1^st August, 2019

(Bombay
High Court)

Whether the part payment made in
the earlier round of appeal is required to be adjusted against the mandatory
part payment of 10% u/s 26A of the MVAT Act, 2002

FACTS

The petitioner had approached the
Hon’ble Bombay High Court under Article 226 of the Constitution of India
challenging the refusal of the Joint Commissioner to accept the appeal since
the same was not accompanied with proof of part payment as required u/s 26A of
the MVAT Act, 2002. The petitioner had in the earlier round of the same appeal
made the part payment as directed by the Joint Commissioner. The Joint
Commissioner had remanded that appeal.

HELD

The amounts deposited before the
appellate authority continued to be with the State, even though the earlier
order was set aside. Therefore, for the purpose of computing 10% payable u/s
26A of the MVAT Act, the amounts which were deposited in the earlier round with
the appellate authorities should be taken into account for computing 10% of the
disputed State tax under the MVAT Act for the appeal being entertained on
merits.

2.
Sudirman Paper Pvt. Ltd. vs. State of
Tamil Nadu

(Madras High Court)

Whether the revision order passed
in pursuance of the notices issued to the amalgamating company after
amalgamation is good in law

FACTS

A company, S, was amalgamated
with another company by order dated 20^th September, 2012 of the High
Court with retrospective effect on and from 1^st April, 2011 and this
fact was communicated to the Commercial Tax Officer concerned by letter dated 1^st
November, 2012.

Notwithstanding such intimation
regarding amalgamation, revision notices were issued to the transferor company
and ultimately revised assessment orders were passed in the name of the
transferor company. The orders so passed were challenged before the Madras High
Court.

HELD

The Court directed that the
revised assessments were to be redone and completed giving an opportunity to
the transferee entity, i.e., the transferee company, to make objections and
show cause, or, in other words, a reasonable opportunity was to be granted to
it. The orders in question were directed to be treated as show-cause notices
prior to the revised assessment.

3. Arihant
Granite and Marbles vs. State of Tamil Nadu

73
GSTR 262

Whether order of penalty passed
without assessment is sustainable

FACTS

The petitioner had paid tax after
a visit by the enforcement branch. Thereafter, based on the report submitted by
the enforcement officials, the assessing authority issued a notice proposing to
impose penalty at the rate of 150% of the tax due under the Tamil Nadu VAT Act,
2006. The dealer filed an objection but the authority passed orders imposing
penalty at the rate of 100%. The dealer then filed a writ petition.

HELD

The A.O. ought to have issued a
notice of the proposal to the dealer, both in respect of its tax liability as
well as penalty, if so warranted, and passed the order of assessment thereafter
upon hearing the dealer in respect of both components. The payment of tax
amount by the dealer before the inspecting officials could not be a reason for
the A.O. not to pass the order of assessment in respect of the tax component as
well.

The report of the inspecting officials could not be
the only source or reason for passing the order of assessment; it might be one
of the sources or reasons for doing so, since the A.O. while discharging the
functions of a quasi-judicial authority when making the assessment, had to pass
an order with independent application of mind. In this case, the A.O. had
straightaway issued the notice of proposal for imposing penalty and,
thereafter, passed the order confirming the proposal. The order was an
independent order levying penalty alone without assessing the tax liability.
The assessing authority had no jurisdiction to impose penalty by a separate and
independent order. The order imposing penalty was set aside.

BCAJ Admin

Service Tax

I.
HIGH COURT

7. [2020-TIOL-593-HC-Del.]

Aargus
Global Logistics Private Ltd. vs. Union of India & Anr.

Date
of order: 6^th March, 2020

The Central Government has the
powers to frame Rule 5A of the Service Tax Rules, 1994 and the same is also
saved w.e.f. 1^st July, 2017

FACTS

The petitioner preferred the
present petition to seek directions to quash Rule 5A of the Service Tax Rules,
1994 by declaring that it is in conflict with various provisions of the Finance
Act, 1994. Further, it also sought a writ of certiorari declaring Rule
5A as having lapsed w.e.f. 1^stJuly, 2017 on the grounds that there
is no saving of the said provision under the CGST Act.

HELD

The Court noted that section 94
empowers the Central Government to make rules for carrying out the provisions
of the Finance Act. In addition to the specific matters in relation to which
Rules can be framed, there is also a general rule-making power. The only
statutory limitation is to ensure that rules are framed to enforce the
provisions of the Finance Act. The Court held that the powers granted were
exhaustive and included the power to frame Rule 5A of the Service Tax Rules,
1994.

Further, w.e.f. 1^st
July, 2017, the Court noted that Rules are framed to carry out the provisions
of the Act and are framed under the Act. Thus, the Rules are saved by clause
(b) of section 174(2) which states that anything done under the Finance Act
shall not be affected by the amendment of the Finance Act. It was also noted
that the powers of the competent authorities stood preserved by virtue of section
6 of the General Clauses Act. Thus, it was held that the petitioner is obliged
to maintain and provide all records which they are required to maintain in the
normal course of business to the respondent and dismissed the writ.

8
[2020 116 taxmann.com 4 Guj.]

Deendayal
Port Trust vs. UOI

Date
of order: 12^th February, 2020

Provisions of Rule 7B of Service
Tax Rules permit the assessee to revise the ST-3 returns multiple times within
the prescribed period. Hence, the ACES portal not allowing it to revise the
Form ST-3 for the second time within a prescribed period resulting in technical
glitches is contrary to the provisions of the said Rule 7B

FACTS

The
petitioner filed ST-3 return for the period April, 2017 to June, 2017 in
August, 2017 and after filing the return realised that there were certain
invoices pertaining to the said period which remained unaccounted;
consequently, the Input Tax Credit involved in such invoices could not be
claimed in the return of service tax in Form ST-3. The petitioner therefore
revised its return and claimed such ITC in the revised return filed in
September, 2017. Thereafter, the petitioner further realised that a few more
invoices for the said period remained to be included in the revised ST-3
returns as well. Therefore, it again tried to file a second revised return to
claim the correct amount; however, ACES did not permit it to file a revised
return for the second time. Therefore, credit of Rs. 99,46,810 remained
unclaimed.

The Department was requested to
consider the additional claim of credit. Thereafter the entire ITC (including
the ITC of Rs. 99,46,810) was claimed in TRAN-1. On scrutiny, the said credit
was denied. It was contended (by the petitioner) that credit should be allowed
as it was well within its right to revise the return a second time as per Rule
7B of the Service Tax Rules; however, the ACES portal did not allow the same.
Therefore, it should be given the benefit of Order No. 01/2020-GST dated 7^th
February, 2020 to submit its claim manually.

HELD

The High Court examined the
provisions of Rule 7B of the Service Tax Rules, 1994 and held that the said
Rule permits revision of the original return multiple times within the time
limit prescribed. Hence, the ACES portal not allowing it to revise the Form
ST-3 for a second time within the prescribed period resulting in technical
glitches is contrary to the provisions of the said Rule 7B. Accordingly, the
High Court directed the respondent to consider the claim of Rs. 99,46,810
manually under Rule 7B of the Rules, 1994 and order dated 7^th
February, 2020.

II.
TRIBUNAL

9. [2020-TIOL-493-CESTAT-Bang.]

M/s
TPI Advisory Services India Pvt. Ltd. vs. Commissioner of Central Tax

Date
of order: 27^th January, 2020

Service Tax paid legitimately on
invoice raised cannot be refunded

FACTS

The appellant raised credit notes
in the GST regime relating to the service tax regime and issued fresh invoices
in the GST regime and paid GST thereon. Subsequently, a refund claim was filed
for the service tax paid prior to July, 2017 u/s 11B of the Central Excise Act,
1944. It was stated that the clients did not accept the service tax invoice and
thus they raised credit notes with respect to those invoices and paid GST on
the fresh invoices raised. The refund claim was rejected on the ground that
raising subsequent invoices under GST as per the request of the clients and
claiming for the refund of service tax already paid under the erstwhile Finance
Act, 1994 is not under the purview of the law to consider for refund of service
tax paid for the correctly declared invoice value in the ST-3 returns.

HELD

The Tribunal noted that the
appellant issued the GST invoices subsequently simply at the instance of their
clients. When the service tax was paid for the services rendered during the
relevant period, the same was liable to be paid. The four invoices issued
subsequently were without any supplies under the GST regime which in itself is
a violation warranting rejection of refund. The tax paid during April to June,
2017 against the service tax invoices was the legitimate tax that was due to
the government as per the prevailing Finance Act, 1994. Hence, the service tax
paid is in order and correct and there is no provision for the refund of duty /
tax that was liable to be paid legitimately.

10. [2020-TIOL-549-CESTAT-Del.]

M/s
Regency Park Property Management
Services P. Ltd. vs. Commissioner, Service Tax

Date
of order: 29^th January, 2020

Inputs, input services and
capital goods used for construction of mall which is rented out services
received prior to April 11 is available as CENVAT credit post April 11

FACTS

The appellant availed CENVAT
credit on inputs, input services and capital goods for construction of a mall
and thereafter rented out the same for commercial purposes. Service tax was
paid under renting of immovable property service. The said credit availed was
held as inadmissible. Two show cause notices were issued for the periods April,
2007 to March, 2010 and April, 2011 to March, 2012.

HELD

Relying on the decisions of
various High Courts, including the case of Sai Sahmita Storages (P) Ltd.
(23) STR 241 (AP) and various Tribunals, it was held that there
is no doubt that CENVAT credit availed on inputs, input services and capital
goods used for construction of the mall, which was ultimately let out, cannot
be denied. With respect to the period April, 2011 to March, 2012, it is argued
that the CENVAT credit availed for the period 2011 to 2012 pertains to input
services received prior to 1^stApril, 2011. In this connection, the
relevant pages of the CENVAT Register for the period 2011-2012 were enclosed.
Relying on Board Circular No. 943/04/2011 dated 29^thApril, 2011
that credit on such service shall be available if its provision had been
completed before 1^stApril, 2011, CENVAT credit was allowed.

11. [2020-TIOL-500-CESTAT-Bang.]

Commissioner
of Central Tax vs. M/s Karnataka Golf Association

Date
of order: 17^th February, 2020

No service tax on advance
entrance / enrolment fee levied by club from its members as there exists
mutuality of interest

FACTS

The assessee is an Association of
Persons. The issue at hand is whether it is liable to pay service tax on
‘advance entrance / enrolment fee’ collected from prospective members.

HELD

Relying on the decision in the case of State of
West Bengal vs. Calcutta Club Ltd. 2019 (29) GSTL 545 (SC) and of the
Jharkhand High Court in Ranchi Club Ltd. 2012 (26) STR 401 (Jharkhand),
the Court held that since there is mutuality of interest between the club and
its members, there is no transfer of ownership of the service and accordingly
the appeals are disposed of.

BCAJ Admin

RECENT DEVELOPMENTS IN GST

NOTIFICATIONS

Due to the ongoing nationwide lockdown to fight
against the spread of novel corona virus (Covid-19), the government has relaxed
certain provisions regarding due dates for filing various forms and returns,
etc. to provide some relief to the taxpayers. Given below in tabular format are
the revised date/s for various compliances:

Sr. No.	Notification No.	Benefits extended to taxpayers
1	Notification No. 30/2020-CT – dated 3^rdApril, 2020	CGST Rules have been amended to allow taxpayers opting for the Composition Scheme for the financial year 2020-21 to file their option in Form CMP-02 till 30^th June, 2020 and to file GST ITC-03 by 31^stJuly, 2020. Further, a proviso to Rule 36(4) has been inserted to allow cumulative application of the condition in Rule 36(4) for the months February, 2020 to August, 2020 in the return (Form GSTR3B) for the tax period of September, 2020
2	Notification No. 31/2020-CT – dated 3^rd April, 2020	Class of taxpayers having	Rate of interest	Tax period	Condition is GSTR3B to be filed on or before
Turnover more than Rs. 5 crores in preceding financial year	Nil for first 15 days from the due date and 9% thereafter	February, 2020, March, 2020 and April, 2020	24^th June, 2020
Turnover less than Rs. 5 crores but more than Rs. 1.5 crores in preceding F.Y.	Nil	February, 2020 and March, 2020	29^th June, 2020
April, 2020	30^th June, 2020
Turnover up to Rs. 1.5 crores in preceding F.Y.	Nil	February, 2020	30^th June, 2020
March, 2020	3^rdJuly, 2020
April, 2020	6^th July, 2020
3	Notification No. 32/2020-CT – dated 3^rdApril, 2020	Late fee waived for delay in furnishing returns in Form GSTR3B for the tax periods of February, 2020 to April, 2020 provided the returns in Form GSTR3B are filed by the dates specified in the Notification (same dates as specified in Notification No. 31)
4	Notification No. 33/2020-CT – dated 3^rdApril, 2020	Late fee waived for delay in furnishing the statement of outward supplies in Form GSTR1 for the tax periods March, 2020 to May, 2020 and for the quarter ending 31^st March, 2020 if the same are furnished on or before 30^thJune, 2020
5	Notification No. 34/2020-CT – dated 3^rd April, 2020	Extension of due date of furnishing statement, containing the details of payment of self-assessed tax in Form GST CMP-08 for the quarter ending 31^st March, 2020 till 7^th July, 2020 and filing Form GSTR4 for the financial year ending 31^st March, 2020 till 15^thJuly, 2020
6	Notification No. 35/2020-CT – dated 3^rd April, 2020	Notification u/s 168A of the CGST Act for extending due date, of completion of any proceeding or passing of any order, or issuance of any notice, intimation, notification, sanction, or approval, or such other action by authorities, or filing of any appeal, reply, or application, or furnishing of any report, document, return, statement, or such other record by taxpayers, which falls during the period from 20^th March, 2020 to 29^th June, 2020 to 30^th June, 2020 Validity of E-way bills expiring between 20th March, 2020 and 15^th April, 2020 shall be deemed to have been extended till 30^th April, 2020
7.	Notification No. 36/2020-CT – dated 3^rd April, 2020	Class of taxpayers having	Due date for filing Form GSTR3B for May, 2020	States
		Aggregate turnover more than Rs. 5 crores in preceding F.Y.	27^th June, 2020	All States
		Turnover up to Rs. 5 crores in preceding F.Y.	12^th July, 2020	States of Chhattisgarh, Madhya Pradesh, Gujarat, Maharashtra, Karnataka, Goa, Kerala, Tamil Nadu, Telangana, Andhra Pradesh, Union territories of Daman and Diu and Dadra and Nagar Haveli, Puducherry, Andaman and Nicobar Islands or Lakshadweep
		Turnover up to Rs. 5 crores in preceding F.Y.	14^thJuly, 2020	States of Himachal Pradesh, Punjab, Haryana, Uttarakhand, Rajasthan, Uttar Pradesh, Bihar, Sikkim, Nagaland, Arunachal Pradesh, Manipur, Meghalaya, Mizoram, Tripura, Assam, West Bengal, Jharkhand, Odisha, the Union territories of Jammu and Kashmir, Ladakh, Chandigarh and Delhi

Sr. No.

Notification No.

Benefits extended to taxpayers

Notification No. 30/2020-CT – dated 3^rdApril, 2020

CGST Rules have been amended to allow taxpayers opting for the
Composition Scheme for the financial year 2020-21 to file their option
in Form CMP-02 till 30^th June, 2020 and to file GST
ITC-03 by 31^stJuly, 2020. Further, a proviso to Rule 36(4)
has been inserted to allow cumulative application of the condition in Rule
36(4) for the months February, 2020 to August, 2020 in the return (Form
GSTR3B) for the tax
period of September, 2020

Notification No. 31/2020-CT – dated 3^rd April, 2020

Class of taxpayers having

Rate of interest

Tax period

Condition is GSTR3B to be filed on or before

Turnover more than
Rs. 5 crores in preceding financial year

Nil for first 15 days from the due date and 9% thereafter

February, 2020,
March, 2020 and
April, 2020

24^th June, 2020

Turnover less than Rs. 5 crores but more than Rs. 1.5 crores in
preceding F.Y.

Nil

February, 2020 and March, 2020

29^th June, 2020

April, 2020

30^th June, 2020

Turnover up to Rs. 1.5 crores in preceding F.Y.

Nil

February, 2020

30^th June, 2020

March, 2020

3^rdJuly, 2020

April, 2020

6^th July, 2020

Notification No. 32/2020-CT – dated 3^rdApril, 2020

Late fee waived for delay in furnishing returns in Form GSTR3B for the
tax periods of February, 2020 to April, 2020 provided the
returns in Form GSTR3B are filed by the dates specified in the Notification
(same dates as specified in Notification No. 31)

Notification No. 33/2020-CT – dated 3^rdApril, 2020

Late fee waived for delay in furnishing the statement of outward supplies in Form
GSTR1 for the tax periods March, 2020 to May, 2020 and for
the quarter ending 31^st March, 2020 if the same are
furnished on or before 30^thJune, 2020

Notification No. 34/2020-CT – dated 3^rd April, 2020

Extension of due date of furnishing statement, containing the
details of payment of self-assessed tax in Form GST CMP-08 for the
quarter ending 31^st March, 2020 till 7^th
July, 2020 and filing Form GSTR4 for the financial year ending 31^st
March, 2020 till 15^thJuly, 2020

Notification No. 35/2020-CT – dated 3^rd April, 2020

Notification u/s 168A of the CGST Act for extending due date, of
completion of any proceeding or passing of any order, or issuance of any
notice, intimation, notification, sanction, or approval, or such other action
by authorities, or filing of any appeal, reply, or application, or furnishing
of any report, document, return, statement, or such other record by
taxpayers, which falls during the period from 20^th March, 2020
to
29^th June, 2020 to 30^th June, 2020

Validity of E-way bills expiring between 20th March, 2020
and 15^th April, 2020 shall be deemed to have been extended
till 30^th April, 2020

Notification No. 36/2020-CT – dated 3^rd April, 2020

Class of taxpayers having

Due date for filing Form GSTR3B for May, 2020

States

Aggregate turnover more than Rs. 5 crores in preceding F.Y.

27^th June, 2020

All States

Turnover up to Rs. 5 crores in preceding F.Y.

12^th July, 2020

States of Chhattisgarh, Madhya Pradesh, Gujarat, Maharashtra,
Karnataka, Goa, Kerala, Tamil Nadu, Telangana, Andhra Pradesh, Union
territories of Daman and Diu and Dadra and Nagar Haveli, Puducherry, Andaman
and Nicobar Islands or Lakshadweep

Turnover up to Rs. 5 crores in preceding F.Y.

14^thJuly, 2020

States of Himachal Pradesh, Punjab, Haryana, Uttarakhand,
Rajasthan, Uttar Pradesh, Bihar, Sikkim, Nagaland, Arunachal Pradesh,
Manipur, Meghalaya, Mizoram, Tripura, Assam,
West Bengal, Jharkhand, Odisha, the Union territories of Jammu and Kashmir,
Ladakh, Chandigarh and Delhi

CIRCULARS

(I) Circular
No. 135/05/2020-GST dated 31^st March, 2020

The government had issued the
Master Refund Circular No. 125/44/2019-GST dated 18^th November, 2019
rescinding all the earlier Circulars on refund and subsuming all the
clarifications relating to refund under the Master Circular. Thereafter, the
above Circular No. 135/05/2020-GST dated 31^st March, 2020 is issued
to further clarify certain points contained in the Master Circular and also
certain issues being raised by trade and industry.

(a) Bunching of refund claims across financial year:

Paragraph 8
of the Master Circular clarified that refund application may be filed for a tax
period, or by clubbing various tax periods within a financial year.
Subsequently, the Hon’ble Delhi High Court in the case of M/s Pitambra
Books Pvt. Ltd. had stayed the rigour of paragraph 8 of Circular No.
125/44/2019-GST on the ground that government is not empowered to withdraw
benefits or impose stricter conditions than postulated by the law.

Vide paragraph
2 of the above Circular No. 135/05/2020-GST dated 31^st March, 2020
the CBIC has clarified that the prohibition of refund application for multiple
tax periods falling under the same financial year has been removed. The effect
is that now the applicant can file an application containing tax periods of
more than a year. For example, the refund application for the quarters January
to March, 2020 and April to June, 2020 can be filed in a single refund
application.

(b) Refund of ITC accumulated on account of reduction in GST rate:

Paragraph 3 of the above Circular
No. 135/05/2020 has clarified that in case of a reduction in the rate of GST
for a particular supply, the accumulated ITC will not be available as refund
under the inverted duty structure. For example, registered person ‘A Ltd.’ has
bought goods ‘X’ attracting GST at 18%. Thereafter, the rate of GST for goods
‘X’ was reduced to 5%. Thus, while selling the goods ‘X’, ‘A Ltd.’ has
discharged the GST at 5%. On account of the reduction in rate of GST, there is
accumulation of ITC in the hands of ‘A Ltd.’

The relevant
portion of section 54(3)(ii) which provides for refund in case of inverted duty
structure is reproduced below:

(ii) where the credit has
accumulated on account of rate of tax on inputs being higher than the rate of
tax on output supplies (other than nil rated or fully exempt supplies),…

On a plain reading of the above
provision, one can interpret that the above example of ‘A Ltd.’ will fall under
the category of inverted duty structure as the 18% rate of GST on inputs, i.e.,
product ‘X’, is higher than the 5% rate of GST on output supply of product ‘X’.

However, the CBIC has clarified
in the above Circular that the input and output being the same in such cases,
though attracting different tax rates at different points in time, they do not
get covered under the provisions of clause (ii) of sub-section (3) of section
54 of the CGST Act.

If the interpretation of CBIC is
adopted, it would mean that the inverted rate structure will apply only in case
of manufactured goods, or inputs used for provision of services. The inverted
rate structure will not apply in the case of mere trading of goods.

It can be argued that the above
interpretation given by CBIC is narrowing the provision of the inverted rate
structure, which may not have been contemplated by law, especially on a reading
of the definition of ‘Input’ u/s 2(59) of the CGST Act. Such interpretation
will have far-reaching effects as the accumulated ITC will be held up as
working capital for no fault of the registered person. This issue requires
reconsideration by the authorities.

Rule 86(4A)
and Rule 92(1A) have been inserted vide Notification No. 16/2020-CT
dated 23^rd March, 2020 to change the manner of refund for claims
other than zero-rated supplies. In case of refund claimed for other than
zero-rated supplies, the Circular has clarified that refund shall be given in
the same proportion as the debit entry in the cash and credit ledger in order
to avoid the unintended encashment of credit balances. The excess debit in the
credit ledger will be re-credited to the claimant on Form GST PMT-03.

(d) Guidelines for refund of ITC after introduction of new Rule 36(4):

Paragraph 36 of the Master Refund
Circular No. 125/44/2019-GST clarified that the refund of ITC availed in
respect of invoices not reflected in Form GSTR2A will be admissible provided
copies of such invoices are uploaded.

However, in
the wake of the insertion of sub-rule (4) to Rule 36 of the CGST Rules, 2017 vide
Notification No. 49/2019-GST dated 9^th October, 2019, the CBIC has
now clarified that the refund of accumulated ITC shall be restricted to the ITC
as per those invoices the details of which are uploaded by the supplier in Form
GSTR1 and are reflected in the Form GSTR2A of the applicant. Accordingly,
paragraph 36 of the Circular No. 125/44/2019-GST, dated 18^th
November, 2019 stands modified to that extent.

This will again have far-reaching
effects as the claimant will now be given refund of only those invoices which
are appearing in the GSTR2A.

(e) New requirement to mention HSN / SAC in Annexure-B:

Annexure-B, which is a ‘Statement
of Inward Supplies’ to be filed along with the Refund Application, will now
have an extra column of HSN / SAC code of inward supplies to help authorities
in distinguishing ITC on capital goods from ITC on inputs and input services.

A difficulty may arise in cases
where the declaration of HSN / SAC is optional and the supplier has not
mentioned the HSN or SAC. The applicant may self-determine the HSN / SAC while
filing the application.

(II) Circular No.
136/06/2020-GST dated 3^rd April, 2020

The above circular is issued for
explaining the various measures taken by the government to provide relief to
the taxpayers on account of the impact on the industry due to the spread of
Covid-19.

(III) Circular No. 137/07/2020-GST dated 13^th April,
2020

Vide this
Circular certain further issues arising due to the lockdown are addressed. The
Circular clarifies on issues such as adjustment of tax, or refund of excess
payment of tax on account of cancellation of supplies, or advances being
returned by the supplier. One important clarification in the Circular is
regarding the time limit for filing the refund applications. Where the
limitation of two years from the relevant date for filing the refund
application u/s 54(1) is exhausting between 20^th March, 2020 and 29^thJune, 2020, the refund application can be filed up to 30^th
June, 2020.

ADVANCE RULINGS

(i) RCM liability on salary to directors – Recent important AR

(Advance Ruling No.
Raj/AAR/2019-20/33 dated 20^th February, 2020 in the case of Clay
Crafts India Private Limited.)

The issue before the Rajasthan
AAR was about the liability of the company to Reverse Charge Mechanism (RCM) on
salary paid to directors. The applicant company has six directors and all of them
are discharging their duties as directors. In addition, they are also working
at different levels in the company, such as, in charge of production,
procurement of raw materials, quality checks, dispatches, accounts, etc. For
the above duties they are paid salaries and are also subject to the TDS and PF
laws applicable to any other normal employee. In short, the argument of the
company was that the salaries paid for the above duties are under an
employer-employee relation where the company is the employer and the directors
are employees. The company contended that the salary paid is exempt under Entry
No. 1 of Schedule III to the CGST Act, 2017. The said Entry provides that
services by an employee to the employer in the course of, or in relation to, his
employment is neither supply of service nor supply of goods. The applicant
company also cited judgments of the Hon. Supreme Court and others where it is
held that the director can be an employee of the company.

The issue for decision before the
AAR was whether salary payment to directors will attract any liability under
RCM on the ground of services supplied by the directors to the company.

The AAR referred to the
definition of ‘consideration’ in section 2(31) of the CGST Act and the wordings
in Notification No. 13/3017-Central Rate dated 28^th June, 2017.
Entry No. 6 of the said Notification provides for RCM liability on categories
of supply of services mentioned in Column (2) of the Table. The description in
Entry No. 6 is reproduced below:

‘Services supplied by a director
of a company or a body corporate to the said company or the body corporate.’

In view of the above provision,
the learned AAR held that the payment of salary is not covered by Entry No. 1
of Schedule III as contended by the applicant
company and held that it is one kind of payment for services provided by the
director and hence liable to RCM.

The above AR may lead to raising
of inquiries from various authorities regarding discharge of liability for RCM
on salaries paid to directors, which till now was widely believed as not
liable. Looking into the overall provisions of the law, it is well understood
that Entry 1 in Schedule III is separate and has an overriding effect on other
provisions of the Act. Further, on the ground that it is a contractual
arrangement (as employer and employee) and the director’s salary is assessed
under the Income-tax Act under the head ‘Salary’ as also under the EPF Act and
certain provisions of the Companies Act, etc., it can very well be contended that
such salary payment to director/s is covered under Entry 1 of Schedule III.
Once it is covered by Entry 1 of Schedule III, it is neither a supply of goods
nor a supply of service; hence there should be no liability for RCM on salary
paid to whole-time directors.

However, the learned AAR holds
that the RCM provision is clear enough to cover all categories of services and
therefore impliedly holds that entry in RCM is the overriding entry.

The above AR suggests that the
RCM liability will arise for all kinds of services specified in the
Notification. For example, RCM liability will arise even on commission paid to
directors, or rent paid to directors for any premises, etc. Similar litigations
are also pending under the erstwhile Service Tax regime.

The
higher authorities are expected to take note of the above AR and provide
appropriate guidelines.

BCAJ Admin

CORPORATE LAW CORNER

8. Foseco India Limited vs. Om Boseco Rail Products Limited C.P. (IB) No. 1735/KB/ 2019 Date of order: 20^th May, 2020

Section 9 read with Notification dated 24^th
March, 2020 – The Notification raises the pecuniary limit of the Tribunal for
initiating CIRP from Rs. 1 lakh to Rs. 1 crore – The said Notification is
prospective in nature and does not apply to applications which have been filed
but are yet to be admitted

FACTS

F Co (the ‘Operational Creditor’) was a
company engaged in the business of manufacturing and supply of chemical and
allied products related to foundry and steel industries. OB Co (the ‘Corporate
Debtor’) regularly purchased foundry and other chemicals from F Co on credit
basis wherein the credit period was 30 days and which was relaxed for a further
15 days beyond the usual credit period mentioned in the invoices.

The corporate debtor failed to make payments
of several invoices raised by the operational creditor from 3^rd December, 2018 to 11^th July, 2019 for supply of
materials. The total outstanding debt receivable from the corporate debtor was
Rs. 90,00,919.10 (principal amount of Rs. 78,52,663 + interest Rs.
11,48,256.10) on the basis of which a demand notice was issued on 1^st
August, 2019. But the corporate debtor did not reply to the said notice. The
operational creditor therefore filed an application for initiating Corporate
Insolvency Resolution Process (CIRP) against the corporate debtor.

On two consecutive events (17^th
January, 2020 and 3^rdFebruary, 2020), the corporate debtor chose
not to file a reply without assigning any valid reason. The matter was then
posted for hearing on 13^th March, 2020. The corporate debtor then
requested for a period of seven days for settlement of the matter with the
operating creditor. The time was granted and the order was reserved. But owing
to the onset of the coronavirus pandemic, there was a delay in pronouncement of
an order.

The corporate debtor, citing the
Notification dated 24^th March, 2020 which introduced the proviso
to section 4 of the Insolvency and Bankruptcy Code, 2016, filed a submission
before the NCLT on 13^th May, 2020. The proviso enhanced the
minimum amount of default from Rs. 1 lakh to Rs. 1 crore for initiating CIRP
against corporate debtors from small and medium-scale industries. The issue
before the National Company Law Tribunal (NCLT) was whether the Notification
u/s 4 of the Code would apply to applications pending for admission.

HELD

NCLT heard both the parties. It observed
that the corporate debtor had always accepted and agreed to make payment of
outstanding debt without raising any dispute. The Tribunal observed that it was
a well-settled law that a statute is presumed to be prospective unless it is
held to be retrospective either expressly or by necessary implication. Further,
the Notification did not mention that its application would be retrospective.
The amendment was, therefore, held to be prospective.

It was submitted that the invoices did not
mention any terms stipulating the payment of interest. Accordingly, NCLT held
that since there was no objection raised by the corporate debtor, a sum for
supply of materials less any interest was due. The claim of the operational
creditor was found due and sustainable in law. The Tribunal passed an order
admitting the application and laid down necessary directions, including
declaration of moratorium and appointment of a resolution professional.

9. DLF Ltd. vs. Satya Bhushan Kaura [2020] 113 taxmann.com 363 (NCLAT) Date of order: 13^th January, 2020

It was found that company in their
correspondence with legal heirs had accepted to issue shares to them as per
their entitlement on production of court orders, affidavit and indemnity bond
and on payment of Rs. 1.20 lakhs being consideration amount of 60,000 shares –
Where Letter of Administration for succession was submitted by legal heirs,
insisting on affidavit and indemnity bond again and again was harassing poor
investors and therefore, penalty was imposed on company and they were directed
to register transfer of 60,000 shares to legal heirs which were due to them on
rights basis by appellant company

FACTS

The Late DNK, a deceased shareholder of ‘D
Ltd’, held 150 equity shares of Rs. 10 each of the company. The said 150 equity
shares of Rs. 10 each were subsequently converted into 6,000 equity shares of
Rs. 2 each after giving effect to split and bonus issues. DNK had expired on 27^th
August, 1987.

On 29^th December, 2005, D Ltd
came out with a Rights issue which remained open till 18^th January,
2006. The offer was available to all the existing shareholders as on 18^th
November, 2005.

The legal heirs of DNK did not approach D
Ltd for transmission / transfer of the original 150 shares (being 6,000 shares
of Rs. 2 each) held by DNK in their favour; neither did they claim to be his
legal heirs nor did they inform D Ltd about his demise for about 20 years. On
25^th May, 2007, for the first time the legal heirs informed that DNK
had expired on 27^th August, 1987. Thereafter, by their letter dated
1^st June, 2007, the legal heirs requested for transfer of 66,000
equity shares. In response to the said letter, D Ltd requested the legal heirs
to submit the requisite documents, including the succession certificate and
demand draft of Rs. 1.20 lakhs on or before 26^th September, 2007 in
order to be eligible for allotment of shares on Rights basis.

The legal heirs after the cut-off date (26^th
September, 2007) for the first time vide their letter dated 16^th
October, 2007 applied for Letter of Administration in respect of the will of
DNK and after the lapse of five years, vide their letter dated 1^st
June, 2012, enclosed the Letter of Administration granted by the District Court
(North) in respect of the Will of DNK.

On appeal, the NCLT vide its order
directed D Ltd to register the transfer and the legal heirs were directed to make payment for 60,000 shares at Rs. 2 per share to the promoters.
The legal heirs were also directed that on transfer of 60,000 shares in their name, they will execute the
transfer deed to the extent of entitlement of the legal heirs in accordance
with the terms of the Letter of Administration issued by the District judge.

The matter went in appeal before the
Appellate Tribunal.

HELD

D Ltd in its
correspondence with the legal heirs has already accepted to issue shares to the
legal heirs as per their entitlement on production of court orders, affidavit
and indemnity bond and on payment of Rs. 1.20 lakhs being the consideration
amount of 60,000 shares. During the course of arguments, D Ltd was asked why,
when the Letter of Administration had been submitted by the legal heirs, did it
insist on affidavit and indemnity bond? When the Letter of Administration has
been issued, it means that the legal heirs are discharged from their liability.
On this, D Ltd offered its apologies.

It is to be
noted that D Ltd is a listed company in real estate and is well aware of legal
formalities. By insisting on affidavit and indemnity bond again and again in
spite of the Letter of Administration, it was clear that D Ltd is harassing the
poor investors. The act of D Ltd deserves some penal action. It is also noted
that the legal heirs are entitled to 60,000 shares as per entitlement on
payment of consideration.

In view of the
foregoing discussions and observations, the following directions were issued:

The legal
heirs will make payment of consideration to D Ltd within 15 days from the date
of receipt of the order and they will be entitled to the benefit of the
membership from the date of payment.

D Ltd will
transfer / arrange for transfer of 60,000 shares to the legal heirs within 30
days from the date of receipt of payment.

A sum of Rs.
5 lakhs as costs is imposed on D Ltd to be deposited with the National Defence
Fund within 15 days from the date of the order. Proof of depositing the same
will be submitted to the Registrar of the Appellate Tribunal within a week
thereafter.

BCAJ Admin

GLIMPSES OF SUPREME COURT RULINGS

9. Cognizant Technology Solutions India Pvt. Limited vs. Deputy
Commissioner of Income Tax Civil Appeal No. 1992 of 2020 [Arising out of
Special Leave Petition (Civil) No. 23705 of 2019] Date of order: 4^th
March, 2020

Dividend – Whether payments made to the
shareholders, under purchase of shares through the scheme of ‘arrangements and
compromise’, was a dividend within the meaning of section 2(22)(d)/2(22)(a) of
the Act, requiring to remit the taxes into the government account u/s 115O –
Communication merely a notice and not an order – Matter disposed of with
directions

The assessee, who was engaged in the business of
development of computer software and related services, approached the High
Court in the Financial Year 2016-17 with a Scheme of Arrangement and Compromise
under sections 391 to 393 of the Companies Act, 1956 to buy back its shares.
The High Court sanctioned the scheme on 18^th April, 2016 in Company
Petition No. 102 of 2016, pursuant to which the assessee purchased 94,00,534
shares at a price of Rs. 20,297 per share from its four shareholders and made a
total remittance of Rs. 19,080 crores approximately. According to the
appellant, this buy-back of shares was effected in May, 2016.

Thereafter, the assessee made statutory filing
under Form 15 CA (under Rule 37BB of the Income Tax Rules, 1962) after
obtaining requisite certificate from a Chartered Accountant in Form 15CB
furnishing details of remittances made to non-residents.

The assessee received a letter from the Deputy
Commissioner of Income Tax, Large Taxpayer Unit-1, Chennai in connection with
non-payment of tax on the remittances made to the non-residents in F.Y.s
2015-16 and 2016-17.

According to the assessee, it was under the
impression that since its scheme of arrangement and compromise between the
shareholders and the company was in accordance with sections 391 to 393 of the
Companies Act and approved by the Court, the provisions of section 115-QA,
115-O or 2(22) of the Income-tax Act were not applicable to its case.

However, the Department took the view that the
payments made to the shareholders under purchase of shares through the scheme
of arrangements and compromise was a dividend within the meaning of section
2(22)(d)/2(22)(a) of the Act, requiring it to remit the taxes into the government
account u/s 115-O of the Act.

Since the assessee company had failed to remit the
taxes within the stipulated period, it was ‘deemed to be an assessee in
default’ u/s 115-Q of the Act. Therefore, it was required to remit the taxes
(calculated @ 15% of the total payments of Rs. 19,415,62,77,269 to the
shareholders and surcharge, etc. as per the Act) along with the interest
payable u/s 115-P.

The said communication dated 22^nd March,
2018 was received by the assessee on or about the 26^th of March,
2018 and soon thereafter its bank accounts were attached by the Department.

In the meantime, an application was preferred by
the assessee on 20^th March, 2018 before the Authority for Advance
Ruling (AAR) u/s 245Q seeking a ruling on the issue whether the assessee was
liable to pay tax on the buy-back of its shares u/s 115QA or section 115-O or
any other provision of the Act.

The assessee challenged the communication dated 22^ndMarch, 2018 by filing a writ petition in the High Court, submitting inter
alia that while the issue was pending before the AAR u/s 245Q, in view of
the bar provided u/s 245RR of the Act, the matter could not have been
considered. It was also submitted that the assessee was never put to notice
whether it would be liable u/s 115-O. It was further submitted that all the
while the Department was only soliciting information which the appellant had
readily furnished and at no stage was the assessee put to notice that its
liability would be determined in any manner.

The writ petition came up before a Single Judge of
the High Court on 3^rd April, 2018 when he granted an order of
interim stay of the impugned proceedings subject to the condition that the
petitioner pays 15% of the tax demanded and furnishes a bank guarantee or security
by way of fixed deposits for the remaining taxes (only) to be paid.

The Single Judge by his decision dated 25^th
June, 2019 dismissed the writ petition as not being maintainable and relegated
the assessee to avail the remedy before the Appellate Authority under the Act.
However, during the course of his decision, the Single Judge concluded that
there was no need for issuance of any notice before making a demand u/s 115-O
of the Act and the notice issued on 21^st November, 2017 calling for
details where after meetings were convened, was quite adequate. He rejected the
submission that there would be a bar in terms of section 245RR. The Single
Judge did not find any merit in the contention that the shares purchased
pursuant to the order of the Company Court could not be treated as dividend.

The assessee, being aggrieved, challenged the
aforesaid view by filing a Writ Appeal. While discussing the issues that came
up for consideration, the Division Bench observed that the Single Judge after
having found the writ petition to be not maintainable, ought not to have gone
into merits. As regards the nature of the communication dated 22^nd
March, 2018 and the maintainability of an appeal challenging the same, the
Division Bench noted the contention of the assessee that it was not known as to
whether the impugned order dated 22^nd March, 2018 was a show cause
notice or final order. The Division Bench held that though there appeared to be
some element of contradiction in the counter affidavit filed, the said order
appeared to be a final one. Besides, the further action taken indicated that
the order under challenge was a final one. If it was only a show cause notice,
then there was no need to challenge it and instead the consequential freezing
alone required to be questioned. The Division Bench also held that the further
question as to whether the order under challenge violated the principles of
natural justice or requisite procedure contemplated under the Act was a matter
for consideration before the Appellate Authority. According to the Division
Bench, the learned Single Judge had rightly observed that the appeal could be
entertained and decided on merit.

The view taken by the Division Bench of the High
Court was challenged before the Supreme Court.

On the issue whether the communication dated 22^nd
March, 2018 was in the nature of determination of the liability, the Supreme
Court heard both the parties at considerable length, at the end of which it was
agreed by the learned advocate for the Department that the communication dated
22^nd March, 2018 could be treated as a show cause notice and the
Department permitted to conclude the issue within a reasonable time, provided
the interim order passed by the Single Judge of the High Court on 3^rdApril,
2018 was continued. The course suggested by the counsel for the Department was
acceptable to the senior counsel for the assessee.

In the peculiar facts and circumstances of the
case, the Supreme Court while disposing of this Appeal, directed as under:

(a) The
communication dated 22^nd March, 2018 shall be treated as a show
cause notice calling upon the assessee to respond with regard to the aspects
adverted to in it;

(b) The
assessee shall be entitled to put in its reply and place such material, on
which it seeks to place reliance, within ten days;

(d) The
matter shall thereafter be decided on merits by the authority concerned within
two months;

(e) Pending
such consideration, as also till the period to prefer an appeal from the
decision on merits is not over, the interim order passed by the Single Judge of
the High Court on 3^rd April, 2018 and as affirmed by the Supreme
Court vide its interim order dated 14^th October, 2019, shall
continue to be in operation; and

(f) The
amount of Rs. 495,24,73,287 deposited towards payment of tax and the amount of
Rs. 2806,40,15,294 which stands deposited and invested in the form of Fixed
Deposit Receipts shall be subject to the decision to be taken by the authority
concerned on merits, or to such directions as may be issued by the Appellate
Authority.

However, the Supreme Court clarified that it had
stated the facts of the case only by way of narration of events and explaining
the chronology. It shall not be held to have dealt with the merits or demerits
of the rival contentions. The merits of the matter shall be gone into
independently by the authorities concerned without being influenced in any way
by any of the observations made by the High Court and the Supreme Court.

The Supreme Court disposed of the appeal in the
aforesaid terms.

10. Rajasthan State Electricity Board, Jaipur vs. The Dy. Commissioner
of Income Tax (Assessment) and Ors. Civil Appeal No. 8590 of 2010 Date of order: 19^th March, 2020

Additional tax – Section 143(1-A) – For invoking the provisions of
section 143(1-A) of the Act, the Revenue must prove that the assessee has
attempted to evade tax by establishing facts and circumstances from which a reasonable
inference can be drawn that the assessee has, in fact, attempted to evade tax
lawfully payable by it

The assessee, a Government Company as defined u/s
617 of the Companies Act, 1956, filed its return on 30^th December,
1991 for the A.Y. 1991-92 showing a loss amounting to Rs. (-)4,27,39,32,972.
Due to a bona fide mistake, the assessee claimed 100% depreciation of
Rs. 3,33,77,70,317 on the written down value of assets instead of 75%
depreciation. Under the un-amended section 32(2) of the Income tax Act, 1961
the assessee was entitled to claim 100% depreciation. However, after the
amendment the depreciation could only be 75%. The assessee supported the
returns with provisional revenue account, balance sheet as on 31^st
March, 1991, details of gross fixed assets, computation chart and depreciation
chart. No tax was payable on the said return by the assessee.

An intimation u/s 143(1)(a)
dated 12^th February, 1992 was issued by the A.O. disallowing 25% of
the depreciation, restricting it to 75%. Additional tax u/s 143(1-A) amounting
to Rs. 8,63,64,827 was demanded. The assessee filed an application u/s 154
dated 18^thFebruary, 1992 praying for rectification of the demand.
The assessee also filed a petition u/s 264 against the demand of additional
tax. In the petition it was stated that even after allowing only 75% of
depreciation, the income of the assessee remained in loss to the extent of Rs.
3,43,94,90,393. The assessee prayed for quashing the demand of additional tax.

The application filed u/s 154 was rejected by the
A.O. on 28^th February, 1992. The revision petition u/s 264 came to
be dismissed by the Commissioner of Income Tax by his order dated 31^st
March, 1992. Rejecting the revision petition, the Commissioner of Income Tax
held that whenever adjustment is made, additional tax has to be charged @ 20%
of the tax payable on such ‘excess amount’. The ‘excess amount’ refers to the
increase in the income and by implication the reduction in loss where even
after the addition there is negative income.

Aggrieved by the order of the Commissioner of
Income Tax, a writ petition challenging the demand of additional tax which was
reduced to an amount of Rs. 7,67,68,717 was filed by the assessee in the High
Court. The learned Single Judge vide judgment dated 19^th
January, 1993 allowed the writ petition quashing the levy of additional tax u/s
143(1-A). The Revenue was aggrieved by this judgment of the Single Judge and
filed a Special Appeal which was allowed by the Division Bench of the High
Court vide its judgment dated 13^th November, 2007 upholding
the demand of additional tax. The assessee then filed an appeal before the
Supreme Court.

After noting the relevant provisions and amendments
thereto, the Supreme Court observed that the amendments brought by the Finance
Act, 1993 with retrospective effect, i.e., from 1^st April, 1989,
were fully attracted with regard to the assessment in question (for A.Y.
1991-92). As per the substituted sub-section (1-A), where the loss declared by
an assessee has been reduced by reason of adjustments made under sub-section
(1)(a), the provisions of sub-section (1-A) would apply. The Supreme Court
noted that the Commissioner of Income Tax while rejecting the revision petition
of the petitioner had taken the view that whenever adjustment is made,
additional tax would be charged @ 20% of the tax payable on such excess amount.
The excess amount refers to the increase in the income and by implication the
reduction in loss where even after the addition there is negative income.
According to the Court, whether there should be levy of additional tax in all
circumstances and in cases where the loss is reduced, was the question to be
answered in the present case.

The Court noted that by the Taxation Laws (Amendment)
Act, 1991, a third proviso was inserted in section 32. Prior to the
insertion of this proviso, the depreciation was not restricted to 75% of
the amount calculated at the percentage on the written down value of such
assets. The return was filed by the assessee on 31^st December, 1991,
prior to which date the Taxation Laws (Amendment) Act, 1991 had come into
operation. It was due to a bona fide mistake and oversight that the
assessee claimed 100% depreciation instead of 75%. The 100% depreciation of Rs.
3,33,77,70,317 was claimed on the written down value of the assets; 25%
depreciation was, thus, disallowed, restricting it to 75% and after reducing
25% of the depreciation the loss remained to the extent of Rs.
(-)3,43,94,90,393. Even after reduction of 25% depreciation the return of loss
of the assessee remained in the negative. In claiming 100% depreciation the
assessee claimed that there was no intention to evade tax and the said claim
was only a bona fide mistake.

The Supreme Court noted that by the Finance Act,
1993 section 143(1-A) was substituted with retrospective effect from 1st April,
1989 seeking to cover cases of returned income as well as returned loss.

In Commissioner of Income Tax, Gauhati vs.
Sati Oil Udyog Limited and Anr. (2015) 7 SCC 304, the Supreme Court
noted that it had occasion to consider elaborately the provisions of section
143(1-A), its object and validity. There was a challenge to the retrospective
nature of the provisions of section 143(1-A) as introduced by the Finance Act,
1993. The Gauhati High Court had held that retrospective effect given to the
amendment would be arbitrary and unreasonable. An appeal was filed by the
Revenue in this Court in which the Supreme Court had occasion to examine the
Constitutional validity of the provisions. The Supreme Court in the above
judgment had held that the object of section 143(1-A) was the prevention of
evasion of tax. Relying on its earlier judgment in K.P. Varghese vs. ITO,
(1981) 4 SCC 173, the Court in the above case held that the provisions
of section 143(1-A) should be made to apply only to tax evaders.

The Supreme Court observed that in the above case
it upheld the Constitutional validity of section 143(1-A), subject to holding
that the section can only be invoked where it is found on facts that the lesser
amount stated in the return filed by the assessee is a result of an attempt to
evade tax lawfully by the assessee.

According to the Supreme Court, applying the ratio
of the above judgment in the present case, it needed to find out whether 100%
depreciation as mentioned in the return filed by the assessee was a result of
an attempt to evade tax lawfully payable.

The Supreme Court, from the facts, noted that even
after disallowing 25% of the depreciation, the assessee in the return remained
in loss and the 100% depreciation was claimed in the return due to a bona
fide mistake. By the Taxation Laws (Amendment) Act, 1991 the depreciation
in the case of a company was restricted to 75% which, due to oversight, was
missed by the assessee while filing the return. The Commissioner of Income Tax
by deciding the revision petition had also not made any observation to the
effect that the 100% depreciation claimed was with the intent to evade payment
of tax lawfully payable by the assessee; rather, the Commissioner in his order
dated 31^st March, 1992 had observed that whenever adjustment is
made, additional tax has to be charged @ 20% of the tax payable on such excess amount.

The Court held that it is true that while
interpreting a tax legislation the consequences and hardship are not looked
into, but the purpose and object for which taxing statutes have been enacted
cannot be lost sight of. While considering the very same provision, section
143(1-A), its object and purpose and while upholding the provision, the Court
had held that the burden of proving that the assessee has attempted to evade
tax is on the Revenue which may be discharged by the Revenue by establishing
facts and circumstances from which a reasonable inference can be drawn that the
assessee has, in fact, attempted to evade tax lawfully payable by it. In the
present case, not even a whisper that the claim of 100% depreciation by the
assessee, 25% of which was disallowed, was with the intent to evade tax. The
provisions of section 143(1-A) in the facts of the present case cannot be
mechanically applied; it had made a categorical pronouncement in Commissioner
of Income Tax, Gauhati vs. Sati Oil Udyog Limited and Anr. (Supra),
that section 143(1-A) can only be invoked when the lesser amount stated in the
return filed by the assessee is a result of an attempt to evade tax lawfully
payable by the assessee.

In view of the above, the
Supreme Court held that mechanical application of section 143(1-A) in the facts
of the present case was uncalled for. It therefore allowed the appeal and set
aside the judgment of the Division Bench of the High Court as well as the
demand of additional tax dated 12^thFebruary, 1992 as amended on 28^th
February, 1992.

11. New Delhi Television Ltd. vs. Deputy Commissioner of Income Tax Civil Appeal No. 1008 of 2020 Date of order: 3^rd April, 2020

Re-assessment – Information which comes to the notice of the A.O. during
proceedings for subsequent assessment years can definitely form tangible
material to invoke powers vested with the A.O. u/s 147 of the Act

Re-assessment – The duty of the assessee is to disclose all primary
facts before the A.O. and it is not required to give any further assistance to
the A.O. by disclosure of other facts – It is for the A.O. at this stage to
decide what inference should be drawn from the facts of the case

Re-assessment – The assessee must be put to notice of all the provisions
on which the Revenue relies – The noticee or the assessee should not be
prejudiced or be taken by surprise

New Delhi Television Limited (hereinafter referred
to as the assessee), an Indian company engaged in running television channels
of various kinds, has several foreign subsidiaries one of which is based in the
United Kingdom named NDTV Network Plc, U.K. (hereinafter referred to as NNPLC).

The assessee submitted a return for F.Y. 2007-08,
i.e. A.Y. 2008-09, on 29^th September, 2008 declaring a loss. This
return was processed u/s 143 of the Income-tax Act, 1961. The case was selected
for scrutiny and the final assessment order was passed on 3^rd
August, 2012.

NNPLC had issued step-up coupon bonds of US $100
million which were arranged by Jeffries International and the funds were
received by NNPLC through Bank of New York. These bonds were issued in July,
2007 through the Bank of New York for a period of five years. The assessee had
agreed to furnish corporate guarantee for this transaction. These bonds were
subscribed to by various entities. They were to be redeemed at a premium of
7.5% after the expiry of the period of five years. However, these bonds were
redeemed in advance at a discounted price of US $74.2 million in November,
2009.

The A.O. held that NNPLC had virtually no financial
worth, it had no business worth the name and therefore it could not be believed
that it could have issued convertible bonds of US $100 million unless the
repayment along with interest was secured. This was secured only because of the
assessee agreeing to furnish a guarantee in this regard. Though the assessee
had never actually issued such guarantee, the A.O. was of the view that the
subsidiary of the assessee could not have raised such a huge amount without
having this assurance from the assessee. The transaction was of such a nature
that the assessee should be required to maintain an arm’s length from its
subsidiary, meaning that it should be treated like a guarantee issued by any
corporate guarantor in favour of some other corporate entity. The A.O. did not
doubt the validity of the transaction but imposed guarantee fee @ 4.68% by
treating it as a business transaction and added Rs. 18.72 crores to the income
of the assessee.

On 31^st March, 2015, the Revenue sent a
notice to the assessee stating that the authority has reason to believe that
net income chargeable to tax for the A.Y. 2008-09 had escaped assessment within
the meaning of section 148 of the Act. This notice did not give any reasons.
The assessee then asked for reasons and thereafter on 4^thAugust,
2015 the reasons were provided. The main reason given was that in the following
assessment year, i.e. A.Y. 2009-10, the A.O. had proposed a substantial
addition of Rs. 642 crores to the account of the assessee on account of monies
raised by it through its subsidiaries NDTV BV, The Netherlands, NDTV Networks
BV, The Netherlands (NNBV), NDTV Networks International Holdings BV, The
Netherlands (NNIH) and NNPLC.

The assessee had raised its
objection before the Dispute Resolution Panel (DRP) which came to the
conclusion that all these transactions with the subsidiary companies in the
Netherlands were sham and bogus transactions and that these transactions were
done with a view to get the undisclosed income, for which tax had not been
paid, back to India by this circuitous round-tripping. The A.O. relied upon the
order of the DRP holding that there is reason to believe that the funds
received by NNPLC were actually the funds of the assessee. It was specified
that NNPLC had a capital of only Rs. 40 lakhs. It did not have any business
activities in the United Kingdom except a postal address. Therefore, it
appeared to the A.O. that it was unnatural for anyone to make such a huge
investment of $100 million in a virtually non-functioning company and
thereafter get back only 72% of their original investment. According to the
A.O., ‘The natural inference could be that it was NDTV’s own funds introduced
in NNPLC in the garb of the impugned bonds.’ The details of the investors were
given in this communication giving reasons. Mention had also been made of
complaints received from a minority shareholder in which it is alleged that the
money introduced in NNPLC was shifted to another subsidiary of the assessee in
Mauritius from where it was taken to a subsidiary of the assessee in Mumbai and
finally to the assessee. NNPLC itself was placed under liquidation on 28^th
March, 2011.

Therefore, the A.O. was of the opinion that there
were reasons to believe that the funds received by NNPLC were the funds of the
assessee under a sham transaction and that the amount of Rs. 405.09 crores
introduced into the books of NNPLC during F.Y. 2007-08 corresponding to A.Y.
2008-09 through the transaction involving the step-up coupon convertible bonds,
pertained to the assessee.

The assessee filed a reply to the notice and the
reasons given, and claimed that there had been no failure on its part to
disclose fully and truly all material facts necessary to make an assessment. The
assessee also claimed that the proceedings had been initiated on a mere change
of opinion and there was no reason to believe it. According to the assessee the
A.O. had accepted the genuineness of the transaction wherein NNPLC, the
subsidiary, had issued convertible bonds which had been subscribed by many
entities. It was urged that the A.O. had treated the transaction to be genuine
by levying guarantee fees and adding it back to the income of the assessee. In
the alternative, it was submitted that the notice had been issued beyond the
period of limitation of four years. According to the assessee it had not
withheld any material facts and, therefore, limitation of six years as
applicable to the first proviso to section 147 would not apply.

The A.O. did not accept these objections. The claim
of the assessee was disposed of by the A.O. vide order dated 23^rd
November, 2015 wherein he held that there was non-disclosure of material facts
by the assessee and the notice would be within limitation since NNPLC was a
foreign entity and admittedly a subsidiary of the assessee and the income was
being derived through this foreign entity. Hence, the case of the assessee
would fall within the second proviso of section 147 of the Act and the
extended period of 16 years would be applicable. The objections were
accordingly rejected.

Aggrieved, the petitioner filed a writ petition in
the High Court challenging the notice. The writ petition was dismissed on 10^th
August, 2017. Against this the assessee filed an appeal before the Supreme
Court.

According to the Supreme Court, the following
issues arose for its consideration:

(i) Whether
in the facts and circumstances of the case, it can be said that the Revenue had
a valid reason to believe that undisclosed income had escaped assessment?

(ii) Whether
the assessee did not disclose fully and truly all material facts during the
course of original assessment which led to the finalisation of the assessment
order and undisclosed income escaping detection?

(iii) Whether
the notice dated 31^st March, 2015 along with reasons communicated on
4^th August, 2015 could be termed to be a notice invoking the
provisions of the second proviso to section 147 of the Act?

Question No. 1

After consideration, the Supreme Court observed
that the main issue was whether there was sufficient material before the A.O.
to take a prima facie view that income of the assessee had escaped
assessment. It noted that the original order of assessment was passed on 3^rd
August, 2012. It was thereafter, on 31^st December, 2013, that the
DRP in the case of A.Y. 2009-10 raised doubts with regard to the corporate
structure of the assessee and its subsidiaries. It was noted in the order of
the DRP that certain shares of NNPLC had been acquired by Universal Studios
International B.V., Netherlands, indirectly by subscribing to the shares of
NNIH.

It was recorded in the reasons communicated on 4^thAugust, 2015 that NNPLC had no business activity in London. It had no
fixed assets and was not even paying rent. Other than the fact that NNPLC was
incorporated in the U.K., it had no other commercial business there. NNPLC had
declared a loss of Rs. 8.34 crores for the relevant year. It was also noticed
from the order of the A.O. that the assessee is the parent company of NNPLC and
it is the dictates of the assessee which were important for running NNPLC.
According to the Revenue, tax evasion petitions were filed by the minority
shareholders of the assessee company on various dates, i.e., 11^th
March, 2014, 25^thJuly, 2014, 13^th October, 2014 and 11^th
March, 2015, which complaints described in detail the communication between the
assessee and the subsidiaries and also allegedly showed evidence of
round-tripping of the assessee’s undisclosed income through a layer of
subsidiaries which led to the issuance of the notice in question.

According to the Supreme Court, the question as to
whether the facts which came to the knowledge of the A.O. after the assessment
proceedings for the relevant year were completed could be taken into
consideration for coming to the conclusion that there were reasons to believe
that income had escaped assessment, is the question that requires to be
answered. The Supreme Court, referring to its judgments in Claggett
Brachi Co. Ltd., London vs. Commissioner of Income Tax, Andhra Pradesh 1989
Supp (2) SCC 182; M/s Phool Chand Bajrang Lal and Anr. vs. Income Tax Officer
and Anr. (1993) 4 SCC 77; and Ess Kay Engineering Co. (P) Ltd.
vs. Commissioner of Income Tax, Amritsar (2001) 10 SCC 189, observed
that a perusal of the aforesaid judgments clearly showed that subsequent facts
which come to the knowledge of the A.O. can be taken into account to decide
whether the assessment proceedings should be re-opened or not.

Information which comes to the notice of the A.O.
during proceedings for subsequent assessment years can definitely form tangible
material to invoke powers vested with the A.O. u/s 147 of the Act. The material
disclosed in the assessment proceedings for the subsequent years as well as the
material placed on record by the minority shareholders form the basis for
taking action u/s 147. At the stage of issuance of notice, the A.O. is to only
form a prima facie view. In the opinion of the Supreme Court, the material
disclosed in the assessment proceedings for subsequent years was sufficient to
form such a view and it accordingly held that there were reasons to believe
that income had escaped assessment in this case. Question No. 1 was answered
accordingly.

Question No. 2

Coming to the second question, whether there was
failure on the part of the assessee to make a full and true disclosure of all
the relevant facts, the Supreme Court noted that the Revenue had placed
reliance on certain complaints made by the minority shareholders and it was
alleged that those complaints revealed that the assessee was indulging in
round-tripping of its funds. According to the Revenue the material disclosed in
these complaints clearly showed that the assessee was guilty of creating a
network of shell companies with a view to transfer its un-taxed income in India
to entities abroad and then bring it back to India, thereby avoiding taxation.
The Supreme Court did not go into this aspect of the matter because those
complaints were neither before the High Court nor before it and, therefore, it
would be unfair to the assessee if it relied upon such material which the
assessee was not confronted with.

According to the Supreme Court, the issue before it
was whether the Revenue could take the benefit of the extended period of
limitation of six years for initiating proceedings under the first proviso
of section 147. This could only be done if the Revenue could show that the
assessee had failed to disclose fully and truly all material facts necessary
for its assessment. In the opinion of the Supreme Court, the assessee had
disclosed all the facts it was bound to disclose. If the Revenue wanted to
investigate the matter further at that stage, it could have easily directed the
assessee to furnish more facts.

The Supreme Court held that the conclusion of the
High Court that there was no ‘true and fair disclosure’ was not correct. The
assessee had made a disclosure about having agreed to stand guarantee for the
transaction by NNPLC and it had also disclosed the factum of the
issuance of convertible bonds and their redemption. The Supreme Court noted
that the A.O. knew who were the entities who had subscribed to the convertible
bonds and in other proceedings relating to the subsidiaries the same A.O. had
knowledge of the addresses and the consideration paid by each of the
bondholders as was apparent from the assessment orders dated 3^rd
August, 2012 passed in the cases of M/s NDTV Labs Ltd. and M/s NDTV Lifestyle
Ltd. Therefore, in the opinion of the Supreme Court, there was full and true
disclosure of all material facts necessary for its assessment by the assessee.

The Supreme Court noted that the fact that step-up
coupon bonds for US $100 million were issued by NNPLC was disclosed; who were
the entities which subscribed to the bonds was disclosed; and the fact that the
bonds were discounted at a lower rate was also disclosed before the assessment
was finalised. According to the Court, this transaction was accepted by the
A.O. and it was clearly held that the assessee was only liable to receive a
guarantee fees on the same which was added to its income. Without stating
anything further on the merits of the transaction, the Supreme Court was of the
view that it could not be said that the assessee had withheld any material
information from the Revenue.

As regards the contention
of the Revenue that the assessee, to avoid detection of the actual source of
funds of its subsidiaries, did not disclose the details of the subsidiaries in
its final accounts, balance sheets and profit and loss account for the relevant
period as was mandatory under the provisions of the Indian Companies Act, 1956,
the Supreme Court noted that the assessee had obtained an exemption from the
competent authority under the Companies Act, 1956 from providing such details
in its final accounts, balance sheets, etc. The assessee was therefore not
bound to disclose this to the A.O. The A.O., before finalising the assessment
of 3^rdAugust, 2012, had never asked the assessee to furnish the
details.

Regarding the contention of the Revenue that the
assessee did not disclose who had subscribed what amount and what was its
relationship with the assessee, the Supreme Court observed that the first part
did not appear to be correct. It noted that there was material on record to
show that on 8^th April, 2011 NNPLC had sent a communication to the
Deputy Director of Income Tax (Investigation), wherein it had not only
disclosed the names of all the bond holders but also their addresses and number
of bonds along with the total consideration received. This chart formed part of
the assessment orders dated 3^rd August, 2012 in the case of M/s NDTV
Labs Ltd. and M/s NDTV Lifestyle Ltd. The said two assessment orders were
passed by the same officer who had passed the assessment order in the case of
the assessee on the same date itself. Therefore, the entire material was
available with the Revenue.

The Supreme Court was of the view that the assessee
had disclosed all the primary facts necessary for the assessment of its case to
the A.O. What the Revenue was urging before it was that the assessee did not
make a full and true disclosure of certain other facts. According to the Court,
the assessee had disclosed all primary facts before the A.O. and it was not
required to give him any further assistance by disclosure of other facts. It
was for the A.O. at this stage to decide what inference should be drawn from
the facts of the case. In the present case, the A.O., on the basis of the facts
disclosed to him, did not doubt the genuineness of the transaction set up by
the assessee. This the A.O. could have done even at that stage on the basis of
the facts which he already knew. The other facts relied upon by the Revenue
were the proceedings before the DRP and facts subsequent to the assessment
order, and which the Supreme Court had already dealt with while deciding
Question No. 1. However, according to the Supreme Court, that cannot lead to
the conclusion that there is non-disclosure of true and material facts by the
assessee.

The Court noted that whereas before it the Revenue
was strenuously urging that the assessee is guilty of non-disclosure of
material facts, but before the High Court the case of the Revenue was just the
opposite. The Revenue, in response to the writ petition filed by the assessee
before the High Court, had contended that the condition that the income should
have escaped assessment due to failure on the part of the assessee to disclose
fully and truly all material facts necessary for making assessment, was not
relevant to decide the issue before the Hon’ble Court. According to the Supreme
Court, the Revenue could not now turn around and urge that the assessee is
guilty of non-disclosure of facts.

The Supreme Court held that the assessee had fully
and truly disclosed all material facts necessary for its assessment and,
therefore, the Revenue could not take benefit of the extended period of
limitation of six years. Question No. 2 was answered accordingly.

Question No. 3

It was urged by the Revenue that in terms of the
second proviso to section 147 of the Act read with section 149(1)(c),
the limitation period would be 16 years since the assessee had derived income
from a foreign entity.

The Supreme Court noted that the notice dated 31^st
March, 2015 was conspicuously silent with regard to the second proviso.
It did not rely upon the second proviso. Besides,, there was no case set
up in relation to the second proviso either in the notice or even in the
reasons supplied on 4^th August, 2015 with regard to the notice. It
was only while rejecting the objections of the assessee that reference had been
made to the second proviso in the order of disposal of objections dated
23^rd
November, 2015.

On behalf of the Revenue it was urged that mere
non-naming of the second proviso in the notice does not help the
assessee. It had been urged that even if the source of power to issue notice
has been wrongly mentioned but all relevant facts were mentioned, then the
notice could be said to be a notice under the provision which empowers the
Revenue to issue such notice.

The Supreme Court observed that there could be no
quarrel with this proposition of law. However, according to it, the noticee or
the assessee should not be prejudiced or be taken by surprise. The
uncontroverted fact was that in the notice dated 31^st March, 2015
there was no mention of any foreign entity. Even after the assessee
specifically asked for reasons, the Revenue only relied upon facts to show that
there was reason to believe that income has escaped assessment and this
escapement was due to the non-disclosure of material facts. There was nothing
in the reasons to indicate that the Revenue was intending to apply the extended
period of 16 years. It was only after the assessee filed its reply to the
reasons given that in the order of rejection for the first time was reference
made to the second proviso by the Revenue.

According to the Supreme
Court this was not a fair or proper procedure. If not in the first notice, at
least at the time of furnishing the reasons the assessee should have been
informed that the Revenue relied upon the second proviso. The assessee
must be put to notice of all the provisions on which the Revenue relies. In
case the Revenue had issued a notice to the assessee stating that it relied
upon the second proviso, the assessee would have had a chance to show
that it was not deriving any income from any foreign asset or financial interest
in any foreign entity, or that the asset did not belong to it or any other
ground which may be available. The assessee could not be deprived of this
chance while replying to the notice.

The Court held that the Revenue cannot take a fresh
ground. The notice and reasons given thereafter do not conform to the
principles of natural justice and the assessee did not get a proper and
adequate opportunity to reply to the allegations which were now being relied
upon by the Revenue. The assessee could not be taken by surprise at the stage
of rejection of its objections or at the stage of proceedings before the High
Court that the notice is to be treated as a notice invoking provisions of the
second proviso of section 147 of the Act.

Accordingly, the Supreme Court answered the third
question by holding that the notice issued to the assessee and the supporting
reasons did not invoke provisions of the second proviso of section 147
and therefore the Revenue could not be permitted to take benefit of the second proviso.

The Supreme
Court allowed the appeal by holding that the notice issued to the assessee
showed sufficient reasons to believe on the part of the A.O. to reopen the
assessment but since the Revenue had failed to show non-disclosure of facts,
the notice having been issued after a period of four years was required to be
quashed. Having held so, it was made clear that it had not expressed any
opinion on whether on the facts of this case the Revenue could take benefit of
the second proviso or not. Therefore, the Revenue may issue fresh notice
taking benefit of the second proviso if otherwise permissible under law.
It was clarified that both the parties shall be at liberty to raise all
contentions with regard to the validity of such notice.

BCAJ Admin

STATISTICALLY SPEAKING

1. Cities where libraries are
thriving

Source:
World Cities Culture Forum

2. Countries with biggest decrease of carbon emission (in million
tonnes – 2015 compared with 2000)

Source: US Energy
Information Administration

3. Indian APA report for 2018-19

Source: CBDT’s third APA
Annual Report (2018-19)

4. Changing trend in boards of
companies

Source: nseinfobase.com

5. Increase in resignations of
independent directors

Source: nseinfobase.com

BCAJ Admin

SOCIETY NEWS

TAXATION ON MUTUALITY PRE- AND POST-GST

In the light of the
Hon’ble Supreme Court’s decision in the case of ‘State of West Bengal vs.
Calcutta Club Ltd. and others’, the Indirect Tax Committee organised a lecture
meeting on ‘Taxation on Mutuality – Pre- and Post-GST’ at the BCAS Conference
Hall on Wednesday, 6^th November, 2019. In the bespoke case the Court
decided upon applicability of mutuality in VAT and Service Tax laws in the
light of Article 366(29-A)(e) and the ratio of the Young Men’s
Indian Association case (considering its applicability after the 46^th
Amendment).

Advocate
Vipin Jain delivers an outstanding talk on ‘Taxation on Mutuality – Pre
and Post GST’ His talk was very well received by full house of
participants.

Advocate Vipin
Jain was the principal speaker who explained the judgment in detail,
covering all significant aspects and threw light on how the Court has
interpreted the provisions under VAT and Service Tax laws at different times.
He also highlighted other landmark decisions of the Apex Court on the issue of
mutuality and English cases in which various aspects of mutuality have time and
again been tested.

In a session that
continued over 100 minutes, the learned speaker also gave his views on how the
said decision will impact the transactions of mutual association in the GST
regime and what would be the fate of taxes already paid by mutual organisations
in the pre-GST regime.

The meeting was
extremely interactive and attracted a full house with more than 100
participants attending in person and over 40 online viewers following the
lecture through a live audio / video stream.

INTENSIVE STUDY
GROUP ON GST

The Intensive Study
Group’s third batch meeting on ‘Goods and Services Tax – Clause by Clause Study
and Analysis of the GST Act’ was organised from 8^th November to 7^th
December, 2019 at the BCAS Conference Hall.

After the
enthusiastic response to the previous batches, it was decided to further extend
the study for even more participants. Batch-III was planned over eight sessions
of four hours each on Fridays and Saturdays. This was motivated by the
appreciation received for the first two sessions wherein section-wise study of
the GST Act was organised. There was in-depth study of all the sections and the
sessions were found to be very interactive by the participants. Each session
was held under the guidance of a mentor who had studied the law in great detail
and had a great deal of expertise on the subject. The discussions were led by a
group leader from amongst the participants.

Participation in
the event was by invitation and each session was attended by more than 20
participants who appreciated this initiative of the Bombay Chartered
Accountants’ Society. Most of the members shared their practical experience
which was found to be of tremendous benefit by those attending the sessions.

INTERNATIONAL
ECONOMICS STUDY GROUP

The International
Economics Study Group organised a meeting on 12^th December, 2019 to
discuss ‘Industrial Automation (Industry 4.0) and its Macroeconomic Impact’.

Mr. Kartik Shah, a young technocrat working in the Silicon Valley in the area of
industrial automation, led the discussion and presented his thoughts on the
subject. He dwelt on issues such as, ‘What is Industrial Automation and
Industry 4.0? What is its impact on companies? What is its overall impact on
the economy?’ He pointed out that Industry 4.0 represented cyber physical
systems, the Internet of Things (IoT) and Networks. GDP had spiked
post-Industry 3.0.

He presented case studies of the latest trends in technology that make Industrial Automation a reality and the maturity level of
various technologies, the Internet of Things (Low), Cloud Computing (High),
Artificial Intelligence (Medium) and Robotics (Low to Medium).
The microeconomic impact would be cost savings, improvement in labour
productivity, achieving safety, security and compliances and carbon savings.

Mr. Shah pointed out that automation impacts low-wage and low-skill labour
much more than anything else and differs from sector to sector. While the USA,
Germany and Japan would note a significant adverse impact on jobs, it would
have a low to medium adverse impact on China (also facing an ageing population)
and low on India. India could make significant progress in the area of
construction and infrastructure with the use of automation.

In short,
automation is a necessary evil but will boost global productivity and lead to
rise in GDP.

The key takeaway
was that Industrial Automation was no longer just hype – it was reality.
Companies could see the impact of automation and had begun investing in it, but
the adoption rate was slower than expected. Jobs would be impacted by
automation but there were other factors at play that would offset the impact of
automation.

SEMINAR ON ESTATE / SUCCESSION PLANNING

A full-day seminar
on ‘Estate Planning, Wills and Family Arrangement / Settlement – Critical
Aspects’ was organised at the BCAS Hall on 13^th December,
2019. It was organised with the aim of emphasising the importance of estate /
succession planning and to create awareness about some of the critical aspects
thereof.

The seminar
received tremendous response with more than 150 participants of all
generations, members and non-members and also outstation participants from 14
cities across India.

BCAS
Vice- President Suhas Paranjpe presents a memento to Ashok Shah, who
presented several case studies on estate planning and so on.

Suhas Paranjpe, BCAS Vice-President, welcomed the gathering and made the
opening remarks. Chetan Shah, Chairman of the Corporate and Allied Laws
Committee, introduced the subject.

Ashok Shah inter alia highlighted the emerging need and the parameters
for Estate Planning and Family Settlement / Family Arrangements (through trusts
/ companies). The case studies that he presented made various structuring
options easier to understand. He also touched upon the role of a CA in a family
office. The session was chaired by Suhas Paranjpe.

Dr.Anup
Shah, a key speaker at the seminar provides members with insights into
various succession laws in the country, with special focus on intestate
law and domicile.

In the second
session, Dr. Anup Shah provided the members with ‘Insights of Succession
Law’ such as the Hindu Succession Law and the Indian Succession Law, with focus
on Intestate Law and Domicile. He also touched upon the relevant provisions of
the Special Marriage Act, the Adoption and Guardianship Act, the Maintenance
and Welfare of Parents Act and the Senior Citizens Act. This session was
chaired by Past President Raman Jokhakar.

Gautam Doshi gives his expert opinion at the seminar on Estate and Succession Planning.

In the next session, Gautam Doshi dealt with Taxation and FEMA
issues in Family Partitions and Succession Planning comprising of inheritance
tax, trust taxation, family arrangement taxation, FEMA and other issues. The session was chaired by Past President Ameet Patel.

Dr.
Rashmi Oza, well- known advocate, threw light on the key nuances of
drafting of wills and also on stamp duty, registration and documentation
aspects.

In the last
technical session, Advocate Dr. Rashmi Oza enlightened the participants
with the nuances of drafting of wills as well as stamp duty, registration and
documentation aspects. This session was chaired by Chetan Shah, Chairman
of the Corporate and Allied Laws Committee.

The seminar
concluded with a joint question-and-answer session featuring Dr. Anup Shah
and Dr. Rashmi Oza and moderated by Chetan Shah and Gautam Shah.
Thanks to their expert knowledge and rich practical experience, they addressed
all the queries posed to them.

TRAINING SESSION FOR
CA ARTICLE STUDENTS

The Students’ Forum
under the auspices of the HRD Committee organised a training session for CA
article students on ‘Significant Changes in GST in Last One Year’ and ‘Recent
Changes in Form GSTR9 and 9C’ on 14^th December, 2019 in the BCAS
Conference Hall.

Interestingly, the
session was broadly divided into two parts: Changes in GSTR9 and 9C; and
Significant Changes in GST in the Last One Year. Student speaker Mr. Sachin
Mittal and Jigar Shah were in charge of the sessions.

Anand Kothari, Convener of the HRD Committee, spoke about the various activities
conducted by the BCAS Students’ Forum, while Dnyanesh Patade,
Student Co-ordinator, introduced the speakers for the respective sessions.

The GST law is
still in the process of stabilising and the GST Council has issued various
notifications, circulars and amendment acts.

Mr. Sachin
Mittal, the student speaker, started off with
statistics of the number of notifications, circulars and orders issued. He
covered significant changes such as notifications, amendments, circulars and so
on, exhibiting his meticulous study. He also highlighted the various issues /
complexities involved. A clause-by-clause analysis of the changes in GSTR9 and
9C was done by him. And he gave useful tips to the article students on various
clauses of GSTR9 and 9C.

The mentor for the
session, Jigar Shah, presented a Certificate of Appreciation to Mr.
Sachin Mittal and applauded his outstanding presentation.

Anand Kothari, the Convener of the HRD Committee, proposed the vote of thanks.
More than 40 students participated in the interactive session and their
feedback was very positive.

FEMA STUDY CIRCLE
MEETING

The FEMA Study
Circle meeting was held on Monday, 16^th December, 2019 at the BCAS
Conference Hall.

The speaker on the
occasion, Ms Niki Shah, highlighted the differences between the old FDI
Regulations and the new Non-Debt Rules, viz. placement of various schedules in
the new regulations, classification of different types of instruments and the
various schedules.

Following her presentation, the discussion continued on the same
interesting tract as the other participants discussed and debated various
issues based on their personal experiences. This also brought to the fore the
changes made and those that needed further clarification from the authorities
concerned. In short, it set the stage for other professionals to advise their
clients going forward.

CASE STUDY ON THE TAKEOVER OF ABN AMRO

A lecture meeting
on the above subject was organised on 23^rdDecember, 2019 at the BCAS
Conference Hall. It was addressed by Mr. Prakash Advani, who was part of
the team which dealt with the takeover of ABN AMRO.

Prakash
Advani, who was part of the team experts that dealt with the team of
experts that dealt with the battle for the takeover of ABN AMRO, giving a
master class on Mergers and Acquisitions (M&A).

He shared insights
about the largest takeover deal in the financial sector till date. The takeover
battle had begun just before the financial meltdown of 2007-08. The reasons for
the initiation of the takeover by a consortium of three banks, Fortis, RBS and
Santander, was the announcement of the merger of ABN AMRO with Barclays to
create a European leader in retail and commercial banking. The consortium
brought on the table an offer worth Euro 71.1 bn.

There was a counter
bid by Barclays with other international financial players roped in to have a
pie of the lucrative deal. Barclays received the financial muscle to raise its
bid through investment in it by China Development Bank (CDB), Temasek, Qatar
and Abu Dhabi. Their bid, though an improved one, was still substantially short
on the cash component in the overall deal.

The consortium
sweetened its deal further by increasing the cash component in the overall deal
to 93%, though it offered the same price as was offered in its initial bid,
that is, Euro 71.1 bn. This provided greater certainty of the value than
Barclays’s proposed offer.

The events which
unfolded after the takeover, which was highly leveraged and in the times of
financial meltdown, has key learnings for the financial sector.

Due to high leverage,
the operations at RBS, Fortis and Santander were affected seriously. The
governments in the UK, the Netherlands and Belgium had to step in to bail out
the operations of RBS and Fortis. Santander had some strategic standalone
operations in LATAM and Italy which assisted it in integrating parts of the
operations acquired through the ABN AMRO deal and swapping some of its business
with GE Money.

As per Mr.
Prakash Advani, the key learnings for M&A professionals are as follows:

There is never a merger of
equals.

Revenue synergies never
exist, though this may be highlighted as a great rationale for the merger /
acquisition.

Buying a perpetual
instrument (equity) by raising debt is an avoidable sin.

Never love the assets and
try to offload the risks.

Winning is about losing
less.

We always remember what
happened but do not remember what could have happened.

He also provided an
acquirer’s and seller’s perspective during the M&A.

From the
perspective of an acquirer, the following points should be kept in mind:

There should be thorough
due diligence, understanding of the culture and motivations of the sell side.

A valuation model is a
tool and not the gospel truth.

Structuring purchase price
payment and acquisition funding (tenor long vs. short) is important.

Understand the incentive
structure to selling company key executives and its value exclusivity.

Fee structure to the
advisers and investment bankers.

From the
perspective of a seller / target, the following points should be kept in mind:

Thorough preparation –
preparation is 90% success.

A highly motivated team
with full alignment of goals and incentives.

Test the appetite
informally pre-launch. Once sale launched, go all out to close. A deal that
launches but doesn’t close gets tainted.

Disclose more; the more
one discloses the lesser is the chance of a call on warranties.

Exit clauses / guarantees
to minority investors.

Mr. Prakash
Advani also briefly touched upon the Indian
diaspora in M&A and provided insights into the major cause of the NBFC
crisis which, in his opinion, is more of an asset-liability mismatch and not
the intent of the management to defraud the investors. He opined that the
Indian NBFC sector is highly geared and has a lot of dependency on wholesale funding
which, again, is short-term in nature and the activities of lending carried out
by them is for the medium to long term which creates pressure in repayment of
the borrowed funds.

He gave thorough insights into the art of deal-making and the 80 odd participants
received several valuable inputs in the course of the exemplary exposition presented by him.

DIRECT TAX
LAWS STUDY CIRCLE MEETING

The Direct Tax Laws
Study Circle meeting was held on 24^th December, 2019 at the BCAS
Conference Hall.

The Chairman of the
Study Circle Devendra Jain, and the Group Leader Dipan Agte
anchored the meeting.

Dipan Agte covered the four major issues mentioned below:

(i) Withholding tax and prosecution: wherein the
new prosecution guidelines were discussed. Various judgements in this regard
were taken up and practical implementation by the tax officers was discussed.

(ii) Disallowance u/s 14A: A brief background of
the provision and related rule was debated. Various issues arising from section
14A such as investment in subsidiaries, investments held as stock-in-trade,
etc. were taken up, including references to applicable case laws.

(iii) Depreciation on goodwill: Judgements relating
to depreciation on goodwill on amalgamation and depreciation of goodwill on
acquisition saw detailed discussions.

(iv) Deemed dividend: A practical
illustration to understand the applicability of provisions relating to deemed
dividend in various scenarios was discussed. Further, three recent judgements
on deemed dividend and the distinguishing facts in each case were taken up in
depth.

Chairman Devendra Jain, on the other hand, gave practical insights
on various issues and their impact. Both the Chairman and the Group Leader took questions from the
participants throughout the highly interactive session.

The session concluded with a vote of
thanks.

BCAJ Admin

GOODS AND SERVICES TAX (GST)

29. [2019 108 taxmann.com 330 (Chen.-CESTAT)] M/s Global Analytics India (P) Ltd. vs. CGST &
C.Ex., Chen.) Date of order: 22^nd July, 2019

When the exporter of services files a refund claim for service tax and
KKC paid on input services under Rule 5 of CENVAT Credit Rules, but instead of
reserving the said credit by debiting CENVAT Credit ledger, carries forward the
credit in TRAN01, the subsequent reversal of the said credit in GST regime can
be taken as a sufficient compliance of debit to CENVAT credit account for the
purpose of grant of refund

FACTS

The assessee, an exporter of services under Rule 6A of the Service Tax
Rules, made applications for refund of Service Tax and Krishi Kalyan Cess paid
on input services under Rule 5 of CENVAT Credit Rules and also under Notification
No. 27/2012-C.E.(N.T.) dated 18^thJune, 2012. However, the
Adjudicating Authority, after considering the explanation of the appellant,
rejected the refund claims inter alia on the grounds that the assessee
had not fulfilled the primary condition of debiting equal amount of CENVAT
Credit under Rule 5 ibid at the time of filing refund claim and that
since the appellant had carried forward in TRAN-1 under GST, refund need not be
granted as per section 142(3) of the CGST Act, 2017.

HELD

The Hon’ble Tribunal observed that it is an undisputed fact that the
appellant did not reverse an equal amount as required by the condition in
paragraph 2(h) of Notification No. 27/2012 (Supra). But the fact
remains that there was no provision in the ACES system to debit the value of
refund and the entire credit carried forward in TRAN-1 was reversed by the
appellant voluntarily in its GSTR3B filed for the month of April, 2018.

In view thereof, it was held that the assessee made sufficient
compliance with the condition in paragraph 2(h) since post-GST it would become
an impossible task for an assessee when the filing of ST-3 returns itself was
done away with. The Tribunal also relied upon the Board Circular No.
58/32/2018-GST for granting relief to the assessee.

30. 2019 112 taxmann.com 370 (Guj.)] Synergy Fertichem (P) Ltd. vs. State of Gujarat Date of order: 23^rd December, 2019

High Court explained the principles for the purpose of invocation of
powers granted to the authorities under sections 129 and 130 of the CGST Act

FACTS

The petitioner imported a consignment of ceramic pigment ink and cleared
the same from the customs by filing a bill of entry and payment of applicable
customs duty and IGST. Considering the perishable nature of the goods (such ink
is required to be preserved at a certain temperature), the C&F agent
initiated transport of the ceramic ink to the warehouse of the petitioners in
Vadodara without even waiting for the e-way bill in respect of the goods. This
was resorted to considering the fact that the proof of payment of GST on the
transaction itself was accompanying the goods in the form of a bill of entry
for home consumption. The transporter duly prepared the transport receipt in
respect of the vehicle for transport of goods from the airport to the warehouse
of the petitioners.

But the truck with the goods was stopped for verification by the
Department and detained on the ground of absence of e-way bill in respect of
the goods. The petitioner subsequently generated the e-way bill and also
explained its case to the officer. The authorities, however, refused to release
the goods on the ground of the absence of an e-way bill. The authorities, in
addition to tax, also insisted on 100% penalty u/s 129 of the GST Act and also
a fine in lieu of confiscation equal to the value of the goods u/s 130
of the GST Act. Hence the petition.

HELD

The High Court held that sections 129 and 130 of the Act are mutually
exclusive and independent of each other. Referring to the plethora of decisions
on the interpretation and construction of the non-obstante clause, the
Court held that two provisions in the same Act, each containing a non-obstante
clause, requires a harmonious interpretation of the two seemingly conflicting
provisions in the same Act after giving proper consideration of giving effect
to the object and purpose of the two provisions and the language employed in
each. Section 129 deals with detention, seizure and release of goods and
conveyances in transit, whereas section 130 talks about the confiscation of
goods or conveyances and levy of tax, penalty and fine thereon. The Court held
that section 130 of the Act can be invoked even in cases where the amount of
tax and penalty is paid in terms of the provisions of section 129 of the Act.
This would be provided the case falls in any of the five eventualities
prescribed in section 130(1) of the Act.

The question whether the movement of the consignment without valid e-way
bills constitutes a substantive error or a mere technical breach is to be
considered by the AO keeping in mind the provisions of sections 122, 125 and
126 of the Act, as well as all relevant Instructions and Circulars issued by
the Board.

The High Court specifically observed that this litigation is nothing but
an outburst on the part of the dealers that practically in all cases of
detention and seizure of goods and conveyance, the authorities would
straightway invoke section 130 of the Act and would thereby issue notice
calling upon the owner of the goods or the owner of the conveyance to show
cause as to why the goods or the conveyance, as the case may be, should not be
confiscated. The High Court held that without any justifiable grounds or
reasons to believe, the authorities may not be justified in issuing a notice of
confiscation u/s 130 of the Act. For the purpose of issuing the said notice at
the threshold, i.e., at the stage of Section 129 of the Act itself, the case
has to be of such a nature that on the face of the entire transaction, the
authority concerned is convinced that the contravention was with the definite
intent to evade payment of tax.

Further, the Court held that section 130 of the Act is an independent
provision for confiscation in cases where it is found that the intention was to
evade payment of tax. Confiscation of goods or vehicle is almost penal in
character. In other words, it is an aggravated form of action and the object of
such aggravated form of action is to deter the dealers from evading tax and
that all cases of contravention of the provisions of the Act or the Rules, by
itself, may not attract the consequences of such goods or the conveyance being
confiscated u/s 130 of the Act. The High Court, therefore, clarified that for
the purpose of invoking section 130 at the very threshold, the authorities need
to make out a very strong case. Merely on suspicion, the authorities may not be
justified in invoking section 130 of the Act straightway.

The High Court held that if the authorities are of the view that the
case is one of invoking section 130 at the very threshold, then they need to
record their reasons for such belief in writing and such reasons should,
thereafter, be looked into by the superior authority so that the superior authority
can take an appropriate decision whether the case is one of straightway
invoking section 130 of the Act. In short, the notice for the purpose of
confiscation must be based on the materials and the action must be held in good
faith and should not be a mere pretence. The Court also held that sections 129
and 130 have non-obstante clauses, whereby they can be operated upon in
spite of sections 73 and 74 of the Act.

Further, the Court clarified that where the driver of the vehicle is in
a position to produce all the relevant documents to the satisfaction of the
authority concerned as regards payment of tax, etc. and the authenticity of the
delivery challan is also not doubted, but unfortunately he is not able
to produce the e-way bill – in such a situation it would be too much for the
authorities to straightway jump to the conclusion that the case is one of
confiscation, i.e. the case is of intent to evade payment of tax. The court
also clarified that where the documents are found to be in order, detention and
seizure of goods on the ground that tax paid was less cannot be justified. In
such an eventuality, the correct procedure which the inspecting authority is
expected to follow is to alert the Assessing Authority to initiate the
assessment proceedings.

Thus, in a case of a bona fide dispute with regard to the
classification between the transporter of the goods and the Squad Officer, the
Squad Officer may intercept the goods and detain them for the purpose of
preparing the relevant papers for effective transmission to the jurisdictional
AO. It is not open to the Squad Officer to detain the goods beyond a reasonable
period. The process can, at best, take a few hours. The process of detention of
the goods cannot be resorted to when the dispute is bona fide,
especially concerning the exigibility of tax and, more particularly, the rate
of tax.

31. [2019 108 taxmann.com 570 (Karn.)] Suma Oil Agencies vs. Commissioner of

Commercial Taxes Date of order: 18^th July, 2019

When, as a
result of confusion over jurisdiction, the assessee received two notices of
re-assessment for the same period and assessee appears and replies before one
assessing officer intimating to the other of the said fact, the ex parte
assessment order passed by the said other officer is liable to be set aside

FACTS

The petitioner
was issued with a re-assessment notice relating to tax period 2012-13 by the
DCCT (Audit)-5.2 to which the petitioner replied suitably; he produced the
books of accounts before the said authority. Subsequently, re-assessment notice
was issued by the DCCT (Audit)-5.5 to re-assess the assessee. The petitioner
brought to the notice of the said authority the earlier notice issued by the
DCCT (Audit)-5.2 relating to the very same tax period. Despite this, the DCCT
(Audit)-5.5 passed an ex parte re-assessment order. Hence this writ
petition.

HELD

The High Court
observed that ex facie the assignment note issued to the DCCT
(Audit)-5.2 relating to the tax period 2010-11 and 2011-12 has been considered
to be the assignment note issued even to the tax period 2012-13, by the said
authority, resulting in issuance of re-assessment notice to re-assess the
assessee under the provisions of the Act for the tax period 2012-13. On the
reply filed by the petitioner to the notice issued by the DCCT (Audit 5.5), an
endorsement dated 14^th December, 2016 has been issued by the said
authority – DCCT (Audit)-5.5 bringing these aspects to the notice of the
petitioner, more particularly, the assessment under the tax period 2012-13
being assigned to the DCCT (Audit)-5.5.

However, the
High Court held that since the jurisdiction of the officers to proceed with the
re-assessment relating to the tax period 2012-13 was not clear among the authorities
concerned, the ex parte re-assessment order now impugned certainly
deserves to be set aside for the reason that the assessee had appeared before
DCCT (Audit)-5.2, pursuant to the re-assessment notice issued by the said
authority relating to the tax period in question, and if that be the position,
the DCCT (Audit)-5.2 ought to have transferred the proceedings initiated by him
to the competent authority assigned with the jurisdiction.

That having not been done, the petitioner cannot be made to suffer.

BCAJ Admin

VAT

7. State of Uttar Pradesh & Anr. vs. Birla Corporation Limited [(2020) 72 GSTR 1 (SC)]

FACTS

A notification dated 27^th February, 1998 was issued by the
State Government of U.P. u/s 5 of the UP Trade Tax Act, 1948 granting rebate on
the tax levied under the Act to industrial units set up in notified districts
within the State for ten years from the date of commercial production, subject
to certain conditions in respect of goods manufactured using fly ash procured
from thermal power stations within the State. This notification was challenged
before the High Court on the ground that the conditions specified in the
notification resulted in causing discriminatory treatment to the producers and
suppliers of the same product imported from neighbouring States as opposed to
goods manufactured and produced in the State of U.P. The High Court upheld the
challenge and the Supreme Court in appeal confirmed the decision of the High
Court declaring that the notification would also apply to cement manufacturing
units of neighbouring States who used fly ash as raw material.

After the decision of the High Court, a notification dated 14^th
October, 2004 was issued rescinding the notification dated 27^th
February, 1998. This notification was also challenged on the ground that the
same could not be enforced against industries which had already commenced
commercial production after 27^th February, 1998 but before 14^th
October, 2004 and taking any other view would result in giving retrospective or
retroactive effect to the notification dated 14^th October, 2004. Giving
such effect was not permissible in law. The High Court allowed the Writ
Petition based on the principle of promissory estoppel. The State of
Uttar Pradesh filed an appeal; however, the Supreme Court dismissed the same.

HELD

The Apex Court observed in its judgment that it was evident from section
5 of the UP Trade Tax Act, 1948 that there was no express authority given to
the executive to issue notifications for withdrawing or rescinding the rebate
facility from a date prior to the date of notification. Thus, the
respondent-unit and similarly placed persons would be entitled to rebate for
the relevant period prescribed in the notification dated 27^thFebruary,
1998 which would continue to remain in vogue until the expiry of the specified
period, that is, ten years. It is well established that the Court is obliged to
insist on a highly rigorous standard of proof in the discharge of the burden
and the onus is upon the State to justify its action as supervening
public interest.

8. Ultra Readymix Concrete Private Ltd. vs. State of Tamil Nadu &
Ors. [(2020) 72 GSTR 62 (Mad.)]

FACTS

The petitioner used to make inter-State purchases of high speed diesel
oil at a concessional rate @ 2% by way of ‘C’ forms. However, the ‘C’ forms
could not be downloaded after the introduction of the GST Act. After due
inquiry with the Department, the petitioner was informed that after the
introduction of the GST Act with effect from 1^stJuly, 2017, the
petitioner was not entitled to make purchases of high speed diesel oil from
other States at a concessional rate of tax, i.e., 2% and thus the Department’s
site had been blocked to deny access to the petitioner and other similarly
placed persons from downloading ‘C’ forms.

HELD

The Madras High Court, allowing the petition, held that the amendment
restricting the definition of ‘goods’ u/s 2(d) of the GST Act to six petroleum
products did not affect the provisions entitling the dealers to a concessional
rate of tax after the GST regime came into force. Thus, the petitioner was
entitled to make purchase of high speed diesel from other States on a
concessional rate of tax even after introduction of the GST Act.

9. K.M. Refineries and Infraspace Pvt. Ltd. vs.
State of Maharashtra & Others[(2020) 72 GSTR 94 (Bom.)]

FACTS

The New Package Scheme of Incentives, 1993 was introduced by the State
which allowed monetary and other incentives in the matter of tax subsidy or tax
exemption at the rates prescribed in the Scheme and other benefits. The
incentives could be availed of only on the industries qualifying in terms of
the eligibility conditions prescribed in the Scheme. The industries were
required to obtain an eligibility certificate from the District Industries
Centre. Thereafter, the Commissioner of Sales Tax shall endorse the eligibility
certificate issued by the implementing agency and it shall be his duty to
specify the date of effect of the eligibility certificate under the Incentives
Scheme. There is no authority given to the Commissioner of Sales Tax to modify,
enlarge or curtail the validity period decided by the implementing agency.

The petitioner-dealer made an application to the District Industries
Centre for issuance of an eligibility certificate under the 1993 Scheme. The
dealer was found eligible and by a final order dated 20^th March,
2017, the General Manager, District Industrial Centre, issued an eligibility
certificate which was valid for nine years. However, when the eligibility
certificate reached the Commissioner of Sales Tax, the latter prescribed the
effective date but, while doing so, curtailed the validity period by about
three years by his order passed on 10^th August, 2017.

HELD

The Bombay High Court held that the curtailment was beyond the powers of
the Commissioner of Sales Tax. The dealer had acted upon a promise given by the
State. The principle of promissory estoppel would thus apply and would
forbid the Government from taking any decision of not implementing the
Incentive Scheme. The Scheme had been framed ostensibly to achieve one of the
Directives contained in Article 39(C) of
the Constitution for ensuring equal distribution of wealth and means of
production. Thus, the order of the Commissioner of Sales Tax was quashed and
set aside.

BCAJ Admin

SERVICE TAX

I. HIGH COURT

20. [2019 109 taxmann.com 265 (Bom.)] Raymond Ltd. vs. UOI Date of order: 6^th August, 2019

Even if notices
can be kept in the call-book to avoid multiplicity of proceedings, yet the
principle of natural justice would require that before the notices are kept in
the call-book, or soon after, the petitioners are informed the status of the
show-cause notices so as to put the parties to notice that the said notices are
still pending. Giving notices for hearing after a gap of 17 years is to catch
the parties by surprise and prejudice a fair trial, as the documents relevant
to the show-cause notices may not be available with the petitioners for it is
reasonable for the assessee to presume that the notices have been abandoned

FACTS

The petitioner
challenged the action of the Central Excise Department seeking to revive six
show-cause notices issued between April, 2001 and January, 2004 under the
Central Excise Act, 1944 by issuing a notice for a personal hearing in respect
thereof in June and July of 2018. The petitioner submitted that issuing notices
to hear 14 to 17 years later is bad in law. Even in the absence of any time
limit in the law, show-cause notices must be disposed of within a reasonable
time. This revival of abandoned show-cause notices after so long causes
prejudice to the petitioner as the relevant documents pertaining to the
impugned notices were not available so as to appropriately meet the charge in
the impugned show-cause notices. The petitioner relied upon the decision in the
case of Bhagwandas S. Tolani vs. B.C. Aggarwal 1983 (12) ELT 44 (Bom.);
Premier Ltd. vs. Union of India 2017 (354) ELT 365 (Bom.); and
Sanghvi Reconditioners (P) Ltd. vs. Union of India [Writ Petition No. 2585 of
2017, dated 12^th December, 2017].

The Department
represented that the Revenue had kept the show-cause notices issued to the
petitioner in the call-book in 2001 (although show-cause notices for the
subsequent period were issued) in terms of the CBEC Circular No. 162/73/95-CX
dated 14^th December, 1995 and only after the Hon’ble Supreme Court
passed the final order in Revenue’s appeal in September, 2017 that the impugned
show-cause notices were removed from the call-book and the notices for personal
hearing were issued to the petitioners. It also submitted that at no time did
the Revenue inform the petitioner that the show-cause notices are being
dropped; therefore, it was obligatory on the part of the petitioner to keep the
papers and proceedings available till such time as the show-cause notices were
disposed of.

HELD

The Hon’ble
High Court observed that the Department gave no intimation to the assessee of
the fact that the impugned notices were kept in the call-book. It, therefore,
held that this delay in taking up the adjudication of the show-cause notices
(in the absence of any fault on the part of the party complaining) is a facet
of breach of the principles of natural justice. It further held that such a
practice impinges upon procedural fairness, in the absence of the party being
put to notice that the show-cause notices will be taken up for consideration
after some event and / or time when it is not heard in reasonable time. The
reasonable period may vary from case to case.

However, when
the notices are kept in abeyance (by keeping them in the call-book as in this
case), the Revenue should keep the parties informed about the same. This is the
transparent manner in which the State administration must function. The High
Court also quoted Circular No. 1053 of 2017 dated 10^th March, 2017
wherein at paragraph 9.4 the CBEC has directed the officers of the Department
to formally communicate to the party that the notices which have been issued to
them are transferred to the call-book. In the absence of such procedure being
followed by the Department, it was reasonable for the petitioners to proceed on
the basis that the Department was not interested in prosecuting the show-cause
notices and had abandoned them. The High Court thus quashed the show-cause
notices.

21. [2019 110 taxmann.com 293 (Mad.)] Delphi TVS Technologies Ltd. vs. Assistant
Commissioner (ST) Date of order: 9^th September, 2019

Where in response
to the notices received from the Department, the assessee requested for
additional time stating reasons for the same, passing final orders by simply
confirming the proposals made in the notice without first intimating to the
assessee as to whether his request for additional time is accepted or not, is
violation of the principle of natural justice

FACTS

The Department
originally issued notices of the proposal in February, 2019 to the assessee in
respect of four assessment years. The assessee, through letters in March, 2019,
requested the AO to give time up to April, 2019 for submission of reply by
stating that they need to collect more data to justify their stand; and that
they are occupied in preparing GSTR2A reconciliation against their input credit
taken in the monthly return. However, the AO, without giving time to the
assessee, proceeded to pass assessment orders in March, 2019 by stating that
the assessee failed to file their objection, though sufficient time was given.
The assessee challenged these orders before the High Court in a writ petition.

HELD

The Hon’ble
High Court observed that the assessee sought time to file their objection
through their letter dated March, 2019 and that such communication was also
received by the AO, as found in the impugned order itself. The Court,
therefore, held that in such circumstances the AO is not justified in
proceeding to pass assessment orders without informing the assessee as to
whether their request for time to submit their reply has been accepted or
rejected. The High Court further held that in both events, the AO is bound to
send a communication to the assessee and inform the result of the request made
by the assessee. In the absence of any such communication from the AO, there is
a possibility of drawing a reasonable presumption by the assessee that their
request has been accepted.

Therefore, the
act of the AO in not passing any order on the request of the petitioner seeking
time and proceeding to pass the orders of assessment straightway amounts to a
violation of the principles of natural justice. The High Court also observed
that the orders of assessment were passed simply by confirming the proposals in
the absence of any objection from the petitioner. Accordingly, the High Court
remanded the matter back to the AO to redo the assessment once again on merits
and in accordance with the law after inviting objection/s from the petitioner.

II. TRIBUNAL

22. [2020-TIOL-130-CESTAT-Kol.] M/s. Adhunik Fuels Pvt. Ltd. vs. CCE & ST Date of order: 17^th December, 2019

Suppression
requires to be established. If not, section 78 not invokable

FACTS

During the EA 2000 audit, the Department observed that the assessee as
recipient did not pay service tax liable to be paid under the reverse charge
mechanism. On this being pointed out, the assessee paid service tax with
interest. However, a show-cause notice was issued wherein tax was adjudged and
penalty was confirmed and also upheld by the first appellate authority. The
appellant pleaded before the Hon. Tribunal that they did not contest the tax
adjudged and interest but that would not justify the element of suppression and
penalty u/s 78. Further, section 74 was not invoked in the show-cause notice
and therefore late fee imposed meant going beyond the show-cause notice.

HELD

Short payment
was detected based on records maintained by the assessee. However, suppression,
misstatement, etc. needs to be established for invoking section 78. In its
absence thereof, section 78 cannot be invoked to levy penalty; and since the
show-cause notice did invoke section 74, late fee for delayed filing of ST-3
returns was also not sustained. The appeal thus was fully allowed.

23. [2020-TIOL-67-CESTAT-Mum.] M/s. Visible Alpha Solution India Pvt. Ltd.

vs. CCGST Date of order: 4^thDecember, 2019

Registration
not a prerequisite for granting refund claim. No contrary decision of any other
High Court to Karnataka High Court

FACTS

Two refund claims filed under Rule 5 of CENVAT Credit Rules, 2004 were
rejected on the ground that the appellant did not obtain registration. The
appellant pleaded that in terms of various decisions registration was not
required in terms of Karnataka High Court in the case of mPortal India
Wireless Solutions Pvt. Ltd. 2011-928-HC-Kar-ST.

HELD

Considering the matter no more res integra as per the decisions
of this Bench and other Benches and in terms of the Karnataka High Court’s
decision in the case of mPortal (Supra) and the fact of no
contrary decision being pronounced by any other High Court though Revenue
presented a few adverse decisions of the Coordinate Bench at Delhi, the issue
is settled in favour of the appellant. So far as the credit on general
insurance service for Mediclaim and water and recreation services is concerned,
they are covered by the ratio of the cases cited by the appellant (and)
are required for the business of the assessee. There is nothing on record that
proves their use for anything other than business purpose. Hence the credit is
eligible and consequently the refund.

24.
[2020-TIOL-16-CESTAT-Del.] Om Logistics Ltd. vs. Commissioner (Appeals) CGST Date of order: 5^th
December, 2019

Service tax on
Keyman Insurance Policy eligible credit if the beneficiary is the company

FACTS

The assessee,
providing courier agency service and business auxiliary service, filed ST-3
returns and paid service tax regularly. Credit for expenses on Keyman Insurance
Policy taken for the Managing Director was availed. Revenue contended that this
policy was for personal use and not for business purpose and hence directed the
assessee to reverse the credit – and hence the dispute.

The assessee
submitted that in the case of their own appeal No. 52845 of 2018 (SM), it was
held as eligible credit. The Revenue supported the order and stated that the
assessee had produced only the premium receipt and not the policy and hence was
required to be remanded to the adjudicating authority for deciding afresh.

HELD

Considering the
Tribunal’s order in the earlier appeal, it was observed that the benefit under
the policy in question is payable to the policy holder, viz., the company and
there is no nominee required when the policy is in the name of the corporate.
In view thereof, the order was set aside.

25. [2020-TIOL-52-CESTAT-Chd.] Verma Brothers vs. CCE & ST Date of order: 20^th November, 2019

Refund claimed
for an amount paid on exempted service not to be considered tax payment. Hence
not barred by limitation

FACTS

The appellant,
a construction service provider, paid service tax mistakenly on an exempt
service under entry 12(a) of Mega Exemption Notification No. 25/2012-ST dated
20^th June, 2012. This exemption was withdrawn with effect from 1^st
April, 2015 vide Notification No. 6/2015 dated 1^st March, 2015.
Assuming that the said notification was applicable from 1^stMarch,
2015 instead of 1^st April, 2015, the appellant paid service tax for
the said period and later, on 7^th November, 2016 as per the limit
prescribed under the Central Excise Act, lodged a refund claim.

Considering it
time-barred, the Department rejected it. The Revenue contended that the refund
is governed by section 11B of the Central Excise Act as per the decision of the
Apex Court in the case of Anam Electric Manufacturing Company 1997 (90)
ELT 260 (SC) relying on the decision of Mafatlal Industries vs.
Union of India 1997 (89) ELT 247 (SC), and therefore barred by
limitation.

HELD

Relying on the
decision in the case of Anam Electrical Manufacturing Co.
2002-TIOL-650-SC-CUS and based on this the view taken by the Delhi High
Court in National Institute of Public Finance and Policy 2018-TIOL-1746-HC-Del-ST,
the appellant was held as entitled to claim refund as in the case of Anam
Electric (Supra), the time prescribed is three years. In this case, the
assessee had filed the claim of refund within three years.

BCAJ Admin

MISCELLANEA

I. Technology

13. Now all you
need is TEN minutes to charge e-cars

Engineers have
discovered a way to recharge electric cars in just ten minutes, overcoming one
of the biggest obstacles with electric vehicles. Electric cars currently take
longer than an hour to fully recharge, with the original Tesla Model S taking
75 minutes to achieve a full charge. Researchers at Pennsylvania State
University developed a lithium-ion battery capable of adding 200 to 300 miles
(320 km. to 480 km.) of driving range to an electric car in ten minutes by
charging it at an elevated temperature.

What this does
is ‘limit the battery’s exposure to the elevated charge temperature, thus
generating a very long cycle life,’ said senior author Chao-Yang Wang, a
mechanical engineer at the Pennsylvania State University. ‘In addition to fast
charging, this design allows us to limit the battery’s exposure time to the
elevated charge temperature, thus generating a very long cycle life,’ said
Wang.

‘The key is to
realise rapid heating; otherwise, the battery will stay at elevated
temperatures for too long, causing severe degradation… The ten-minute trend
is for the future and is essential for adoption of electric vehicles because it
solves the range anxiety problem.’ The extremely fast charging process could be
carried out without causing significant damage to the battery, meaning it could
sustain 2,500 charging cycles – the equivalent of half a million miles of
travel. Typical lithium-ion batteries would only last around 60 charges using
the new method.

The discovery
comes just weeks after the inventors of the first lithium-ion battery were
awarded the 2019 Nobel Prize in Chemistry. The combined work of John
Goodenough, Stanley Whittingham and Akira Yoshino led to the first commercially
viable lithium-ion battery being produced in 1985. They are now used in
everything from mobile phones to laptops, as well as the rapidly growing
electric vehicle industry. The researchers now hope to improve this charge time
to just five minutes.

‘We are working
to charge an energy-dense electric vehicle battery in five minutes without
damaging it,’ Wang said. ‘This will require highly stable electrolytes and
active materials in addition to the self-heating structure we have invented.’

(Source:
www.timesofindia.com)

14. Average
Indian spends over 1,800 hours a year on smartphone

With
smartphones entering every facet of our lives, a new survey to understand how
mobile devices are altering lives and relationships of users found that 75% of
the respondents agreed to have owned a smartphone in their teens and of them,
41% were hooked to phones even before graduating from high school.

From showcasing
the benefits to the depth of addiction, the Vivo and CMR study tried to look at
the behavioural changes pertaining to smartphone usage. The study, styled
‘Smartphones and their impact on Human Relationships’, looks into the influence
of mobile devices on the consumers and their social interactions.

According to
the study, the average Indians spend 1/3^rd of their waking hours on their phones, which
translates to 1,800 hours a year. About 30% fewer people meet family and loved
ones multiple times a month now (vs. ten years ago). One in three people felt
that they can’t even have a five-minute conversation with friends and family
without checking their phones. About 73% agree that if smartphone usage
continues at the current rate or grows, then it is likely to impact mental and
/ or physical health.

The report is
based on a survey conducted online as well as face-to-face across top eight
cities in India. It cuts across age groups and demographics: youth, working
professionals and housewives, spanning the age group 18 to 45. The total number
of respondents was 2,000, of whom 36% were females and 64% males.

According to
Mr. Nipun Marya, Director, Brand Strategy, Vivo India, ‘Smartphones are
ubiquitous in our lives today, be it connecting with friends, family,
entertainment, eating out or even travel and entertainment. As the “born in the
net” generation grows up as digital natives, there is a fundamental change
underway within society – redefining relationships, interactions and the very
fabric of human emotions and exchanges. This transformation is also an
opportunity to harness and drive positive change, reinforce balance and
responsible proliferation of technology and its usage amongst consumers.’

Commenting on
the survey findings, Mr. Prabhu Ram, Head, Industry Intelligence Group of CMR,
said, ‘While the explosive surge in smartphones in India has enabled Indians
not just communicating with loved ones, but with myriad other uses, including
in consuming entertainment and in expressing themselves, our survey results
demonstrate that the dependency on smartphones has increased. While the
smartphones will continue to be the primary go-to device, smartphone users have
realised that periodically switching-off would help benefit their personal
health.’

(Source:
www.thehindubusinessline.com)

15. Now Twitter
warns Indians of data breach

In a very
stressful year for social media users who have been bugged several times,
Twitter recently admitted a malicious code was inserted into its app by a ‘bad
actor’ that could have compromised several Android users’ information
worldwide, including in India.

Some users in India woke up to an email from Twitter, warning them to
update the app for Android and immediately change their password. The
vulnerability within Twitter for Android could allow the ‘bad actor’ to see
non-public account information or to control your account (send tweets or
direct messages), said an apologetic Twitter.

‘Prior to the
fix, through a complicated process involving the insertion of malicious code
into restricted storage areas of the Twitter app, it may have been possible for
a “bad actor” to access information (direct messages, protected tweets) from
the app,’ Twitter said.

It added that
it does not have direct evidence that malicious code was inserted into the app
or that this vulnerability was exploited, but it can’t be fully sure.

(Source: www.freepressjournal.in)

II. World News

16. Trump
unveils America’s sixth military branch: Space Force

The United States
has met a mounting 21^st century strategic challenge from Russia and
China with the creation of a full-fledged US space force within the Department
of Defence. Acting on the ‘ambition’ of President Donald Trump that had met
with resistance at first, the White House signalled its determination to not
cede superiority in a Star Wars-like future of killer satellites and
satellite-killer weapons.

President Trump made the Space Force’s creation real with the signing of
the 2020 National Defence Authorisation Act, which set the initial budget for a
Pentagon force that will stand equally with the military’s five other branches.

‘Going to be a lot of things happening in space, because space is the
world’s newest war-fighting domain, Trump told members of the military gathered
for the signing. The Space Force will be the sixth formal force of the US
military after the Army, Air Force, Navy, Marines and Coast Guard. “Our
reliance on space-based capabilities has grown dramatically and today outer
space has evolved into a war-fighting domain of its own,” said Secretary of
Defence Mark Esper. Maintaining American dominance in that domain is now the
mission of the US Space Force.’

The Defence
Intelligence Agency warned in a report early this year (2019) that China and
Russia have both developed ‘robust and capable’ space services for
intelligence, surveillance and reconnaissance. ‘China and Russia, in
particular, are developing a variety of means to exploit perceived US reliance
on space-based systems and challenge the US position in space,’ it said.

China already
demonstrated that it could shoot down a satellite with a ground-based missile
in 2007. ‘Both states are developing jamming and cyberspace capabilities, directed
energy weapons, on-orbit capabilities and ground-based anti-satellite missiles
that can achieve a range of reversible to non-reversible effects,’ it said.

Iran and North
Korea, too, are increasingly able to extend their military activities into
space, jamming the communications of adversaries and developing ballistic
missile technologies, it noted.

China and
Russia have the perception ‘that space represents an (American) Achilles’ heel
and that this is an asymmetric advantage for them to then take on the United
States’ power,’ Steve Kitay, Deputy Assistant Secretary of Defence for Space
Policy, said in August. ‘Space will not be an Achilles’ heel’ for the US, he
said.

The new
organisation builds on the US Space Command already operating under the Air
Force following its creation in August. Like the Marines, which operate within
the umbrella of the Navy, the Space Force will continue to be under the Air
Force. The Space Force will be comprised of about 16,000 air force and civilian
personnel, some already taking part in the Space Command, according to Air
Force Secretary Barbara Barrett.

(Source:
www.economictimes.com)

III. Economy

17. Inaccurate
diagnosis, draconian remedy – India’s black money problem was misdiagnosed

India’s fight
against foreign black money has returned a whimper. The Government’s intent
cannot be faulted, but since the problem itself was misdiagnosed, the ensuing
legislative measures have been bereft of constitutional and economic common
sense. They relied too little on persuasion and far too much on brow-beating.
The economic results are nothing to rave about.

High on
populism, low on constitutional wisdom, the Black Money Act was a draconian law
that was bound to fail. At a minimum tax rate of 60%, it gave marginal incentive
for the hoarders to come clean. Lawmakers overestimated the writ of
international laws and made no economically persuasive case. As a result, as of
May, 2019 the total untaxed foreign assets mined was Rs. 12,500 crores. Wholly
recovered, this wouldn’t even pay Prasar Bharati’s bills for four years. Even
this recovery was aided greatly by international exposes such as the Panama
Papers in which the government’s legislation played no role. In comparison,
Indonesia recovered about Rs. 25 lakh crores under similar schemes. The
government’s initial obsession with brow-beating had an ominous start. But,
instead of doing course correction, it passed an even more confiscatory law, the Fugitive Economic Offenders Act.

Existing laws

The intent of
both the laws could have been achieved by a few tweaks in the existing laws.
The Income-tax Act has, since 1989, provided for up to three times penalty on
escaped tax. Similarly, wilful attempts to evade taxes have, since 1975, been
punishable with imprisonment of up to seven years. A protocol for automatic
exchange tax information, under which India is now receiving data from
Switzerland, was signed in 2011, as was the amendment requiring all citizens to
disclose foreign assets with their domestic tax returns.

Post-May 2014,
tax control policy is different only in three aspects, all constitutionally
suspect. The first relates to retrospective application of tax and penal laws
that are so confiscatory and brazenly discriminatory that they walk all over a
citizen’s right to life, carry on business and own property. The second is
about shifting the burden of proof onto the citizen to establish that he is not
an offender. Lastly, and this is what makes this new policy rather wicked,
citizens can be subjected to criminal trial without the taxman first proving
that there has been tax evasion. The results of giving such unbridled powers to
agencies have been disastrous.

The Enforcement
Directorate, India’s money laundering watchdog, secured conviction in less than
1% of cases but attached assets worth Rs. 29,468 crores. In contrast, the
agency’s equivalents in the U.S. and the U.K. secured conviction in about 50%
cases. The Income tax Department’s records were not inspiring either, hovering
at near 2% conviction rates in Financial Year (FY) 2016-2017. A Comptroller and
Auditor General report showed that in FY 2016-2017 – the demonetisation year –
the number of raids more than doubled as compared to FY 2013-2014, the last
year of UPA-II; but in the same period the undisclosed income detected was less
than one-fourth the amount during the latter period.

In medical
sciences, intrusive methods of treatment are generally resorted to when
diagnosis shows evidence that less risky methods may not be restorative. But,
India’s fiscal policy seems to be driven by the opposite logic: intrusion
first, diagnosis later.

No clear
estimate of black money owned by Indians and stashed abroad is available.
Between 2008 and 2012, various reports quoted anywhere between $500 billion and
$1.5 trillion, some relying on estimates of a Swiss Bankers’ Association (SBA)
report. These turned out to be false. James Nason, an officer of the SBA, has
said that the SBA had never published any such report. In March, 2019 the National
Institute of Financial Management reported to the Lok Sabha Standing Committee
on Finance that the estimate is about $216 billion to $490 billion. This is
one-seventh the estimate quoted ahead of the 2014 elections. In essence,
India’s foreign black money problem was misdiagnosed and unverified and
exaggerated numbers went into satisfying Parliament that draconian financial
laws are justified.

Taking
cognisance

For the
judiciary, one question that arises is: if the conventional wisdom on black
money was based on disinformation, should it take cognisance of it? If yes,
how? For example, should the Supreme Court take a relook at its verdict in Ram
Jethmalani’s case against black money, especially to guide lower courts in
their examination of financial crime allegations?

A democratic
state cannot unjustly enrich itself by making citizens pay for what is not
rightly owed. The belief that the government will act on principles of honour
and good faith is an invaluable but fragile national asset, the late Mr. Nani
Palkhivala wrote in an article in 1993. He said that the fiscal system must
have not just legality but also legitimacy. It is denuded of all legitimacy
when there is a breach of faith on the part of the government in its dealings
with the taxpayer.

The government
should give up the belief that being an intrusive, brow-beating confiscator
enriches Indians. It doesn’t. This approach is reminiscent of India’s
imperialistic past and, in its current form, is impoverishing us into an
economic depression. The draconian fiscal laws must at once be repealed.
Increased international co-operation, technological advances and banking
penetration implodes black money more than any law or sermon on patriotism.
India’s war on black money can only be won through democratic, persuasive and
economically-sound means.

(Source: www.thehindu.com

BCAJ Admin

ALLIED LAWS

11.
Arbitration – Challenging order passed by the arbitrator pending arbitration
proceedings ruling on its own jurisdiction – Not by writ petition – Arbitration
Act is a Code by itself [Arbitration and Conciliation Act, 1996; Code of Civil
Procedure, 1908; Constitution of India, 1949, Art. 226, Art. 227]

GTPL Hathway Ltd. vs. Strategic Marketing Pvt. Ltd.;
R/SCA No. 4524 of 2019; Date of order: 20^th April, 2020 (Guj.)(HC)

On a petition filed u/s 11 of the Arbitration and
Conciliation Act, 1996 (the Act), the High Court vide an order dated 9^th
February, 2018 appointed a sole arbitrator. Thereafter, the arbitral Tribunal vide
order dated 14^th February, 2019 dismissed the preliminary objection
application filed by the petitioner (of this writ petition) and held that it
has jurisdiction over the dispute between the parties. The petitioner filed a
writ petition before the Hon’ble High Court.

The Court held that section 16 of the Act empowers an
arbitral Tribunal to rule on its jurisdiction, section 34 of the Act pertains
to setting aside of an arbitral award and section 37 of the Act provides for an
appeal if the arbitral Tribunal declines jurisdiction. Therefore, these provisions
provide for a complete code for alternative dispute resolution as against the
Civil Procedure Code, 1908. Further, considering the policy, object and
provisions of the Act, the same appear to be a special act and a self-contained
code. Therefore, during pendency of arbitration proceedings, the impugned order
dismissing the preliminary objections cannot be challenged under Article
226/227 of the Constitution.

12.
Employment – Covid-19 – Deferral of payment of salary – Denial of property
[Constitution of India, 1949, Art. 300A]

Meena Sharma vs. Nand Lal W.P(C) TMP No.182 of 2020; Date
of order: 28^th April, 2020 (Ker.)(HC)

On financial difficulties arising out of the lockdown,
the Kerala government had issued an order dated 23^rd April, 2020
stating that the salaries of all government employees who are in receipt of a
gross salary of above Rs. 20,000 would be deferred to the extent of six days
every month from April to August. Individuals of different departments filed a
petition before the Hon’ble High Court challenging the order for being
unconstitutional and violative of Article 300A of the Constitution of India.

The Court held that payment of salary to an employee is
certainly not a matter of bounty. It is a right vested in every individual to
receive the salary. It is also a statutory right as it flows from the Service
Rules. The right to receive salary every month is part of the service
conditions emanating from Article 309 of the Constitution of India. Further,
neither the Epidemic Diseases Act, 1897 nor the Disaster Management Act, 2005
justify such an order and deferment of salary for whatever reason amounts to
denial of property.

13.
Labour law – Payment of wages – Covid-19 – Principle of ‘No work – No wages’
not applicable [Industrial Disputes Act, 1947]

Rashtriya Shramik Aghadi vs. The State of Maharashtra and
Others; WP No. 4013 of 2020; Date of order: 12^th May, 2020
(Bom.)(HC)(Aur.)

A workers’ union made a grievance before the Bombay High
Court that a lockdown has been effected but though the members of the Union are
willing to offer their services as security guards and health workers, they are
precluded from performing their duties on account of the clamping of the
lockdown for containment of the Covid-19 pandemic. Further, the payments made
by the contractors for the month of March, 2020 are slightly less than the
gross salary; and for the month of April, 2020 a paltry amount has been paid.

The Court held that these employees are unable to work
since the temples and places of worship in the entire nation have been closed
for securing the containment of the Covid-19 pandemic. Even the principal
employer is unable to allot the work to such employees. In such an
extraordinary situation, the principle of ‘No work — No wages’ cannot
be made applicable.

BCAJ Admin

LETTER TO THE EDITOR

The Editor

BCAJ, Mumbai

This has reference to the
excellent article on ‘Transition to cash flow based funding’ by Suhas Paranjape
and others on bank lending. In fact it is a very good article and also timely
since I believe that the system of banking and its lending business were flawed
right from the inception of banking in India. The banking in India was a
glorified commercial venture of earlier money lenders. The money lenders had at
least the security of land as a mortgage or of gold given as a security. The
money lender of the yesteryear had therefore zero NPA and his only risk was the
danger of dacoity or robbery as is the new word used in the Indian penal code.
He was required to take care of his gold by having extra guards or some private
security arrangement. This was a minimal cost considering present day insurance
rates.

It was more than 100 year ago
that the banks like Central Bank or the Bank of India and the likes of which
were established in India. Their fund based business model was progressively
more comprehensive and refined from time to time as compared to the erstwhile
money lenders and progressively well regulated by the central bank of the
country.

However it was and is still an
asset based funding. The erstwhile money lenders did not have difficulty of
realizing the assets in the event of failure of loans but sale of assets is
increasingly a complicated model for the present day banking giving rise to
progressively increased ratio of NPAs. Earlier the money lender essentially
gave a loan to an agriculturalist and on few occasions to artisans. The banks
were more dynamic and started giving loans to increased manufacturing and
trading and service activity. This was however a mere increase in the area of
operation as a result of increased size of the business activity but
conceptually it remained the same with asset base as the principal security.
Such a security is very difficult to realise without closing down the business
and essentially the banking was without any security in real terms.

All the loans given by the banks were and
still are essentially unsecured loans and even today the banking loan portfolio
is really without any security. This according to me is the real reason for
increased NPAs. It prevented the banker from finding out diversion of funds
which in any case was camouflaged and it also did not give early signs of
business failure or slow down and the banks came to know about it only when
things were out of control.

Another issue which should gather
further momentum is the relation between the banker and the customer. For the
last about 30 to 40 years, the relationship has become more impersonal, rule
based and rather inflexible. I was once a junior functionary in a well known
bank and the training college of the bank used to conduct sessions on bank
lending. We were constantly told that in banking ‘First class borrower with
second class security should always be preferred to a second class borrower
with first class security’. This sound banking principle has now remained on
paper because there is no time to judge a person who is a borrower.

Cash flow statement giving
separately operating cash flow, Investment cash flow and financing cash flow
would be more useful in present day banking and I believe that it should be not
only required from listed companies or the companies of a particular size but
it should be made compulsory for all bank loans to keep under control the
menace of NPAs.

It is in this context that the
article in April issue would assume more importance and may require further
elaboration in the months to come.

Ashok Dhere

Chartered Accountant

The Editor

The Bombay Chartered Accountant
Journal

Mumbai 400020

Dear Sir,

Re: My article on Allowability of
Interest u/s 36(1)(iii) published on Page 15 of January, 2020 issue AND

Letter from Advocate Jignesh R.
Shah published on Page 100 of March, 2020 issue of BCAJ

At the outset I thank Advocate
Shri Jignesh R Shah for an enlightening letter. Let me say that there is hardly
a word of his letter that I disagree with. Since the point Shri Jignesh R Shah
has raised is valid, I need to offer my explanation.

Shri Jignesh R Shah states in his
letter that he is not on the correctness or otherwise of the conclusion of the
article. Then he says, I quote, ‘If I am not mistaken, it is tried to
canvass in the article that the word “acquisition” used in the proviso to
clause (iii) of sub-section (1) of section 36 of the Income-tax Act, 1961
connotes acquisition of an asset from a third party and it does not include an
asset which is “self-created” or “self-constructed” or “self-acquired”. This
interpretation would apply irrespective of whether the asset is
work-in-progress (which is the subject of this article) or a capital asset,
because the word employed in the proviso is “asset”. Unquote.
(Emphasis on the words ‘a third party’ is supplied). This inference is based on
the premise that the way I interpret the term ‘acquisition’, it is an act of
acquiring an asset from a third party and that asset should exist at the time
of acquisition, and therefore, it would exclude assets that are self-acquired
from the scope of the Proviso because the assets are not acquired from a third
party and they did not exist earlier. Shri Jignesh Shah gives an example of a
power generation plant which is assembled by the company itself by buying
parts, receiving technical service and using own labour, to show that the proviso
will yet apply to the power generation plant which is not acquired from a third
party and which did not exist when it was acquired. He says, I quote, ‘Going by the
interpretation placed on the term “acquisition” in this article, the plant as a
whole cannot be called “acquired”, because the plant as a whole did not already
exist (as is stated in this article) over which the power generation company
gains possession; the plant is its own creation.’ Unquote.

In response, I first say that I
have nowhere said in the article that an ‘acquisition’ is not an ‘acquisition’
if it does not involve receiving or obtaining something from ‘a third party’.
Though obtaining something from a third party is no doubt an act of
acquisition, I have explained the term ‘acquisition’ in relation to an asset as
an act of acquiring the asset which exists at the time of its acquisition.
Things that do not exist cannot be acquired. After examining a few dictionary
meanings of the term ‘acquisition’ I finally explain the term ‘acquisition’
thus, ‘One can see that the normal meaning of “acquisition” carries in it
a sense of a thing that exists and the act of gaining possession of or control
over that thing is called “acquisition”.’’
I do not say that such possession and control over a thing should be
gained from a third party for it to result in an ‘acquisition’. I agree with
Shri Jignesh Shah that the word ‘acquire’ or ‘acquisition’ is of a very wide
import and can also be used to refer to self -created assets or things, like ‘I
acquired talent to play guitar’. ‘Talent’ in this case did not exist in me
before I worked on its development.

This leaves me with the second
aspect of the theory attributed to me, that in order that an asset may be
‘acquired’ the asset should be in existence at the time of its acquisition. The
example of the power generation plant, according to Shri Jignesh Shah, is an
instance of an asset which did not pre-exist. With respect, I say that in this
example and others that Shri Jignesh Shah has given in his letter, the things
are said to have been acquired when they come into their being, not before
that. A power plant is not acquired before it meets with all the
characteristics that a power plant possesses. Even the part quoted by Shri
Jignesh Shah in his letter from CIT vs. Mohanbhai Pamabhai [1973] 91 ITR
393, 408-409 (Guj.) later affirmed by the Supreme Court in [1987]
165 ITR 166 (SC) says so in these words, ‘When a capital asset is
created by an assessee, it becomes his property, he comes to own it and,
therefore, he acquires it the moment it is created’ (Emphasis supplied).
This means the person acquires a capital asset the moment it is created, not
before it is created.

If the company in the given
example, assembling in-house power plants was assumed to assemble power plants
not as a capital asset but as products for sale, the point I am making would be
clearer. So, let us presume that this very company is engaged in the business
of erecting and selling power plants, and three power plants are at different
stages of progress of work. The stage of erection at any point of time
constitutes WIP or saleable inventory which is the target of acquisition unlike
in the previous scenario where the power plant, a capital asset, as was under
erection was the target of acquisition. The company could say in the case of
erection of a power plant as a capital asset that the company was in the
process of acquiring a capital asset, but would the company engaged in
the business of erection and sale of power plants say, by the same logic, that
it was in the process of ‘acquiring’ WIP or inventory when what it meant was
that it was producing or manufacturing power plants? It is not my case that the
company cannot use this language, it can. But the question is: is such language
natural? My point is this: A company selling power plants is ‘producing’ or
‘manufacturing’ power plants rather than ‘acquiring’ power plants. Interest
paid on borrowing attributable to production of power plants held for sale
should not be disallowed, whereas the same interest, if paid for producing
power plants for own use, will be disallowed.

Anyway, I thank Advocate Shri
Jignesh Shah for bringing out a fine facet of the argument.

Yours truly,

Kirit
S. Sanghvi

BCAJ Admin

Society News

HUMAN RESOURCE
DEVELOPMENT COMMITTEE

The HRD Committee
organised a half-day workshop for senior CAs styled Get the most from your
smart phone! It was held on Saturday, 14^th march, 2020 in the BCAS
hall.

Not only senior
chartered accountants but also their spouses were invited to learn how to
benefit more from their smartphones and mobile apps.

The participants
were welcomed by Rajesh Muni (HRD Committee Chairman). This was followed
by an introductory note delivered by Anand Kothari (HRD Committee
Convener).

The first
session was conducted by the young Rajesh Pabari who narrated the benefits
of various useful mobile applications. the participants were guided to download
‘Zoom meetings’ and the workshop was
conducted in an interactive manner making the best use of this app. He further
discussed other apps like trello, SwiftKey Keyboard, SMS organiser by
Microsoft, Drupe, etc.

In the second
session, conducted by the experienced techie Yazdi Tantra, the benefits
of Google were laid bare before the participants. 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 accessing the current news, translation in various languages
and many other benefits of Google.

He explained
shortcut keys for using Gmail and some search features. He also helped those
taking part to explore various apps such as M-aadhaar, DigiLocker, Camscanner,
Texpand, Skedit, Fast.com, Web. Whatsapp, WriteOnPdF, Files, DecisionCrafter,
Practo and tripIt.

Both sessions were interactive and the
participants were provided hands-on training / experience on the use of various
mobile apps. The faculties were energetic in guiding the participants, some of
whom were surprised to know about the numerous benefits of a smartphone which
they had been using only for making phone calls.

BCAJ Admin

MISCELLANEA

I. Technology

7. AI steps up in battle
against Covid-19

Oxford-based Exscientia, the
first to put an AI-discovered drug into human trials, is trawling through
15,000 drugs held by the Scripps Research Institute in California. And Healx, a
Cambridge company set up by Viagra co-inventor Dr. David Brown, has repurposed
its AI system developed to find drugs for rare diseases.

The system is divided into three
parts that:

(i) trawl through all the current literature relating to the disease,

(ii) study the DNA and structure of the virus,

(iii) consider the suitability of various drugs.

Drug discovery has traditionally
been slow. But AI is proving much faster. It is extremely unlikely that one
single drug would be the answer. That means detailed analysis of the eight
million possible pairs and 10.5 billion triple-drug combinations stemming from
the 4,000 approved drugs on the market.

AI remains one of our strongest
paths to achieve a perceptible solution but there is a fundamental need for
high-quality, large and clean data sets. To date, much of this information has
been siloed (or cocooned) in individual companies such as big pharma, or
lost in the intellectual property and old lab space within universities. Now
more than ever before, there is a need to unify these disparate drug discovery
data sources to allow AI researchers to apply their novel machine-learning
techniques to generate new treatments for Covid-19 as soon as possible.

(Source: bbc.com)

8. Freebies from IT vendors
that you can grab right now

As CIOs are struggling to support
business continuity while managing their technology budgets, IT vendors are
doing their best to help them in this Covid-19 crisis. From global giants to
mid-scale IT vendors, support is pouring in in the form of free tools,
services, deferred payments, training, 24/7 remote support, zero-cost licensing
and more.

Meanwhile, here’s a look at some
of the biggest offers from vendors to help enterprises through the Covid-19
crisis.

Cisco’s free deferred payments – Cisco
announced a financing plan that will let customers defer 95% of their payments
for new products until 2021. The move will cost the company $2.5 billion to
cover the financing. By allowing customers to defer payments, Cisco is helping
them preserve cash amid reduced economic activity.

IBM supporting businesses with
free offerings in cloud – IBM is helping enterprises to tackle the
pandemic while maintaining business continuity with free offerings in cloud and
associated tools and software. Big Blue is giving nine free cloud offers to
ease the burden of businesses across the globe. These cloud offers span AI,
data, security, integration, remote learning and more – all via the IBM public
cloud to support their clients and help them maintain business continuity. For
90 days, free of charge, IBM is offering companies the ability to build virtual
server configurations; providing access to their cloud service for high-speed
file sharing and team collaboration; and also offering their event management
solution to help teams prioritise, diagnose and resolve incidents.

Oracle offers free HR tool – Oracle
is providing free access to its Workforce Health and Safety solution to current
Oracle Human Capital Management Cloud customers until the pandemic is over. The
module will help customers manage key workplace health and safety issues and
monitor requirements accordingly. Employees can access required information
wherever and however they need it – from mobile to desktop devices.

Free
security tools from Micro Focus – As
businesses in India are transforming and working remotely, Micro Focus is
helping customers with secured digital platforms with free access. Micro Focus
is offering several free-of-cost services so that customers can secure their
users coming in through VPN, RADIUS, web portals, etc. and for other network
and operational requirements. It has announced a Covid-19-specific license
which enables the use of all advanced authentication features till 31^stJuly,
2020.

(Source: Economictimes.com)

II. World News

9. Ex-EY whistleblower wins
$10.8m in damages

Accountancy firm EY has been
ordered to pay $10.8m in damages to a whistleblower who claimed that it covered
up evidence of money laundering. Auditor Amjad Rihan sued EY after being forced
out of his job in 2014. A year earlier, he had led an audit that discovered
Dubai’s biggest gold refiner Kaloti had paid out a total of $5.2 billion (£4
billion) in cash in 2012.

Mr. Rihan argued that it was
evidence of money laundering, but EY didn’t report the activity to the
authorities. EY then helped to cover up a crime – the export to Kaloti in Dubai
of gold bars that had been disguised as silver to avoid export limits on gold.

A BBC Panorama
investigation last year revealed that the smuggled gold Mr. Rihan uncovered at
Kaloti was owned by a criminal gang that laundered money for British drug
dealers. The gang had collected cash from drug dealers in the UK and other
European countries. They then laundered the dirty money by buying and selling
black market gold. Twenty seven members of the money laundering gang were
jailed in France in 2017. Kaloti denies any wrongdoing.

Panorama saw a
number of drafts of a Kaloti compliance report to a Dubai regulator. In the
initial report, Kaloti seemed to admit buying gold coated with silver. It said:
‘We acknowledge an incident… with the bars coated with silver.’ But EY rewrote
the report so that it said: ‘We acknowledge transactions… in which there were
certain documentary irregularities.’ The accountancy firm turned the crime into
a ‘documentary irregularity’.

Mr. Justice Kerr ruled that EY’s
behaviour amounted to professional misconduct and that EY bosses were
‘responsible for suggesting to Kaloti that it should draft its compliance
report in a manner that masked the reality of the Morocco gold issue’.

The court found that EY breached
the Code of Ethics for Professional Accountants and that it had a duty of care
to take reasonable steps to protect Mr. Rihan ‘against economic loss, in the
form of loss of future employment opportunity, by providing an ethically safe
work environment, free from professional misconduct’. The court awarded Mr.
Rihan $10,843,941 (in US dollars) and £117,950 in damages.

Mr. Rihan said: ‘Almost seven
years of agony for me and my family has come to an end with a total vindication
by the court. My life was turned upside down as I was cruelly and harshly
punished for insisting on doing my job ethically, professionally and lawfully
in relation to the gold audits in Dubai. I really hope EY will use this
judgment as an opportunity to improve – to avoid such events happening again in
the future’.

(Source: bbc.com)

10. UK accounting industry faces worst crisis in decade

The UK
accounting industry was plunged into its worst crisis in more than a decade as
the ‘Big Four’ firms slashed partners’ pay by up to a quarter and their
mid-tier rivals furloughed junior staff to cope with the coronavirus fallout.
London-headquartered KPMG, PwC, Deloitte and EY have reduced the amount of
profits that are distributed to their partners each month by between 20 and 25%
to build up cash reserves and help survive a downturn in work. Partners at the
UK arms of the four firms, which between them employ about 74,000 people,
earned an average of £720,000 last year and undertake activities including
company audits, tax and restructuring advice and consulting on transactions.

The economic blow to the
professional services industry follows years of corporate failures and
accounting scandals that have hurt their reputations. Despite this, overall
revenues at the UK firms have soared over the past decade as they have expanded
beyond their roots in audit, resulting in increasingly large sums of money paid
out to their highest earners. EY told its 17,000 UK staff recently that
partners’ pay would be cut by 20% and said that it would ‘do everything
possible’ to navigate the coronavirus crisis without redundancies, furloughs or
reducing employee salaries. Steve Varley, Chairman of EY UK and Ireland, said:
‘Reducing partner profit distributions is a further prudent move in a time of
economic uncertainty and will provide additional flexibility and improve
financial strength.’

Deloitte UK Chief Executive
Richard Houston also announced a 20% hit to partner profits for 2020. He said
distributions to partners would be ‘deferred’ and pay rises, bonuses and
promotions would be put on hold. ‘The measures align with our commitment that
the highest earners in our firm, our partners, should shoulder the greater
proportion of the financial burden,’ said Mr. Houston. The measures by EY and
Deloitte follow similar moves by ‘Big Four’ rivals PwC and KPMG, which last
week announced a reduction in partner pay of 20 and 25%, respectively.

(Source: ft.com)

III. Politics &
Arthashastra

11. Vidur Niti –
Some useful tips to make life easier

The word ‘Vidur’ in Sanskrit
carries the meaning of skilled, intelligent and wise. These were the exact
qualities possessed by the sage Vidur from the Mahabharata which
portrays him as the half-brother of King Dhritarashtra and minister to the
fabled kingdom of Hastinapur.

He is celebrated for being a
great scholar who was an epitome of truthfulness, unbiased judgment,
dutifulness and unfaltering faith to Dharma. However, he is more prominently
known for his Nitis, chronicled in the form of conversations with his
brother Dhritarashtra which took place prior to the war of Kurukshetra. While Vidur
Niti is mainly grounded in politics, it can be widely used even in our
daily lives. Here are some useful tips from Vidur Niti to help you make
your life easier.

(1) Characteristics of a wise
person

A wise person does not deviate
from the higher goals of life because his actions are based on qualities like
self-knowledge, endeavour, patience and devotion to dharma.

(2) An aware person is unbiased
in action

In order to be wiser one needs to
be unbiased and to lose all emotions, attachments; it is the key for succeeding
in work and in life itself. A wise person’s actions and undertakings are not
affected by cold, heat, love, fear and affluence or poverty.

(3) Focus on goals

It is foolish for a person to
long and work for things which are unattainable, as one would be wasting one’s
time and efforts. Similarly, a person who worries and loses his sense in
difficult times cannot achieve his goals because he will lose his vision. A
wise man doesn’t waste his efforts and time after unattainable goals, does not
worry about things he has lost, and does not lose his sense in difficult times.

(4) Commitment to task in hand
and time management

A wise person committed to his
endeavours beforehand does not take long
breaks before completion of the task, does not waste time and has control over
his mind. We all tend to keep making the mistake of running after temporary
goals and end up abandoning them. In order to succeed, we need to take
pre-emptive action of being committed to the task ahead of us. This will help
us to be focused on our ends and goals; likewise, if we waste time and take
long breaks during work, we may forget our short-term goals and halt the work
itself. Thus, we shouldn’t take long breaks and waste time. In order to develop
the aforementioned qualities, we need to have control over our minds. Control
over the mind is the key because we tend to get attracted to ease and leisure.

(5) Be good to friends and be
safe from enemies

Only a fool makes an enemy his
friend, hurts and kills his friend and involves himself in misdeeds. Like ants,
we humans are social living beings; we need help from people to succeed. Thus,
we need to be friendly to people and be good to everyone. It will help us make
friends who will help even in difficulty. Likewise, we must learn to be far
from enemies and should not be close to them, as they carry tendencies to hurt
us.

(6) Importance of taking in
groups

One should
not think on the substance of matter alone. We are biased towards our ideas and
tend to think that they are good, missing out the flaws in them. Thus, Vidur
Niti suggests taking important decisions with a group of people.

(7) Some good qualities for
success

These six qualities should never
be abandoned – truthfulness, giving, not being lazy, not finding fault even in
something bad, forgiveness, and determination or courage. A person can only be
successful if he is true to everyone; liars are not considered good people.
Similarly, giving and forgiving and a forgiving nature can take a person a long
way because those who give are considered well by people and the quality of
forgiving prevents people from having grudges which give rise to negative emotions.
Positive nature is beneficial, it prevents people from being sadistic and
depressed; thus one should involve oneself in positivism by seeing only the
positive side. One should be determined if one wants to succeed. Determination
is the key to remaining focused on the task in hand, in a world full of
distractions. Laziness makes the mind lethargic and the ability to work
actively and thoughtfully decreases.

(8) Keeping emotions under
control

A person who
gets over-excited in joy will suffer from harm; heightened emotion of happiness
often shrouds the senses and undermines the ability to think properly.
Similarly, extreme level of unhappiness also affects the unbiased way of
soaking in things. One needs to develop the ability of doing work and living
life in such a manner that one is not affected by emotions. A wise one is not
too happy when honoured, he does not feel sad when dishonoured, and he is not
affected by emotions even in difficult times.

(9) Keep away from envy

Envy is a
negative emotion, and like every other negative emotion, it causes more harm
than good. Envy gives rise to other negative emotions like anger, hate and
over-thinking. A person who envies others’ wealth, beauty, family reputation,
noble birth, happiness, fortune or respect in society, is a sick person; there
is no cure for him.

(10) Forgiveness

For a weak person patience
(forgiveness) is a quality; for the strong person patience (forgiveness) is an
invaluable quality. Forgiveness in the current world is a very important value
for a person. It is an act of deciding to let go the feelings of resentment or
vengeance to persons who have harmed us. The health and psychological benefits
of forgiveness are huge. Forgiveness is often associated with a reduction of
anger, anxiety and depression. Further, it is also associated with benefits of
decrease in blood pressure levels, leading to a healthy life.

(Source: detechter.com)

IV. Good News

12. Covid-19 Lockdown: Farmers’ Groups in Akola Earned Rs. 8.50
Crores by Directly Selling Produce to Customers

During the lockdown caused by the
corona virus (Covid-19) pandemic, except essential service providers, everyone
is staying at home. Seeing an opportunity in this, farmers in Akola district in
Maharashtra used direct marketing to sell their produce to customers and earned
almost Rs. 8.50 crores.

The farmers from Akola have
worked out an inspiring model of direct marketing in which 69 farmer groups
joined hands and sold crops worth Rs. 8.50 crores directly to customers during
the lockdown period, says a release from the Press Information Bureau (PIB).

One of the farmers from the Akola
group says, ?We have already sold 850 metric tonnes of crops including fruits
and vegetables so far. In order to save time and effort, our groups also use
methods like online payments and order-on-phone service’.

Under the guidance of the
district agriculture department, the farmers have been selling fresh vegetables
and fruits directly to the customers at reasonable prices through 93 direct
selling outlets. These outlets are located in urban areas of Akola as well as
in nearby districts. Apart from these organised selling outlets, the farmers
have put up small stalls at important spots in the area and are also providing
door-to-door delivery.

Since the beginning of the
lockdown period due to the outbreak of Covid-19, the department of agriculture,
co-operation and farmers’ welfare in the Central government has been taking
several measures to facilitate farmers and farming activities at the field
level.

The lockdown coincides with the
harvest season of the rabi crops. The department has been making
concerted efforts so that farmers do not face any difficulties in selling their
produce. To assure better returns especially for perishable crops like fruits
and vegetables, the department encourages farmers to engage in ‘direct
marketing’. To promote the concept of direct marketing among farmers, the
department assists farmers, group of farmers, farmer producer organisations and
co-operatives in selling their produce to bulk buyers, big retailers and
processors.

Mohan Wagh, project officer,
agricultural technology management agency (ATMA) at Akola says, ?With the
implementation of the model, we have ensured that the farmers do not suffer due
to the lockdown and are able to sell their produce at a decent price. Our
department issues identity cards and passes for the farmers and vehicles for
the smooth management of the system.’

To prevent
the spread of Covid-19, the district agriculture department has advised farmers
to use masks, sanitizers and practice social distancing on the farms and in the
mandis.

(Source:
www.moneylife.in 29^thApril, 2020)

BCAJ Admin

BOOK REVIEW

HDFC BANK
2.0: FROM DAWN TO DIGITAL – By Tamal
Bandyopadhyay

Finally,
here is a book that narrates the transformation of HDFC Bank from a startup in
1994 to striding across the Indian banking sector like a colossus in a little
over two decades. The bank celebrated its twenty fifth anniversary in 2019.

Tamal
Bandyopadhyay is one of India’s most respected writers and columnists on
finance. He tells the exciting tale of how HDFC Bank has transformed itself
with its digital foray. It chronicles how India’s most valued lender faced its
toughest challenge of turning itself into a digital bank.

The author
has made it clear that his objective is not merely to write the bank’s history
but to tell the story of the making of a successful bank, born after economic
liberalisation and reinventing itself continuously to expand its reach and
remain ahead of the competition. It tells the story of HDFC Bank in the context
of the overall banking space in India, which has been changing dramatically
with new products, new ideas and technology and, of course, the pile of bad
loans that is forcing the industry to take a re-look at loan appraisal and risk
management. It is divided into three parts – The Digital Journey, The Flashback
and The Puri Legacy.

THE DIGITAL JOURNEY

The strategy
was to provide speed, use technology to do credit and risk management at scale,
improve the consumer experience and apply Artificial Intelligence (AI) to
massive amounts of data for prediction and decision-making. It could provide
far more convenience to customers and it was also believed that with full digitisation
the bank could reduce its operational costs. It was truly a win-win situation.
The digitisation drive has resulted in slashing of documents’ movement, saving
two million sheets of paper every month and shrinking the cost-to-earnings
ratio to 40% from 49% between 2012 and 2018.

The HDFC
Bank 2.0 journey began with MD Aditya Puri’s trip to California in September,
2014 to see the developments and innovations in technology and to understand
their impact. He came back convinced that his bank had to move fast and take
advantage of digital disruption. He had seen how the fintech companies, the new
kids on the tech block, were getting into fund transfers, mobile banking and
shopping. They could build products to give quick loans and provide a lot of convenience
and a slick user interface to customers on their phones. Aditya and HDFC
Bank decided that they would rather disrupt themselves than be disrupted.

It was also
important that the bank combined global trends in technology like smartphones,
AI, the cloud, etc. with the state-of-the-art infrastructure that India had
built as digital public goods – Aadhaar, e-KYC, Unified Payments Interface
(UPI) and other elements of the India stack.

This enabled
the bank to launch new products quickly that could be targeted across the
country, at both urban and rural customers. For example, the 10-second loan is
a genuine innovation based on the principle of ‘paperless, presence-less and
cashless’ banking. It is a great example of combining the traditional strength
of the bank in credit underwriting and risk management with the latest
technology. HDFC Bank has taken this innovative approach to car loans, loans
against securities, loans against mutual funds and, with increased data about
small businesses coming in after the implementation of the Goods and Services
Tax (GST), similar products could well be rolled out for small business lending
as well.

As a part of
digitisation, in 2015 the bank introduced a fully integrated marketplace
platform, an aggregator called SmartBuy, hosting links to various sites
catering to shopping, travel, etc., with 3,000 to 4,000 registered merchants.
The first bank in India to do so, HDFC Bank clocked Rs. 40 billion from this in
2018. Clearly, India’s most valued lender has been turning itself into a
digital bank not in a superficial manner but by driving fundamental change. All
this is taking place at warp speed – around 85% of all its transactions were
digital in 2018.

THE FLASHBACK

This part
deals with the making of the bank, viz. its conceptualisation, the team
building and the startup fervour of the initial days.

The idea of
floating a bank occurred to Mr. Deepak Parekh and the HDFC Board in 1987. The
starting point was to initiate non-mortgage opportunities for HDFC, then engage
in housing financing. In 1993, soon after the liberalisation of India’s economy
in 1991, the Reserve Bank of India issued guidelines on the entry of new
private banks. HDFC Bank was incorporated in August, 1994 and got the banking
licence in January, 1995 along with nine others such as ICICI, IDBI, UTI, Times
Bank, Centurion Bank, IndusInd Bank, etc. In February, 1995, Mr. Manmohan
Singh, the then Finance Minister, inaugurated HDFC Bank’s corporate office at
Worli.

Aditya
Puri, ex-Citibank, was appointed as CEO with his first 13 men, the lucky 13,
who shared the same vision of creating a bank with a difference and
believing that they would be working in the best bank in India. Most of
them, earlier with Citibank and Bank of America, left their lucrative positions
and global opportunities, took pay cuts for this vision and joined the startup
private bank. The first bank to give stock options to its employees, HDFC Bank
used this route to create a balance between short-term rewards and long-term
sustainable value creation. And the money did come their way as the bank and
the stock did phenomenally well. Aditya gave the lucky 13 the freedom to
bring their own people to the bank, people who would share the same dream and
passion. But he had one caveat – not too many people could be hired from
particular banks, as this would make it difficult for HDFC Bank to evolve its
own culture.

The book
contains many inside stories of the Natwest misadventure and the two mergers by
HDFC Bank, viz., Times Bank and Centurion Bank of Punjab, with all the minute
details.

The author,
with his rich experience in the banking space, makes two critical observations
worth mentioning:

1. When one gauges a bank, there are three key
things to look at – profitability, growth and stability. There is also the
critical component of trust. One associates the idea of a bank with
something one can trust – that ‘You can bank on somebody’.

2. Globally, banks have never failed because of
lack of technology, or great products or people. What the failed banks
really missed was risk management – they did not manage the risks well.
Herein comes the understanding of the risk-reward trade-off, or balancing of
business growth with the risk taken in delivering it.

THE PURI LEGACY

What makes Aditya, the longest-serving
Managing Director of any bank globally, different from his peers? The author
tries to analyse this by pointing out that Aditya, B.Com. and a qualified
Chartered Accountant, is a common-sense banker with a strong belief
that common sense and curiosity are far more important than anything else in
banking. One of the most remarkable things about him is his eye for detail. He
and HDFC Bank have been known for spotting trends and then executing plans with
lightning speed, scale and, yet, with proper risk controls. According to
Aditya, HDFC Bank is not a bank anymore but a financial experience.
Under his leadership, from a life-cycle bank, HDFC Bank is transforming itself
into a lifestyle bank.

He is good at maintaining
work-life balance by following a principle of doing extraordinary things in an
ordinary way. In spite of heading such a large institution he leaves office by
5.30 pm regularly and spends time with his family. He never delegates. He
empowers.

He has always been ahead of the
curve and had foreseen the digital banking revolution and knew a convergence
would happen and people would want everything on the phone. However, it is
pertinent to note that he does not use a mobile phone and email for himself!

Under his leadership, the bank
has shown that with an agile leadership which has foresight and flawless
execution at speed and scale, even a giant bank can take on the nimblest of
startups and become a pioneer and market leader. It is an object lesson on how
incumbents in many industries can respond to the digital disruption that is
staring at them.

The Puri
legacy is all about an institution which will continue to grow and go to the
next level with the same drive, value, ethos and culture, and with the same
consistency.

Book reviewer’s
notes

Mr. Deepak Parekh was never on
the Board of the bank despite being closely involved in creating it, including
lending the brand name ’HDFC’ at no cost! It can be said that it was his
conceptualisation, vision and leadership ability to give space to the CEO to
grow and develop.

The key lesson, both from the bank and the book, is
that freedom for professional managers, non-interference by the board and the
promoter, and a passion for success are more important than ownership.

BCAJ Admin

REPRESENTATION

1. Dated: 30^th March, 2020

To: Honourable Finance Minister
Ministry of Finance, Government of India, 128-A North Block, New Delhi

Subject: Tax Payer Relief: Certain
issues

Representation by: IMC Chamber of
Commerce and Industry; Bombay Chartered Accountants Society; Chartered
Accountants Association, Ahmedabad; Chartered Accountants Association, Surat;
Karnataka State Chartered Accountants Association; Lucknow Chartered
Accountants Society

Note: For
full Text of the above Representation, visit our website www.bcasonline.org

2. Dated: 27^th April, 2020

To: Honourable Finance Minister
Ministry of Finance, Government of India, 128-A North Block, New Delhi

Subject: Representation for
deferment for applicability of provision of expanded scope of Equalisation Levy
(‘EL’) on ‘E-commerce Supply or Services’ (‘ESS’) made applicable to
Non-residents.

Representation by: IMC Chamber of
Commerce and Industry; Bombay Chartered Accountants Society; Chartered
Accountants Association, Ahmedabad; Chartered Accountants Association, Surat;
Karnataka State Chartered Accountants Association; Lucknow Chartered
Accountants Society

Note: For
full Text of the above Representation, visit our website www.bcasonline.org

BCAJ Admin

CORPORATE LAW CORNER

2. Rajendra K. Bhutta vs. Maharashtra Housing and Area
Development Authority

[2020] 114 taxmann.com 655 (SC)

Civil Appeal No. 12248 of 2018

Date of order: 19^th February, 2020

Section 14(1)(d) of the Insolvency and Bankruptcy Code, 2016
– The word ‘occupied’ used in the section refers to actual physically occupied
property and not the rights or interest created in the property – Any
occupation handed to the developer (corporate debtor) in terms of a Joint
Development Agreement would stand ‘statutorily freezed’ in terms of section
14(1)(d)

FACTS

A joint development agreement (‘JDA’) was entered into
between a society representing persons occupying 672 tenements, the Maharashtra
Housing and Area Development Authority (‘MHADA’) and G Co (being the corporate
debtor) on 10^thApril, 2008.
G Co entered into a loan agreement with Union Bank of India on 25^th
March, 2011 for a sum of Rs. 200 crores. G Co defaulted on payment of the said
loan and consequently Union Bank of India filed an insolvency resolution
application u/s 7 of the Insolvency and Bankruptcy Code, 2016 (‘the Code’) on
15^th May, 2017 which was admitted on 24^th July, 2017. A
moratorium in terms of section 14 was also declared by this order.

On 12^th January, 2018, after the imposition of the
moratorium period u/s 14 of the Code, MHADA issued a termination notice to G Co
stating that upon expiry of 30 days from the date of receipt of the notice, the
JDA would stand terminated. It was further stated that G Co would have to hand
over possession to MHADA, which would then enter upon the plot and take
possession of the land, including all structures thereon.

One hundred and eighty days from the start of the Corporate
Insolvency Resolution Process (‘the CIRP’) ended on 19^th January,
2018. The NCLT, by its order dated 24^th January, 2018, extended the
CIRP period by 90 days as permissible under the Code. On 1^st
February, 2018, an application was filed before the NCLT to restrain MHADA from
taking over possession of the land till completion of the CIRP, contending that
such a recovery of possession was in derogation of the moratorium imposed u/s
14 of the Code. The NCLT, by an order dated 2^nd April, 2018,
dismissed the aforesaid application, stating that section 14(1)(d) of the Code
does not cover licenses to enter upon land in pursuance of JDAs and that such
licenses would only be ‘personal’ and not interests created in property. An
appeal against this order was preferred to the NCLAT.

Meanwhile, in a parallel proceeding the quantum of time being
taken by NCLT was sought to be omitted from the total number of days allowable
under the Code. While NCLT granted part relief, an appeal filed before NCLAT
proved successful. Pursuant to an order dated 9^th May, 2018 issued
by the NCLAT, the entire 55 days taken before the NCLT were excluded.

On 3^rd July, 2018, G Co filed a Resolution Plan
which was approved by 86.16% of the Committee of Creditors (‘COC’) before the
NCLT. Ultimately, the NCLAT, by the impugned order dated 14^th
December, 2018 (after omitting to refer to the order dated 9^th May,
2018), stated that 270 days had passed by, as a result of which the entire
discussion of section 14(1)(d) would now become academic. It also decided that
with the exception of ‘development work’, G Co did not have any right on the
land in question. The land belonged to MHADA and in the absence of any formal
transfer in favour of G Co, it could not be treated as an asset of G Co for
application of the provisions of section 14(1)(d).

An appeal against the aforesaid matter was filed before the
Supreme Court.

HELD

The Supreme Court heard the arguments put forth by all the
sides. It examined the provisions of sections 3(27), 14, 18, 31 and 36(4) of
the Code. It was observed that in terms of the JDA, a license was granted to
the developer (i.e. the Corporate Debtor / G Co) to enter upon the land,
demolish the existing structures and to construct and erect new structures and
allot tenements. At the very least a license has been granted in favour of the
developer to enter upon the land to demolish existing structures, construct and
erect new structures and allot to erstwhile tenants tenements in such
constructed structures in three categories, (1) the earlier tenants / licensees
of structures that were demolished; (2) tenements to be allotted free of cost
to MHADA; and (3) what is referred to as ‘free sale component’ which the
developers then sell and exploit to recover or recoup their cost and make profit.
It was observed that it was not necessary for the purpose of this case to state
as to whether an interest in the property is or is not created by the said JDA.

It was observed by the Supreme Court that section 14(1)(d)
did not deal with any of the assets or legal rights or beneficial interest in
such assets of the corporate debtor. Reference to sections 18 and 36 which was
made by the NCLT was, thus, wholly unnecessary to decide the scope of section
14(1)(d).

For the sake of reference, section 14(1)(d) reads as follows:

Subject to provisions of sub-sections (2) and (3), on the
insolvency commencement date, the Adjudicating Authority shall by order declare
moratorium for prohibiting all of the following, namely:

…

(d) the recovery of any property by an owner or lessor
where such property is occupied by or in the possession of the corporate
debtor.

The Supreme Court observed
that as per section 14(1)(d) what is referred to is the ‘recovery of any
property’. The ‘property’ in this case consists of land admeasuring 47 acres
together with structures thereon that had to be demolished. ‘Recovery’ would
necessarily go with what was parted by the corporate debtor, and for this one
has to go to the next expression contained in the said sub-section.

Referring to the cases of The Member, Board of Revenue
vs. Arthur Paul Benthall [1955] 2 SCR 842; Koteswar Vittal Kamath vs. K.
Rangappa Baliga & Co. [1969] 1 SCC 255; and Kailash Nath
Agarwal and others vs. Pradeshiya Industrial & Investment Corporation of
U.P. Ltd. and another [2003] 4 SCC 305, the Supreme Court
held that when recovery of property is to be made by an owner u/s 14(1)(d),
such recovery would be of property that is ‘occupied by’ a corporate debtor.

Further, referring to the cases of Industrial Supplies
Pvt. Ltd. and another vs. Union of India and others [1980] 4 SCC 341; Dunlop
India Limited vs. A.A. Rahna and another [2011] 5 SCC 778; and
Ude Bhan and others vs. Kapoor Chand and others AIR 1967 P&H 53 (FB),
the Supreme Court held that the expression ‘occupied by’ would mean or be
synonymous with being in actual physical possession of, or being actually used
by, in contra-distinction to the expression ‘possession’, which would connote
possession being either constructive or actual and which, in turn, would
include legally being in possession, though factually not being in physical
possession. The JDA granted a license to the developer (Corporate Debtor) to
enter upon the property with a view to do all the things that are mentioned in
it. After such entry, the property would be ‘occupied by’ the developer /
corporate debtor.

In the context of the MHADA Act, it was held that when it
comes to any clash between the MHADA Act and the Insolvency Code, on the plain
terms of section 238 of the Insolvency Code, the Code must prevail. Further,
the Supreme Court in the context of a moratorium u/s 14 of the Code, observed
that the intention was to alleviate corporate sickness and, therefore, a
statutory status quo has been pronounced u/s 14 the moment a petition is
admitted u/s 7 of the Code, so that the insolvency resolution process may
proceed unhindered by any of the obstacles that would otherwise be caused and
that are dealt with by section 14. The statutory freeze that has thus been made
is, unlike its predecessor in the SICA, 1985 only a limited one, which is
expressly limited by section 31(3) of the Code, to the date of admission of an
insolvency petition up to the date that the adjudicating authority either
allows a resolution plan to come into effect or states that the corporate
debtor must go into liquidation. For this temporary period, at least, all the
things referred to u/s 14 must be strictly observed so that the corporate
debtor may finally be put back on its feet, albeit with a new
management.

In the facts of the case, the resolution plan had been
approved by the NCLT and the limited question before the Supreme Court was
whether section 14(1)(d) of the Code will apply to statutorily freeze
‘occupation’ that may have been handed over under a JDA. Section 14(1)(d) of
the Code speaks about recovery of property ‘occupied’. It does not refer to
rights or interests created in property but only actual physical occupation of
the property. Thus, the section would stand to cover the occupation which has
been so granted under the JDA.

The order passed by the NCLAT was thus set aside and the
appeal was allowed. NCLT was directed to dispose of the application of the
resolution professional within six weeks.

3. Vikramjit Singh Oberoi vs. Registrar of
Companies

[2020] 114 taxmann.com 512

(Madras High Court)

Date of order: 13^th January, 2020

Where company allotted shares on rights basis to its
existing shareholders, merely because many of them renounced their entitlement
in favour of more than 50 third parties it could not be said that rights issue
was converted into public issue

It is not necessary to register a pledge in respect of
fixed deposits as charge either under 1956 Act or under 2013 Act; once rights
issue-related expenditure is adjusted against security premium account, i.e.,
by way of adjustment in liability side of a balance sheet, same do not pass
through to assets side of balance sheet

Payment of royalty did not qualify as contract related to
sale, purchase or supply of goods, materials or services, thus not covered by
section 297 of 1956 Act

Where company had availed services such as car rentals,
laundry services, etc., from related party and it had not disclosed same in
Board of directors’ report, since these transactions were in ordinary course of
business on an arm’s length basis, section 134 would not apply

FACTS 1

A show cause notice was issued by the ROC in respect of the
alleged violation of sections 56 and 81(1A) of the Companies Act, 1956 (CA
1956). The company had allotted shares on rights basis to its existing
shareholders and many of the existing shareholders renounced their entitlement
in favour of others who were not shareholders. On that basis, the ROC alleged
that section 67 of CA 1956 is attracted because the renunciation is in favour
of more than 50 persons. In other words, the case of the ROC is that the
renunciation converts the rights issue into a public issue and, therefore,
section 56 of CA 1956 should have been adhered to.

Upon receipt of the show cause notice, it was explained that
section 81(1)(c) of CA 1956 mandates that the company should grant the right of
renunciation to all its existing shareholders while issuing the letter of offer
to such shareholders. Thereafter, such existing shareholders are statutorily
entitled to renounce their rights in favour of any person. It is to be noted
that in such cases the company does not have any control over the aforesaid
process and, consequently, cannot insist that such renunciation should be in
favour of existing shareholders of the company. Therefore, it cannot be said
that the company or its directors violated the relevant provisions of CA 1956.
In this connection, a letter bearing No. 8/81/56-PR dated 4^th
November, 1957 from the Ministry of Company Affairs was placed before the Court.
The said letter opined that the issue of further shares by a company to its own
members with the consequential statutory right to renounce their entitlement in
favour of a third party does not require the issuance of a prospectus.

HELD 1

The alleged offence is in
respect of non-compliance of public issue-related requirements. It is the
settled legal position that any public company should make a further issue of
shares only to existing shareholders, in the same proportion, unless a special
resolution is passed authorising the company concerned to issue shares to
others. Such an issue is referred to as a rights issue. It is also the settled
position that when a rights issue is made, the letter of offer is issued to all
existing shareholders and it is mandatory that each shareholder is given the
right to renounce such shares to any person. The relevant provision in this
regard is section 81(1) (a), (b) and (c) of CA 1956. Therefore, the company
does not have any control in respect of such renunciation which may be in
favour of any person, including third parties.

A letter dated 4^th November, 1957 from the
Ministry of Company Affairs has settled the issue beyond any doubt.
Consequently, it cannot be said that the rights issue was converted into or was
in fact a public issue merely because renunciations were made in favour of more
than 50 third parties. Therefore, it was held that the company and the
directors did not commit the alleged offence of violating sections 56 and 67 of
CA 1956. Consequently, relief u/s 463(2) of CA 2013 was granted.

FACTS 2

The alleged violation of section 129 read with schedule III
of CA 2013 is the subject matter. The ROC has alleged that the company had
deposits of Rs. 0.04 million with Axis Bank, Jaipur Branch and a further sum of
Rs. 0.07 million with Canara Bank, Chennai aggregating to Rs. 0.11 million. As
regards the aforesaid fixed deposits, Note 15 to the balance sheet for the
financial year ended 31^st March, 2015 reflected that the said fixed
deposits were pledged with the Sales Tax Department. However, no charge was
registered under the relevant provisions of CA 1956 or CA 2013 in respect of
the pledged fixed deposits. Therefore, a show cause notice was issued alleging
that section 211 of CA 1956 was violated.

In reply, it was explained that the original fixed deposit
receipts (F.D. Receipts) in respect of the aforesaid deposits with Axis Bank
and Canara Bank were pledged with the Sales Tax Department by handing over the
said F.D. Receipts and that such a pledge is not required to be registered as a
charge either under CA 1956 or CA 2013. It was also explained that CA 1956 and,
in particular, section 211 thereof, does not apply because it relates to the
financial year 2014-15 when CA 2013 was in force. In any event, it was submitted
that a pledge of movable assets is not required to be registered under CA 2013
by filing Form CHG-1, as would be evident on perusal of Form CHG-1. In spite of
this reply, another show cause notice was issued.

HELD 2

The Court observed that under both section 125 of CA 1956 and
section 77 of CA 2013, it is not necessary to register a pledge over movable
assets as a charge. This position became abundantly clear upon perusal of Form
CHG-1 under CA 2013 which excludes a pledge over movable assets. Therefore, it
is not necessary to register a pledge in respect of the fixed deposits as a
charge under the applicable provisions of either CA 1956 or CA 2013.
Consequently, the relief u/s 463(2) of CA 2013 was granted.

FACTS 3

The alleged violation of section 78(2)(c) of CA 1956 with
regard to the manner in which the rights issue-related expenses of Rs. 28.33
million were adjusted against the securities premium account of the company is
the subject matter. According to the ROC, such adjustment should have been
reflected in the Profit and Loss Account and, therefore, a show cause notice
was issued.

In reply it was explained that section 78(2)(c) permits the
utilisation of the securities premium account to write off expenses of any
issue of shares or debentures of the company. It was further submitted that the
company explained in the Note to the accounts of the balance sheet for the
financial year ended on 31^stMarch, 2013 that a sum of Rs. 979.34
million was received towards premium on rights issue of shares and a sum of Rs.
28.33 million was deducted as share issue expenses in connection with the said
rights issue. It was further submitted that the said expenditure is a capital
expenditure which was adjusted on the liability side of the balance sheet and,
therefore, was not carried into the asset side of the balance sheet.
Consequently, there was no question of reflecting it in the P&L account for
that year. It was further pointed out that AS 26 does not have any application
because it relates to intangible assets and has no connection whatsoever with
the issuance of shares on rights basis. In spite of this reply, a show cause
notice was issued by the ROC.

HELD 3

The alleged offence in this case is not reflecting the rights
issue expenses in the P&L account for the relevant financial year. The case
of the company was that the rights issue expenditure constituted capital
expenditure and that the company is entitled to adjust such expenditure against
the security premium account as per section 78(2)(c) of CA 1956. The said
contention is well founded based on section 78(2)(c) of CA 1956. Once the
rights issue-related expenditure is adjusted against the security premium
account, i.e., by way of an adjustment on the liability side of the balance
sheet, the amounts in question do not pass through to the assets side of the
balance sheet. Consequently, such amount cannot be reflected in the P&L
account and it would be an accounting impossibility to do so.

Therefore, it was concluded that the company was entitled to
treat the rights issue expenditure as a capital expenditure and set it off
against the security premium account in accordance with section 78(2)(c) of CA
1956. As a corollary, such expenditure could not have been reflected in the
P&L account for the relevant financial year. Notwithstanding the above
legal position and the explanation provided in that regard, the ROC continued
to allege that there is a violation of law. Consequently, the relief u/s 463(2)
of CA 2013 was granted.

FACTS 4

The payment of royalty during the financial years ended 31^st
March, 2013, 31^st March, 2014 and 31^st March, 2015 is the
subject matter. It was pointed out in this connection that a show cause notice
was issued to the company and a reply had been sent. With regard to the alleged
violation, it was pointed out that section 297 of CA 1956 only applies to
contracts for the sale, purchase or supply of goods, materials or services. In
this case, royalty was paid in connection with the license to use the brand /
trade name. Consequently, it is not a contract for the sale, purchase or supply
of goods, materials or services. It was further pointed out that this position
continues to remain the same u/s 188 of CA 2013 and that none of the
sub-clauses of section 188 relate to licensing of a brand / trade name. It was
further submitted that licensing does not entail sale or disposal or lease of
property and is merely the right to use the brand name.

HELD 4

It is alleged that section
297 of CA 1956 was violated in respect of the payment of royalty to a related
party. The Court observed that section 297 of CA 1956 and the corresponding
provision in CA 2013, section 188, do not deal with the payment of royalty and
instead only deal with contracts for the sale, purchase or supply of goods,
materials or services. In this connection, the judgment of the Hon’ble Supreme
Court in Tata Consulting Services is apposite and royalty does
not qualify as goods, materials or services. In any event, the company and its
officers acted honestly and reasonably and as such are entitled to the reliefs.

FACTS 5

The alleged non-disclosure
of related party transactions in Form AOC 2 in the Board of Directors’ report
is the issue. Accordingly, through a show cause notice the ROC alleged that the
company violated section 134 of CA 2013 read with Rule 8 of the Companies
(Accounts) Rules, 2014.

In reply, the company
pointed out that these transactions are in the ordinary course of business and
on an arm’s length basis. Accordingly, as per the proviso of section
188(1) of CA 2013, the section would not apply to arm’s length transactions in
the ordinary course of business. Consequently, section 134(3)(h) of CA 2013
does not apply. A separate note was also provided by the company in the
Director’s Report under the heading ‘contracts or arrangements’ mentioning that
filing of Form AOC 2 is not required. It was further pointed out that the
present contract is not a material contract; neither section 134 nor AOC 2 is
violated. Hence it was submitted that the petitioners did not violate any of
the provisions of CA 1956 or CA 2013 as alleged by the ROC. Even if there was a
technical breach, such breach was committed honestly and reasonably. Therefore,
a case is made out to grant relief u/s 463(2) of CA 2013.

HELD 5

This relates to the alleged violation of section
134 of CA 2013. Once again, the company replied to the show cause notice and
relied upon the proviso to section 188(1) of CA 2013 on the basis that
the transaction in question is in the ordinary course of business and on an arm’s
length basis. Thus it was held that the breach, if any, is purely technical and
a case is made out to be relieved of liability in this regard.

BCAJ Admin

ALLIED LAWS

6. Continuation
of interim orders – Covid-19
pandemic – Bombay High Court – Interim
orders continued

Writ Petition Urgent 2 of 2020
dated 26^th March, 2020 and 15^th April, 2020 (Bom.)(HC)

In view of
the lockdown due to the Covid-19 pandemic, the Bombay High Court held that all
interim orders operating till 26^th March, 2020 which are not already
continued by some other courts / authorities including this Court, shall remain
in force till 30^thApril, 2020 subject to liberty to parties to move
for vacation of interim orders only in extremely urgent cases. Thus, all
interim orders passed by this High Court at Mumbai, Aurangabad, Nagpur and
Panaji as also all courts / Tribunals and authorities subordinate over which it
has power of superintendence expiring before 30^th April, 2020, shall
continue to operate till then. It is further clarified that such interim orders
which are not granted for limited duration and therefore are to operate till
further orders, shall remain unaffected by this order. In view of the extension
of the lockdown, the interim orders are further extended up to 15^th
June, 2020.

7. Arbitration – Limitation – Delay in filing an appeal beyond 120
days cannot be condoned – Further clarified – 120 days include 30 days of grace
period as per Limitation Act [Arbitration and Conciliation Act, 1996, S. 34, S.
37; Limitation Act, 1963, S. 5]

N.V. International vs. State of
Assam & Ors.; 2019, SCC OnLine 1584

An arbitral
award was passed on 19^th December, 2006 which was challenged before
the District Judge in a petition u/s 34 of the Arbitration and Conciliation
Act, 1996 which ultimately was rejected on 30^th May, 2016. An appeal
was filed against this order in March, 2017 after a delay of 189 days. The
delay was not condoned as no sufficient cause was made out for the same. On an
SLP, the Supreme Court held that apart from sufficient cause, since a section
34 application has to be filed within a period of a maximum of 120 days
including the grace period of 30 days, any appeal u/s 37 should be covered by
the same drill. Allowing a delay beyond 120 days will defeat the overall
purpose of arbitration proceedings being decided with utmost dispatch.

8. Limitation
– Covid-19 pandemic – Supreme Court – Relief for litigants and lawyers
[Constitution of India, Articles 141, 142]

Suo motu Writ
petition (Civil) No. 3/2020 dated 23^rdMarch, 2020 (SC)

On account
of the situation posed by the Covid-19 pandemic, the Hon’ble Supreme Court has suo
motu held that to ease the difficulties faced by the litigants and their
lawyers across the country in filing their petitions / applications / suits /
appeals, irrespective of the limitation prescribed under the general law or
special laws whether condonable or not, shall stand extended w.e.f. 15^th
March, 2020 till further order/s passed by this Court in the present
proceedings.

9. Consumer Protection – Self-contribution scheme for benefit of
employees – Whether consumer-service provider relationship between employee and
employer [Consumer Protection Act, S. 2(1)(d), S. 2(1)(o)]

ONGC & Ors. vs. Consumer
Education Research Society & Ors.; 2019, SCC OnLine SC 1575

In this
case there was no dispute that the claimants were employees of ONGC which had
introduced a self-contribution scheme after obtaining the required permissions
from the government. The scheme was voluntary and optional and the employer was
making a token contribution of Rs. 100 p.a. There was a delay in sending the
claims of the employees to LIC on account of which the employees suffered a
loss. The employees filed a case against the employer (ONGC) for deficiency in
service. The Hon’ble Supreme Court held that there is virtually no privity of
contract for providing services between the employees and the employer.
Further, the scheme is managed and run by a trust and not by ONGC. Therefore,
the service, if any, is being rendered by the Trust and not by ONGC. Thus,
there is no consumer-service provider relationship between the employees and
the employer (ONGC).

10. Priority of employees’ dues over all dues – Not applicable to
co-operative societies [Companies Act, 1956, S. 529A; Maharashtra Co-operative
Societies Act, 1960, S. 167]

Maharashtra State Co-operative
Bank Limited vs. Babulal Lade & Ors.; 2019, SCC OnLine SC 1545

The Hon’ble Supreme Court inter alia held that
section 167 of the Companies Act, 1956 creates a bar on the applicability of
the Companies Act to societies registered under the Societies Act. Given that
the karkhana (factory) was a co-operative society registered under the
said Act, section 167 of the Societies Act, 1960 is applicable and the High
Court committed a grave error in relying upon section 529A of the Companies
Act, 1956. Thus, employees cannot make use of section 529A of the Companies Act
to claim priority over all the other debts of the karkhana.

BCAJ Admin

STATISTICALLY SPEAKING

1. The biggest private corona virus donations

Source: Forbes

2. Value
of COVID-19 fiscal stimulus packages in G20 countries, as a share of GDP (as of
May, 2020)

Source: Statista

3. Majority
of Bitcoin and crypto owners are open to taxation

Source: Survey by CHILDLY
(crypto finance start-up)

4. Countries
with highest share of health-related goods from China (2017)

Source: UN COMTRADE data
extracted from Observatory of Economic Complexity

5. Countries
with highest export surplus in health-related goods (in billion USD in 2017)

Source: UN COMTRADE data
extracted from Observatory of Economic Complexity

BCAJ Admin

Society News

DIRECT TAXES HOME REFRESHER COURSE

The Taxation
Committee organised the first-ever Direct Taxes Home Refresher Course (DTHRC)
2020 from 20^th April to 1^st May, 2020. It comprised seven
dynamic sessions on topics which have significant relevance and application in
the current times. The course was crafted under the pressing times of the
Covid-19 pandemic to enable members who are either working from home, or
working at home, to stay connected with the current scenario in direct taxes.

Members and
participants were given a kaleidoscopic view of the new taxation regime
effective from F.Y. 2021 onwards, the recent amendments to the provisions of
TDS and TCS, the fundamentals and applications of the Vivad se Vishwas
Scheme and the recent amendments to taxation of charitable trusts.

Incidentally,
the sessions on tax implications for banks and NBFCs, penalty provisions and
domestic GAAR went on beyond the time fixed as the speakers shared their vast
knowledge on these subjects.

The DTHRC
was organised and conducted on the Zoom app where the participants not only saw
the speaker and the presentation, but they could also post queries to the host
through the chat box. The meetings were also accessible through the BCAS
page on YouTube live. On an average, every meeting saw an attendance of 500
to 700 persons.

The queries
were filtered by the hosts and were dealt with by the respective speakers at
the end of the session.

The following table
summarises the DTHRC:

*Date*	*Topic*	*Speaker*
20.4.2020	New taxation regime u/s 115BAA,115BAC, 115BAD	Bhadresh Doshi
21.4.2020	Vivad se Vishwas scheme	Gautam Nayak
24.4.2020	Recent amendments related to charitable trusts	Dr. Gautam Shah
27.4.2020	Recent amendments to TDS and TCS provisions	Sonalee Godbole
28.4.2020	Tax implications for banks and NBFCs	G.R. Hari
29.4.2020	Penalty u/s 270A/270AA	Jagdish Punjabi
1.5.2020	Domestic GAAR	Pinakin Desai

Date

Topic

Speaker

20.4.2020

New taxation regime u/s
115BAA,115BAC, 115BAD

Bhadresh Doshi

21.4.2020

Vivad se Vishwas scheme

Gautam Nayak

24.4.2020

Recent amendments related to
charitable trusts

Dr. Gautam Shah

27.4.2020

Recent amendments to TDS and
TCS provisions

Sonalee Godbole

28.4.2020

Tax implications for banks
and NBFCs

G.R. Hari

29.4.2020

Penalty u/s 270A/270AA

Jagdish Punjabi

1.5.2020

Domestic GAAR

Pinakin Desai

With such
high participation, the sessions were bound to be interactive and the speakers
were equally eager to share their insights on their respective subjects.

VIRTUAL ZOOM SESSION ON ‘LOCKED IN LOCKDOWN’

The HRD
Committee organised a virtual Zoom session styled ‘Locked in Lockdown’ from
4.30 pm onwards on 11^th April.

Thanks again
to the lockdown due to Covid-19, the Committee took this commendable initiative
to help members to positively cope up with the forced confinement.
Approximately 90 participants took part in the session.

It was
conducted by Dr. Nidhi Thanawala who is a therapist, life coach,
professor recruiter, reality TV expert, all rolled into one. She planned the
session in such a way as to move the focus on creating a positive mindset and
making the best of the lockdown period. She suggested ways to deal with the
social media influence and reduce screen time. She provided tips to schedule
routines, engage in hobbies like drawing and painting and spend time in
learning new things. She also highlighted how we should adjust our home
environment for the smooth functioning of work from home, distribution of
household chores and spending quality time with the family during the lockdown
period.

As expected,
the session was interactive and the participants asked a lot of questions
throughout the session. Dr. Thanawalla was equally energetic in
providing her insights and answered all the questions posed by the
participants.

The session
concluded with a vote of thanks proposed by Sneh Bhuta (Convener of the
HRD Committee).

PRACTISING CA’s SURVIVAL GUIDE

In the
backdrop of Covid-19 the leaders of CA firms have faced many new issues /
dilemmas about survival and growth that needed discussion and understanding. To
address these problems, BCAS arranged a unique programme ‘The CA Survival
Guide’ to present options and strategies to address some of them.

It was a
one-of-its-kind three-session online paid webinar conducted through the Zoom
platform. The programme received excellent response with enrolments being
received till the last minute and with a final count of 91.

The first
session was conducted by Nandita Parikh on ‘People Matters because
People Matter’ on 28^th April over a Zoom call. The session was
divided into three parts, namely, ‘Our Partners’, ‘Our People’ and ‘Our Clients’,
followed by a round of questions and answers.

Nandita
spoke about partners’ responsibilities in a CA firm and their post-Covid roles
and alignment, provided guidance on ‘must do’ things for partners and
emphasised on the new era of consolidation and collaboration. In the second
part of her presentation, she dwelt on ‘our people’, i.e. the employees,
retainers and associates. She addressed pertinent questions such as salary
deductions, increments and promotions in these difficult times and pointed to
the importance of re-planning and preparations for reopening, post the
lockdown, with special focus on re-skilling, relocation and new ideas for the
employees.

In the third
part of her presentation, Nandita Parikh addressed questions on how to
service clients in terms of relocation, revision of fees, scope of work, usage
of digital platforms and new offerings. This was followed by an interesting
Q&A session. And it all concluded with a vote of thanks proposed by Mukesh
Trivedi (Convener, HRD Committee).

The second
session was by Ameet Patel on ‘No Technology, No Future’ on 30^th
April over a Zoom call. He began by asking a bold question – Are we aware of
the disruption sweeping the world in general and our profession in particular?
He noted that most CA firms were unable to function during the lockdown on
account of unpreparedness, lack of infrastructure and lack of data. The key
lesson from this was to come out of our comfort zones and focus on upgrading
the use of technology.

Ameet
discussed various technology issues faced by CAs and suggested solutions to the
same in the shape of available software and the technologies at one’s disposal.
He placed particular emphasis on the usage of technology in day-to-day
functioning to improve offerings and to be future-ready. The session concluded
with a Q&A round and a vote of thanks by Namrata Dedhia.

The third
and the final session of ‘The CA Survival Guide’ series was conducted by Vaibhav
Manek on ‘Practice Growth Strategy’ on 2^nd May, again over a
Zoom call.

He began by
focusing on the relevance of growth in the times of Covid-19 and how the
expectations of clients would change. Therefore, it was time to think
differently about growth, strategy and reinventing ourselves. What was the
recipe for sustainable growth and making strategic choices? For this it was
necessary to focus on the pros and cons of providing specialised services,
doing self-diagnosis of the firm, making a 360-degree strategy and elevating
the clients’ experiences.

In the third
part of the presentation, Vaibhav emphasised a ‘Call for Action’ and
described how execution was the most important. He spoke about developing and
implementing strategic visions for the firm. The participants asked several
questions and the speaker answered them with elan. The session ended with a
vote of thanks proposed by Sneh Bhuta.

The programme ‘The CA Survival Guide’ specifically focused on the small
and medium-sized CA firms who would be required to respond effectively to the
mammoth disruption caused by the pandemic through focussed thinking,
well-defined and dynamic strategy and timely action.

VIRTUAL CLASS SERIES ON TECHNOLOGY

Amidst the
lockdown due to Covid-19, the HRD Committee took the first initiative to keep
its members and their families engaged sitting in their homes and using their
phones, iPads or PC’s smartly. Their response was very encouraging and it was
decided to keep the momentum going with a series of similar virtual classes.

All the
sessions were conducted on different dates by the senior and experienced techie
Yazdi Tantra.

1^stApril, 11:00 am – ‘Use of Google’

Yazdi
listed the innumerable 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 reading the current news, translating in various languages and so on.

The session
can be viewed on the BCAS YouTube Channel at the following link:
https://www.youtube.com/watch?v=ActAE4vm6bk

9^th
April, 10:30 am – ‘Use of GMail’

The faculty
started by pointing out that Gmail is one of the world’s largest Email
programmes, with up to 26% market share. There were many features hidden under
the hood which made Gmail a very fast, efficient and reliable tool. Yazdi
shared tips, tricks and shortcuts which could make Gmail a versatile and
productive business tool.

The session can be viewed on BCAS YouTube Channel at: https://www.youtube.com/watch?v=frzNQM8If40&t=1409s

15^th
April, 10:30 am – ‘Use of Google Chrome Extensions’

The session
started with the explanation that extensions are third-party programmes that
add new features to browsers and personalise one’s browsing experience. Chrome
browser was open to accepting the maximum number of extensions. The speaker
explained a few extensions to help maximise productivity and save time when
using Chrome. He also explained extensions that can be used with Gmail, making
the mailing experience easy and more productive.

The session can be viewed on BCAS YouTube Channel at: https://www.youtube.com/watch?v=BIn6i8YnGoc

24^th
April, 09:30 pm –‘Dictation Apps’

This session
was jointly conducted by the HRD Committee along with the Technology Initiative
Committee. The faculty started by explaining the features of the desktop-based
app https://dictation.io/ which can be used through a web browser without
installing any application. He explained the copy and edit features and the use
of this platform to dictate in various languages. He then explained using
dictation facility in Gmail through a web browser as well as mobile phones.

The session can be viewed on BCAS YouTube Channel at: https://www.youtube.com/watch?v=01ZUIrbop0w

‘VIRTUAL’ STUDENTS STUDY CIRCLE

The Students
Forum under the auspices of the HRD Committee organised its first ‘Virtual’
Students Study Circle meeting during the lockdown on the key subject of ‘Bank
Audit – Recent Changes and Covid-19 Impact’. It was conducted via Zoom Meetings
on 16^th April from 6 to 7.30 pm.

The study
circle was led by Pankaj Tiwari who is an expert on the subject. Azvi
Khalid, the student Co-ordinator, introduced the speaker and spoke about
the activities undertaken by BCAS for students.

In his
detailed presentation, Pankaj covered all the major aspects of bank
audits. He explained in brief the relief granted by RBI after assessing the
current situation as a result of the Covid-19 pandemic. He dwelt in detail on
the impact of the relief measures for banks, such as changes in Asset
Classification and Provisioning, Income Recognition, Deferment of EMI on
various loans, and the impact of the same on audit procedure. He also touched
upon the important aspects that need to be taken into consideration while
conducting the audit.

The speaker
answered all the questions raised by the participants. The interactive session
ended with Azvi Khalid proposing the vote of thanks to the speaker for
enlightening the students with his expert knowledge.

‘RANKERS’ SECRETS – LEARNINGS AND INSPIRATION FOR CA
STUDENTS’

The Seminar,
Public Relations and Membership Development Committee organised a talk by
toppers (single-digit rankers) on the above subject on 3^rd May over
the Zoom meeting platform.

The digital
meeting was addressed by Kushal Lodha [CA Final (AIR 5), CA IPCC (AIR
5), CA CPT (AIR 6)] and Dhruv Kothari [CA Final (AIR 2), CA IPCC (AIR
22)].

At the
beginning of the session, President Manish Sampat shared some details of
his journey and experience as a Chartered Accountant with the student
participants.

The speakers
themselves shared their thought processes, how they approached the CA exams,
what discipline they followed, which materials they referred to, how many times
they revised their subjects, last-day preparations, analysing exam papers, how
to approach the same and many such questions.

After their
address, the Coordinators’ panel asked questions and the speakers answered each
one in detail.

The session
was highly motivating and around 540 participants, including on the Zoom
meeting platform and on YouTube, benefited from the experience of the two top
rankers.

SAMVID 2020 – MSME’S STEPS TOWARDS
ATMANIRBHARTA

The Bombay
Chartered Accountants’ Society was the knowledge partner for a webinar
organised by the Mahesh Professional Forum, Pune, on ‘SAMVID 2020 – MSME’s
Steps Towards Atmanirbharta’ on 23^rd May. The online session
was held between 4 and 6 pm.

President Manish
Sampat set the ball rolling with his introductory speech in which he shared
details about the BCAS, its motto and activities. He also introduced the
topic and its relevance in the current times.

The first
speaker was Anand Bathiya who focused on the context, scope and benefits
of registration as Micro, Small and Medium Enterprises (MSMEs). He described
its revised definition, the registration process and the benefits and details
of various schemes for MSMEs. He also explained a few key initiatives like the Atmanirbhar
Scheme and the TReDS platform.

The second
session was taken up by Chirag Doshi who spoke on the Standard Operating
Procedures (SOPs) for MSMEs. He also explained the plan of action for revival
of small enterprises after they open up when the Covid-19 lockdown ends.

Mrinal Mehta
was at the helm for the third session and explained the tax provisions
applicable to MSMEs. He also discussed the tax incentives and schemes available
under the Direct and Indirect Tax regimes for MSMEs. The reliefs in the
statutory due dates announced by the government because of Covid-19 were also
discussed.

After the
key speakers the panel of Coordinators posed the viewers’ questions and the
speakers answered each and every one of them.

The session
attracted more than 1,100 participants from all over the country who said that
they had immensely benefited from the knowledge and practical experience shared
by the speakers.

The role of BCAS,
which was the knowledge partner, was highly appreciated by the SAMVID committee
for its quality and support.

BCAS IDEA ANALYTICS SCHOOL FOR INTERNAL AUDITORS

To help develop Data Analytics skills amongst Internal Audit
professionals in a structured and focused manner, the Internal Audit Committee
of the BCAS, in association with SAMA Audit Systems and Softwares Pvt.
Ltd., designed a unique online hands-on course on data analytics using IDEA
tools at two levels – Intermediate (two batches announced) and Expert (one
batch), every course comprising of five online sessions of two and a half hours
each, with the IDEA Analytics software and data files being made available to
each participant for a hands-on experience. The first Intermediate course was
launched in May and the other two courses are scheduled for June, 2020.

The course
is being conducted by certified IDEA trainers and includes availability of IDEA
software tools for 45 days and a help-desk for assisting the participants
navigate their way in IDEA for a period of two weeks.

10^TH Ind AS RESIDENTIAL STUDY
COURSE

This year
the BCAS completed a full decade of its Ind AS Residential Study Course
(RSC). The journey of RSCs began at the Rambhau Mhalgi Prabodhini just outside
Bombay city in December, 2009 and marked a new avenue of learning and sharing
knowledge on Ind AS. Over the last nine years, RSC participants got together at
various locations over two nights and three days for discussions on this vital
subject.

Fittingly,
the 10^th edition was organised at the Hyatt Alila Diwa Hotel in Goa
from 5^th to 8^th March. In a departure to mark the 10^th
edition of this sought-after and eagerly-awaited study course – and with exotic
Goa being chosen as the venue, spouses were also allowed to join. In another
departure from the norm, the duration of the RSC was also extended by one more
day to three nights and four days. The RSC witnessed a very large number of
participants from all over the country. For the spouses and the participants,
special tours, events and activities were planned, such as a Panjim city tour,
a cruise, beach activities and so on.

As usual,
the 10^th RSC also followed the format of extensive group discussions
on Case Studies-based papers, presentation papers on subjects of current
topical interest and a panel discussion with experts. The participants were
divided into three groups to have in-depth discussions and a learning and
sharing experience. The group leaders made strenuous efforts to prepare their
presentations for detailed discussions.

The list of
topics and the paper writers / presenters is as under:

Sr. No.

Paper / Presentation

Faculty

Nature of activity

Case Studies on Business
Combination

and Consolidation and Ind AS
116 – Leases

Raj Mullick

Group Discussion

Case Studies on Financial
Instruments

and Ind AS 115 – Revenue

V. Venkat

Group Discussion

Presentation Paper on
Taxation aspects of

Ind AS (including GST and
MAT)

Gautam B. Doshi

Presentation

Recent Developments in
Statutory Audit and

Audit Reporting (including
CARO 2020)

Himanshu Kishnadwala

Presentation

Conceptual Framework for Ind
AS and

Recent Developments at IASB

Vidhyadhar Kulkarni

Presentation

Panel Discussion on Utility
of Financial

Statements and Relevance of
Audit

Nilesh Vikamsey,
Raj Mullick,

Prashant Jain,
Jigar Shah

Moderator:

Sandeep Shah

Panel Discussion

The RSC
started on Thursday, 5^th March with the inaugural session at which
President Manish Sampat; Himanshu Kishnadwala, Chairman of the
Accounting and Auditing Committee; Chirag Doshi, Managing Committee
Member and Convener; Amit Purohit and Nikhil Patel, Conveners,
were present. In his opening remarks, the President wished the participants a
great learning experience. He also spoke briefly about the activities
undertaken by BCAS and invited non-members to join it and gain
uninterrupted knowledge. Himanshu Kishnadwala briefly explained the
importance and relevance of RSCs and outlined the events planned for the
following four days.

The
inauguration was followed by the presentation paper on ‘Taxation Aspects of Ind
AS (including GST and MAT)’ by Gautam B. Doshi and another presentation
paper on ‘Recent Developments in Statutory Audit and Audit Reporting (including
CARO 2020)’ by Himanshu Kishnadwala.

On the next
morning, the study groups discussed the ‘Case Studies on Business Combination and
Consolidation and Ind AS 116-Leases’ by Raj Mullick. The group
discussion was followed by the presentation and reply by Raj Mullick,
the Paper writer. The second half of the day was set aside for leisure
activities for the participants.

Saturday
morning (7^th March) saw fun-filled beach activities, which was
followed by the group discussion on Paper 2 – ‘Case Studies on Financial
Instruments and Ind AS 115-Revenue’ by V. Venkat. The post-lunch
session featured the Presentation Paper on ‘Conceptual Framework for Ind AS and
Recent Developments at IASB’ by Vidhyadhar Kulkarni, followed by
Response to Paper 2 Case Studies by V. Venkat.

A highly
interesting and lively panel discussion on ‘Utility of Financial Statements and
Relevance of Audit’ was organised on 8^th March (Sunday), the last
day of the RSC. The panellists were Nilesh Vikamsey, Raj Mullick, Prashant
Jain and Jigar Shah. The discussion was moderated by Sandeep Shah.

(Readers are
requested to refer to the April, 2020 issue of the BCAJ wherein we carried
an exhaustive report on the above panel discussion. It was written by Zubin
Billimoria and appeared under the headline ‘Panel Discussion on Utility of
Financial Statements and Relevance of Audit at the 10^th Ind AS RSC’.
The report appeared on Page No.s 101 to 104.)

Incidentally,
at the panel discussion a publication titled ‘Mandatory Accounting Standards
(Ind AS) – Extracts From Published Accounts’ was also released. The booking for
the publication was opened for outstation members and the response was very
positive.

The RSC
ended with a concluding session at which those members who were first-time
participants shared their experience of the event. Those who had participated
in five or more RSCs (including past and present) were also honoured on the
occasion.

The Chairman
thanked the participants for making the event a grand success. And Manish
Sampat thanked him, Himanshu, for successfully planning and
executing such an important event this year by setting a very high benchmark
for quality learning.

Before
leaving, most participants said they had benefited immensely from the knowledge
shared by the learned and experienced faculties and also from the group
discussions.

OUR WORLD AFTER COVID-19

The Managing
Committee of the BCAS organised a virtual chat on ‘The World and
India Post Covid-19’ on 9^th May with the celebrated entrepreneur
and academician, Mr. Mohandas Pai (pictured below).

A Padma
Shri awardee, he is the Chairman of Manipal Global Education (Manipal
University). A former Director of Infosys and Head of the Administration,
Education and Research, Financial, Human Resources of Infosys Leadership
Institute, he was also an all-India rank holder at the CA finals of the
Institute of Chartered Accountants of India.

The expert
chat was crafted under the pressing times of Covid-19 to enable the
viewer-participants to understand the effect of Covid-19 in the fields of
economics, business and health, along with the dynamics of how this pandemic
will affect both India and the world. Had the government done enough for the
country? How will India make up for the loss? Will there be revival in the
economy? What will be the future of the world and of our country?

Padamchand
Khincha helped arrange the chat which was moderated by two Past Presidents
Shariq Contractor and BCAJ Editor Raman Jokhakar. The
welcome address was delivered by Mayur Nayak.

Mr. Pai forecast
that world dependence on China will reduce. China’s export strategies will no
longer benefit it. Already, it had suffered an economic decline of 6% in the
first quarter of this year, a negative decline of 6% in its $15 trillion
economy. China will now have to be dependent on internal consumption.

The oil
industry had been majorly impacted due to the pandemic. The second largest
industry in the world ($6 trillion), it was affected due to excess production
by America. China was the second largest consumer of oil, but thanks to the
virus its consumption of oil had come down. Owing to this, the oil industry
economy had fallen to $4 trillion. Excess production of oil by countries like
the US, Saudi Arabia and Russia had led to a crash in oil prices, accounting
for a decline in the oil economy to $1.5 trillion and reduction in consumption
from 100 million barrels to 30 million barrels a day.

Central
Banks around the world had been trying to control the crisis by improving
liquidity. The Federal Reserve had increased in the balance sheet from $1
trillion to $6 trillion, thanks to buying of Government and Corporate Bonds.
The growth this year could be negative.

Mr. Pai
stated that the travel and tourism industry was virtually at a halt and
hospitality, too, had been affected. These were the largest employers worldwide
but had come to a total standstill.

Before
Covid, the global GDP of around $82 trillion had been growing by 2 to 3%, but
now it was down by 8 to 10%. The same position applied to the USA, too. Such a
dip in the economy had never been experienced since the Second World War.
Anti-China sentiments, the decline of China and Japan and the currency crisis –
all of these were a new experience.

As for
India, Mr. Pai said agriculture is expected to grow by 3.5 to 4% with
expectation of a good monsoon. Industries related to construction and mining
are expected to go down by 2.5%. Services would move into negative territory
with 2 to 3% growth. In fact, India may see a flat growth rate of not more than
1.5% in its GDP.

‘Work from
Home’ is the mantra of the new era, with a 40 million workforce staying home
and working. As for IT, new developments would be witnessed in areas such as
TeleMedicine, E-Health, E-Education and
E-Entertainment.

So far as global trade is concerned, India is the next China. The world
will trust India more than China, especially in global trade and the pharma
sector. The government is expected to boost demand by spending Rs. 1 lakh
crores on infrastructure.

Mr. Pai advised Chartered
Accountants not to ‘turn to ghosts’ (seers, soothsayers and astrologers) but to
use technology to become more global and more efficient. They would be able to
offer a quantum leap in the volume and quality of the services that they could
provide.

He concluded by stating that by 2025 the emerging markets will have
higher GDP compared to the OECD countries. Globalisation had gone too far – far
ahead of the need – and was trying to find a new normal with equal stress on
national considerations.

‘This pandemic is like a global war. Globalisation has made us realise
that there is interdependence between nations. There will be some ups and downs
for the next three to four years,’ Mr. Pai added.

Clearly, the
expert chat was a reality check on the current times. The speaker was
professional in his approach and knowledgeable in the points that he covered.

BCAJ Admin

RECENT DEVELOPMENTS IN GST

NOTIFICATIONS

(1) Activation of Form PMT-09 for transfer of
amount within Electronic Cash Ledger – Notification No. 37/2020-Central
Tax, dated 28^th April, 2020

Registered Persons
were facing a lot of difficulties in getting refund of cash amounts deposited
under a wrong head in the electronic cash ledger. For example, if a person had
deposited Rs. 50,000 in cash under the ‘Cess’ head instead of the ‘SGST’ head,
he would not be able to use the cash amount and the only option available was
to claim refund of excess cash deposited in the ‘Cess’ head.

To address
these difficulties, Sub-Rule (13) was inserted in Rule 87 vide Notification
No. 31/2019-Central Taxes, dated 28^th June, 2019. The said Rule
87(13) provided that a registered person may, on the common portal, transfer
any amount of tax, interest, penalty, fee or any other amount available in the
electronic cash ledger under the Act to the electronic cash ledger for integrated
tax, Central tax, State tax or Union territory tax, or cess in FORM GST
PMT-09.

Though the
aforesaid Sub-Rule 13 was inserted on 28^thJune, 2019, it was not
made effective at that time. Now, this facility has been made effective from 28^th
April, 2020 through Form PMT-09.

This new
facility will be useful for transferring the cash balance from one head to
another head, or from one act to another. For example, the cash balance in CGST
can be transferred to SGST or to interest / penalty, or vice versa. However,
this utility will be helpful only if the balance is reflected in the electronic
cash ledger. Once the amount from the electronic cash ledger is appropriated,
then this utility will not be useful. In other words, where the amount has been
debited from the electronic cash ledger at the time of filing of, say, refund
application, the said utility will not be helpful. The registered person may
have to pursue a refund application in such case.

(2) Companies now allowed to file GSTR3B
through EVC method and Nil returns can be filed by SMS – Notification
No. 38/2020-Central Tax, dated 5^th May, 2020

The
aforesaid notification is a welcome step in the current difficult times of the
Covid-19 lockdown period. Many companies that wanted to file GSTR3B in time or
before the extended due dates were not able to file the same as the Digital
Signature Certificate (DSC) of the Authorised Person is required for
verification of the return as per the proviso to Rule 26(1). In this
period of lockdown, most companies were not able to get the DSC of the
Authorised Person because these might have been in the office or elsewhere.
Thus, filing of returns without DSC was not possible. Keeping this difficulty
in mind, the government has allowed filing of GSTR3B for companies through EVC
method by inserting a second proviso to Rule 26(1). However, this
facility will be available for companies only between 21^st April,
2020 and 30^th June, 2020. Thereafter, companies will have to go back
to filing of return GSTR3B through DSC.

Though the
government has allowed the filing of GSTR3B by EVC for companies, they still
feel that other applications such as Refund Applications, etc. should also be
allowed to be filed by the EVC method during the lockdown period.

The second
important welcome step in the aforesaid Notification is that a new Rule 67A has
been inserted in the CGST Rules which allows any taxpayer, who wants to file a
Nil GSTR3B, to file the same by a simple SMS method. The Nil GSTR3B return,
through SMS mode, can be filed only through the registered mobile and the
verification will be done by OTP facility. This facility has been extended
without any time limit as of now.

(3) Extension of validity of E-way bills up to
31^st May, 2020 – Notification No. 40/2020-Central Tax, dated
5^th May, 2020

The above
Notification seeks to amend Rule 138 to the extent that all E-way bills
generated on or before 24^th March, 2020 and with their validity
expiring between 20^thMarch, 2020 and 15^th April, 2020,
will have their validity deemed to have been extended till 31^st May,
2020.

(4) Extension of time limit for GST Audit of
F.Y. 2018-2019 – Notification No. 41/2020-Central Tax, dated 5^th
May, 2020

The time limit for filing the Annual Return (GSTR9) and GST Audit
Reconciliation Statement (GSTR9C) for F.Y. 2018-2019 is extended up to 30^th
September, 2020. Earlier, the time limit was 30^th June, 2020. The
extension of time limit to 30^th September, 2020 is a welcome relief
for all such registered persons, practitioners and auditors because many
compliances are clashing in the month of June, 2020.

(5) Retrospective amendment to section 140 for
prescribing time limit for filing TRAN – 1 form has been made effective
from 18^th May, 2020 – Notification No. 43/2020-Central Tax,
dated 16^th May, 2020

Till now
many High Courts have decided on the applicability of time limit for filing
Form TRAN – 1 for claiming the transitional credit u/s 140 of the CGST Act,
2017 read with Rule 117 of the CGST Rules, 2017. The latest such judgment was
by the Hon’ble Delhi High Court in a bunch of cases reported in Brand
Equity Treaties Limited vs. The Union of India & Ors.; 2020-VIL-196-Del.
The Court held in this case that there is no time limit prescribed under the
Act and hence restricting the period for filing the Form TRAN – 1 to 90 days
under Rule 117 is unconstitutional. The said judgment has further laid down
that since there is no time limit prescribed under the Act, the provisions of
the Limitation Act will apply; hence TRAN – 1 form can be filed up to 30^th
June, 2020, i.e., within three years from 1^stJuly, 2017. There are
various other judgments of other High Courts such as that of the Punjab &
Haryana High Court in Adfert Technologies Pvt. Ltd. vs. Union of India;
2019-VIL-537-P&H, which is held in favour of taxpayers holding that
the transitional credit is a vested right, hence no time limit is applicable
for filing the TRAN – 1 form. The
Revenue’s SLP against this judgment was rejected by the Hon’ble Supreme Court.

However, the
Central Government, on the other hand, has brought about an amendment in
section 140 of the CGST Act, 2017 by introducing power to prescribe a time
limit for filing the claim for transitional credit. The said amendment has
brought in all the sub-sections of section 140 with retrospective effect from 1^st
July, 2017 by section 128 of the Finance Act, 2020 (Act No. 12 of 2020). The
said Finance Act, 2020 had received the assent of the Hon’ble President of
India on 27^th March, 2020. However, the date of effect of the said
section 128 of the Finance Act, 2020 was not prescribed earlier.

Vide
the above Notification No. 43/2020, the said section 128 of the Finance Act,
2020 is now made effective from 18^th May, 2020. The effect of such
Notification is that the provisions of section 140 are amended retrospectively
from 1^st July, 2017 to have included the powers to prescribe a time
limit for filing claims of transitional credit. Thus, now the Act itself
provides for a power to prescribe a time limit for claiming transitional
credit.

The various
High Courts, which have held in favour of the taxpayers, have not considered
the amended provisions of section 140 of the CGST Act, 2017. In fact, the
amended section 140 was not even under challenge before the said High Courts.
Thus, the said amendment is going to have a huge impact on the judgments
delivered till now. This may lead to a second round of litigations challenging
the said retrospective amendment to section 140 of the CGST Act, 2017. But one
thing is clear, that the Central Government is determined to drive home its
point that the time limit of 90 days prescribed in Rule 117 is valid and
constitutional.

CIRCULARS

(1) Circular No. 137/07/2020-GST dated 13^th
April, 2020

The CBIC has
issued the aforesaid circular clarifying the measures taken in respect of
challenges faced by taxpayers due to the Covid-19 lockdown.

(a) Time limit for obtaining registration by class
of persons considered as distinct entity of corporate debtors being managed by
IRP / RP as per Notification No. 11/2020-CT dated 21^st March,
2020 is extended up to 30^thJune, 2020. Accordingly, the time
limit for filing the GSTR3B is also extended.

(b) Notification No. 40/2017-CT(R), dated 23^rd
October, 2017 providing for 0.1% scheme for merchant exporters prescribes
condition of exporting the goods within 90 days from the date of tax invoice of
original supplier. The said time limit of 90 days is extended to 30^th
June, 2020 for all transactions where the validity of such 90 days is expiring
between 20^th March, 2020 and 29^th June, 2020.

(2) Circular No. 22/2020-Customs dated 21^stApril,
2020

Under GST
there is a procedure of granting refund to exporters directly where the exports
have been made on payment of IGST. The details of exports, i.e. GST Invoice
number, Port Code, Shipping Bill No., etc. are uploaded on the GST portal by
filing return in GSTR1 and return in form GSTR3B. The data so available on the
GST portal is cross-matched with details in the shipping bill generated by the
Customs through the ICEGATE portal. If the data is matched, refund is granted.
However, often data mismatch takes place mainly due to wrong feeding of invoice
number, etc. This error is referred to as SB005 error. Refunds in numerous
cases have been held up due to such errors. Previously, instructions were
issued in respect of such an error through Circulars 8/2018-Customs, dated 23^rd
August, 2018; Circular No. 15/2018-Customs, dated 6^th June, 2018;
Circular No. 22/2018-Customs, dated 18^thJuly, 2018; Circular No.
40/2018-Customs, dated 24^thOctober, 2018; and Circular No.
26/2019-Customs, dated 27^th August, 2019.

However,
considering that the country is facing challenges due to the Covid-19 pandemic,
the CBIC has re-examined the issue and issued the above Circular No.
24/2020-Customs by which the facility of correcting SB005 errors on the
Customs EDI system is extended for all shipping bills bearing date up to 31^st
December, 2019. This clarification will help to ease out the refund disposal
and give much-needed working capital to the taxpayers at the earliest.

ADVANCE RULINGS

(I) Kardex India Storage Solution Pvt. Ltd. (AR
No. Kar ADRG 13/2020, dated 13^th March, 2020)

The
importers are facing a difficult situation in respect of the obligation to
obtain GST registration in the state in which the goods are imported and
disposed of from such ports or bonded warehouses after storage.

Normally,
the importer has his place of business in one state and is registered in that
state for the purposes of GST. However, due to various reasons and logistics
requirements, the goods may be imported at a port in a state other than the
state in which the importer is registered.

For example,
a registered person has his place of business in Bengaluru (Karnataka) and is
registered under Karnataka GSTIN. He has imported goods at Chennai port from
where the goods are further supplied by him. A question arises as to whether
the registered person can pay IGST on import under Karnataka GSTIN and also
issue invoice for supply of such goods from Chennai port under the Karnataka
GSTIN? If it can be done, then the registered person will not be liable for
registration in Tamil Nadu state from where the actual supply of imported goods
has taken place. This will avoid multi-state registration for importers,
thereby reducing the compliance hassles and also ensuring ease of doing
business.

Recently, the
learned Authority for Advance Ruling for Karnataka has delivered the
above-mentioned Advance Ruling (AR) clarifying the position about registration.

The facts in
the said AR are that the applicant company is registered in the state of
Karnataka. He is engaged in the import of storage solutions and vertical
storage solutions (machines) from Germany and distributes the same to
industrial consumers all over India. The applicant was finding the transport of
goods from the port of import to its registered place and then to supply it
from there as a costly affair. Therefore, the applicant company intended to
import the goods at the port nearer its respective customer, which may be in a
state other than Karnataka, and supply from there. The applicant company posed
the following questions:

(a) Whether
the applicant can take credit of IGST paid on import of goods?

(b) Whether
the applicant can issue tax invoice with IGST to the customer?

The
applicant company contended that it can import at different ports in different
states but pay IGST on import under Karnataka GSTIN. It also stated that for
supplies made from such ports, the GST invoice can be made under Karnataka
GSTIN and the applicable tax can be discharged in the state of Karnataka.
Accordingly, it was submitted that it need not be registered in the state in
which import is made.

In support
of the above, the applicant had also submitted that as per the IEC, the place
based on which the Bill of Entry is filed as well as in which registration
under GST is obtained, is the location of the importer. It was also submitted
that it has no permanent establishment in states where the port of import is
situated. It was pointed out that as per section 7(2) of the IGST Act, the
imported goods continue to be imported goods till they cross the customs
frontiers of India and till then the supplies of such goods are considered as
inter-state supplies. Therefore, even if goods are supplied from the port of
import to customers, they should be deemed to be received in the state of
registration and supplied from there. Therefore, it was submitted that the
place of supply for imported goods would be the registered place, in this case
Karnataka, hence there was no need to take registration in states where the
import port is situated.

The learned
AAR, concurring with the above submissions, made the following observations:

It is observed that the applicant is registered in one state, i.e.
Karnataka, which is also used as place of business for the purpose of customs
and for payment of IGST on import. The learned AAR also made reference to the
location of import in terms of section 11(a) of the IGST Act, 2017 (Karnataka
in this case). Therefore, the argument of the applicant about deemed receipt of
goods in Karnataka and supply from there to customers is acceptable. The
learned AAR held that payment of IGST and raising invoices under Karnataka
GSTIN is as per law contained in section 31 of the CGST Act. However, if the
customer is within Karnataka, then the applicant should charge CGST and SGST,
being intra-state supply. In the aforesaid background, the learned AAR also
observed that the place in Karnataka is used for import and payment of IGST and
also no provision under CGST / SGST Act provides for obtaining registration in
the state in which the importing port is located. Since the applicant has no
establishment in the state of import port, there is no need to obtain registration
in that state.

In our view, this is a beneficial AR inasmuch as it avoids registration
in multiple states. Similar ARs have also been issued by the State of
Maharashtra in Gandhar Oil Refinery (India) Limited 2019 (26) GSTL 531,
Sonkamal Enterprises Private Limited 2019 (20) GSTL 498 and Aarel
Import Export Private Limited 2019 (26) GSTL 261 holding that
registration is not required in the state in which the goods are imported.
However, as per the scheme of the CGST Act, ARs issued in one state are not
binding on the authorities of other states. Further, we have seen that the
issue is recurring before various AARs. Therefore, it will be better if the
issue is clarified by CBIC itself so as to avoid any surprises in future.

(II) M/s T&D Electricals,
Advance Ruling No. Kar ADRG 18/2020, dated 31^st March, 2020

In the above ruling, the question was again regarding the obligation to
obtain registration in the other state; however, this time the question was
raised for works contract service and not for imported goods.

The applicant, M/s T&D Electricals, has its place of business in
Jaipur and is registered under Rajasthan GSTIN. The applicant is a contractor
and had received an order from a customer in Karnataka (contractee) for
electrical installation and an IT job, which is a works contract, i.e. supply
of service. The applicant had to use both goods and services to complete the
contract.

Initially, the applicant applied to Rajasthan AAR for determining the
issue of registration in Karnataka. The learned Rajasthan AAR refused to
determine on the ground that he had no jurisdiction to decide the question of
registration in the state of Karnataka. Hence, a new application was filed as
an unregistered person before the Karnataka AAR. In this application, the
applicant submitted that it had no place of business or premises in Karnataka.
Though the contractee has provided a small space for office and stores on its
premises, it is without any written documents. Based on the above facts, the
applicant posed the following questions before the learned AAR.

‘1. Whether separate registration is required in Karnataka state? If yes,
whether agreement would suffice as address proof since nothing else is with the
assessee and service recipient will not provide any other proof?

2. If registration is not required in Karnataka state and if we purchase
goods from the dealer of Rajasthan and want to ship goods directly from the
premises of the dealer of Rajasthan to the township at Karnataka, then whether
CGST and SGST would be charged from us or IGST by the dealer of Rajasthan?

If registration is not required in Karnataka state and if we purchase
goods from a dealer of Karnataka to use the goods at the township in Karnataka,
then whether IGST would be charged from us or CGST and SGST by the dealer of
Karnataka?

3. What documents would be required with transporter to transit / ship
material at Karnataka site from dealer / supplier of Rajasthan and in case the
dealer / supplier is of Karnataka, advance ruling may kindly be issued whether
registration is required or not required in both the situations?’

In support of the application, the applicant submitted in writing that as
per section 22 of the CGST Act, the registration is required to be obtained in
the state from where the supply of service is made. Section 2(71) defines
location of supplier and as per the said section, in the present case the
location is in the state of Rajasthan as it is the principal place of business
and the applicant has no establishment in Karnataka. It was submitted that, in
light of section 12(3)(a) of the CGST Act, the place of supply is Karnataka as
it is a supply of service resulting in immovable property. Therefore, it was
contended that there is no need to obtain registration in Karnataka, more
particularly when there are no documents for registration in Karnataka such as
documents of legal ownership, electricity bills, etc.

In respect of goods procured for the contract in Rajasthan, it was
submitted that the supplier in Rajasthan will charge CGST and SGST as per
section 10(1)(b) of the IGST Act and goods will be directly shipped by the Rajasthan
supplier to the Karnataka site. In respect of purchases in Karnataka for the
given contract, it was submitted that the supplier in Karnataka should charge
IGST as per section 10(1)(b).

The learned AAR concurred with the applicant’s contentions in respect of
the first two issues. He observed that in the present case the applicant has
only one principal place of business situated in Rajasthan and has no other
establishment. Therefore, the location of supplier is Rajasthan and there is no
need to obtain registration in Karnataka.

In respect of goods purchased in Rajasthan and shipped to the site in
Karnataka, the learned AAR observed that since both the supplier of goods and
the recipient, i.e. the applicant, are in the same state, the charging of CGST
/ SGST by suppliers in Rajasthan is correct. The applicant correspondingly charging
IGST to the contractee is also correct.

In relation to goods procured locally in Karnataka, the learned AAR
observed that the supplier is in Karnataka and the applicant, i.e., recipient
is in Rajasthan, so it is inter-state supply. Therefore, the Karnataka supplier
shall charge IGST to the applicant and, in turn, the applicant should charge
IGST to its Karnataka contractee. The learned AAR held the above set of transactions
as covered by section 10(1)(b), i.e. bill to ship to model. He declined to
decide the third issue about documents to be carried for transportation on the
ground that he has no power to decide such an issue as per the scope of advance
ruling in section 97(2) of the CGST Act.

The above AAR
is again beneficial for taxpayers, especially for service providers. The said
AAR is also beneficial from the point of non-availability of any documents for
registration in the other states. In the above AR, not having an establishment
or relevant documents for obtaining registration in the other State is held,
amongst other things, as a relevant factor for determining the state of
registration.

BCAJ Admin

GOODS AND SERVICEs TAX (GST)

I.
SUPREME COURT

13. [2020 116 taxmann.com 401 (SC)] CCE vs. Uni Products India Ltd.

Textile car
matting comes under the ambit of Chapter 57, i.e. ‘Carpets and Other Textile
Floor Coverings’ and not under Chapter 87, ‘Vehicles other than Railway or
Tramway Rolling-Stock and Parts and Accessories Thereof’. There is no necessity
to import the ‘common parlance’ test or any other similar device when one
tariff entry specifically covers the subject goods and the other specifically
excludes the same

FACTS

The issue before the Hon’ble
Apex Court was whether ‘car matting’ would come within Chapter 57 of the First
Schedule to the Central Excise Tariff Act, 1985 under the heading ‘Carpets and
Other Textile Floor Coverings’ or they would be classified under Chapter 87
thereof which relates to ‘Vehicles other than Railway or Tramway Rolling-Stock
and Parts and Accessories Thereof’. The assessee contended that their goods
will be classified under Chapter heading 5703.90, whereas the authorities’
stand has been that the subject items ought to be classified under sub-heading
8708.99.00. The two competing entries are listed below:

Tariff
item

Description
of goods

57.03

Other carpets and other textile floor coverings,
whether or not made up

87.08

Parts and accessories of the motor vehicles of
headings 8701 to 8705

8708 99 00

Other

HELD

The
Hon’ble Apex Court observed that Chapter 87 of the Central Excise Tariff of
India does not contain car mats as an independent tariff entry. The Department
was trying to include the same under the ‘residuary entry’. Having regard to
the various parts and accessories listed against tariff entry 8708, the Court
observed that all of them are mechanical components and Revenue wanted car mats
to be included under the residuary sub-head ‘other’ in the same list. The Court
further noted that the HSN Explanatory Notes [Note IV (b) to Rule 3(a)] dealing
with the interpretation of the rules specifically exclude ‘tufted textile
carpets, identifiable for use in motor cars’ from 87.08 and place them under heading
57.03. The Court also observed that the explanatory notes below the Chapter
‘Parts and Accessories’, especially (C), reads as under:

Parts and
accessories, even if identifiable as for the articles of this section, are
excluded if they are covered more specifically by another heading elsewhere in
the Nomenclature, e.g: –

Referring to the said note,
the Court held that a plain reading of clause (C) thereof excludes ‘textile
carpets’ (Chapter 57).

The main argument of the
Revenue was that because the car mats are made specifically for cars and are
also used in the cars, they should be identified as parts and accessories. It
was also urged by the Revenue that these items are not commonly identified as
carpets but are different products. The Court held that ‘the common parlance
test’, ‘marketability test’, ‘popular meaning test’ are all tools for
interpretation to decide on the proper classification of a tariff entry. These
tests, however, would be required to be applied if a particular tariff entry is
capable of being classified under more than one head. However, as regards the
subject dispute in the present case, Chapter Note 1 of Chapter 57 stipulated
that carpets and other floor coverings would mean floor coverings in which
textile materials serve as the exposed surface of the article when in use. This
feature of the car mats was not rejected by the Revenue authorities. Further,
textile carpets are specifically excluded from parts and accessories. The Apex
Court therefore held that there is no necessity to import the ‘common parlance’
test or any other similar device of construction for identifying the position
of these goods against the relevant tariff entries. Thus, the subject goods
would be covered by Chapter heading 57.03.

(Although
the decision is in relation to Central Excise, it would impact classification
under the GST law as well. Hence it is included here.)

II.
HIGH COURT

14. [2020 116 taxmann.com 255 (Bom.)] Nelco Ltd. vs. UOI Date of order: 20^th March, 2020

The time limit in Rule 117(1) is traceable to the rule-making power
conferred in section 164(2) and is not unreasonable, arbitrary or violative of
Article 14. Further, having regard to the objective of Rule 117(1A), the
categorisation made by the Cell, based on the system log to identify users who
have faced technical difficulties, would not amount to fettering the discretion
but involving rules of evidence to determine whether a registered user encountered
difficulties while submitting forms on the common portal

FACTS

In this writ petition, Rule
117 of the Central Goods and Services Tax Rules, 2017 is challenged as being ultra
vires of sections 140(1), 140(2), 140(3) and 140(5) of the Central Goods
and Services Act, 2017 to the extent it prescribes a time limit for filing of
TRAN-1 Form. The High Court decided the challenge on three grounds: (i) whether
the impugned Rule is ultra vires the parent statute; (ii) whether the
Rule is unreasonable, arbitrary and violative of Article 14 of the Constitution
of India; and (iii) the meaning of the phrase ‘technical difficulties’ under
Rule 117(1A) and the role of the IT Redressal Cell, i.e. whether the discretion
is fettered.

HELD

As regards the issue relating
to the absence of rule-making power to prescribe a time limitation, the Hon’ble
Court held that the time limit in Rule 117(1) is traceable to the rule-making
power conferred in section 164(2). The credit envisaged u/s 140(1) being a
concession, it can be regulated by placing a time limit. Therefore, the time
limit under Rule 117(1) is not ultra vires of the Act. As for the
challenge on the ground of the rule being unreasonable and violative of Article
14, the Hon’ble Court referred to various authorities dealing with the scope of
judicial scrutiny in the matters of economic legislation. The Court stated that
the trial and error method is inherent in the economic endeavours of the state
and hence the constitutionality of such legislation must be decided by the
generality of its provisions and that the Court cannot assess or evaluate the
impact of the provision and whether it would serve the purpose in view or not.
In matters of economic policy, the accepted principle is that the Courts should
be cautious to interfere.

The Hon’ble Court held that
the time limit for availing of the Input Tax Credit in the transitionary
provisions is thus rooted in the larger public interest of having certainty in
allocation and planning. Accordingly, the time limit under Rule 117 is thus not
irrelevant. Upholding only the right to carry forward the credit and ignoring
the time limit would make the transitional provision unworkable. The credit
under the transitional provision is not a right to be exercised in perpetuity.
By the very nature of the transitional provision it has to be for a limited
period. Referring to the provisions of section 16(4), the Court further held
that even under the GST law the Input Tax Credit (ITC) cannot be availed
without any time limit. Hence, it cannot be that under the GST law there is a
time limit, but for the transitional period there is no such time limit. Once
under the GST law for future transactions a time limit is stipulated, then
there is nothing unreasonable in the stipulated time limit for the transitional
period. The Court accordingly held that the time limit stipulated in Rule 117
is neither unreasonable nor arbitrary or violative of Article 14 and that this
rule is in accordance with the purpose laid down in the Act.

As regards the meaning of the
phrase ‘technical difficulties’ under Rule 117(1A) and the role of the IT
Redressal Cell, the Hon’ble Court held that the GST Council is not a body to
resolve technical issues. Therefore, an IT Grievance Redressal Mechanism was
developed by the GST Council. This committee involved the CEO of the GST,
Network Director-General of Systems, CBSC and the nominee from the state as
technical persons. Based on the report of this Technical Committee a further
recommendation would be made. Hence, there is no merit in the contention that
the power could not have been delegated to the IT Grievance Redressal
Committee.

Further, the Court did not
accept the contention of the petitioner that the term ‘technical difficulty’ is
to be given broader meaning and held that the Rule 117(1A) refers to technical
difficulties in online submission of the TRAN-1 Form on the common portal,
hence it is clear that the meaning of the phrase ‘technical difficulty’ is
restricted to those which arise at the common portal of the GST and are not the
ones faced in general.

The Court also held that the
object of bringing in Rule 117(1A) did acknowledge that certain registered
users encountered technical difficulties in the common portal. However, it did
not mean that the common portal had stopped working, only that some registered
users could not submit their forms. There would also be some who never
attempted to submit the TRAN-1 Form. There would be some who attempted it but
encountered difficulties at their end. There would be some who encountered
difficulties on the common portal. Since it is only the third category covered
by Rule 117(1A), it had to be asserted from the system log of the common portal
itself. Insisting on the system log as proof of technical difficulties, thus,
is not arbitrary. The categorisation made by the Cell based on the system log
is therefore not fettering the discretion as contended by the petitioners but
involving rules of evidence to determine whether a registered user encountered
difficulties while submitting forms on the common portal. It is only if the
registered user encountered technical difficulties on the common portal that
Rule 117(1A) comes into play.

15. [2020 116 taxmann.com 415 (Del.)] Brand Equity Treaties Ltd. vs. UOI Date of order: 5^th May, 2020

In absence
of any specific provisions as regards the time limit in section 140(1) of the
CGST Act, a period of three years from the appointed date (in terms of the
residuary provisions of the Limitation Act) would be the maximum period for
availing of the transitional CENVAT credit. All taxpayers who have not filed
TRAN-1 are permitted to do so on or before 30^th June, 2020

FACTS

In these writ petitions, the
petitioners sought relief of directing the respondents to permit them to avail
Input Tax Credit (ITC) of the accumulated CENVAT credit as of 30^th
June, 2017 by filing declaration Form TRAN-1 beyond the period provided under
the Central Goods and Services Tax Rules, 2017. The petitioners also challenged
the constitutional validity of Rule 117 on the ground that it is arbitrary,
unconstitutional and violative of Article 14 to the extent it imposes a time
limit for carrying forward the CENVAT credit to the GST regime. In this case,
the non-filing of TRAN-1 within the prescribed time limit is not attributable
to error or glitch on the network / GST portal.

The
respondent argued that the petitioners do not deserve any sympathy from the
Court as the facts of each case exhibit a casual approach on their part. The
petitioners argued that the CENVAT credit accumulated in the erstwhile regime
represents the property of the petitioners which is a vested right in their
favour. Such accrued or vested right cannot be taken away by the respondents on
account of failure to fulfill conditions which are merely procedural in nature.
The respondents, on the other hand, emphasised on the words ‘in such manner
as may be prescribed’ which appear in section 140(1) to contend that this
provision read with section 164 of the CGST Act empowers the government to fix
the time frame for availing the carry forward of the transitional ITC and that
the benefit of taking credit is not a vested right of an assessee and certainly
cannot be claimed in perpetuity.

HELD

The Hon’ble Delhi High Court
noted that evidently there is no other provision in the Act prescribing time
limit for the transition of the CENVAT credit and the same has been introduced
only by way of Rule 117. Hence, it is not as if the Act completely restricts
the transition of CENVAT credit in the GST regime by a particular date and
there is no rationale for curtailing the said period, except under the law of
limitations. The Court further held that the period of 90 days has no rationale
especially since the extensions have been granted by the government from time
to time, largely on account of its inefficient network. Therefore, the
arbitrary classification introduced by way of sub Rule (1A) restricting the
benefit only to taxpayers whose cases are covered by ‘technical difficulties on
common portal’ subject to recommendations of the GST Council is arbitrary,
vague, and unreasonable.

The Court further stated that
the term ‘technical difficulties’ is too broad a term and cannot be interpreted
narrowly and would cover the difficulty
faced by the respondents as well as the taxpayers. After all, a completely new
system of accounting, reporting of turnover, claiming credit of prepaid taxes,
and payment of taxes was introduced in the GST regime. New forms were
introduced and all of them were not even operationalised. Hence, the High Court
held that just like the respondents, even the taxpayers required time to adapt
to the new system and it would be unfair to expect that the taxpayers should
have been fully geared to deal with the new system on day one when the Revenue
itself was ill-prepared and the messy situation is not debatable, and thus held
that taxpayers cannot be robbed of their valuable rights on the unreasonable
basis of them not having filed TRAN-1 Form within 90 days when civil rights can
be enforced within a period of three years from the date of commencement of
limitation under the Limitation Act, 1963.

It was further held that the
CENVAT credit which stood accrued and vested is the property of the assessee
and this is a constitutional right under Article 300A of the Constitution. The
same cannot be taken away merely by way of delegated legislation by framing
rules without there being any overreaching provision in the GST Act. The
legislature has recognised existing rights and has protected the same by
allowing migration thereof in the new regime u/s 140(1) without putting any
restrictions as regards the period for the transition. Hence, the time limit
prescribed for availing ITC with respect to the purchase of goods and services
made in the pre-GST regime cannot be discriminatory and unreasonable.

It also held that Rule 117,
containing the mechanism for availing the credits is procedural and directory
and cannot affect the substantive right of the registered taxpayer to avail of
the existing / accrued and vested CENVAT credit. Only the manner, i.e. the
procedure of carrying forward was left to be provided by the use of the words
‘in such manner as may be prescribed’. Thus, it was held that Rule 117 has to
be read and understood as directory and not mandatory and in the absence of any
specific provisions under the Act, a period of three years from the appointed
date (in terms of the residuary provisions of the Limitation Act) would be the
maximum period for availing of such credit. The Court also opined that other
taxpayers in a similar situation should also be entitled to avail the benefit
of this judgment and hence directed to publicise this judgment widely so that
others who have not been able to file TRAN-1 till date are permitted to do so
by 30^thJune, 2020.

(Note: It appears that
in the above case the Bench’s attention was not drawn to the decision of the
Hon’ble Bombay High Court in the case of Nelco Ltd. vs. UOI dated 20^th
March, 2020 wherein it was held that the time limit prescribed in Rule
117(1) is traceable to the rule-making power conferred in Section 164(2) and
therefore not unreasonable or arbitrary or violative of Article 14. In the
Nelco case a very narrow meaning is given to the term ‘technical difficulties’
to limit it only to problems attributable to the GST portal. Further, the
Hon’ble Bombay High Court also did not comment on the adequacy (or otherwise)
of the time limit prescribed in Rule 117, relying on the principle that in
matters of economic policy the Courts should be cautious to interfere. Various
factors pointed out by the Hon’ble Delhi High Court such as hardship caused to
the taxpayers due to changes in the system, lack of preparedness and the trial
and error approach of the government in the implementation of GST, etc. in
considering a larger period of limitation are not considered by the Hon’ble
Bombay High Court as the main issue was decided by it against the petitioner.
Hence it appears that the matter may attain finality if and when it is dealt
with by the Apex Court.)

16. [2020 116 taxmann.com 416 (Del.)] Bharati Airtel Ltd. vs. UOI Date of order: 5^th May, 2020

The
rectification of the return (GSTR3B) for that very month to which it relates
(and not necessarily in the subsequent months) is imperative and a substantive
right of the assessee. Paragraph 4 of the impugned Circular No. 26/26/2017-GST
dated 29^th December, 2017 to the extent that it restricts the
rectification of Form GSTR3B in respect of the period in which the error has
occurred, is arbitrary and contrary to the provisions of the Act and hence
Circular is read down to that extent

FACTS

The petitioner claimed ITC
for the period from July, 2017 to September, 2017 in its monthly GSTR3B on
estimated basis. As a result, the petitioner paid GST in cash, although
actually ITC was available with it but was not reflected in the system on
account of lack of data. The exact ITC available for the relevant period was
worked out only later in the month of October, 2018 when the government
operationalised Form GSTR2A for the past periods. Thereupon, precise details
were computed and the petitioner realised that for the relevant period ITC was
under-reported. The petitioner, however, could not correct the returns for the
past period as the system did not permit rectification of the return in the
same month for which the statutory return was filed.

Therefore, the petitioner
challenged Rule 61(5) of the GST Rules, Form GSTR3B and Circular No.
26/26/2017-GST (hereinafter referred to as the ‘impugned circular’) dated 29^th
December, 2017 as ultra vires the provisions of the Central Goods and
Services Tax Act, 2017 (CGST Act) and contrary to Articles 14, 19 and 265 of
the Constitution of India to the extent that they do not provide for the
modification of the information to be filled in the return of the tax period to
which such information relates. The petitioner also sought the refund of the
excess tax paid.

HELD

The Hon’ble High Court found
merit in the submission of the petitioner that since Forms GSTR2 and 2A were
not operationalised and because the systems of various suppliers were not fully
geared up to deal with the change in the compliance mechanism, the petitioner
did not have the exact details of the ITC available for the initial three
months. As a consequence, the deficiency in reporting the eligible ITC in the
months of July to September, 2017 in the form GSTR3B has resulted in excess
payment of cash by them. The High Court also noted that the scheme of the Act
permits the assessee to rectify mistakes in the return. However, in terms of
paragraph 4 of Circular No. 26/26/2017-GST, adjustment of tax liability of ITC
is permissible only in subsequent months. The High Court held that even if
there is a possibility to adjust the accumulated ITC in future, that cannot be
a ground to deprive the petitioner the option to fully utilise the ITC in the
same month in which it is statutorily entitled to do so by way of
rectification.

The High Court held that
there is no cogent reasoning behind the logic of restricting rectification only
in the period in which the error is noticed and corrected, and not in the
period to which it relates. In fact, the Court noted that the Revenue has not
been able to expressly indicate the rationale for not allowing the
rectification in the same month to which the Form GSTR3B relates. Further,
there is no provision under the Act which would restrict such rectification.
The Court held that the Revenue has failed to fully enforce the scheme of the
Act and cannot take benefit of its own wrong of suspension of the statutory
forms and deprive the rectification / amendment of the returns to reflect ITC
pertaining to a tax period to which the return relates. The Court therefore
held that paragraph 4 of the said Circular is arbitrary and contrary to the
provisions of the Act and allowed the petitioner to file the corrected returns
for the said period and directed the Revenue to verify the same and give effect
thereto.

17. [2020 (4) TMI 797] Kanchan Metal vs. State Of Gujarat (Gujarat High Court) Date of order: 29^th January, 2020

Without
application of mind and without justifiable grounds or reasons to believe, all
detention and seizure cases cannot straightway lead to confiscation route u/s
130 of CGST Act

Once a
notice u/s 130 of CGST Act is issued right at the inception, i.e., right at the
time of detention and seizure, the provisions of section 129 of the Act pale
into insignificance

FACTS

Owing to an interim order,
the seized truck along with the goods was released on payment of GST. The
proceedings were at the stage of show cause notice issued u/s 130 of the CGST
Act.

HELD

The Hon’ble High Court relied
on important observations made by the Court in the case of Synergy
Fertichem Pvt. Ltd. vs. State of Gujarat (Special Civil Application No. 4730 of
2019) that all cases of detention and seizure, without application of
mind and without justifiable grounds or reasons to believe, cannot be taken
straightway to the route of confiscation u/s 130 of the CGST Act. Section 130
is an independent provision which shall be invoked only in cases of intentional
evasion of GST. Many times, vehicles are not released even if the owner is
ready to pay tax and penalty as per section 129 of the Act. Such an approach
leads to unnecessary detention of goods and inconvenience for an indefinite
period of time. It was, therefore, held that the applicant shall make good the
case for discharge of the show cause notice and proceedings shall go ahead in
accordance with the law.

18. [2020 (4) TMI 666] Mahadeo Construction Co. vs. Union Of India (Jharkhand High Court) Date of order: 21^st April, 2020

SCN is a sine
qua non for recovery of interest

FACTS

The petitioner had reasonably
believed that the due date of filing GSTR3B for February, 2018 and March, 2018
was extended to 31^st March, 2019. As a result, it was of the view
that it had filed GSTR3B within the due date. However, interest was demanded on
the grounds of delay in filing GSTR3B and the petitioner’s bank account was
frozen through garnishee proceedings u/s 79 of the CGST Act. The present writ
was filed seeking relief to quash the order demanding interest without
adjudication under sections 73 and 74 of the CGST Act and to set aside the
garnishee proceedings. The Department contended that interest is automatic and,
therefore, recovery can be made without adjudication.

HELD

The Hon’ble High Court, while
interpreting the term ‘tax not paid’ for the purpose of initiating proceedings
under sections 73 or 74 of the Act placed reliance on the case of Godavari
Commodities Ltd. vs. Union of India and Ors., reported in 2019 SCC Online Jhar
1839 and held that if a tax has not been paid within the prescribed
period, the same would fall within the expression ‘tax not paid’. Further, the
Hon’ble Court also placed reliance on Assistant Commissioner of CGST
& Central Excise and others vs. DaejungMoparts Pvt. Ltd. and Ors. (Mad.
High Court order dated 23^rd July, 2019) and held that though
the liability of interest u/s 50 of the CGST Act is automatic, the amount of
interest is required to be calculated and intimated to the assessee. If the
assessee disputes the computation, or the very leviability of interest,
adjudication proceedings under sections 73 or 74 of CGST Act shall be
initiated. Thus, interest cannot be recovered u/s 79 without passing through
adjudication under sections 73 or 74 of the Act.

III. AUTHORITY
OF ADVANCE RULING

19. [2020-TIOL-95-AAR-GST] M/s Anil Kumar Agrawal [Karnataka AAR] Date of order: 4^th May, 2020

Aggregate
turnover will include renting of commercial property, interest on deposits /
loans and advances. Dividend on shares, capital gains, maturity on insurance
policies, salary received by non-executive director is neither supply of goods
nor service and therefore is not includible in aggregate turnover

FACTS

The applicant is an
unregistered person and is in receipt of various types of income / revenue,
viz. salary / remuneration as a non-executive director, renting of immovable
property, interest on deposits / loans and advances and income from renting of
residential property, dividend on shares, capital gains and amounts received
from maturity of insurance policies. The question before the Authority is,
which sources of income / revenue should be considered for aggregate turnover
for registration.

HELD

The
Authority noted that the definition of aggregate turnover is the sum of the
value of all taxable supplies, exempt supplies, exports and the value of
inter-state supplies having the same PAN to be computed on an all-India basis
excluding the value of tax payable under reverse charge. With respect to the
interest income it was held that it is an exempted service and therefore should
be included in the aggregate turnover for registration. The salary received is
neither a supply of goods nor a supply of services and hence the salary is not
required to be included in the aggregate turnover. It also held that salary
received by non-executive directors also being salary will not be included in
aggregate turnover. Further, rental income from commercial property is a
taxable supply to be included in the aggregate turnover. Similarly, rental
income from residential property is an exempt supply which is also to be
included in the definition of aggregate turnover which includes exempt
supplies. Income received on maturity of policies is nothing but application of
money which is excluded from the definition of goods or service and therefore
is not includible in the aggregate turnover.

20. [2020-TIOL-86-AAR-GST] M/s T&D Electricals [Karnataka AAR] Date of order: 31^st March, 2020

In absence of a Fixed Establishment, there is no requirement of
obtaining registration in any state where projects are executed. Business can
continue from the registered principal place of business itself

FACTS

The
applicant is registered as a works contractor and a wholesale supplier in
Jaipur, Rajasthan. It has received a contract from a company in Karnataka to
undertake an electrical / installation job. The question before the Authority
is whether a separate registration is required in Karnataka. If not, then
whether the goods can directly be shipped from a dealer in Rajasthan to
Karnataka and whether CGST+SGST or IGST will be charged. Similarly, if the
goods are purchased from Karnataka then whether CGST+SGST or IGST will be
charged.

HELD

The
Authority noted that section 22 of the CGST Act, 2017 stipulates that every
supplier shall be liable to be registered in the state from where the supplier
makes a taxable supply of goods or services or both. In the instant case, the
applicant has only one principal place of business located in Rajasthan for
which registration has been obtained and there is no other fixed establishment.
Therefore the location of the supplier is none other than the principal place
of business in Rajasthan.

For the
second issue, it was noted that the transaction will be a Bill to Ship to
transaction and when the goods are purchased from Rajasthan and shipped to
Karnataka, the vendor in Rajasthan will charge CGST+SGST to the applicant
registered in Rajasthan. The applicant will in turn charge IGST to its customer
in Karnataka. Similarly, the vendor in Karnataka will bill to the applicant in
Rajasthan and charge IGST and the applicant will also charge IGST to the
customer in Karnataka.

21. [2020 (4) TMI 871] M/s DKMS BMST Foundation India [Karnataka AAR] Date of order: 23^rd April, 2020

Human Leukocyte Antigen (HLA) testing services is a prerequisite to
stem-cell transplantation and therefore is ‘healthcare services’. Since this is
an investigative service, service provider is a ‘clinical establishment’ under
GST law

FACTS

The
applicant is engaged in facilitating a treatment of blood cancer and other
blood disorders and encourages people to register as potential blood-stem cell
donors. Most of the patients living with blood cancer require a stem-cell
transplant for a longer life. For successful transplant, one DNA test is
required to be done to match the Human Leukocyte Antigen (HLA) tissue. To carry
out this HLA testing, the applicant collects samples of DNA and sends them to
DKMS Life Science Lab GmbH in Germany (LSL DE). LSL DE performs tests on these
samples and shares the results with the applicant. The issue involved was
whether the HLA testing services fall under the scope of ‘health care services
by a clinical establishment’ and are thereby exempt from levy of IGST in view
of Entry No. 77 of Notification No. 09 /2017-IGST (Rate) dated 28^th
June, 2017.

HELD

Considering
the agreement between the applicant and LSL DE, it was held that LSL DE was
providing testing services to the applicant. Since the services, received to
increase the database of donors and find appropriate matches, were a sine
qua non for transplantation, it was held to be healthcare service. Further,
since HLA testing involves various tests for identification of alleles of the
donor cells, such investigative services would be covered under the definition
of ‘clinical establishment’ as defined under paragraph 2 of Notification
No.12/2017-Central Tax (Rate) dated 28^th June, 2017. Since the
service is exempt, the applicant is not liable to pay IGST under reverse charge
mechanism. The question of provision of service outside India was unanswered
considering it to be outside the jurisdiction of the Advance Ruling
authorities.

22. [2020 (4) TMI 874] Sri Ghalib Iqbal Sheriff (M/s Emphatic
Trading Centre) [Karnataka AAR]

Date of order: 23^rd April, 2020

Assessee supplying goods as well as services may opt for composition
scheme only if the turnover of services does not exceed 10% of turnover in a
state / Union Territory in preceding F.Y. or Rs. 5 lakhs, whichever is higher

Notification No. 02/2019 Central Tax (Rate) dated 7^th March,
2019 is not a composition scheme but is just an optional scheme

FACTS

The
applicant is engaged in the business of supply of goods as well as services.
The issue raised is whether he can opt for composition scheme as his aggregate
turnover is less than the aggregate turnover specified in section 10 of the
CGST Act and whether he may pay GST @ 1% on supply of goods and 6% on supply of
services.

HELD

If the
turnover of the service exceeds 10% of the turnover of the state or Union
Territory in the preceding financial year or Rs. 5 lakhs, whichever is higher,
then the applicant shall not be eligible for composition scheme. Therefore,
even if the applicant obtains registration separately for goods and services,
he would not be eligible for composition scheme for both the lines of business.
Notification No. 02/2019 Central Tax (Rate) dated 7^thMarch, 2019
allowing payment of GST @ 6% on supply of goods or services subject to
specified conditions is not a composition scheme but an optional scheme. Since
the applicant was already a composition dealer, he was held not eligible to pay
tax under the Notification No. 02/2019 Central Tax (Rate) dated 7^th
March, 2019.

23. [2020 (4) TMI 795] M/s Satyesh Brinechem Private Limited (Gujarat AAAR) Date of order: 28^th January, 2020

Input Tax
Credit shall not be available on goods or services covered by section 17(5) of
CGST Act, even if the same are indispensable in the process of manufacture and
are used for making zero-rated supply

FACTS

The
applicant is a manufacturer and exporter of salt. It was of the view that bunds / crystallizers used
for manufacturing salt qualify to be ‘plant and machinery’ as bunds are
essentially used in the manufacturing process. Consequently, the applicant may
avail ITC and refund thereof. The AAR in the applicant’s case had ruled that
ITC on goods and services used to construct the ‘bunds’ is admissible to the
applicant provided the bunds are used for making zero-rated supplies and
fulfill the conditions necessary to treat bunds as ‘plant and machinery’.
Aggrieved by the aforesaid order, the Department filed an appeal before the
Appellate Authority for Advance Ruling, Gujarat contesting that the bunds /
crystallizers are ‘any other civil structure’ and hence ITC is not available in
view of sections 17(5)(C) and (d) read with Explanation to section 17 of the
CGST Act.

HELD

The
Appellate Authority for Advance Ruling, Gujarat (AAAR) examined the process of
construction of bunds / crystallizers and manufacturing of salt. It analysed various
judgments, including Singh Alloy and Steel Ltd. 1993 (1) TMI 97 and
Modern Malleable Ltd. vs. Commissioner of Central Excise, Calcutta-II,
2008 (228) ELT 460 (Tri. Kolkata) for deep understanding of the
apparatus, equipments and machinery covered under the definition of ‘plant and
machinery’. It was held that bunds do not fall under the term ‘plant and
machinery’ as these can be considered as ‘any other civil structure’ under the
exclusion clause (i) of Explanation to section 17 of the CGST Act. Thus, ITC on
bunds was held to be inadmissible to the applicant.

24. [2020 (4) TMI 872] M/s Solize India Technologies Private Limited [Karnataka AAR] Date of order: 23^rd April, 2020

Supply of pre-designed and pre-developed software made available through
the use of encryption keys is supply of goods

FACTS

The
applicant is engaged in trading of packaged software. The principal partner
delivers such software to the customer directly by providing the license keys
to download online and run the software. Advance ruling was sought on whether
such software qualifies to be a ‘computer software’ resulting in supply of
goods to claim benefit of Notification Nos. 45/2017-Central Tax (Rate) and
47/2017-Integrated Tax (Rate) dated 14^th November, 2017 providing
for concessional rate of GST for goods.

HELD

The
software sold by the applicant is pre-developed or pre-designed software and
made available through the use of encryption keys, and hence it satisfies the
definition of ‘goods’. Further, it is to be loaded on a computer to become
usable on activation and hence is a ‘computer software’, i.e. an application
software. Thus, the present transaction is supply of goods and is eligible for
concessional rate of GST under Notifications No. 45/2017-Central Tax (Rate) and
47/2017-Integrated Tax (Rate) dated 14^th November, 2017 subject to
fulfillment of specified conditions.

BCAJ Admin

MISCELLANEA

I. Economics

13. The consumer in the age of coronavirus

The Sarasota Institute is focusing on how Covid-19 may affect some of the
ten categories listed across the top of this web site. We are having virtual
mini-symposia on several of these during April and May. In addition, we are
publishing thought pieces taking a look into the future.

Here is a column about consumerism by Phil Kotler, often referred to as
‘the father of modern marketing’, the single greatest thought leader and author
on marketing in the world today. [Phil is a fellow co-founder of the
Institute.] It is an in-depth look into the past and present of consumerism. It
is a must-read as we start to think about how and how much consumerism and the
role that it plays in the future will change.

Covid-19
is spreading relentlessly through the world leaving a trail of death and
destruction. The world is in danger of falling into a Great Depression, with
millions of unemployed workers across the globe. The impact will especially hit
the poor – both in terms of health and economics; many cannot even afford to
wash their hands because of the lack of water. What will happen to the millions
that cannot practice social distancing? The slum-dwellers, the prison
population and the refugees huddled in tents?

Businesses
are closing down and people are urged to stay home, practise social distancing
and vigorously wash their hands. People are stocking up on all kinds of food
and sundries that are part of daily living. Some are hoarding masks, toilet
paper and other necessities should Covid-19 linger on for weeks, months or
years.

While the
US has just passed a $2 trillion dollar aid package, the details seem to once
again point to socialism for Wall Street, in the form of bailouts, a small pay
check for the working poor and little else for Main Street. Income inequality
is poised to increase yet further.

I predict
that this period of deprivation and anxiety will usher new consumer attitudes
and behaviour that will change the nature of today’s capitalism. Finally,
citizens will re-examine what they consume, how much they consume and how all
this is influenced by class issues and inequality. Citizens need to re-examine
our capitalist assumptions and emerge from this terrible period with a new,
more equitable form of capitalism.

Capitalism’s dependence on endless consuming

Let’s
begin by taking a long view back to the emergence of the Industrial Revolution.

The
Industrial Revolution of the 19^th century greatly increased the
number of goods and services available to the world’s population. The steam
engine, railroads, new machinery and factories and improved agriculture greatly
increased the economy’s productive capacity. More production inevitably led to
more consumption. More consumption led to more investment. More investment
increased production in an ever-expanding world of goods.

Citizens
delighted in the availability of more goods and choices. They could
individualise their personalities through their choices of food, clothing and
shelter. They could shop endlessly and marvel at the innovative offerings of
the producers.

Citizens
increasingly turned into consumers. Consuming became a lifestyle and culture.
Producers profited greatly from the increasing number of active consumers.
Producers were eager to stimulate more demand and more consumption. They turned
to print advertising and sales calls and as new media arose, they turned to
telephone marketing, radio marketing, TV marketing and Internet marketing.
Business firms would profit from the degree they could expand consumer desire
and purchasing.

From the
beginning some onlookers had misgivings about the rise of consumerism. Many
religious leaders saw the growing interest of citizens in material goods as
competing with religious attention and spiritual values. The legacy of
puritanical values kept certain population groups from acquiring too many goods
and getting into too much debt. Some citizens were particularly critical of
wealthy consumers who used goods to flaunt their wealth. The economist Thorsten
Veblen was the first to write about ‘conspicuous consumption’ that he saw as a
malady taking people away from more meditative life styles. In ‘The Theory of
the Leisure Class’, Veblen exposed this sickness of status display. Had he
lived long enough, he would have been aghast at the news that the former First
Lady of the Philippines, Imelda Marcos, owned 3,000 pairs of shoes that
languished in storage since her exile from the Philippines.

The growing number of anti-consumerists

There are
signs today of a growing anti-consuming movement. We can distinguish at least
five types of anti-consumerists.

First, a
number of consumers are becoming life simplifiers, persons who want to eat less
and buy less. They are reacting to the clutter of ‘stuff’. They want to
downsize their possessions, many of which lie around unused and unnecessary.
Some life-simplifiers are less interested in owning goods such as cars or even
homes; they prefer renting to buying and owning.

Second,
another group consists of de-growth activists who feel that too much time and
effort are going into consuming. This feeling is captured in William
Wordsworth’s poem,

‘The world is too much with us…

Getting and spending, we lay waste our powers:

Little we see in Nature that is ours;

We have given our hearts away, a sordid boon!’

De-growth
activists worry that consumption will outpace the carrying capacity of the
earth. In 1970, the world population was 3.7 billion. By 2011 it grew to 7.0
billion. Today (2020) the world population stands at 7.7 billion. The U.N.
expects the world population to grow to 9.8 billion by the year 2050. The
nightmare would be that the earth cannot feed so many people. The amount of
arable land is limited and the top soil is getting poorer. Several parts of our
oceans are dead zones with no living marine life. De-growth activists call for
conservation and reducing our material needs. They worry about the people in
the emerging poor nations aspiring to achieve the same standard of living found
in advanced countries, something that is not possible. They see greedy
producers doing their best to create ‘false and unsustainable needs’.

Third,
another group consists of climate activists who worry about the harm and risk
that high-buying consumers are doing to our planet through generating so much
carbon footprints that pollute our air and water. Climate activists carry a
strong respect for nature and science and have genuine concerns about the
future of our planet.

Fourth,
there are sane food choosers who have turned into vegetarians and vegans. They
are upset with how we kill animals to get our food. Everyone could eat well and
nutritiously on a plant, vegetable and fruit diet. Livestock managers fatten up
their cows and chickens to grow fast and then kill them to sell animal parts in
the pursuit of profits. Meanwhile, cows are a major emitter of methane gas that
heats our earth and leads to higher temperatures, faster glacial melting and
flooding of cities. To produce one kilogram of beef requires between 15,000 and
20,000 litres of water as well as so much roughage to feed the animals.

Fifth, we
hear about conservation activists who plead not to destroy existing goods but
to reuse, repair, redecorate them or give them to needy people.
Conservationists want companies to develop better and fewer goods that last
longer. They criticise a company such as Zara that every two weeks produces a
new set of women’s clothing styles that would only be available for two weeks. Conservationists
oppose any acts of planned obsolescence. They are hostile to the luxury goods
industry. Many are environmentalists and anti-globalists.

The
anti-consumerism movement has produced a growing literature. One major critic
is Naomi Klein with her books ‘No Logo’, ‘This Changes Everything’ and ‘The
Shock Doctrine’. See also the documentary film ‘The Corporation’ by Mark Achbar
and Jennifer Abbott.

How businesses sustain the consumer sentiment

Business
firms have an intrinsic interest in endlessly expanding consumption for the
purpose of higher profits. They rely on three disciplines to boost consumption
and brand preference. The first is innovation to produce attractive new
products and brands to enchant customer interest and purchase. The second is
marketing that supplies the tools to reach consumers and motivate and
facilitate their purchasing. The third discipline is credit to enable people to
buy more than they could normally buy on their low incomes. Businesses aim to
make consumption our way of life. To keep their productive equipment and
factories going, they must ritualise some consumer behaviour. Holidays like
Halloween, Christmas, Easter, Mother’s Day and Father’s Day are partly promoted
to stimulate more purchasing. Businesses want not only purchase of their goods
but fast consumption so that objects burn up, wear out and are discarded at an
ever-increasing rate.

Businesses
use advertising to create a hyper-real world of must-have products that claim
to deliver happiness and well-being. Businesses refashion commodities into
compelling brands that can bring meaning into the consumer’s life. One’s brand
choices send a signal of who the person is and what he or she values. Brands
bring strangers together to share carefully designed images and meanings.

How will anti-consumerism change capitalism?

Capitalism
is an economic system devoted to continuous and unending growth. It makes two
assumptions: (1) people have an unlimited appetite for more and more goods; and
(2) the earth has unlimited resources to support unlimited growth. Both of
these are now questioned. First, many people become jaded and satiated by the
effort to continuously consume more goods. Second, the earth’s resources are
finite, not infinite, and would not meet the needs of a growing world
population that comes with growing material needs.

Until
now, most countries have used only one measure to assess the performance of
their economy. That measure is the Gross Domestic Product (GDP). GDP measures
the total value of the goods and services produced in a given year by the
country’s economy. What it doesn’t measure is whether GDP growth has been
accompanied by a growth in people’s well-being or happiness.

We can
imagine a case where GDP grows by 2 or 3% by workers working very hard and even
at overtime. They only have two weeks of vacation a year. They have little time
for leisure or renewal. They might be stressed by unexpected medical bills that
hit their savings. They might be unable to send their children to college,
leaving their children with lower skills and lower earning potential. Those
students who manage to go to college graduate with huge debt. Graduates are
carrying a college debt of $1.2 trillion. They cannot buy furniture or a home,
or even afford to get married. In such a case, we would guess that the GDP went
up but the nation’s average well-being and happiness went down.

We badly
need to add new measures of the impact of economic growth. Some countries are
now preparing an annual measure of Gross Domestic Happiness (GDH) or Gross
Domestic Well-Being (GDW). We know that citizens in Scandinavian countries
enjoy a substantially higher level of happiness and well-being than American
citizens and run good economies. Is our addiction to consuming, consuming us?

Part of the
problem of economic growth is that the fruits of gains in productivity are not
shared equitably. This is obvious in a country with a growing number of
billionaires and a great number of poor workers. Many CEOs are paid 300 times
what their average worker earns and some take home as much as 1,100 times the
average worker. The economic system is rigged. Corporations have succeeded in
emasculating trade unions and leaving workers with no say in what they or their
bosses should be paid.

Even some
billionaires are unhappy with this greatly lopsided pay arrangement. Bill Gates
and Warren Buffet have publicly called for raising the top income tax rate.
This top rate is now down to 37% as a result of the 2018 Tax Reform. Meanwhile,
wealthy citizens in Scandinavian countries pay 70% and manage to run a good
economy, one with free health care and free college education. One citizen
billionaire, Nick Hanauer, has spoken about this on TED. He warns his fellow
billionaires that ‘the pitchforks are coming’. He pleads with them to pay
higher wages and taxes and share more of the productivity gains with the
working class. The working class should earn enough to eat well, pay rent and
retire with adequate savings. Today there are too many workers who couldn’t
muster $400 to pay for a pressing payment they must make.

Capitalism faces the Covid-19 crisis

Capitalism
will change for other reasons as well. If more consumers decide to be
anti-consumerists, they will spend less. Their spending has traditionally
supported 70% of our economy. If this goes down, our economy contracts in size.
A slowdown in economic growth will lead to more unemployment. Add the fact that
more jobs are being lost to AI and robots. This will require capitalism to
spend more on unemployment insurance, social security, food stamps, food
kitchens and social assistance.

Capitalism
will have to print more money. We see this happening with the $2 trillion
outlay voted by Congress to help support desperate workers in the face of the
Covid-19 crisis. And $2 trillion is only to tide over people in the short run.
More trillions will have to be spent. This means huge deficits that can’t be
covered by existing tax revenues. To the extent possible, tax rates will have
to be dramatically increased. The lives of the rich are normally not affected
by the grief and hardship of the poor. But now it is time for the rich to pay
more and share more. In our current crisis, CEOs and their highly paid staffs
have to take a cut in their pay. Boeing’s executives recently set an example by
saying they will work with no pay during the coming crisis.

When the
Covid-19 crisis is over, capitalism will have moved to a new stage. Consumers
will be more thoughtful about what they consume and how much they need to
consume. Here are possible developments:

Some
weaker companies and brands will vanish. Consumers will have to find reliable
and satisfying replacement brands.

The
coronavirus makes us aware of how fragile is our health. We can catch colds
easily in crowds. We must stop shaking hands when we meet and greet. We need to
eat more healthy foods to have a greater resistance to germs and various types
of flu. We are shocked by the inadequacy of our health system and its great
cost. We need to stay out of the hospital and play safe.

The
sudden loss of jobs will remain a trauma even after workers get jobs back. They
will spend and save their money more carefully.

Staying
home led many consumers to become producers of their own food needs. More home
cooking, more gardening to grow vegetables and herbs. Less eating out.

We place
more value on the needs of our family, friends and community. We will use
social media to urge our families and friends to choose good and healthy foods
and buy more sensible clothing and other goods.

We will want
brands to spell out their greater purpose and how each is serving the common
good.

People
will become more conscious of the fragility of the planet, of air and water
pollution, of water shortages and other problems.

More
people will seek to achieve a better balance between work, family and leisure.
Many will move from an addiction to materialism to sensing other paths to a
good life. They will move to post-consumerism.

Capitalism
remains the best engine for efficient economic growth. It also can be the best
engine for equitable economic growth. It doesn’t change to socialism when we
raise taxes on the rich. We have given up on the false economic doctrine that
the poor win when the rich get richer. Actually the rich will get richer mainly
by leaving more money in the hands of working class families to spend.

As the
coronavirus crisis shows us, a robust public health system is in the best
interest of all – rich and poor alike. It is time to rethink and rewire
capitalism and transform it into a more equitable form – based on democracy and
social justice. Either we will learn to share more like Scandinavian countries,
or we will become a banana republic. We are all in this together.

(Source: The
Sarasota Institute – By Philip Kotler – 6^th April, 2020)

BCAJ Admin

GLIMPSES OF SUPREME COURT RULINGS

6. Civil
Appeal Nos. 5437-5438/2012, 4702/2014 and Civil Appeal No. 1727/2020 [arising
out of SLP (C) No. 25761/2015] Ananda
Social and Educational Trust vs. CIT Date
of order: 19^th February, 2020

Registration of Charitable Trust – Section 12AA – The Commissioner is
bound to satisfy himself that the object of the trust is genuine and that its
activities are in furtherance of the objects of the trust, that is, equally
genuine – Section 12AA pertains to the registration of a trust and not to
assess what a trust has actually done – The term ‘activities’ in the provision
includes ‘proposed activities’

The Supreme Court
consolidated three matters wherein the common question of grant of registration
u/s 12AA of the Act was involved.

In Ananda Social and
Educational Trust vs. CIT (Civil Appeal Nos. 5437-5438/2012), the trust
was formed as a society and it applied for registration. No activities had been
undertaken by it before the application was made. The Commissioner rejected the
application on the sole ground that since no activities had been undertaken by
the trust, it was not possible to register it, presumably because it was not
possible to be satisfied about whether its activities were genuine. The Income
Tax Appellate Tribunal reversed the order of the Commissioner. The Revenue
Department approached the High Court by way of an appeal. The High Court upheld
the order of the Tribunal and came to the conclusion that in case of a
newly-registered trust even though there were no activities, it was possible to
consider whether it could be registered u/s 12AA of the Act.

The Supreme Court dismissed
the appeal holding that the reasons assigned by the High Court in passing the
impugned judgment(s) and order(s) needed no interference as the same were in
consonance with law.

In DIT(E) vs.
Foundation of Ophthalmic and Optometry Research Education Centre (Civil Appeal
No. 4702/2014), the appeal had been preferred by the appellant Director
of Income Tax against the impugned judgment and the order passed by the Delhi
High Court holding that a newly-registered trust is entitled for registration
u/s 12AA of the Act on the basis of its objects, without any activity having
been undertaken.

The Supreme Court, after
noting the provisions of section 12AA, observed that the said section provides
for registration of a trust. Such registration can be applied for by a trust
which has been in existence for some time and also by a newly-registered trust.
There is no stipulation that the trust should have already been in existence
and should have undertaken any activities before making the application for
registration.

The Court noted that section
12AA of the Act empowers the Principal Commissioner or the Commissioner of
Income Tax on receipt of an application for registration of a trust to call for
such documents as may be necessary to satisfy himself about the genuineness of
the activities of the trust or institution, and make inquiries in that behalf;
it empowers the Commissioner to thereupon register the trust if he is satisfied
about the objects of the trust or institution and the genuineness of its
activities.

The Supreme Court further
noted that in the present case, the trust was formed as a society on 30^th
May, 2008 and it applied for registration on 10^thJuly, 2008, i.e.
within a period of about two months.

No activities had been
undertaken by the respondent trust before the application was made. The
Commissioner rejected the application on the sole ground that since no
activities had been undertaken by the trust, it was not possible to register
it, presumably because it was not possible to be satisfied about whether its
activities were genuine. The Income Tax Appellate Tribunal, Delhi reversed the
order of the Commissioner. The Revenue Department approached the High Court by
way of an appeal. The High Court upheld the order of the Tribunal and came to
the conclusion that in case of a newly-registered trust even though there were no
activities, it was possible to consider whether the trust can be registered u/s
12AA of the Act.

The Supreme Court observed
that section 12AA undoubtedly requires the Commissioner to satisfy himself
about the objects of the trust or institution and the genuineness of its
activities and grant a registration only if he is so satisfied. The said
section requires the Commissioner to be so satisfied in order to ensure that
the object of the trust and its activities are charitable since the consequence
of such registration is that the trust is entitled to claim benefits under
sections 11 and 12. In other words, if it appears that the objects of the trust
and its activities are not genuine, that is to say not charitable, the
Commissioner is entitled to refuse and in fact bound to refuse such
registration.

It was argued before the
Supreme Court that the Commissioner is required to be satisfied about two
things – firstly that the objects of the trust and secondly that its activities
are genuine. If there have been no activities undertaken by the trust then the
Commissioner cannot assess whether such activities are genuine and, therefore,
the Commissioner is bound to refuse the registration of such a trust.

The Supreme Court held that
the purpose of section 12AA is to enable registration only of such trust or
institution whose objects and activities are genuine. In other words, the
Commissioner is bound to satisfy himself that the objects of the trust are
genuine and that its activities are in furtherance of the objects of the trust,
that is, equally genuine. Since section 12AA pertains to the registration of a
trust and not to assess what a trust has actually done, the Supreme Court was
of the view that the term ‘activities’ in the provision includes ‘proposed activities’.
That is to say, a Commissioner is bound to consider whether the objects of the
Trust are genuinely charitable in nature and whether the activities which the
trust proposed to carry on are genuine, in the sense that they are in line with
the objects of the trust. In contrast, the position would be different where
the Commissioner proposes to cancel the registration of a trust under
sub-section (3) of section 12AA of the Act. There, the Commissioner would be
bound to record the finding that an activity or activities actually carried on
by the Trust are not genuine, being not in accordance with the objects of the
trust. Similarly, the situation would be different where the trust has, before
applying for registration, been found to have undertaken activities contrary to
the objects of the trust.

The Supreme Court therefore
found that the view of the Delhi High Court in the impugned judgment was
correct and liable to be upheld.

Further, the Court noted that
the Allahabad High Court in IT Appeal No. 36 of 2013, titled ‘Commissioner
of Income Tax-II vs. R.S. Bajaj Society’ had taken the same view as
that of the Delhi High Court in the impugned judgment. The Allahabad High Court
had also referred to a similar view taken by the High Courts of Karnataka and Punjab
& Haryana. However, a contrary view was taken by the Kerala High Court in
the case of Self Employers Service Society vs. Commissioner of Income Tax
(2001) Vol. 247 ITR 18. According to the Supreme Court that view,
however, did not commend itself as the facts in Self Employers Service
Society (Supra) suggested that the Commissioner of Income Tax had
observed that the applicant for registration as a trust had undertaken
activities which were contrary to the objects of the trust.

According to the Supreme
Court, therefore, there was no reason to interfere with the impugned judgment
of the High Court of Delhi. The appeal was, accordingly, dismissed.

In
CIT(E) vs. Sai Ashish Charitable Trust (Civil Appeal No. 1727/2020 [@SLP(C) No.
25761/2015], the Trust which applied for registration u/s 12AA of the
Income Tax Act, 1961 was found not to have spent any part of its income on
charitable activities. The Commissioner of Income Tax, therefore, refused the
registration of the Trust.

The Income Tax Appellate Tribunal
reversed the decision of the Commissioner of Income Tax on the basis of the
judgment of the Delhi High Court in the matters referred to above.

The Supreme Court, for the
reasons stated earlier, was of the view that the object of the provision in question
is to ensure that the activities undertaken by the trust are not contrary to
its objects and that a Commissioner is entitled to refuse registration if the
activities are found contrary to the objects of the trust.

According to the Supreme
Court, in the present case, what had been found was that the trust had not
spent any amount of its income for charitable purposes. This was a case of not
carrying out the objects of the trust and not of carrying on activities
contrary to its objects. These circumstances may arise for many reasons,
including not finding suitable circumstances for carrying on activities.
Undoubtedly, the inaction in carrying out charitable purposes might also become
actionable depending on other circumstances; but it was not concerned with such
a case here.

In these circumstances, the
Supreme Court felt that it was for the Commissioner of Income Tax to consider
the issue by exercising his powers under sub-section (3) of section 12AA, if
the facts justify such actions.

The appeal was, however,
dismissed.

7. Connectwell Industries Pvt. Ltd. vs. Union of India Civil
Appeal No. 1919 of 2010 Date
of order: 6^th March, 2020

Recovery of
tax – Unless there is preference given to the Crown debt by a statute, the dues
of a secured creditor have preference over Crown debts – Though the sale was
conducted after the issuance of the notice as well as the attachment order
passed by the Tax Recovery Officer in 2003, the fact remained that a charge
over the property was created much prior to the notice issued by the Tax
Recovery Officer – Hence the rigours of Rule 2 and Rule 16 of Schedule II were
not applicable

Biowin Pharma India Ltd.
(‘BPIL’) obtained a loan from the Union Bank of India. Property situated at
Plot No. D-11 admeasuring 1,000 sq. metres situated at Phase-III, Dombivli
Industrial Area, MIDC, Kalyan along with plant, machinery and building was
mortgaged as security to the bank. Union Bank of India filed OA No. 1836 of
2000 before the Debt Recovery Tribunal III, Mumbai (hereinafter referred as
‘the DRT’) for recovery of the loan advanced to BPIL. The DRT allowed the OA
filed by Union Bank of India and directed BPIL to pay a sum of Rs.
4,76,14,943.20 along with interest at the rate of 17.34% per annum from the
date of the application till the date of payment and / or realisation. A
recovery certificate in terms of the order passed by the DRT was issued and
recovery proceedings were initiated against BPIL.

The Recovery Officer, DRT III
attached the property on 29^th November, 2002. The Recovery Officer,
DRT III then issued a proclamation of sale of the said property on 19^th
August, 2004. A public auction was held on 28^thSeptember, 2004. The
DRT was informed that there were no bidders except Connectwell Industries Pvt.
Ltd. (the auction purchaser). The offer made by the auction purchaser to
purchase the property for an amount of Rs. 23,00,000 was accepted by the
Recovery Officer, DRT III. On 14^th January, 2005 a certificate of
sale was issued by the Recovery Officer, DRT III in favour of the auction
purchaser. The possession of the disputed property was handed over to the
auction purchaser on 25^th January, 2005 by the Recovery Officer, DRT
III and a certificate of sale was registered on 10^th January, 2006.

The Maharashtra Industrial
Development Corporation (hereinafter referred to as ‘the MIDC’) informed the
Recovery Officer, DRT III that it received a letter dated 23^rd
March, 2006 from the Tax Recovery Officer, Range 1, Kalyan stating that the
property in dispute was attached by him on 17^th June, 2003. The
auction purchaser requested the Regional Officer, MIDC by a letter dated 10^th
April, 2006 to transfer the property in dispute in its favour in light of the
sale certificate issued by the DRT on 25^th January, 2005. As the
MIDC failed to transfer the plot in the name of the auction purchaser, the
auction purchaser filed a writ petition before the High Court seeking a
direction for issuance of ‘No Objection’ certificate in respect of the plot and
to restrain the Tax Recovery Officer, Range 1, Kalyan from enforcing the
attachment of the said plot, which was performed on 11^th February,
2003.

The question posed before the
High Court was whether the auction purchaser who had made a bona fide
purchase of the property in the auction sale as per the order of the DRT is
entitled to have the property transferred in its name in spite of the
attachment of the said property by the Income Tax Department. Relying upon Rule
16 of Schedule II to the Act, the High Court came to the conclusion that there
can be no transfer of a property which is the subject matter of a notice. The
High Court was also of the view that after an order of attachment is made under
Rule 16(2), no transfer or delivery of the property or any interest in the
property can be made, contrary to such attachment. The High Court held that
notice under Rule 2 of Schedule II to the Act was issued on 11^th
February, 2003 and the property in dispute was attached under Rule 48 on 17^th
June, 2003, whereas the sale in favour of the auction purchaser took place on 9^th
December, 2004 and the sale certificate was issued on 14^th January,
2005. Therefore, the transfer of the property made subsequent to the issuance
of the notice under Rule 2 and the attachment under Rule 48 was void. The
submission made on behalf of the auction purchaser, that the sale in favour of
the appellant was at the behest of the DRT and not the defaulter, i.e. BPIL,
was not accepted by the High Court. In view of the above findings, the High
Court dismissed the writ petition.

Being aggrieved, the auction
purchaser filed an appeal before the Supreme Court.

At the outset, the Supreme
Court observed that it is trite law that unless there is preference given to
the Crown debt by a statute, the dues of a secured creditor have preference
over Crown debts. [Dena Bank vs. Bhikhabhai Prabhudas Parekh & Co.
and Ors. (2000) 5 SCC 694; Union of India and Ors. vs. Sicom Ltd. and Anr. (2009)
2 SCC 121; Bombay Stock Exchange vs. V.S. Kandalgaonkar and Ors. (2015) 2 SCC
1; Principal Commissioner of Income Tax vs. Monnet Ispat and Energy Ltd. (2018)
18 SCC 786].

The Supreme Court noted that
Rule 2 of Schedule II to the Act provides for a notice to be issued to the
defaulter requiring him to pay the amount specified in the certificate, in
default of which steps would be taken to realise the amount. The crucial
provision for adjudication of the dispute in this case is Rule 16. According to
Rule 16(1), a defaulter or his representative cannot mortgage, charge, lease or
otherwise deal with any property which is subject matter of a notice under Rule
2. Rule 16(1) also stipulates that no civil court can issue any process against
such property in execution of a decree for the payment of money. However, the
property can be transferred with the permission of the Tax Recovery Officer.
According to Rule 16(2), if an attachment has been made under Schedule II to
the Act, any private transfer or delivery of the property shall be void as
against all claims enforceable under the attachment.

According to the Supreme
Court, there was no dispute regarding the facts of this case. The property in
dispute was mortgaged by BPIL to the Union Bank of India in 2000 and the DRT
passed an order of recovery against BPIL in 2002. The recovery certificate was
issued immediately, pursuant to which an attachment order was passed prior to
the date on which notice was issued by the Tax Recovery Officer under Rule 2 of
Schedule II to the Act. The Supreme Court observed that though the sale was
conducted after the issuance of the notice as well as the attachment order
passed by the Tax Recovery Officer in 2003, but the fact remained that a charge
over the property was created much prior to the notice issued by the Tax
Recovery Officer on 16^th November, 2003. The High Court had held
that Rule 16(2) was applicable to this case on the ground that the actual sale
took place after the order of attachment was passed by the Tax Recovery Officer.
According to the Supreme Court, the High Court failed to take into account the
fact that the sale of the property was pursuant to the order passed by the DRT
with regard to the property over which a charge was already created prior to
the issuance of notice on 11^th February, 2003. The Supreme Court
held that as the charge over the property was created much prior to the
issuance of notice under Rule 2 of Schedule II to the Act by the Tax Recovery
Officer, the auction purchaser was right in its submissions that the rigours of
Rule 2 and Rule 16 of Schedule II were not applicable to the instant case.

The Supreme Court set aside
the judgment of the High Court and allowed the appeal. The MIDC was directed to
issue a ‘No Objection’ certificate to the auction purchaser. The Tax Recovery
Officer was restrained from enforcing the attachment order dated 17^th
June, 2003.

8. Commissioner of Income Tax, Udaipur vs.
Chetak Enterprises Pvt. Ltd. Civil Appeal No. 1764 of 2010 Date of order: 5^th March, 2020

Special
deduction – Section 80-IA – Carrying on business of (i) developing, (ii)
maintaining and operating, or (iii) developing, maintaining and operating any
infrastructure facility – The agreement was initially executed between the
erstwhile partnership firm and the State Government, but with clear
understanding that as and when the partnership firm is converted into a
company, the name of the company in the agreement so executed be recorded
recognising the change – The assessee company qualified for the deduction u/s
80-IA

Effect of
conversion of partnership firm into a company under Part IX of the Companies
Act – All properties, movable and immovable (including actionable claims),
belonging to or vested in a company at the date of its registration would vest
in the company as incorporated under the Act

The erstwhile partnership
firm, M/s Chetak Enterprises, entered into an agreement with the Government of
Rajasthan for construction of a road and collection of road / toll tax. The
construction of the road was completed by the said firm on 27^th
March, 2000 and the same was inaugurated on 1^st April, 2000. The
firm was converted into a private limited company on 28^th March,
2000 and named as M/s Chetak Enterprises (P) Ltd. (for short, ‘the assessee
company’) under Part IX of the Companies Act, 1956. On conversion of the firm
into a company, an intimation was sent to the Chief Engineer (Roads), P.W.D.,
Rajasthan, Jaipur. The said authority noted the change and cancelled the
registration of the firm and granted a fresh registration code to the assessee
company. As aforesaid, the road was inaugurated on 1^st April, 2000
and the assessee company started collecting toll tax. For the assessment year 2002-2003,
the assessee company claimed deduction u/s 80-IA of the Income-tax Act, 1961.
The A.O. declined that claim of the assessee company which decision was
reversed by the Commissioner of Income Tax (Appeals), Udaipur. The Income Tax
Appellate Tribunal confirmed the decision of the first appellate authority,
following its decision in the case of the assessee company for the A.Y.
2001-2002. As a result, the Department preferred an appeal before the High
Court which came to be dismissed.

Being aggrieved, the
Department filed two separate special leave petitions before the Supreme Court
pertaining to A.Ys. 2001-02 and 2002-2003. As regards the Civil Appeal
pertaining to A.Y. 2001-2002, the same was disposed of due to low tax effect,
leaving the question of law open.

According to the Supreme
Court, it was not in dispute that an agreement was executed between the
erstwhile partnership firm and the State Government for construction of the
road and collection of toll tax. Before the commencement of the assessment year
in question, i.e. 2002-2003, the construction of the road was completed (on 27^th
March, 2000) and it was inaugurated on 1^st April, 2000. Before the
date of inauguration, the partnership firm was converted into a company on 28^th
March, 2000 under Part IX of the Companies Act.

The Supreme Court noted that
the Memorandum of Association of the assessee company revealed the main object
as follows:

‘On conversion of the
partnership firm into a company limited by shares under these presents to
acquire by operation of law under Part IX of the Companies Act, 1956 as going
concern and continue the partnership business now being carried on under the
name and style of M/s Chetak Enterprises including all its assets, movables and
immovables, rights, debts and liabilities in connection therewith.’

The Supreme Court also noted
that before the agreement was executed with the erstwhile partnership firm, it
was clearly understood that the partnership firm would in due course be
converted into a registered limited company. This was evident from the
communication addressed to the Chief Engineer on 23^rd October, 1998
at the time of replying to the notice inviting bids. An explicit request was
made to allow the partnership firm to change its constitution and consequently
a change of name in the agreement after converting the firm into a company with
the existing partners as its Directors. The Chief Engineer being the
appropriate authority of the State, vide letter dated 27^th
August, 1999, took note of the request made by the erstwhile partnership firm
and informed the said firm that its offer was accepted subject to terms and
conditions specified in that regard. It is only after this interaction that an
agreement was entered into between the Government of Rajasthan and the
erstwhile partnership firm, and the communication sent by the Chief Engineer,
dated 27th August, 1999, was made part of the agreement. After the conversion
of the partnership firm into a company under Part IX of the Companies Act, the
State authorities had noted the change and provided a fresh registration code
to the assessee company.

The Supreme Court further
noted the effect of conversion of the partnership firm into a company under
Part IX of the Companies Act. According to the Supreme Court, all properties,
movable and immovable (including actionable claims), belonging to or vested in
a firm at the date of its registration would vest in the company as
incorporated under the Act. In other words, the property acquired by a promoter
can be claimed by the company after its incorporation without any need for
conveyance on account of statutory vesting. On such statutory vesting, all the
properties of the firm, in law, vest in the company and the firm is succeeded
by the company. The firm ceases to exist and assumes the status of a company
after its registration as a company. A priori, it must follow
that the business is carried on by the enterprise owned by a company registered
in India and the agreement entered into between the erstwhile partnership firm
and the State Government, by legal implication, assumes the character of an
agreement between the company registered in India and the State Government for
(i) developing, (ii) maintaining and operating, or (iii) developing,
maintaining and operating a new infrastructure facility.

The
Supreme Court observed that for the purpose of considering compliance of clause
(a) of section 80-IA(4)(i), the assessee must be an enterprise carrying on
business of (i) developing, (ii) maintaining and operating, or (iii)
developing, maintaining and operating any infrastructure facility, which
enterprise is owned by a company registered in India. According to the Supreme
Court, that stipulation was fulfilled in the present case as the registered
firm was converted into a company under Part IX of the Companies Act on 28^th
March, 2000, which was before the commencement of assessment year 2002-2003.
For the assessment year under consideration, the activity undertaken by the
assessee was only maintaining and operating or developing, maintaining and
operating the infrastructure facility, inasmuch as, the construction of the
road was completed on 27^th March, 2000 and the same was inaugurated
on 1^st April, 2000, whereafter toll tax was being collected by the
assessee company.

Further, as regards clause
(b) of section 80-IA(4)(i), the requirement predicated was that the assessee
must have entered into an agreement with the Central Government or a State
Government or a local authority or any other statutory body for (i) developing,
(ii) maintaining and operating, or (iii) developing, maintaining and operating
a new infrastructure facility. According to the Supreme Court, in the present
case the agreement was initially executed between the erstwhile partnership
firm and the State Government, but with a clear understanding that as and when
the partnership firm is converted into a company, the name of the company in
the agreement so executed be recorded recognising the change. Notably, the
agreement itself mentioned that M/s Chetak Enterprises as party to the agreement
was meant to include its successors and assignee. Further, the State Government
had granted sanction to the company and the original agreement entered into
with the firm automatically stood converted in favour of the assessee company
which came into existence on 28^th March, 2000 being the successor of
the erstwhile partnership firm. Thus understood, even the stipulation in clause
(b) of section 80-IA(4)(i) was fulfilled by the assessee company.

The Supreme Court held that
since these were the only two issues which weighed with the A.O. to deny
deduction to the assessee company as claimed u/s 80-IA of the Income-tax Act,
the first appellate authority was justified in reversing the view taken by the
A.O. For the same reason, the ITAT, as well as the High Court had justly
affirmed the view taken by the first appellate authority, holding that the
respondent / assessee company qualified for the deduction u/s 80-IA being an
enterprise carrying on the stated business pertaining to infrastructure
facility and owned by a company registered in India on the basis of the
agreement executed with the State Government to which the respondent / assessee
company has succeeded in law after conversion of the partnership firm into a
company.

In view of the above, the Supreme
Court dismissed the appeal.

BCAJ Admin

FROM PUBLISHED ACCOUNTS

Disclosures related to impact of Covid-19 in
published financial results and auditors’ report thereon for the quarter / year
ended 31^st March, 2020

Compiler’s Note

Despite the challenging
situation due to the Covid-19 pandemic and the consequent lockdown (and the
work from home scenario), many front-line companies have issued their financial
results for the quarter / year ended 31^st March, 2020 and auditors
have also issued their reports thereon. In view of the uncertain future
economic scenario and downturn, most of these companies have given disclosures
for the same and, in many cases the auditors have also given remarks in their
reports. Given below are sector-wise disclosures by companies and their
auditors in this regard.

INFORMATION
TECHNOLOGY SECTOR

Infosys
Limited

From
Notes forming part of Financial Statements

Use of
estimates and judgements – Estimation of uncertainties relating to global
health pandemic from Covid-19.

The company has considered
the possible effects that may result from the pandemic relating to Covid-19 on
the carrying amounts of receivables, unbilled revenues and investments in
subsidiaries. In developing the assumptions relating to the possible future uncertainties
in the global economic conditions because of this pandemic, the company, as at
the date of approval of these financial statements, has used internal and
external sources of information including credit reports and related
information and economic forecasts. The company has performed sensitivity
analysis on the assumptions used and based on current estimates expects the
carrying amount of these assets will be recovered. The impact of Covid-19 on
the company’s financial statements may differ from that estimated as at the
date of approval of these financial statements.

From
Auditors’ Report

No specific disclosure.

Tata
Consultancy Services Limited (TCS)

From
Notes forming part of Financial Statements

Financial
risk management – Foreign currency exchange rate risk – Impact of Covid-19
(global pandemic).

The company basis its
assessment believes that the probability of the occurrence of their forecasted
transactions is not impacted by Covid-19 pandemic. The company has also
considered the effect of changes, if any, in both counter-party credit risk and
own credit risk while assessing hedge effectiveness and measuring hedge
ineffectiveness. The company continues to believe that there is no impact on
the effectiveness of its hedges.

Financial instruments carried
at fair value as at 31^st March, 2020 are Rs. 26,111 crores and
financial instruments carried at amortised cost as at 31^st March,
2020 are
Rs. 45,864 crores. A significant part of the financial assets are classified as
Level 1 having fair value of Rs. 25,686 crores as at 31^st March,
2020. The fair value of these assets is marked to an active market which
factors the uncertainties arising out of Covid-19. The financial assets carried
at fair value by the company are mainly investments in liquid debt securities
and accordingly, any material volatility is not expected.

Financial assets of Rs. 4,824
crores as at 31^st March, 2020 carried at amortised cost are in the
form of cash and cash equivalents, bank deposits and earmarked balances with
banks where the company has assessed the counter-party credit risk. Trade
receivables of Rs. 28,734 crores as at 31^st March, 2020 form a
significant part of the financial assets carried at amortised cost, which is
valued considering provision for allowance using expected credit loss method.
In addition to the historical pattern of credit loss, we have considered the
likelihood of increased credit risk and consequential default considering
emerging situations due to Covid-19. This assessment is not based on any mathematical
model but an assessment considering the nature of verticals, impact immediately
seen in the demand outlook of these verticals and the financial strength of the
customers in respect of whom amounts are receivable. The company has
specifically evaluated the potential impact with respect to customers in
Retail, Travel, Transportation and Hospitality, Manufacturing and Energy
verticals which could have an immediate impact and the rest which could have an
impact with a lag. The company closely monitors its customers who are going
through financial stress and assesses actions such as change in payment terms,
discounting of receivables with institutions on non-recourse basis, recognition
of revenue on collection basis, etc., depending on severity of each case. The
same assessment is done in respect of unbilled receivables and contract assets
of Rs. 8,573 crores as at 31^st March, 2020 while arriving at the
level of provision that is required. Basis this assessment, the allowance for
doubtful trade receivables of Rs. 938 crores as at 31^st March, 2020
is considered adequate.

Leases
– Impact of Covid-19

The company does not foresee
any large-scale contraction in demand which could result in significant
down-sizing of its employee base rendering the physical infrastructure
redundant. The leases that the company has entered with lessors towards
properties used as delivery centres / sales offices are long term in nature and
no changes in terms of those leases are expected due to Covid-19.

Revenue
recognition – Impact of Covid-19

While the company believes
strongly that it has a rich portfolio of services to partner with customers,
the impact on future revenue streams could come from

the inability of our customers to continue their businesses due
to financial resource constraints or their services no longer being availed by
their customers,

prolonged lockdown situation resulting in its inability to deploy
resources at different locations due to restrictions in mobility,

customers not in a position to accept alternate delivery modes
using Secured Borderless Workspaces,

customers postponing their discretionary spend due to change in
priorities.

The company has assessed that
customers in Retail, Travel, Transportation and Hospitality, Energy and
Manufacturing verticals are more prone to immediate impact due to disruption in
supply chain and drop in demand, while customers in Banking, Financial Services
and Insurance would re-prioritise their discretionary spend in immediate future
to conserve resources and assess the impact that they would have due to
dependence of revenues from the impacted verticals. The company has considered
such impact to the extent known and available currently. However, the impact
assessment of Covid-19 is a continuing process given the uncertainties
associated with its nature and duration.

The company has taken steps
to assess the cost budgets required to complete its performance obligations in
respect of fixed price contracts and incorporated the impact of likely delays /
increased cost in meeting its obligations. Such impact could be in the form of
provision for onerous contracts or re-setting of revenue recognition in fixed
price contracts where revenue is recognised on percentage-completion basis. The
company has also assessed the impact of any delays and inability to meet
contractual commitments and has taken actions such as engaging with the
customers to agree on revised SLAs in light of current crisis, invoking of force
majeure clause, etc., to ensure that revenue recognition in such cases
reflects realisable values.

From
Auditors’ Report

No specific disclosure.

BANKING
SECTOR

HDFC Bank
Limited

From
Notes forming part of Financial Results

The Reserve Bank of India,
vide its circular dated 17^th April, 2020, has decided that banks
shall not make any further dividend payouts from profits pertaining to the
financial year ended 31^st March, 2020 until further instructions,
with a view that banks must conserve capital in an environment of heightened
uncertainty caused by Covid-19. Accordingly, the Board of Directors of the
bank, at their meeting held on 18^th April, 2020, has not proposed
any final dividend for the year ended 31^st March, 2020.

The SARS-CoV-2 virus
responsible for Covid-19 continues to spread across the globe and India, which
has contributed to a significant decline and volatility in global and Indian
financial markets and a significant decrease in global and local economic
activities. On 11^th March, 2020 the Covid-19 outbreak was declared a
global pandemic by the World Health Organization. Numerous governments and
companies, including the bank, have introduced a variety of measures to contain
the spread of the virus. On 24^th March, 2020 the Indian government
announced a strict 21-day lockdown which was further extended by 19 days across
the country to contain the spread of the virus. The extent to which the
Covid-19 pandemic will impact the bank’s results will depend on future
developments, which are highly uncertain, including, among other things, any
new information concerning the severity of the Covid-19 pandemic and any action
to contain its spread or mitigate its impact whether government-mandated or
elected by the bank.

In
accordance with the RBI guidelines relating to Covid-19 Regulatory Package
dated 27^th March, 2020 and 17^th April, 2020 the bank
would be granting a moratorium of three months on the payment of all
instalments and / or interest, as applicable, falling due between 1^st
March, 2020 and 31^st May, 2020 to all eligible borrowers classified
as Standard, even if overdue, as on 29^th February, 2020. For all
such accounts where the moratorium is granted, the asset classification shall
remain stand-still during the moratorium period (i.e., the number of days
past-due shall exclude the moratorium period for the purposes of asset
classification under the Income Recognition, Asset Classification and
Provisioning norms). The bank holds provisions as at 31^st March,
2020 against the potential impact of Covid-19 based on the information
available at this point in time. The provisions held by the bank are in excess
of the RBI prescribed norms.

From
Auditors’ Report

Emphasis of
matter

We draw
attention to Note 10 to the standalone financial results, which describes that
the extent to which the Covid-19 pandemic will impact the bank’s results will
depend on future developments, which are highly uncertain.

Our opinion is not modified
in respect of this matter.

Axis Bank
Limited

From
Notes forming part of Financial Results

Covid-19 virus, a global
pandemic has affected the world economy including India, leading to significant
decline and volatility in financial markets and decline in economic activities.
On 24^th March, 2020 the Indian Government announced a strict 21-day
lockdown which was further extended by 19 days across the country to contain
the spread of the virus. The extent to which the Covid-19 pandemic will impact
the bank’s provision on assets will depend on the future developments, which
are highly uncertain, including among other things any new information
concerning the severity of the Covid-19 pandemic and any action to contain its
spread or mitigate its impact whether government-mandated or elected by the
bank.

From
Auditors’ Report

Emphasis of
matter

We draw attention to Note 6
to the Statement which explains that the extent to which Covid-19 pandemic will
impact the bank’s operations and financial results is dependent on future
developments, which are highly uncertain.

ICICI Bank
Limited

From
Notes forming part of Financial Results

Since the
first quarter of CY 2020, the Covid-19 pandemic has impacted most of the
countries, including India. This resulted in countries announcing lockdown and
quarantine measures that sharply stalled economic activity. The Indian economy
would be impacted by this pandemic with contraction in industrial and services
output across small and large businesses. The bank’s business is expected to be
impacted by lower lending opportunities and revenues in the short to medium term.
The impact of the Covid-19 pandemic on the bank’s results, including credit
quality and provisions, remains uncertain and dependent on the spread of
Covid-19, steps taken by the government and the central bank to mitigate the
economic impact, steps taken by the bank and the time it takes for economic
activities to resume at normal levels. The bank’s capital and liquidity
position is strong and would continue to be the focus area for the bank during
this period. In accordance with the regulatory package announced by the Reserve
Bank of India on 27^th March, 2020, the bank has extended the option
of payment moratorium for all amounts falling due between 1^st March,
2020 and 31^st May, 2020 to its borrowers. In line with the RBI
guidelines issued on 17^th April, 2020 in respect of all accounts
classified as standard as on 29^th February, 2020 even if overdue,
the moratorium period, wherever granted, shall be excluded from the number of
days past-due for the purpose of asset classification. At 31^st
March, 2020 the bank has made Covid-19 related provision of Rs. 2,725.00
crores. This additional provision made by the bank is more than the requirement as per the RBI guideline dated 17^th April,
2020.

From
Auditors’ Report

Emphasis of
Matter

We draw attention to Note 2
of the Statement, which describes the uncertainties due to the outbreak of
SARS-CoV-2 virus (Covid-19). In view of these uncertainties, the impact on the
Bank’s results is significantly dependent on future developments. Our opinion
is not modified in respect of this matter.

MANUFACTURING
SECTOR

Reliance
Industries Limited

From
Notes forming part of Financial Results

The
outbreak of coronavirus (Covid-19) pandemic globally and in India is causing
significant disturbance and slowdown of economic activity. In many countries,
businesses are being forced to cease or limit their operations for long or an
indefinite period of time. Measures taken to contain the spread of the virus,
including travel bans, quarantines, social distancing and closures of non-essential
services have triggered significant disruptions to businesses worldwide,
resulting in an economic slowdown.

Covid-19 is significantly
impacting business operations of the companies, by way of interruption in
production, supply chain disruption, unavailability of personnel, closure /
lockdown of production facilities, etc. On 24^th March, 2020 the
Government of India ordered a nationwide lockdown for 21 days which further got
extended till 3^rd May, 2020 to prevent community spread of Covid-19
in India resulting in significant reduction in economic activities. Further,
during March / April 2020, there has been significant volatility in oil prices,
resulting in reduction in oil prices.

In assessing the
recoverability of company’s assets such as Investments, Loans, Intangible
Assets, Goodwill, Trade receivable, Inventories, etc. the company has
considered internal and external information up to the date of approval of
these financial results. The company has performed sensitivity analysis on the
assumptions used basis the internal and external information / indicators of
future economic conditions and expects to recover the carrying amount of the
assets.

Further, in respect to
refining and petrochemicals business, the company has determined the non-cash
inventory holding losses in the energy businesses due to dramatic drop in oil
prices accompanied with unprecedented demand destruction due to Covid-19 and
the same has been disclosed as Exceptional Items in the Financial Results.
Impact of the same, net of current tax for the quarter and year ended 31^st
March, 2020, is Rs. 4,245 crores (tax Rs. 899 crores).

From
Auditors’ Report

No specific disclosure.

Mahindra CIE
Limited

From
Notes forming part of Financial Results

Since December, 2019 Covid-19,
a new strain of coronavirus, has spread globally, including India. This event
significantly affects economic activity worldwide and, as a result, could
affect the operations and results of the group. The impact of coronavirus on
our business will depend on future developments that cannot be reliably
predicted, including actions to contain or treat the disease and mitigate its
impact on the economies of the affected countries, among others.

The impact of the global
health pandemic might be different from that estimated as at the date of
approval of these financial results and the company will closely monitor any
material changes to future economic conditions.

From
Auditors’ Report

Emphasis of
Matter

We draw your attention to
Note 8 to the Statement of Standalone and Consolidated Unaudited Results for
the quarter ended 31^st March, 2020 which describes the impact of the
outbreak of coronavirus (Covid-19) on the business operations of the company.
In view of the highly uncertain economic environment, a definitive assessment
of the impact on the subsequent periods is highly dependent upon circumstances
as they evolve.

Tejas
Networks Limited

From
Notes forming part of Financial Results

Impact of
Covid-19 pandemic

The spread of Covid-19 has
severely impacted businesses around the globe. In many countries, including
India, there has been severe disruption to regular business operations due to
lockdowns, disruptions in transportation, supply chain, travel bans,
quarantines, social distancing and other emergency measures.

The company is in the
business of providing optical and data transmission equipment to telecom
service providers. Since telecom networks have been identified as an essential
service, the company is in a position to provide continual customer and
technical support to its customers in India and worldwide, so that their
network uptime remains high. With more people working remotely and many
services being accessed from home, there has been a significant increase in
data traffic in telecom networks which is expected to drive demand for higher
bandwidth and more optical and data transmission equipment. Telecom operators
are expected to invest more in upgrading their network capacities, especially
to address home broadband needs. The company’s products address the broadband
equipment requirements of telecom operators and are also used for augmenting
the data capacity of their networks. However, uncertainty caused by the current
situation has resulted in delays in confirmation of customer orders and in executing
the orders in hand and an increase in lead times in sourcing components. This
situation is likely to continue for the next two quarters based on current
assessment.

The company has made detailed
assessment of its liquidity position for the next one… and of the
recoverability and carrying values of its assets comprising Property, Plant and
Equipment, Intangible Assets, Trade receivables, Inventory, and Investments as
at the balance sheet date, and has concluded that there are no material adjustments
required in the standalone financial results. In the case of inventory,
management has performed the year-end ‘wall to wall’ inventory verification at
each of its locations and again at a date subsequent to the year-end in the
presence of its internal auditor (an external firm of Chartered Accountants) to
obtain comfort over the existence and condition of inventories as at 31^st
March, 2020 including roll-back procedures, etc.

Management believes that it
has taken into account all the possible impacts of known events arising from
Covid-19 pandemic in the preparations of the standalone financial results.
However, the impact assessment of Covid-19 is a continuing process given the
uncertainties associated with its nature and duration. The company will continue
to monitor any material changes to future economic conditions.

From
Auditors’ Report

Emphasis of
Matter

We draw your attention to
Note 13 to the standalone financial results which explains the uncertainties
and the management’s assessment of the financial impact due to the lockdowns
and other restrictions and conditions related to the Covid-19 pandemic
situation, for which a definitive assessment of the impact in the subsequent
period is highly dependent upon circumstances as they evolve. Further, our
attendance at the physical inventory verification done by the management was
impracticable under the current lockdown restrictions imposed by the government
and we have, therefore, relied on the related alternate audit procedures to
obtain comfort over the existence and condition of inventory at year-end. Our
opinion is not modified in respect of this matter.

Tata Coffee
Limited

From
Notes forming part of Financial Results

The company’s units, which
had to suspend operations temporarily due to the government’s directives
relating to Covid-19, have since resumed partial operations, as per the
guidelines and norms prescribed by the Government authorities.

The management has considered
the possible effects, if any, that may result from the pandemic relating to
Covid-19 on the carrying amounts of trade receivables and inventories
(including biological assets). In developing the assumptions and estimates
relating to the uncertainties as at the Balance Sheet date in relation to the
recoverable amounts of these assets, the management has considered the global
economic conditions prevailing as at the date of approval of these financial
results and has used internal and external sources of information to the extent
determined by it. The actual outcome of these assumptions and estimates may
vary in future due to the impact of the pandemic.

From
Auditors’ Report

Other
matters

Due to the Covid-19 related
lockdown we were not able to participate in the physical verification of
inventory that was carried out by the management subsequent to the year-end.
Consequently, we have performed alternate procedures to audit the existence of
inventory as per the guidance provided in SA 501 Audit Evidence –
‘Specific Considerations for Selected Items’ and have obtained sufficient
appropriate audit evidence to issue our unmodified opinion in these standalone
financial results.Our opinion is not modified in respect of this matter.

SERVICE
SECTOR

GTPL Hathway
Limited

From
Notes forming part of Financial Results

In assessing the impact of
Covid-19 on recoverability of trade receivables including unbilled receivables,
contract assets and contract costs, inventories, intangible assets, investments
and margins of on-going projects, the company has considered internal and
external information up to the date of approval of these financial results.
Further, revenue for some on-going agreements has been considered based on
management’s best estimates. Based on current indicators of future economic
conditions, the company expects to recover the carrying amount of these assets
and revenue recognised. The impact of the Covid-19 pandemic may be different
from that estimated as at the date of approval of these (consolidated)
financial results and the company will continue to closely monitor any material
changes to future economic conditions.

During the previous year, on
account of fire at the warehouse on 11^th January, 2019, the company
has recognised insurance claim of Rs. 90.25 million. The company has submitted
all required information to insurance surveyor and final report is pending due
to lockdown on account of Covid-19. The management estimates that the insurance
claim amount is fully recoverable.

From
Auditors’ Report

Emphasis of
matter

We draw attention to Note No.
3 of the standalone financial results, which describes that based on current
indicators of future economic conditions the company expects to recover the
carrying amount of all its assets and revenue recognised. The impact of the
Covid-19 pandemic may be different from that estimated as at the date of
approval of these financial results and the company will continue to closely
monitor any material changes to future economic conditions. Our opinion is not
modified in respect of this matter.

We draw attention to Note No.
4 of the standalone financial results, wherein it is stated that during the
previous year on account of a fire at the warehouse on 11^th January,
2019, the company has recognised insurance claim of Rs. 90.25 million. The
company has submitted all required information to the insurance surveyor and
the final report is pending due to the lockdown on account of Covid-19. The
management estimates that the insurance claim amount is fully recoverable. Our
opinion is not modified in respect of this matter.

INSURANCE
SECTOR

SBI Life
Insurance Limited

From
Notes forming part of Financial Results

The outbreak of Covid-19
virus continues to spread across the globe including India, resulting in
significant impact on global and India’s economic environment, including
volatility in the capital markets. This outbreak was declared as a global
pandemic by World Health Organization (WHO) on 11^th March, 2020. The
company has assessed the overall impact of this pandemic on its business and
financials, including valuation of assets, policy liabilities and solvency for
the year ended 31^st March, 2020. Based on the evaluation, the
company has made additional reserve amounting to Rs. 600,000 thousands
resulting from Covid-19 pandemic over and above the policy level liabilities
calculated based on prescribed IRDAI regulations and the same have been
provided for as at 31^st March, 2020 in the actuarial liability. The
company will continue to closely monitor any future developments relating to
Covid-19 which may have any impact on its business and financial position.

From
Auditors’ Report

Emphasis of
matter

We invite attention to Note
No. 5 to the standalone financial results regarding the uncertainties arising
out of the outbreak of Covid-19 pandemic and the assessment made by the
management on its business and financials, including valuation of assets,
policy liabilities and solvency for the year ended 31^st March, 2020;
this assessment and the outcome of the pandemic is as made by the management
and is highly dependent on the circumstances as they evolve in the subsequent
periods.

Our opinion is not modified
on the above matter.

ICICI
Prudential Life Insurance Company Limited

From
Notes forming part of Financial Results

The company has assessed the
impact of Covid-19 on its operations as well as its financial statements,
including but not limited to the areas of valuation of investment assets,
valuation of policy liabilities and solvency, for the year ended 31^st
March, 2020. Further, there have been no material changes in the controls or
processes followed in the financial statement closing process of the company.
The company will continue to monitor any future changes to the business and
financial statements due to Covid-19.

From
Auditors’ Report

No specific disclosure.

BCAJ Admin

CORPORATE LAW CORNER

4. Eight Capital India (M) Ltd.
vs. Wellknit Apparels (P) Ltd. [2020] 115 taxmann.com 279 (NCLT-Chen.) IBA No.
312 of 2019 Date of order: 11^th December, 2019

Section 5(8) r/w/s 7 of Insolvency and
Bankruptcy Code, 2016 – A fully convertible debenture which has not been
converted into equity qualifies as a ‘Financial Debt’ – Application was
admitted when there was default in payment of such debentures

FACTS

E Co (the ‘financial creditor’) was a
private limited company incorporated in Mauritius which gave a loan of US$
37,15,000 (equivalent to Rs. 15 crores) as project finance and was issued fully
convertible debentures by W Co (the ‘corporate debtor’). The latter issued
40 debentures of Rs. 25 lakhs each for an amount of Rs. 10 crores on 20^th
August, 2007 and 20 debentures of Rs. 25 lakhs each totalling Rs. 5 crores on
20^th November, 2007; the total value of the debentures was Rs. 15
crores.

The financial creditor and the
corporate debtor entered into a Debenture Subscription Agreement dated 21^stMay, 2007 and a Master Facility Agreement also dated 21^st May,
2007. As per the terms of the agreement, the subscription to the debenture was
done for a period of 84 months and interest was to be paid at the rate of 12%
p.a. An additional interest of 6% p.a. was payable on default.

The corporate debtor made a repayment
only once during the period, for the quarter ended 30^th September,
2007 for an amount of Rs. 39,86,371. The corporate debtor was in default on all
other payments specified in the agreement till 20^th May, 2014. The
financial creditor alleged that the corporate debtor failed to convert the
debentures as agreed.

Article 8 of the agreement specified
that the financial creditor could initiate action against the corporate debtor
upon occurrence of an event of default which included appointment of receiver,
liquidator or making an application for winding up. The financial creditor had
moved the Madras High Court for recovery of interest and for restraining the
corporate debtor from alienating the assets. An application filed by the
corporate debtor opposing the suit had been dismissed by the Madras High Court
on the ground that the suit was a continuing breach of tort, with every act of
breach giving rise to fresh cause of action.

On 18^th April, 2017 a
Memorandum of Agreement (‘MOA’) was executed between the financial creditor and
the corporate debtor, which is stated to have been confirmed and made binding
by the Madras High Court on 14^th July, 2017. The corporate debtor
did not co-operate with the financial creditor to monetise the assets and to
make the payments to the financial creditor as was agreed in the MOA.

The corporate debtor admitted that the
MOA was entered into for a compromise which provided for resolving the disputes
amicably but not to admit or determine its quantum of liability. It was further
stated that the MOA was executed in a spirit of goodwill and compromise and to
put a quietus to the litigation whereby it agreed to share 50% of the
net assets after deducting / adjusting certain statutory dues, etc. which was
higher than the maximum of 37.5% equity entitlement of the financial creditor.
The corporate debtor stated that the claims were sought to be settled on the
basis of the assets available and not on the basis of any liability admitted or
otherwise.

The corporate debtor further contended
that the MOA constituted a separate contract distinguishable from the Master
Facility Agreement. The MOA superseded the earlier contract and clearly
explained the mode and the time of performance of the respective obligations.
The MOA was conditional upon the sale of the property by the authorised officer
of MEPZ.

The corporate debtor also contended
that the action of entering into an MOA which contemplated the sale of assets
and dividing the surplus in an agreed manner, only reinforced the proposition
that the applicant was a stakeholder in the equity and not a financial creditor
as there was no debt involved. The applicant claimed that he fell in the
definition of a financial creditor as he had all along been a debenture holder
and the debentures were never converted into equity at any point in time.
Besides, he corporate debtor in its
balance sheet for the year nding 2016-17
had shown the applicant as a ‘debenture holder’ establishing the fact that it
was a ‘financial debt’ that was due to the ‘financial creditor’.

HELD

The NCLT heard both the parties. It was
observed that the intention of both the parties was manifested in the Master
Facility Agreement and the Debenture Subscription Agreement. The investment was
sought to be made by the financial creditor by way of subscribing to the
debentures in consideration of the money brought in by him into the coffers of
the corporate debtor.

NCLT observed that fully convertible
debentures were a financial instrument within the meaning of section 5(8) of
the Insolvency and Bankruptcy Code, 2016. A convertible debenture which was in
the nature of financial debt (though hybrid in nature), could not be treated as
equity unless conversion was actually done. It could not take on the
characteristics of equity until it was converted.

It was further held that the financial
creditor had taken all precautions to safeguard its interest so long as the
convertible debenture remained a debenture. It was observed that a simple
mortgage was created in favour of the financial creditor which shows that there
was debt which is a financial debt based on the principle that ‘once a
mortgage; always a mortgage’. It postulates that unless and until a mortgage is
discharged it remains a mortgage and as such a financial debt.

The NCLT also
noted that apart from the payment of a sum of Rs. 39,86,371.36 for the quarter
ending September, 2007, interest amount was not paid for the remaining period
by the corporate debtor which constituted a clear default.

The application was thus admitted by
the NCLT and consequential orders including appointment of Interim Resolution
Professional and imposing of moratorium were passed.

5. Deorao Shriram Kalkar vs. Registrar of Companies [2020] 113
taxmann.com 292 (NCLAT) Date of order: 6^th December, 2019

Where company had fixed deposit
receipts (FDRs) with bank and was regularly receiving interest on the same and
TDS was being deducted by the bank on payment of interest and being deposited
with Income tax authorities, it could not be said that company was
non-operational – It would be just that the name of company be restored in the
Register of Companies

FACTS

T Private Ltd. (T Co) is a company
incorporated under the Companies Act, 1956 and having its registered office at
Pune. T Co and its directors were served STK 1, a notice u/s 248(1)(c)
of the Companies Act, 2013 on 11^th March, 2017. In its reply dated
29^th March, 2017, the company intimated the ROC that inadvertently
regulatory filings for the years ending 31^st March, 2015 and 2016
were not filed and it was in the process of completing the same at the
earliest. Thereafter, a public notice was issued on 7^th April, 27^th
April and 11^th July, 2017 and T Co’s name was struck off from the
register of companies.

This order was challenged by T Co
before the NCLT, Mumbai. However, NCLT dismissed the appeal on the ground that
the company did not generate any income / revenue from its operations since the
financial year ending 31^st March, 2014 and till 31^st
March, 2017; the company did not spend any amount towards employee benefit
expenses and the fixed assets of the company were Nil and its tangible assets
were also Nil; therefore the action taken by the ROC was justified and the
Bench did not find any ground to interfere with the action of striking off the
name by the ROC. Being aggrieved, T Co preferred this appeal before the
Appellate Tribunal (AT).

T Co submitted that it had a Fixed
Deposit Receipt (FDR) with the Bank of Maharashtra amounting to Rs. 1,50,00,000
(Rs. 1.50 crores) and a performance bank guarantee was issued in favour of one
of the vendors which was valid up to 11^th November, 2017; the same
was further extended up to 10^th November, 2018. T Co was regularly
receiving interest on the said FDR from the bank and TDS was being deducted by
the Bank on the interest and deposited with the Income tax authorities. T Co
further submitted that the company was regularly filing the Income tax returns.
In addition, T Co submitted that after the expiry of the term of the bank
guarantee, the funds of the company would be released and the Directors of the
company would be in a position to take necessary decisions about its working.

However, counsel for the ROC stated
that due to failure in filing of the statutory returns for a continuous period
of more than two years, the name of T Co was considered for striking off by the
ROC, Pune in a suo motu action under the provisions of section 248 of
the Companies Act, 2013. It was further argued that the STK 1 notice
dated 11^th March, 2017 was issued to T Co with the direction to
submit any representation against the proposed striking off of its name. It was
stated that the fact of non-filing of the statutory returns was admitted by T
Co. But the ROC counsel submitted that on an analysis of the balance sheet and
the Profit & Loss account of the appellant it was observed that the company
had not generated any income / revenue from its operations since the financial
year ending 31^stMarch, 2014 and till 31^st March, 2017.
Besides, the company did not spend any amount towards employee benefit expenses
for these financial years. At the same time, both the fixed assets and tangible
assets of the company were Nil. The counsel for ROC insisted that the ROC had
rightly taken the decision to strike off the name of T Co.

The matter was considered by the AT
which noted that during the course of arguments T Co had admitted that it had
not filed the statutory returns for more than two years as per the Companies
Act, 2013. On receipt of the STK 1 notice from the ROC, T Co vide
its reply had intimated the ROC that regulatory filings for the years ending 31^stMarch, 2015 and 2016 were not filed inadvertently. However, it also
stated that the annual returns and financial statements were ready and could be
filed immediately. The AT also observed that T Co had an FDR with the bank to
the tune of Rs. 1,50,00,000; interest was being received by the company and it
was duly making provision of income tax in its balance sheet. It was further
observed by the AT that T Co had also given a performance guarantee. This was
an attempt to secure business for the company.

The AT further observed that in such
cases the ROC has also to see that the compliance of section 248(6) of the
Companies Act, 2013 is met.

Section 248(6) of the Companies Act,
2013 reads as under:

‘The Registrar, before passing an order
under subsection (5), shall satisfy himself that sufficient provision has been
made for the realisation of all amounts due to the company and for the payment
or discharge of its liabilities and obligations within a reasonable time and,
if necessary, obtain necessary undertakings from the Managing Director,
Director or other persons in charge of the management. Provided that
notwithstanding the undertakings referred to in this sub-section, the assets of
the company shall be made available for the payment or discharge of all its
liabilities and obligations even after the date of the order removing the name
of the company from the Register of Companies.’

However, the ROC counsel in written
submissions stated that the ROC has not received any reply from the company and
its Directors. The AT noted that the appellant has replied vide its
letter dated 29^th March, 2017 and the said letter has the
acknowledgement of the ROC, Pune.

Therefore, the AT observed that it
cannot be said that T Co has not replied. Further there is nothing on record to
show that the compliance of section 248(6) of the Companies Act, 2013 has been
made by the ROC. his fact has also not
been noted in the NCLT order. Without
complying with this provision, the ROC vide Form STK 5 dated 7^th
April, 2017 has struck off the names of various companies including T Co. The
AT reiterated that the company is having an FDR with the bank and a performance
guarantee has been given and income tax is being deposited on the interest
received on fixed deposits.

From the above discussions and
observations, the AT came to the conclusion that it would be just that the
name of the company be restored.

HELD

The following order / directions were
passed:

The order of NCLT was quashed
and set aside.The name of T Co would be restored in the Register of
Companies subject to the following compliances:

T Co shall pay costs of Rs.
25,000 to the Registrar of Companies, Pune within 30 days.

Within 30 days of restoration of
the company’s name in the register maintained by the ROC, the company will
file all its annual returns and balance sheets due for the period ending
31^st March, 2015 onwards and till date. The company will also
pay requisite charges / fee as well as late fee / charges as applicable.

In spite of the present orders, the ROC will be free to take any
other steps, punitive or otherwise, under the Companies Act, 2013 for
non-filing / late filing of statutory returns / documents against the
company and its Directors

BCAJ Admin

FINANCIAL REPORTING DOSSIER

This article
provides (a) key recent updates in the financial reporting space
globally and in India; (b) insights into an accounting topic, viz., accounting
for development costs; (c) compliance aspects of disclosure of NCIs’
interest in group activities and cash flow under Ind AS; (d) a peek into an
international reporting practice in the Director’s Report, and (e) an
extract from a regulator’s speech from the past on high-quality financial
information

1 KEY RECENT UPDATES

1.1 IFRS: Covid-19 Accounting for ECL

On 27^th
March, 2020 the IASB issued a document for educational purposes, viz. IFRS
9 and Covid-19 – Accounting for Expected Credit Losses
(ECL) highlighting requirements within IFRS 9 – Financial
Instruments that are relevant to preparers considering how the current
pandemic affects ECL accounting. The document acknowledges that estimating ECL
on financial instruments is challenging under the present circumstances and
highlights the importance of companies using all reasonable and supportable
information available – historic, current and forward-looking to the extent
possible in the measurement of ECL and in the determination of whether lifetime
ECL should be recognised on loans.

1.2 IFRS: Covid-19 – Related Rent Concessions

On 24^th
April, 2020 the IASB issued an Exposure Draft: Covid-19 – Related Rent
Concessions proposing amendments to IFRS 16 – Leases to make it
easier for lessees to account for the pandemic-related rent concessions (rent
holidays, temporary rent deductions, etc.). The proposed amendments exempt
lessees from having to consider whether Covid-19 related rent concessions are
lease modifications, allowing them to account for the changes as if they were
not lease modifications. The amendments would apply to Covid-19 related rent
concessions that reduce lease payments due in 2020.

1.3 USGAAP: Accounting for Leases during Pandemic

The FASB on
10^th April, 2020 issued a Staff Q&A on Accounting for Leases
during Covid-19 Pandemic. The interpretations provided in the
Q&A include: (i) it would be acceptable for entities to make an election to
account for Covid-19 related lease concessions consistent with extant USGAAP
(Topics 842 and 840) as though enforceable rights and obligations for those
concessions existed, and (ii) an entity should provide disclosures about
material concessions granted or received and the related accounting effects to
enable users to understand the nature and financial effect of Covid-19 related
lease concessions.

1.4 PCAOB: Covid-19: Reminders for Audits Nearing
Completion

Earlier, on
2^nd April, 2020, the PCAOB released a staff spotlight document, Covid-19:
Reminders for Audits Nearing Completion to provide important reminders to
auditors in light of Covid-19 considering the breadth and the scale of the
pandemic that may present challenges to auditors in fulfilling their
responsibilities and require more effort in audit completion.

Key
takeaways from the document include: (i) new audit risks may emerge from the
effects of the pandemic, or assessments of previously identified risks may need
to be revisited, (ii) auditors may need to obtain evidence of a different
nature or form than originally planned which may affect considerations of its
relevance and reliability, (iii) some financial statement areas may present
challenges to the auditor’s evaluation of presentation and disclosures, e.g.
subsequent events, going concern, asset valuation, impairment, fair value,
etc., (iv) significant changes to the planned audit strategy or the significant
risks initially identified are required to be communicated to the Audit
Committee, and (v) including additional elements in the auditor’s report such
as explanatory language / paragraph when there is substantial doubt about the
ability of the company to continue as a going concern.

1.5 ICAI Guidance on Going Concern

On 10^th
May, 2020 the ICAI issued its Guidance on Going Concern – Key Considerations
for Auditors amid Covid-19. The Guidance focuses on the implications of
Covid-19 for the auditor’s work related to going concern including: (a) matters
the auditor should consider for going concern assessment, (b) management and
auditor’s respective responsibilities, (c) period of going concern assessment,
(d) additional audit procedures required, and (e) implications for the
auditor’s report. The Guidance includes FAQs to deal with various situations in
the current environment.

1.6 ICAI Guidance on Physical Inventory
Verification

And on 13^th
May, 2020, the ICAI issued Guidance on Physical Inventory Verification –
Key Considerations amid Covid-19. It highlights the use of alternate
audit procedures where it is impracticable to attend physical inventory
counting (on account of the pandemic) that include: (i) using the work of the
internal auditor, (ii) engaging other CAs to attend physical verification, and
(iii) use of technology. The corresponding implications for the Auditor’s
Report being (a) where such alternate audit procedures provide sufficient
appropriate audit evidence, the auditor’s opinion need not be modified (in
respect of inventory), and (b) if it is not possible to perform alternate audit
procedures, the auditor should modify the opinion per SA 705 (Revised).

2 RESEARCH: ACCOUNTING FOR DEVELOPMENT COSTS

2.1 Introduction

Development
is ‘the application of research findings or other knowledge to a plan or
design for the production of new or substantially improved materials, devices,
products, processes, systems or services before the start of commercial
production or use’. Expenditure incurred internally on development by a
company could be either charged off to expense or capitalised as an intangible
asset and the accounting treatment is a function of the GAAP applied.

2.2 Setting the context

An analysis
of a sample of three companies’ data based on their annual reports filed with
the regulators is provided in Table A below.

As can be seen from the table above, the expenditure in the P&L
related to development costs and the intangible asset recognised on the balance
sheet arising out of development costs is a function of the GAAP applied.
Development costs are expensed under USGAAP while IFRS / Ind AS requires
capitalisation if specified criteria are met. IFRS for SMEs and the US FRF
accounting frameworks that apply to SMEs also differ in the accounting
treatment for this topic.

In the
following sections, an attempt is made to address the following questions:

1. What is the current position with respect
to accounting for development costs under prominent GAAPs?

2. Is there consistency among GAAPs with
respect to the accounting treatment?

3. What have been the historical developments
globally with respect to accounting for development costs?

4. What are the different accounting methods
that were considered by global accounting standard setters?

5. Is accounting information for development
costs provided under current accounting frameworks useful to investors?

2.3 The Position under Prominent GAAPs

USGAAP

Extant ASC
730 – Research and Development requires costs incurred on both Research
and Development to be charged to the income statement when incurred
(ASC 730-10-25-1).

Tracing the
historical developments, in October, 1974 the FASB issued SFAS No. 2 – Accounting
for Research and Development Costs. In developing the standard, the Board
considered certain alternative methods of accounting for R&D costs. These
included:

i) Charging all R&D costs to the income
statement when incurred,

ii) Capitalising all R&D costs when incurred,

iii) Capitalising R&D costs when incurred if
specified conditions are met and charging all other costs to expense, and

iv) Accumulating all costs in a special category
until the existence of future benefits can be determined.

The Board
decided to adopt the accounting alternative of expensing R&D costs when
incurred considering the uncertainty of associated future benefits. USGAAP
literature has special capitalisation criteria that are industry specific
(e.g., software developed for internal use, software developed for sale to
third parties, etc.). It may be noted that USGAAP allowed capitalisation of
development costs prior to the issue of SFAS No. 2.

SFAS No. 86
– Accounting for the Costs of Computer Software to be Sold, Leased or
Otherwise Marketed, issued in August, 1985 specified that costs incurred
internally in creating a computer software product should be charged to expense
when incurred as R&D until technological feasibility has been established
for the product (which is upon completion of a detailed programme design or, in
its absence, completion of a working model). Thereafter, all software
production costs should be capitalised and subsequently reported at the lower
of the unamortised cost or net realisable value. (Current codification – ASC
985-20-25-1.)

IFRS

IAS 38 Intangible
Assets requires an intangible asset arising from development (or
from the development phase of an internal project) to be recognised if
an entity can demonstrate: (a) technical feasibility of completing the
intangible asset, (b) its intention to complete the intangible asset and use or
sell it, (c) its ability to use or sell the intangible asset, (d) how the
intangible asset will generate probable future economic benefits, (e) the
availability of adequate technical, financial and other resources to complete
the development and to use or sell the intangible asset, and (f) its ability to
measure reliably the expenditure attributable to the intangible asset during
its development.

If the capitalisation criteria are not met, then an entity is required to
expense the same when incurred unless the item is acquired in a business
combination and cannot be recognised as an intangible asset, in which case it
forms part of the amount recognised as goodwill at the date of acquisition (IAS
38.68). It may be noted that as per IFRS 3 – Business Combinations, an
acquirer is required to recognise at the acquisition date, separately from goodwill,
an intangible asset of the acquiree irrespective of whether the asset had been
recognised by the acquiree before the business combination.

Prior to the issuance of IAS 38 (in 1998), IAS 9 Accounting for
Research and Development Activities (issued in 1978) required both Research
and Development expenditure to be recognised as expense when incurred, except
that a reporting entity had the option to recognise an asset arising from
development expenditure when certain specified criteria were met. IAS 9 limited
the amount of expenditure that could initially be recognised for an asset
arising from development expenditure to the amount that was probable of being
recovered from the asset. In 1993, IAS 9 Research and Development Costs
was issued which changed the previous accounting requirement and required
recognition of an asset from development expenditure when specified criteria
were met.

2.4 Current Position Under Various GAAPs

Table
B:

Accounting Framework

Accounting for Development
Expenditure

Standard

USGAAP

Expense to P&L

ASC 730 – Research and
Development

IFRS

Capitalise if specified criteria
are met

IAS 38 – Intangible
Assets

Ind AS¹

Capitalise if specified criteria
are met

Ind AS 38 – Intangible
Assets

AS²

Capitalise if specified criteria
are met

AS 26 – Intangible Assets

IFRS for SMEs³

Expense to P&L

Section 18 – Intangible
Assets Other than Goodwill

US FRF⁴

Accounting policy choice
to either (a) charge it to expense, or (b) capitalise if specified
criteria are met

Chapter 13, Intangible
Assets

¹Converged with IFRS

²AS 26 replaced AS 8 – Accounting for Research and Development
that required deferral of R&D costs if specified criteria were met

³Issued by the IASB

⁴AICPA’s Financial Reporting Framework (FRF) for SMEs, a special
purpose framework that is a self-contained financial reporting framework not
based on USGAAP

2.5 Utility to Users of Financial Statements

Current
accounting standards for R&D costs across GAAPs do not lend themselves to
communication of an organisation’s value drivers. Nor do they help in valuation
exercises by investors. Alternate non-financial metrics and models, including
integrated reporting, the balanced scorecard, the intangible assets monitor,
the value chain scoreboard, etc. are being used by corporates globally to
communicate relevant and useful information to shareholders with respect to
their R&D investments. Investors focus inter alia on outcomes of
R&D investment and R&D productivity rather than just the spends that
are reported per GAAP.

The
following case study provides an interesting management view-point on the
relevance of current R&D financial reporting.

Case Study

Amazon.com,
Inc. (listed on NASDAQ, 2019 Revenues – US$ 280.5 billion, USGAAP reporting
entity) does not disclose separately expenditure on R&D in its financial
statements. The company is reportedly the largest R&D spender globally.
Such expenditure is included in the line item ‘Technology and Content
expenses’ (US$ 35.9 billion in 2019 representing 12.8% of revenues).

The
accounting policy of the company is: ‘Technology and content costs include
payroll and related expenses for employees involved in the research and
development of new and existing products and services, development,
design and maintenance of our stores, curation and display of products and
services made available in our online stores, and infrastructure costs. Technology
and content costs are generally expensed as incurred’.

In 2017, the
US Securities and Exchange Commission questioned such non-disclosure. The
management’s response (available in the public domain) is extracted herein
below:

Because of
our relentless focus on innovation and customer obsession, we do not manage our
business by separating activities of the type that under USGAAP ASC 730 are
‘typically… considered’ research and development from our other activities that
are directed at ongoing innovation and enhancements to our innovations.
Instead, we manage the total investment in our employees and infrastructure
across all our product and service offerings, rather than viewing it as related
to a particular product or service; we view and manage these costs
collectively as investments being made on behalf of our customers in order to
improve the customer experience. We believe this approach to managing our
business is different from the concept of planned and focused projects with
specific objectives that was contemplated when the accounting standards for
R&D were developed under FAS 2.

We do not
believe that separate disclosure of the costs associated with activities of the
type set forth in ASC 730 would be material to understanding our business. We
are concerned that separate disclosure of such costs would focus our financial
statement users on a metric that understates the level of innovation in which
we are investing.

3 GLOBAL ANNUAL REPORT EXTRACTS: ‘EMPLOYEE
ENGAGEMENT’

Background

UK Companies
(employing more than 250 employees) are required to include in their Annual
Reports (for the F.Y. commencing 1st January, 2019) a statement
describing action taken to engage with employees. Such a statement is
required to be included as part of the Director’s Report. The relevant
provision of The Companies (Miscellaneous Reporting) Regulations,
2018 that include new corporate governance and reporting
regulations is extracted herein below:

The
Director’s report for a financial year must contain a statement

a) Describing the action that
has been taken during the financial year to introduce, maintain or develop
arrangements aimed at –

i) providing employees systematically with
information on matters of concern to them as employees,

ii) consulting employees or their
representatives on a regular basis so that the views of the employees can be
taken into account in making decisions which are likely to affect their
interests,

iii) encouraging the involvement of employees in
the company’s performance through an employees’ share scheme or by some other
means,

iv) achieving a common awareness on the part
of all employees of the financial and economic factors affecting the
performance of the company.

b) Summarising –

i) How the Directors have engaged with
employees, and

ii) How the Directors have had regard to
employee interests, and the effect of that regard, including on the principal
decisions taken by the company during the financial year.

Extracts
from an Annual Report

Company:
EVRAZ PLC [Member of FTSE 100 Index, 2019 Revenues – US$ 11.9 billion,
employees (Nos.) – 71,223]

Extracts from Director’s Report:

‘Engagement
with employees remains key, and the Board closely monitors the results of the
annual engagement survey which has seen satisfactory levels of improvement.

Two
independent non-executive directors have taken responsibility for engaging with
employees in our businesses in North America and Russia, respectively, and this
is undertaken by their attendance at key staff briefing events and town hall meetings.

Throughout
the year, senior management attend the Group’s board meetings to present the
annual budget for their respective business units, and to present key
investment projects which require the Board to approve significant capital
expenditure sums. All presentations made to the Board consider both the benefit
to shareholders of the proposal and the impact on other key stakeholders.

The
Remuneration Committee receives a detailed presentation from the Vice-President
of HR which outlines remuneration and incentive plans across the whole business
at each level.

A
whistle-blowing arrangement is in place which allows staff to raise issues in
confidence and the responses to the issues are routinely monitored by the Audit
Committee who escalate key issues to the Board.’

4 COMPLIANCE: NCI’s INTEREST IN GROUP
ACTIVITIES AND CASH FLOWS UNDER IND AS 112

Background

Ind AS 112 Disclosure of Interests in Other Entities, inter alia, mandates disclosures with respect to
the interest that non-controlling interests (NCIs) have in a group’s activities
and cash flows. Such disclosures are required in the Notes to the Consolidated
Financial Statements when there is a presence of subsidiaries in a group
structure. Such disclosures are applicable for subsidiaries in a group that are
not wholly controlled by the parent.

One of the
issues in current financial reporting for groups
is that while net income, total comprehensive income and net assets are
allocated between owners of the parent and the NCI, the operating cash flows
are not similarly allocated. Such information is an important input in a
valuation exercise. Ind AS attempts to provide such information by way of
disclosures.

Consolidated
financial statements present the financial position, comprehensive income and
cash flows of the group as a single entity. They ignore the legal boundaries of
the parent and its subsidiaries. However, those legal boundaries could affect
the parent’s access to and use of assets and other resources of its
subsidiaries and, therefore, affect the cash flows that can be distributed to
the shareholders of the parent (IFRS 12, BC 21).

Summarised
financial information about subsidiaries with material non-controlling
interests helps users predict how future cash flows will be distributed among
those with claims against the entity, including the non-controlling interests (IFRS
12, BC 28).

The disclosure requirements are summarised in Table C. It
may be noted that the disclosures are required for each subsidiary (that have
NCIs that are material to the reporting entity).

Table C:
Disclosures – Interests that NCIs have in the group’s activities and cash flows

Disclosures

Ind AS 112 Reference

An entity shall disclose
information that enables users to understand:

(i) The composition of the
group, and

(ii) The interests that
NCIs have in the group’s activities and cash flows

Para 10

u The proportion of:

u Ownership interests held by an NCI

uVoting rights held by the NCI if different from above

u Profit or loss allocated to the NCI for the reporting period

u Accumulated NCIs at the end of the reporting period

Para 12 (c) to (f)

u Summarised financial information related to Assets,
liabilities, profit or loss and cash flows of the subsidiary that enables
users to understand the interest that NCIs have in the group’s activities and
cash flows. This information might include, but is not limited to, for
example, current assets, non-current assets, current liabilities, non-current
liabilities, revenue, profit or loss and total comprehensive income

u The above amounts shall be before inter-company eliminations

u Dividends paid to the NCIs

Para 12 (g) and B10-B11 of
Application Guidance

It may be noted that Ind AS
1 Presentation of Financial Statements has separate presentation
requirements related to NCIs

5 FROM THE PAST – ‘HIGH-QUALITY FINANCIAL
INFORMATION IS THE CURRENCY THAT DRIVES THE MARKETPLACE’

Extracts
from a speech by Mr. Arthur Levitt (former US SEC Chairman) to
the American Council on Germany in New York in October, 1999
are reproduced below:

Information
is the lifeblood of markets. But unless investors trust
this information, investor confidence dies. Liquidity disappears. Capital dries
up. Fair and orderly markets cease to exist.

High-quality
financial information is the currency that drives the
marketplace. And nothing honours that currency more than a strong and
effective corporate governance mandate. A mandate that is both a dynamic system
and a code of standards. A mandate that is measured by the quality of
relationships: the relationship between companies and directors; between
directors and auditors; between auditors and financial management; and
ultimately, between information and investors.

If strong corporate governance is to permeate every facet of our
marketplace, its practice must extend beyond merely prescribed mandates,
responsibilities and obligations. It is absolutely imperative that a corporate
governance ethic emerge and envelop all market participants: issuers, auditors,
rating agencies, directors, underwriters and exchanges. Its foundation must be
an unwavering commitment to integrity. Its cornerstone – an undying commitment to serving the investor.

BCAJ Admin

SOCIETY NEWS

FEMA REFRESHER COURSE

Enthused by the response to the four-day
Refresher Course followed by a panel discussion held in the month of April,
another Refresher Course was organised in June, 2020 that was far more
extensive and provided in-depth coverage of topics. The topics covered were
truly diverse, such as ‘Understanding the Structure of FEMA’, ‘Practical
Aspects of filing various Forms’, ‘Import and Export of Goods and Services’ and
‘Doing Business through Liaison Office, Project Office, Branch Office’. Also
covered were some more complex topics like joint venture, wholly-owned
subsidiary and indirect investment in India, investment on non-repatriation
basis and FDI in Limited Liability Partnerships, practical cases related to
compounding and so on.

Some unusual topics covered were FEMA from
an auditor’s perspective, fundamental and complex issues under the Benami Law,
Anti-Money Laundering Law and handling of offences and prosecution under FEMA.
This session also featured a panel discussion which covered all the above
topics.

The speakers for all the sessions were an
eclectic mix ranging from practising Chartered Accountants, Solicitors and
Consultants to members of the Income Tax Department and Advocates of the
Supreme Court of India. This gave participants a holistic view of FEMA which
will hone their skills and take them a long way in their professional careers.

The response to the Refresher Course was
overwhelming, with 298 participants registering from various cities across the
country, including Chennai, Indore and Gurugram. The participants appreciated
the fact that speakers not only explained the topics satisfactorily and
supplemented it with real-life situations, but also answered their queries and
concerns even if it meant going well beyond the time allotted for the session.
In a nutshell, it was a very enriching course for the participants, speakers
and conveners alike.

‘SEVEN SPIRITUAL LAWS OF SUCCESS’

An online meeting of the Study Circle of the
Human Resource Development Committee was held on 12^th May. The
speaker was Vinod Kumar Jain, who offered learnings from the book ‘Seven
Spiritual Laws of Success’ by the eminent author and spiritual ‘guru’ Deepak
Chopra.

The speaker started by asking the question,
how does one define the term ‘Success’? He answered by stating that in addition
to material wealth it will generally include good health, energy, enthusiasm
for life, fulfilling relationship, creative freedom, emotional and
psychological stability, sense of well-being and peace of mind. But ‘True
Success’ is the experience of a miracle of divinity unfolding within us which
is possible through understanding of the seven spiritual laws. The speaker then
explained each of the seven spiritual laws with examples from his own life.
After explaining the law, he described how the same can be applied in our daily
lives.

FIRST. The Law of Pure Potentiality. Our true self is one of pure
potentiality; we align with the power that manifests everything in the
universe. Practice: Meditation,
silence, non-judgement and being with nature.

SECOND. The
Law of Giving. The universe operates through dynamic exchange of giving and
receiving. Practice: Learn to give
what you want.

THIRD. The
Law of Karma. Every action generates a force of energy that returns to us
in like kind; what we sow is what we reap. Practice:
Witness the choice you make.

FOURTH. The
Law of Least Effort. Nature functions with effortless ease. When we harness
the forces of harmony, joy and love, we easily create success and good fortune.
Practice: Accept, respond and no
defence.

FIFTH. The
Law of Intention and Desire. Inherent in every intention and desire is the
mechanics for its fulfilment. Practice:
Make a list of desires, see it regularly and surrender.

SIXTH. The
Law of Detachment. In order to acquire anything in the physical universe,
one has to relinquish one’s attachment to it. Practice:
Step infield of all possibilities.

SEVENTH. The
Law of Dharma or Purpose in Life. Everyone
has a purpose in life… a unique gift or special talent to give to others. Practice: Use unique talent to serve.

There were over 175 participants and they
raised several questions. The speaker responded to all of them in detail.

The presentation on YouTube is available on
the Society’s link (http://youtu.be/1pw2XHC8wRA).

‘THE MAN OF THE CENTURY’

Another meeting of the Study Circle of the
Human Resource Development Committee was held online on 9^th June on
the topic ‘Values: Bapu@150’ . The speaker was Mukesh Trivedi. This talk
was in continuation of the celebration of the 150^th birthday of
Mahatma Gandhi (fondly called Bapu) on 2^nd October, 2019 by BCAS.

Initially, the speaker touched on how
different sections of the community perceived Bapu’s values today. He opined
that the new generation needed to know more about Bapu. In fact, Bapu was the
most respectful leader of the country who truthfully walked the values which he
talked about. He was the man of the century, a true Yug Purush. Each and
every citizen should recall his values for the holistic growth of the nation.

Next, the speaker discussed the Ekadash
Vrat, i.e. the ‘11 Values’ or guiding principles on which Bapu lived his
life. He appealed to and encouraged participants to pick any value of Bapu and
imbibe it in their lives. If they did that, it would be a fitting tribute and
respectful celebration of the 150^th year of Bapu’s birth
anniversary.

Speaker Mukesh Trivedi listed Bapu’s
Eleven Values as: Ahimsa, satya, asteya, brahmacharya, asangraha,
sharirshram, aswad, sarvatrabhayvarjan, swadeshi, sparsh, bhavana. Of these
eleven, the values that he chose to focus on were three core values, Brahmacharya,
Ahimsa and Satya.

Discussing these, he shared the Vedantic
principles and Bapu’s views through his presentation. He also shared anecdotes
quoting from Bapu’s life described in his autobiography ‘My Experiments with
Truth’.

Mukesh Trivedi explained the three core values as under:

Brahmacharya
is living the life of moderation in ‘sense enjoyments’ and control over
‘indulgence’.

Ahimsa is
non-injury or non-violence which ought to be practised at the level of emotions
in the mind.

Satya is truthfulness lived with a strong conviction
of values. It must be followed at the level of intellect in the mind.

The speaker also replied to the questions
posed to him by participants, some of whom had logged in from Australia, UK,
New Zealand, Gujarat and from Mumbai.

This presentation is available on the
Society’s link at: https://youtu.be/fgoTUSL8Wtc).

WEBINAR ON MSME

The Seminar, Public Relations and Membership
Development Committee organised a
webinar on Micro, Small and Medium Enterprises (‘MSME’) jointly with the
Association of Chartered Accountants, Chennai; the Hindustan Chamber of
Commerce; Jain International Trade Organisation; and Southern India Rajasthani
Chamber of Commerce & Industry. The session was conducted online on 13^th
June.

It started with an introductory speech by BCAS
President Manish Sampat who shared details about BCAS, its motto
and its activities. He also introduced the subject and its relevance in the
current times.

The first speaker was Anand Bathiya
who explained the context, scope and benefits of registration as an MSME. He
described the revised definition of MSME, the registration process, the
benefits and details of the various schemes for MSMEs, and key initiatives such
as the Atmanirbhar Scheme and the TReDS platform.

Chirag Doshi,
the second speaker, dwelt on Standard Operating Procedures for MSMEs and
explained the plan of action for revival of small enterprises post-opening
after lockdown due to Covid-19.

Taking up the third session, Mrinal Mehta
explained the tax provisions applicable to MSMEs. He discussed the various
tax incentives and schemes available under the direct and indirect tax regime
for MSMEs, including the reliefs in the statutory due dates announced by the
government due to Covid-19.

The panel of Coordinators posed the
questions asked by the participants and the speakers answered all of them in
detail.

The session was attended by more than 650
participants from all over the country. They were unanimous in stating that
they had benefited immensely from the knowledge and practical experience shared
by the speakers.

‘VIRTUAL’ STUDENTS STUDY CIRCLE

The Students Forum under the auspices of the
HRD Committee organised the second ‘Virtual’ Students Study Circle meeting on ‘Direct
Tax Annual Compliance-Revised Income Tax Return Forms’ on 19^th
June via Zoom Meetings.

The Study Circle was led by Utsav Shah
and Samarth Patil who are experts on the subject. Azvi Khalid,
the student Coordinator, introduced the speakers and spoke about the
forthcoming student events. Raj Khona addressed the students and
encouraged them to actively participate in the events of the Students Forum.

Utsav Shah
briefed students about the basics of ITR and shared the revised due dates. He
presented latest amendments in the applicability of tax audit in a lucid manner
and explained various additions and deletions in the revised ITR Forms 1, 2, 3
and 4 in relation to income for ease of understanding.

Samarth Patil,
on the other hand, shared his insights on ITR Forms 5, 6 and 7. He also briefly
discussed the new tax regime, pass-through income, verification process,
transfer pricing and Form 26AS. He provided the students with an easy checklist
for selecting the correct ITR forms.

The interactive session ended with Vedant
Satya, Student Coordinator, proposing the vote of thanks to the speakers.

The session can be viewed on the BCAS YouTube Channel at:
https://youtu.be/1e7jKQ2DIK0.

WEBINAR ON
‘KEY FCRA AND TAX CHALLENGES…’

The Bombay Chartered Accountants’ Society
organised a webinar on ‘Key FCRA & Tax Challenges for NGOs & Public
Trusts’ jointly with DevelopAid, Mahavan and Save The Children, India. It
was conducted online on 20^th June.

BCAS
President Manish Sampat set the ball rolling by sharing details of the Society.
He also introduced the subject and its relevance in contemporary times.

Speaker Sanjay Agarwal started by
describing the key challenges under the Foreign Contributions Regulations Act
(FCRA) with respect to Prior Permission, Registration, Cancellation, Renewal,
Affidavit, Fund-Raising, Board, Covid-19 and FC issues, filing Covid-19 forms,
separate books of accounts and refund of unspent funds. He explained all the
rules and regulations concerned in detail and answered the questions posed to
him.

In the second
part of the session, the speaker covered the issues under Income Tax relevant
to the NGOs and Trusts. He explained the reasons for cancellation of 12A
registration, grant or service contracts, limits of remuneration to trustees,
section 115TD – Penal Tax and payments, TDS issues for trusts, anonymous or
cash donations, issues in filing tax returns for trusts and so on.

The third part of the webinar focused on
issues under GST to be taken care of by trusts. The speaker covered the
registration limits, scope of taxable supply and so on.

Every presentation by Sanjay Agarwal
was followed by a detailed question-answer session.

This webinar was attended by more than 500
participants, including Trustees and Finance Managers of renowned trusts and
foundations, from all over the country who said they had benefited immensely
from the knowledge and practical experience shared by the speaker.

MOTIVATIONAL
MUSIC VIDEO

In these unprecedented times, each of us has
been dealing in our own ways with the challenges that life has been throwing at
us. But to boost the indomitable spirit lying dormant within one each of us, a
motivational music video has been released by our Yuva Shakti and Jyeshta
Shakti for the benefit of all. The intention was to give our performing
artists a platform to express their josh and motivate members to
defeat the pandemic through sheer determination of mind. The idea of making the
video germinated in the minds of President Manish Sampat and the
Chairman of the SPMRD Committee, Narayan Pasari.

While BCAS has been a trail-blazer
over the last seven decades, be it the residential refresher courses, the
workshops, the lecture meetings, the expert talks, etc., a music video is a
novelty and has never been done before.

But with the blessings of the Almighty,
things started falling in place and soon the song started taking shape… Vijay
Bhatt, a passionate musician, was roped in to lead the project. The need
for a Sutradhar was recognised early and the choice unanimously fell on
the Hon. Joint Secretary, Mihir Sheth, who enthusiastically penned the
lines and delivered them in his inimitable baritone.

The lyrics were penned by Past President Mayur
Nayak over the span of an evening and the inspirational words were set to
music by Vijay Bhatt and others. The singers included our Yuva Shakti
members – Aditya Phadke, Devansh Doshi, Kartik Srinivasan,
Parita Shah, Ryan Fernandes, Tej Bhatt and the winner of
the singing competition at Tarang 2019, Vani Srinivasan;
they were ably supported by Vijay Bhatt and Mayur Nayak.

The Office-Bearers of the BCAS and
the Committee torch-bearers also enthusiastically participated in the music
video in colourful traditional attire. Over the next three weeks the video was
shot with the support of family members / colleagues as the location for the
shoot was either their homes or offices; social distancing norms were
maintained while learning and recording the assigned lines – some in the dead
of the night when the little one finally fell asleep, others at the crack of
dawn when all was quiet! In the capable hands of the video editor, ACCA Anirudh
Parthasarthy, the video came to life, interspersed with visuals from the
many social events organised by BCAS over the years.

After a teaser was put out to announce the
impending release of the video, on 29^th June, 2020 history was made
with BCAS releasing its first-ever motivational music video.

The Chairman of the SPRMD Committee, Narayan
Pasari welcomed the participants, while President Manish Sampat and
Vice-President Suhas Paranjpe shared their thoughts on the video and the
work done by the Committee over the past one year.

Chairman Narayan
Pasari revealed the idea behind the video, while Vijay Bhatt shed
light on the idea and the efforts that went into making it. The video was then
officially released by the President. Manmohan Sharma, Convener of the
SPRMD Committee, proposed the vote of thanks to all who were involved in the
making of the video.

A lot of efforts were put in by all the
performers for the video which was made under lockdown conditions and with the
help of personal devices. They did all this because of their passion for music.
A big applause for their efforts.

Given the lockdown restrictions still in
place, the entire proceedings were held online… and while all sat in their
respective homes / offices, the song and the journey behind it wove a magical
spell around the participants, bringing them (virtually) close to one another.

BCAJ Admin

REGULATORY REFERENCER

DIRECT TAX

1. Income-tax (9^th Amendment) Rules,
2020 – Amendment to Rules 10TD and 10TE – the ‘Safe
Harbour Rules for International Transactions’ shall apply for A.Y. 2020-21.
[Notification No. 25 of 2020 dated 20^thMay, 2020.]

2. Clarifications in respect of prescribed
electronic modes u/s 269SU of the Act. Provisions
of section 269SU shall not be applicable to a specified person having only B2B
transactions (i.e.. no transaction with retail customer / consumer) if at least
95% of aggregate of all amounts received during the previous year, including
amount received for sales, turnover or gross receipts, are by any mode other
than cash. [Circular No. 12/2020 dated 20^th May, 2020.]

3. Income-tax (11^th Amendment) Rules,
2020 – Insertion of Rule 114I – Format and
procedure for uploading of Annual Information Statement prescribed.
[Notification No. 30 of 2020 dated 28^th May, 2020.]

4. Income-tax (12^th Amendment) Rules,
2020 – Rule 12 amended – Form ITR-1 (SAHAJ), ITR-2,
ITR-3, ITR-4 (SUGAM), ITR-5, ITR-7 for A.Y. 2020-21 prescribed. [Notification
No. 31 of 2020 dated 29^th May, 2020.]

5. Cost Inflation Index for
F.Y. 2020-21 is 301. [Notification No. 32 of 2020 dated 12^th
June, 2020.]

ACCOUNTS AND AUDIT

A. Subsequent Events – Key Audit Considerations
amid Covid-19 – ICAI’s Guidance related to the
auditor’s responsibilities in relation to obtaining sufficient appropriate
audit evidence about subsequent events that is impacted by the Covid-19
pandemic, and how the results of the auditor’s procedures on subsequent events
impact the auditor’s report. The Guidance also provides examples of events or
conditions that may be relevant in the current environment. [ICAI’s Auditing
Guidance dated 23^rd May, 2020.]

B. Advisory for CAs – CSR Provisions (section 135
of the Companies Act) – Companies that undertake
CSR activities through a third party (trust / society / section 8 Company /
NGO) are advised to obtain an Independent Practitioner’s Report on funds
utilisation from the auditor / CA in practice of such third party to whom funds
are provided. The advisory includes a draft format of the Independent
Practitioner’s Report. [ICAI’s Advisory dated 29^th May, 2020.]

FEMA

(I) Foreign
Portfolio Investors (FPIs) have been permitted to invest under the Voluntary
Retention Route (VRR) in Debt Instruments. Investments under VRR are long-term in nature and
stable. Under the VRR, FPIs are required to invest at least 75% of their
Committed Portfolio Size (CPS) within three months from the date of allotment.
In view of the pandemic, it has been decided to allow FPIs that have been
allotted investment limits between 24^th January, 2020 (the date of
reopening of allotment of investment limits) and 30^th April, 2020 an
additional time of three months to invest 75% of their CPS. For FPIs
availing the additional time, the retention period for the investments would be
reset to start from the date that the FPI invests 75% of its CPS. [A.P. (DIR
Series 2019-20) Circular No. 32, dated 22^nd May, 2020.]

(II) In view of the pandemic, it
has been decided to extend the time period for completion of remittances
against normal imports (except in cases where amounts are withheld towards
guarantee of performance, etc.) from the existing period of six months to 12
months from the date of shipment for such imports made on or before 31^stJuly,
2020. Normal imports would not cover import of gold or diamonds and precious
stones or jewellery. [A.P. (DIR Series 2019-20) Circular No. 33, dated 22^nd
May, 2020.]

(III) RBI has enacted regulations for ‘mode of payment’ in case of
investment by various foreign investors. FPIs and FVCIs have been permitted to
open foreign currency account and SNRR account for investments in India. It
provides that the foreign currency account and SNRR account can be used only
for transactions under ‘this schedule’. The regulations on ‘mode of payment’ do
not have any Schedule. It was meant to refer to Schedules under the Non-Debt
Instruments Rules. This was an anomaly. RBI has now amended the Foreign
Exchange Management (Mode of Payment and Reporting of Non-Debt Instruments)
Regulations to specify that a foreign currency or SNRR account used by FPIs
or FVCIs can be used only for transactions under their respective schedules
(Schedules II and VII, respectively, of Non-Debt Instrument Rules). Further, an
FPI and FVCI can pay the consideration for trading in units of an Investment
Vehicle, listed or to be listed on the stock exchanges in India, out of their
SNRR account. [Notification No. FEMA, 395(1)/2020-RB dated 15^th
June, 2020.]

BCAJ Admin

GOODS AND SERVICEs TAX (GST)

III. AUTHORITY
OF ADVANCE RULING (AAR AND AAAR)

25. [2020 (5) TMI 603] M/s Homeable Constructions and Estates Private Limited [AAR, Karnataka] Date of order: 20^th May, 2020

National
Centre for Biological Sciences (NCBS) is not a government entity and therefore
GST is leviable @ 18% on works contract services provided to it

FACTS

The applicant had entered
into a works contract agreement with the National Centre for Biological
Sciences (NCBS) for construction of a hostel building. The Council
administering the institute had only four members appointed by the government.
As per Notification No. 24/2017-CT(R) dated 21^st September, 2017,
the GST rate for composite supply of works contract service is 18% and in case
such services are provided to Central Government, State Government, Union
Territory, a local authority, a Government Authority or a Government Entity,
the GST rate is 12%. The question was about GST rate for works contract service
provided by the applicant to NCBS.

HELD

It was held that NCBS was not
a government entity as it was not an authority set up by Parliament or State
Legislature and government did not have 90% participation. Further, the service
procured by NCBS was not in relation to work entrusted by government in view of
clause (vi) of Notification No. 11/2017 – Central Tax (Rate) dated 28^th
June, 2017. Thus, works contract service provided by the applicant was held to
be liable to 9% CGST and 9% KGST vide serial No. 3(xii) of Notification
No. 11/2017-CT (Rate) dated 28^th June, 2017.

26. [2020 (5) TMI 581] LSquare Eco Products Pvt. Ltd. [AAR, Karnataka] Date of order: 20^th May, 2020

Kraft paper
honeycomb board is classified under HSN Code 4808 90 00

FACTS

The applicant was a
manufacturer of kraft paper honeycomb board which by structure is similar to
corrugated paper board classified under HSN Code 48081000. Such paper honeycomb
board consists of 80 to 90% of kraft paper and the rest is paper to paper
adhesive which is used in primary packing of goods as a cushioning material,
separators or edge protector, for making shipping cartons of goods and as
pallets and pallet boxes. Advance ruling was sought on the HSN code of kraft
paper-made honeycomb boards as HSN Code 48081000 read as ‘corrugated paper and
paper board, whether or not perforated’ which did not specifically mention
‘paper honeycomb board’.

HELD

Considering the submissions
made by the applicant, the Authority verified the structure and purpose for
which kraft paper honeycomb board or paper honeycomb board was used and held
that these were similar to corrugated paper board classified under 48081000.
The only difference was that paper honeycomb board consisted of honeycomb-like
structure core material at the centre and on either side of this one or more
layer of kraft paper was glued by using adhesive with fluting, direction being
perpendicular to corrugated boards. Hence, honeycomb paper board was held to be
classified under HSN code 48089000, i.e., under the category ‘other’.

27. [2020 (5) TMI 602] Mahalakshmi Mahila Sangha [AAR, Karnataka] Date of order: 21^stMay, 2020

TDS u/s 51
is not applicable to supply of exempt services

FACTS

The applicant was engaged in
providing catering services to educational institutions as per Sarva Shikshana
Abhiyana e-tendering sponsored by state / Central / Union Territory. The claim
of the applicant was that the service provided by it was exempt vide
entry No. 66 of Exemption Notification No. 12/2017-CT(R) dated 28^th
June, 2017 and therefore sought advance ruling on liability to deduct tax.

HELD

The Advance Ruling Authority
held that the statutory provision of tax deduction at source u/s 51 of the CGST
Act is applicable on the payment made to a supplier of taxable services. Since
it was a case of exempt services, the amount received was held as not liable to
tax deduction at source.

28. [2020-TIOL-112-AAR-GST] Penna Cement Industries Limited [Telangana State Authority] Date of order: 2^nd March, 2020

In case of
ex-factory sales, though the sale terminates at the factory gate, but if the
goods are taken by the recipient to another state, it is an inter-state sale
liable for IGST

FACTS

The applicant is a
manufacturer of cement. It occasionally undertakes inter-state sale on
ex-factory basis. When it makes an ex-factory sale, delivery terminates at its
factory gate but the further movement is carried on by the recipient or
transporter of goods up to the billing address state. The question before the
Authority is whether it should charge IGST in respect of such supplies.

HELD

The Authority noted that IGST
is chargeable on ex-factory inter-state supplies since the goods are made
available by the supplier to the recipient at the factory gate. However, this
is not the point where the movement terminates since the recipient subsequently
assumes the charge for transportation of goods up to the destination in another
state where the goods are destined. This is the place of supply in terms of
section 10(1)(a) of the IGST Act. Thus, since the location of the supplier and
the place of supply fall under different states, the supply qualifies as an
inter-state supply liable for IGST.

29. [2020-TIOL-111-AAR-GST] M/s Sri Venkateshwara Agencies [Telangana State Authority] Date of order: 2^nd March, 2020

Supply of ice-cream with or without service activities in the premises
is covered by Notification 11/2017-Central Tax (Rate). Ice-cream supplied in
bulk quantity to caterers / push-cart vendors is a supply of goods since there
is no element of service

FACTS

The applicant is a
distributor of Scoops brand ice-cream and ice-cream products are supplied by it
to sub-distributors, hotels, for party orders and to retail outlets. The
question before the Authority is the taxability of ice-cream and allied
products, milk shakes served in the parlour with or without adding any
ingredients like fruits or topping sauces; sold in the parlour as such, i.e.,
in cups, cones, bars, sticks, novelties, 1/2 litre packs, party packs and bulk
packs, etc.; party orders, i.e., sale of bulk ice-cream to caterers as
take-away; serving of ice-cream with ingredients like fruits or toppings as per
guests’ requirements or taste; ice-cream products in cups, cones, bars, sticks,
novelties, etc., sold to push-cart vendors who in turn sell it to their
customers.

HELD

The Authority noted that an
ice-cream parlour would fall within the term ‘eating joint’ and supply of
ice-cream along with or without service activities would fall within the
definition of restaurant service, attracting GST @ 5% as per serial No. 7(ii)
of Notification 11/2017-Central Tax (Rate) without Input Tax Credit. Sale of
bulk ice-creams to caterers as take-away (party orders) does not involve any
service and, therefore, is to be reckoned as supply of goods, hence 11/2017 is
not applicable. Further, supply / serving of ice-creams with ingredients like
fruits or toppings as per guest requirements at customers’ premises is covered
by Notification 11/2017 and attracts GST @ 5%. Ice-cream and allied products
sold to push-cart vendors do not involve any element of service, hence 11/2017
is inapplicable.

BCAJ Admin

VAT

4. Commercial Tax Officer vs. M/s Bombay Machinery Stores Civil Appeal No. 2217 of 2011 Date of order: 7^th April, 2011 (Supreme Court)

Constructive
delivery u/s 6(2) of the CST Act, 2002

FACTS

The Supreme Court in its
judgment in this case, overruled the Delhi High Court judgment in the case of Arjan
Das Gupta vs. The Commissioner, Delhi Administration (1980) 45 STC 52.
In that judgment, the Delhi High Court had developed a principle akin to constructive
delivery qua the termination of movement of goods as contemplated under
Explanation 1 to section 3 of the CST Act, 1956.

The High Court had said, ‘…
Normally, when the goods are carried by a carrier from one State to another,
the delivery is taken by the importer immediately after the goods land in the
importing State. Thus, normally, the landing of the goods in the importing
State and the delivery of the goods are almost simultaneous acts, although
technically there will be some hiatus between the two. Considering these
commercial facts, it is difficult to accede to the retailer’s contention that
the movement of goods continues even if the goods have landed in Delhi only
because the importer has transferred the documents of title to the purchasing
retailers and such retailers take delivery from the Railways at a subsequent
time. If taking delivery is the test of termination of movement and not the
landing of the goods in an importing State, Explanation 1 to section 3(b) of
the Central Sales Tax Act, 1956 would lead to anomalous results. If, after the
landing of the goods in Delhi, the Railway receipts are endorsed one after
another to ten persons and the delivery is taken by the tenth person, say after
3 months, the movement of goods would on the dealer’s interpretation
artificially continue for three months after the landing of the goods in Delhi.’

This decision of the Delhi
High Court, which held that Explanation 1 to section 3(b) of the CST Act, 1956
did not permit the dealers to expand the movement of goods beyond the time of
physical landing of the goods in the Union Territory of Delhi, was thereafter
followed in many other states. The assessing authorities in Maharashtra have
also followed this decision, more particularly in the case of yarn dealers and
such second sales (popularly known as in-transit sales) have been disallowed if
such sales in this state were not effected by such dealers immediately after
the landing of the goods in the state. In fact, some A.O.s held the view that
such second sales should be effected even before the landing of the goods in
the state.

The Commercial Tax Department
of the state of Rajasthan had issued two Circulars based on the said Delhi High
Court judgment. The first one was issued on 16^th September, 1997
informing the trade that the reasonable time for effecting such second sale u/s
6(2) of the Act would be ten days after the goods land in their state, i.e. the
destination state. In the opinion of the said Department, normally the
transporters impose a condition of delivery of the goods at the destination
within ten days. Therefore, the Circular stated that if the carrier retained
the goods for a period beyond ten days, then there was a clear inference that
the consignee was aware of the arrival of the goods and the transporter was
holding the goods on his behalf as a bailee for the consignee. Any such second sale
effected after ten days was thus treated as local sale. Aggrieved by such
unreasonable limitation laid down by the Circular, the representatives of the
trade approached the authority and the authority was pleased to increase the
period from ten to 30 days by another Circular dated 15^th April,
1998.

In this particular case, the
Bombay Machinery Store had purchased electric motors and their parts in the
year 1995-96 out of the state of Rajasthan and sold them to purchasers within
the Kota region of the same state. For such sales, they obtained the benefit of
exemption u/s 6(2) of the 1956 Act. These goods had remained with the transport
company upon arrival in Kota for more than a month. But this claim of sales u/s
6(2) was disallowed by the assessing authority for the reason that after
importing these goods into Rajasthan, sale was effected through transport
receipt on obtaining separate orders. Such sales, in the opinion of the
assessing authority, constituted sales within the state and hence were taxable
at 12% per annum under the Rajasthan Sales Tax Act, 1954. Even though the
second sales effected by the Bombay Machinery Stores u/s 6(2) of the CST Act,
1956 were prior to the issuance of the Circulars, the assessing authority had
disallowed such sales being beyond the period of 30 days. However, the appeal
against the assessment order was allowed by the Deputy Commissioner, Appeals.
And the Rajasthan Tax Board confirmed this order. The Rajasthan High Court
upheld the orders passed by the Rajasthan Tax Board. The impugned Circulars
were also quashed by the Rajasthan High Court. The Revenue then filed an appeal
to the Supreme Court.

HELD

The Apex Court rejected the
appeal of the Revenue with the following observations:

Para
12: ‘In this set of appeals we have already indicated that transfer
of documents of title were effected subsequent to the goods reaching the
location within destination State. But when the goods are delivered to a
carrier for transmission, first Explanation to section 3 of the 1956 Act
specifies that movement of the goods would be deemed to commence at the time
when goods are delivered to a carrier and shall terminate at the time when
delivery is taken from such carrier. The said provision does not qualify the
term “delivery” with any timeframe within which such delivery shall have to
take place. In such circumstances fixing of time frame by order of the Tax
Administration of the State in our opinion would be impermissible.’

The Revenue had relied on
section 51 of the Sale of Goods Act, 1930 before the High Court. In appeal, the
Supreme Court stated that section 51 was of no assistance since there was no
material available on the record which would indicate that the transporter had
informed the consignee that he was holding the goods as a bailee.

The Court also stated that
the Delhi High Court did not lay down a correct proposition of law in its
judgment in Arjan Das Gupta (Supra)

The Court observed that on a
plain reading of the statute, the movement of the goods for the purposes of
clause (b) of section 3 of the 1956 Act would terminate only when delivery is
taken, having regard to the first Explanation to that section. There is no
scope of incorporating any further word to qualify the nature and scope of the
expression ‘delivery’ within the said section. The Legislature had eschewed
from giving the said word an expansive meaning. The High Court rightly held
that there is no place for any intendment in taxing statutes. The Court further
stated that in the event the authorities felt that any assessee or dealer was
taking unintended benefit under the aforesaid provision of the 1956 Act, then
the proper course would be Legislative amendment. It also said that the tax
administration authorities could not give their own interpretation to
Legislative provisions on the basis of their own perception of trade practice.
This administrative exercise, in effect, would result in supplying words to
Legislative provisions, as if to cure omissions of the Legislature. The appeals
were allowed.

The Supreme Court, in this
judgment, has not laid down any new principle of law. In fact, the Constitution
Bench of the Supreme Court in the year 1978 itself had said that in the taxing
statute there is no room for intendment and effect should be given to the clear
meaning of the words. [See Hemraj Gordhandas vs. H.H. Dave, 1978 (2) ELT
J350.]

BCAJ Admin

RECENT DEVELOPMENTS IN GST

NOTIFICATIONS

(a) Extension
of time limit – Notification No. 66/2020-Central Tax dated 21^st
September, 2020

The above Notification seeks to amend Notification No. 35/2020-Central
Tax dated 3^rd April, 2020. By this amendment, a second proviso is inserted in the said Notification. As per section
31(7) of the CGST Act, when the goods are sent on approval basis the invoice is
required to be made at the time of supply or six months from the date of
removal, whichever is earlier. However, the said time limit for goods sent out
of India on approval during the period from 20^th March, 2020 till 30^th
October, 2020 and where completion or compliance could not be made within the
given time, is extended up to 31^st October, 2020 by the above
Notification.

(b) Waiver of late fees –
Notification No. 67/2020-Central Tax dated 21^st September, 2020

By this Notification the time limit for filing return in Form GSTR4
(applicable to composition dealers) for the quarters from July, 2017 to March,
2019 is extended up to 31^st October, 2020. If the returns are filed
as above, then late fees applicable u/s 47 will get fully waived, if the tax
payable is Nil in the return concerned and in other cases late fees in excess
of Rs. 250 will be waived.

By this Notification, the late fees for delay in filing final return in
Form GSTR10 (applicable in case of cancellation of RC) in excess of Rs. 250 is
waived if such return is filed up to 31^st December, 2020.

(d) Extension of time limit –
Notification No. 69/2020-Central Tax dated 30^th September, 2020

The time limit for filing annual return in Form 9 for the year 2018-2019
is extended till 31^st October, 2020.

(e) E-invoicing
/ criteria for applicability – Notification No. 70/2020-Central Tax dated 30^th
September, 2020

As per Notification No. 13/2020 dated 21^st March, 2020,
E-invoicing is made applicable from 1^st October, 2020 to registered
persons having turnover exceeding Rs. 500 crores in a financial year. However,
there was no clarity about the financial year for which the turnover is to be
seen. Now, by the above Notification dated 30^th September, 2020 it
is provided that the financial year will be any preceding financial year from
2017-18 onwards. The implication is that if the turnover has exceeded Rs. 500
crores in any financial year from 2017-18 till 2019-20, then the E-invoicing
provision will be applicable. It may be noted that E-invoicing will apply to
export supply also.

(f) QR code – Notification No.
71/2020-Central Tax dated 30^th September, 2020

As per Notification No. 14/2020 dated 21^st March, 2020 the
QR code is made applicable to registered persons having turnover exceeding Rs.
500 crores in a financial year. However, there was no clarity about which
financial year is to be considered for the above turnover limit. By the above
amendment Notification, it is provided that the financial year should be any
financial year from 2017-18 onwards. Further, the applicability of the above
provision is shifted to 1^st December, 2020 instead of 1^st
October, 2020.

(g) Amendments in Rules – Notification
No. 72/2020-Central Tax dated 30^th September, 2020

Various Rules are amended by the above Notification. The amendments are
in Rules 46, 48 and 138A with a view to align the said Rules with the new
requirements of E-invoicing and QR code.

(h) Relaxation in relation to
E-invoicing – Notification No. 73/2020-Central Tax dated 1^st
October, 2020

Though E-invoicing is made applicable for specified persons, some
relaxation is given for the first month, i.e., October, 2020. The IRN (Invoice
Reference Number) is required to be obtained before issue of E-invoice.
However, for October, 2020 such IRN can be obtained within 30 days from the
date of invoice, and if it is done so it will be a valid invoice. The above
relaxation will not be available from 1^st November, 2020.

(i) Special
Provision for outward supply returns – Notification No. 74/2020-Central Tax
dated 15^th October, 2020

By the above Notification special provision is made for outward supply
return in GSTR1 for registered person having turnover up to Rs. 1.5 crores in
previous financial year or current financial year. The special provision
related to returns is as under:

Sl. No.

Quarter for which details in Form
GSTR1 are furnished

Time period for furnishing details in
Form GSTR1

(1)

(2)

(3)

October, 2020 to December, 2020

13^th January, 2021

January, 2021 to March, 2021

13^th April, 2021

(j) Extension
of time limit – Notification No. 75/2020-Central Tax dated 15^th
October, 2020

The time limit for filing GSTR1 for registered person having turnover
more than Rs. 1.5 crores in preceding financial year or current year shall be
the 11^th day from the end of the month concerned. This treatment is
for monthly returns for October, 2020 to March, 2021.

(k) Due
date for filing GSTR3B – Notification No. 76/2020-Central Tax dated 15^th
October, 2020

By this Notification some extension is given for filing return in Form
GSTR3B for the months of October, 2020 to March, 2021.

If the turnover is less than Rs. 5 crores in the previous financial year
and if the principal place of business is in Chhattisgarh, Madhya Pradesh,
Gujarat, Maharashtra, Karnataka, Goa, Kerala, Tamil Nadu, Telangana, Andhra
Pradesh, the Union Territories of Daman and Diu and Dadra and Nagar Haveli,
Puducherry, Andaman and Nicobar Islands or Lakshadweep, then the due date will
be the 22^nd day from the end of the month concerned for which the
return is to be filed.

If the above category of registered persons have their principal place
of business in Himachal Pradesh, Punjab, Uttarakhand, Haryana, Rajasthan, Uttar
Pradesh, Bihar, Sikkim, Arunachal Pradesh, Nagaland, Manipur, Mizoram, Tripura,
Meghalaya, Assam, West Bengal, Jharkhand or Odisha, the Union Territories of
Jammu and Kashmir, Ladakh, Chandigarh or Delhi, then the due date will be the
24^th day from the end of the month concerned.

The tax as per above return should also be paid by the above respective
dates. These changes are with a view to avoid any load on the system. The due
date for registered persons having a turnover of more than Rs. 5 crores remains
the same, that is, the 20^th day from the end of the month concerned.

(l) Optional
Annual Return – Notification No. 77/2020-Central Tax dated 15^th
October, 2020

Filing of annual return by registered person for the years 2017-2018 and
2018-2019 is made optional by Notification No. 47/2019-Central Tax dated 9^th
October, 2019 in case of registered person whose turnover is below Rs. 2 crores
in the relevant financial year. The said optional scheme is extended for F.Y.
2019-20 by the above amendment Notification.

(m) HSN code – Notification No.
78/2020-Central Tax dated 15^thOctober, 2020

The scheme of mentioning HSN code in the Tax Invoice is amended with
effect from 1^st April, 2021. Accordingly, where the aggregate turnover
in the preceding financial year exceeded Rs. 5 crores, HSN code should be in
six digits and in other cases up to 4 digits. However, where the turnover is up
to Rs. 5 crores and supply is to unregistered person, the mentioning of HSN
code is exempted.

(n) Amendment to Rules –
Notification No. 79/2020-Central Tax dated 15^th October, 2020

By this Notification, Rule 46 is amended whereby powers are given to the
Board for specifying the requirement of HSN by different categories of
registered persons.

By the amendment in Rule 67A, a facility of filing Nil return in Form
GSTR3B, GSTR1 or GST-CMP-08 by SMS is provided. The SMS should be from the
registered mobile number.

By the amendment in Rule 80(3), the turnover limit for GST Audit in Form
9C for the years 2018-19 and 2019-20 is enhanced to Rs. 5 crores. In other
words, if the aggregate turnover exceeds Rs. 5 crores only then will audit in
Form 9C apply for the above years.

By the amendment in Rule 138E, the restriction in respect of
non-generation of E-way for defaulter of returns for the period February, 2020
to August, 2020 has been removed for E-way bills to be generated during the
period 20^th March, 2020 to 15^th October, 2020.

In the amendment in Rule 142, there are some grammatical corrections.

(o) Extension of exemption –
Notification No. 04/2020-Central Tax (Rate) dated 30^th September,
2020

The exemption provided on services by way of transportation of goods by
air or sea from customs station of clearance in India to a place outside India
is extended by one year, that is, up to 30^th September, 2021.

CIRCULARS

Clarification about Rule 36(4) –
Circular No. 142/12/2020-GST dated 9^th October, 2020

CBIC has issued the above Circular in which detailed clarifications are
given about working for the purposes of Rule 36(4) of the CGST rules. The said
Rule is regarding matching of 2A vis-a-vis claim of ITC while filing respective returns. Various clarifications
with examples are given.

ADVANCE RULING

Air conditioning system – whether works contract

M/s Nikhil Comforts
(MAH/GST/AAAR/SS-RJ/16/ 2019-20 dated 11^th November, 2019) (Mah.)

The issue before the Appellate Authority for Advance Ruling (AAAR) has come
from the Advance Ruling order passed by the Authority for Advance Ruling (AAR)
of Maharashtra.

The transaction carried out by the appellant was for providing an air
conditioning system. The brief details of the said work as noted in the AAAR
order can be noted as under:

‘The VRF system of each premise is unique in terms of configurations and
the sizing and selection of various components. Depending on the interior
layout and the orientation of the building, the indoor and outdoor units are
selected. The refrigerant piping path is decided as per the site condition.
Based on this configuration and path, the refrigerant piping and the branching
joints vary from site to site. The refrigerant pipes and branching joints are
joined by brazing and are insulated. Thus, the entire VRF system is a network
of indoor and outdoor units connected by refrigerant piping and branching
joints, suitably sized as described above. This entire network is tested for
leakages and then vacuumed and charged with a specifically calculated quantity
of gas. The entire network is controlled by microprocessors in indoor and
outdoor units which communicate with each other through interconnecting
communication cables. The commissioning process involves addressing of various
components of network which is unique to each site.’

Based on the above facts of an air conditioning system, the questions
posed before the learned AAR were as under:

Question No. 1: The transaction would be classifiable under the
definition of ‘works contract’ liable to CGST/SGST/IGST covered under Sr. No. 3
item No. 3 of Notification No. 20/2017-Central Tax rate dated 22^ndAugust,
2017.

Question
No. 2: The transaction is composite supply liable to tax @ 14%, principal goods
involved being air conditioner which falls under Schedule IV, Sr. No. 119 of
Notification No. 1/2017-Central Tax rate dated 28^th June, 2017.

In AR dated 24^th May, 2019, the learned AAR decided the above
two questions:

The AAR held that the transaction is not a works contract but a composite
contract where the principal supply is goods. Accordingly, it was held that on
the whole contract price, tax is payable @ 28% u/e 119 of Schedule IV of
Notification No. 1/2017-Central Tax rate dated 28^thJune, 2017.

The appellant challenged the decision of the AAR before the AAAR by
giving exhaustive facts about the nature of the transaction and supporting
judgments.

The main plank of the arguments of the appellant was that the transaction
is for providing an air conditioning system and not an air conditioner.

It was his argument that a system has no marketability as it is area /
premises specific. Further, the system cannot be shifted to another site
without dismantling. The appellant also cited the order of the Government of
India, Ministry of Finance, Department of Revenue, Central Board of Excise
& Customs dated 15^th January, 2002 in which it is held that air
conditioner is different from air conditioning system.

The appellant made the following consolidated arguments:

‘Keeping in view the principles laid down in the judgments and authority
noticed above, and having regard to the facts of this case, it is submitted
that the air conditioning plant brought into existence is immovable property
which could not be shifted without first dismantling it and then re-erecting it
at another site and satisfies the test of permanency and non-marketability,
therefore is immovable hence will cover under the definition of “works
contract” under the GST statute, and come under the definition of “works
contract” [section 2 sub-section (119)], liable to CGST/SGST/IGST covered under
Sr. No. 3 item No. 3 of Notification No. 20/2017-Central Tax rate dated 22^nd
August, 2017.’

The respondent / Department cited the judgment in Vodafone Mobile
Services Ltd. vs. Commissioner of Sales Tax (2018-VIL-506-DEL-DCE dated 31^stOctober, 2018) in which the
principles for determining movable / immovable property are analysed.

AAAR

The learned AAAR referred to the above arguments and observed that the
main intention is to provide air conditioning, though on extensive basis.

As per the AAAR there is no difference between room air conditioner and
air conditioning system in the present case, except that a large area is
covered with connected pipes where required.

The AAAR relied on the judgment of the Supreme Court in Sirpur Paper
Mills vs. CCE dated 11^th December, 1997 and observed as under:

‘By the application of the above tests laid down by the Supreme Court it
cannot be said that the said transaction is a contract for immovable property.
It is seen from the arguments of the appellant that he has nowhere denied that
the system cannot be dismantled. It is only argued that the plant can be
shifted only after dismantling the plant. However, in the above judgment the
Court has observed that just because the system needs to be dismantled before
it is re-erected does not make it an immovable property. The system has to be
dismantled but it can be re-erected at any other site.’

The AAAR confirmed the order of the AAR and upheld the levy of tax @ 28%
holding the transaction as a composite transaction where air conditioning goods
is the principal supply.

SUB-CONTRACTING OF
GTA

M/s Liberty Translines
(MAH/AAAR/RS-SK/26/2020-21 dated 17^th September, 2020) (MAH)

A very peculiar issue arose before the learned AAR (Mah).

The appellant is a transporter and covered by tax @ 5% under RCM. One M/s
Posco ISDC Pvt. Ltd. carries on transportation activity of goods for clients.
The clients hand over their goods to Posco ISDC Pvt. Ltd. for transporting and
Posco issues the Lorry Receipt to them as well as generates the E-way bill. As
such, it is a GTA falling under SAC 996791.

The appellant does the actual transportation of goods and issues L.R. to
Posco ISDC Pvt. Ltd. Now, the appellant wants to change the mode of his
charging tax, whereby it wants to issue L.R. to Posco and wants to become a GTA
by itself. The presumption of the appellant is that it is also a GTA and hence
entitled to fall under Forward Charge System (12%) as per Notification No.
20/2017-C.T.(R) dated 22^nd August, 2017. By doing this, the
appellant will be charging GST on forward charge basis to Posco and Posco will
be entitled to ITC for the same.

The appellant applied for Advance Ruling posing the following questions
to the AAR:

‘(i) Considering the nature of
transaction, under the new proposition where Liberty Translines, the appellant,
would be issuing the consignment note to M/s Posco ISDC Pvt. Ltd. in addition
to the consignment note, issued by Posco to their clients, whether the services
rendered by the applicant to Posco as a sub-contractor would be classified as
GTA service (SAC 996791), when the service rendered by Posco as the main
contractor is already classified as GTA service (SAC 996791) and is going to
remain unchanged?

(ii) Whether the appellant would
be right in charging GST @ 12%, under forward charge mechanism to Posco in
terms of Notification No. 20/2017-Central Tax (Rate) dated 22^nd
August, 2017 when Posco as the main contractor is already charging GST @ 12%
under the same Notification, which is going to remain unchanged?

(iii) Whether Posco would be
eligible to claim credit of the 12% GST charged by the appellant in its
invoices issued under forward charge mechanism?

(iv) Procedurally, is it correct
to have two GTA service providers and two consignment notes for the same
movement of goods, one issued by the appellant as a sub-contractor and the
other by Posco as the main contractor?’

In respect
of Question (i), the AAR held that the appellant is not a GTA. In respect of
Question (ii), the appellant, not being a GTA, is not entitled for forward
charge. Question (iii) was not decided holding that the appellant has no locus standi.
Question (iv) was also decided in the negative. Therefore, this appeal was
filed before the AAAR.

The appellant repeated its arguments. The AAAR, however, confirmed the
order of the AAR and analysed the position as under:

‘The meaning of GTA has been provided under the Explanation to the
Heading 9967 of the Notification No. 11/2017-C.T.(Rate) dated 28^thJune,
2017 amended by Notification No. 20/2017-C.T.(Rate) dated 22^nd
August, 2017 which is being reproduced herein as under:

Explanation: “goods transport
agency” means any person who provides service in relation to transport of goods
by road and issues consignment note, by whatever name called.

Thus, on perusal of the aforementioned meaning of GTA, it is clearly seen
that issuance of the consignment note is an essential condition for any person
to act as GTA. Now, we intend to explore the meaning of term “consignment
note”. On perusal of the CGST Act, 2017, it is revealed that the term
consignment note is not defined anywhere in the CGST Act, 2017. However, the
mention of the same was made under the explanation to Rule 4B of the Service
Tax Rules, 1994 which is being reproduced herein under:

Explanation: For the purpose of this rule and the second proviso to Rule 4A, “consignment note” means a document issued by
a goods transport agency against the receipt of goods for the purpose of
transport of goods by road in a goods carriage, which is serially numbered, and
contains the name of the consignor and consignee, registration number of the
goods carriage in which the goods are transported, details of the goods
transported, details of the place of origin and destination, person liable for
paying service tax whether consignor, consignee or the goods transport agency.

Even the dictionary meaning of the
term consignment note is in conformity with the aforesaid meaning of the term
consignment note as provided under Rule 4B of erstwhile Service Tax Rules,
1994.

Now, on perusal of the aforesaid meaning of the term consignment note, it
is conspicuous that the goods are received by the goods transport agency from
either the consignor or the consignee of the goods, the details of which are
mentioned in the consignment note along with the description of the goods being
transported. In the subject case, the appellant is not receiving goods directly
from the consignor or consignee of the goods, but from M/s Posco ISDC Pvt.
Ltd., who themselves are acting as GTA, where they are receiving the goods from
the consignor / consignee and issuing the consignment notes in respect thereof.
The appellant is merely a goods transport operator here and not a GTA.’

Thus, the AAAR negatived the contentions of the appellant about bailment
and sub-bailment, holding that the privity of contract is between the client
and Posco, not with the appellant.

The AAAR also rejected the contention that the appellant is a
sub-contractor.

The AAAR held that the appellant is only renting its transport vehicles.
The further argument that by the above AR the appellant is stopped from doing
its business activity was also rejected, observing that there is no stoppage
for direct transactions. The Advance Rulings from other states were
distinguished on facts as also on the ground that they are not binding. The AAAR held that the service of the appellant falls in SAC 9966 and
not SAC 9967 for GTA. The rulings on the other questions were also confirmed by
the AAAR.

COMPOSITE SUPPLY
VIS-À-VIS DISTINCT PERSONS

M/s Vertiv Energy Private Limited
(MAH/AAAR/SS-RJ/22/2019-20 dated 7^th February, 2020)

The present appeal before the Appellate Authority (AAAR) Maharashtra was
out of the Advance Ruling order passed by the AAR Maharashtra dated 4^th
October, 2019. The facts, in brief, are that the appellant has received a
contract from Delhi Metro Railway Corporation (DMRC) wherein it has to supply
UPS and install and commission the same. The UPS are to be supplied from Maharashtra
where the appellant’s Maharashtra unit raises invoices under Maharashtra GSTIN.
The installation and commissioning services are to be supplied by the Delhi
unit of the appellant under invoice to be raised under Delhi GSTIN.

The appellant filed the AR to know whether the above transaction is
‘works contract’ so as to be liable @ 12% GST. The AAR in the above order held
that the transaction is not a works contract but composite supply. The
appellant concurred with the findings that it is not ‘works contract’ under
GST. However, it was aggrieved by holding that the transaction is composite
supply, hence this appeal was filed.

The AAAR considered the facts and noted the arguments. Basically, the
appellant was arguing that both the contracts, i.e., supply of UPS and
installation, are separate contracts though embodied in a single document.

It was demonstrated that the ownership in UPS passed before installation.
It was further argued that the Delhi unit is a distinct person and thus the
supplies are by two persons. Under these circumstances, the theory of composite
supply cannot apply. The AAAR made reference to the definitions of ‘composite
supply’, ‘principal supply’ and other provisions. And after analysing the
position, AAAR held as under:

‘Now, having regard to the above facts and circumstances, the only moot
issue before us is as to whether the aforesaid supply would be construed as
composite supply or not. At the outset we would like to first examine the
meaning of “Composite Supply” as provided under section 2(30) of the CGST Act,
2017, which is being reproduced herein under:

30. “composite supply” means a
supply made by a taxable person to a recipient consisting of two or more
taxable supplies of goods or services or both, or any combination thereof,
which are naturally bundled and supplied in conjunction with each other in the
ordinary course of business, one of which is a principal supply;

Illustration: Where goods are packed
and transported with insurance, the supply of goods, packing materials,
transport and insurance is a composite supply and supply of goods is a
principal supply.

Thus, for any combination of supplies to qualify as “composite supply” it
has to satisfy the following conditions:

(i) It should be made by a taxable
person;

(ii) It should be made to a
recipient;

(iii) Supplies should be naturally
bundled and supplied in conjunction with each other in the ordinary course of
business;

(iv) One of the supplies should be
the principal supply.’

After observing as above, the learned AAAR found that the AR order passed
by the AAR is erroneous on the following three grounds:

(i) When there are two distinct
persons, composite supply is ruled out;

(ii) The supply of UPS and
installation services are not in conjunction. Installation is after supply of
UPS is complete;

(iii) There is no principal supply
as supply of goods and supply of services are equally important.

Therefore, the AAAR modified the AR and held that there is no composite
supply.

CLASSIFICATION –
‘EARTHWORK’

M/s Soma Mohite Joint Venture
(MAH/AAAR/SS-RJ/21/2019-20, dated 20^th January, 2020) (MAH)

The appellant is a contractor who has undertaken a contract for
construction of a tunnel and allied works for Nira-Bhima Link No. 5, Indapur
Taluka, Pune. In relation to the said contract, the following three questions
were raised before the AAR.

‘I. Whether the said contract is
covered under Sl. No. 3A, Chapter No. 99 as per Notification No. 2/2018-Central
Tax (Rate) dated 25^th January, 2018, w.e.f. 25^th January,
2018?

II. Whether the said contract is
covered under the term “Earth Work” and covered under Sl. No. 3 Chapter No.
9954 as per Notification No. 31/2017-Central Tax (Rate) dated 13^th
October, 2017?

III. If the appellants are covered under
Sl. No. 3 Chapter No. 9954 as per Notification No. 31/2017-Central Tax (Rate)
dated 13^th October, 2017 w.e.f. 13^th October, 2017, then
what is the meaning of “Earth Work”?’

The AAR did not decide question No. 1 (except for making an initial
reference) and held in negative for question Nos. 2 and 3.

Hence this appeal before the AAAR.

The AAAR observed that not deciding question No. 1 on merits by the AAR
is not correct and the AAR should have decided the said question.

The AAAR decided the first question on merits. The given entry 3A is
reproduced as under:

Chapter 99

Composite supply of goods and services in which the value of
supply of goods constitutes not more than 25 per cent of the value of the
said composite supply provided to the Central Government, State Government or
Union Territory or Local authority or a Governmental authority or a
Government Entity by way of any activity in relation to any function
entrusted to a Panchayat under article 243G of the Constitution or in
relation to any function entrusted to a Municipality under article 243W of
the Constitution

NIL

The AAAR held that the work allotted does not fit into Minor Irrigation
Project covered by article 243G for Panchayat, but is part of Major Irrigation Project. Therefore, AAAR
ruled out classification under above entry 3A.

Regarding question (2), the AAAR reproduced the said entry as under:

Sl. No.

Chapter, section or heading

Description of Service

Rate (per cent)

Condition

(1)

(2)

(3)

(4)

(5)

Chapter 99

All Services

Section 5

Construction Services

Heading 9954 (Construction services)

[(vii) Composite Supply of works contract as
defined in clause (119) of section 2 of the Central Goods and Services Tax
Act, 2017, involving predominantly earth work (that is, constituting more
than 75 per cent of the value of the works contract) provided to the Central
Government, State Government, Union Territory or local authority, a
Government Authority or a Government Entity

Provided that where the services are supplied
to a Government Entity, they should have been procured by the said entity in
relation to a work entrusted to it by the Central Government, State
Government, Union Territory or local authority, as the case may be]

*(Effective rate 5% as mentioned in AAAR order)

The AAR rejected this ground on the basis that the work is of tunnel
construction and not earthwork. He examined the meaning of ‘earth work’ in
various dictionaries and observed that it can be both excavation and
fortification.

The AAAR also observed that the earth work portion is 92.66% in the given
contract, i.e., more than 75%. The AAAR held that a contract, whether ‘earth
work’ or not, cannot be decided as per names such as tunnel, building, road,
etc. It is the nature of the work that is to be seen. If the earth work in the
given work is more than 75%, it can be classified under the above entry.

Thus, the AAAR modified the AR and held the contract as covered by entry
3 in Chapter 9954 as per Notification No. 31/2017-Central Tax (Rate) dated 13^th
October, 2017.

A nation of sheep will beget a
government of wolves

— Edward R. Murrow

BCAJ Admin

Journal

Resources

About

Reach Us

Audio Version