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Res Ipsa Loquitur

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The Word

1. The maxim res ipsa loquitur is used as an aid to
evidence when the fact situation speaks for itself or tells its own story.
Literally meaning, ‘thing speaks for itself’ the latin maxim eases the burden of
establishing an abstract situation or a mental state when the event by its very
nature points glaringly to the existence of such a state. It is used as an aid
in the evaluation of evidence and in appropriate cases, a substitute for
evidence itself at least shifting the onus of proof to the accused.


2. Res ipsa loquitur is a rule of evidence which in
reality belongs to the law of torts. There are two lines of approach, as held by
the Supreme Court in Syad Akbar v. State of Karnataka, 1979 AIR 1848, in
regard to the application and effect of the maxim. According to the first, the
maxim, wherever it applies, operates as an exception to the general rule that
the burden of proof of the alleged negligence is, in the first instance, on the
plaintiff. In such a case the burden shifts to the defendant to disprove his
liability. According to the other line of approach ‘Res ipsa loquitur’ is
not a rule of substantive law; but only an aid in the evaluation of evidence, a
means of estimating logical probability from the circumstances of the event. It
does not require raising of any presumption of law which must shift the onus on
to the defendant. It only allows the drawing of a permissive inference of fact,
as distinguished from a mandatory presumption, having regard to the totality of
the circumstances and the probabilities of the case. The Courts do not generally
favour invoking the first line of approach in the trial of criminal cases as an
abstract doctrine, for the reason that in a criminal trial the burden of proving
everything essential to the establishment of the charge rests on the
prosecution. Also, while in civil proceedings, a mere preponderance of
probability is sufficient to establish a fact in issue, it is not so in criminal
proceedings where the presumption of guilt must amount to such a moral certainty
as convinces the Court beyond all reasonable doubt.

3. The other line of approach treating the maxim as a
convenient aid in assessment of evidence and in drawing permissive inferences
under the Evidence Act does not conflict with the provisions and principles of
the Evidence Act peculiar to criminal jurisprudence if inferring a fact in issue
from another circumstantial fact is subjected to satisfaction of essential
conditions for an accused to be convicted on the basis of circumstantial
evidence alone. As held by Lahoti J in Jacob Mathew v. State of Punjab and
Anr., (2005) INSC 390 (5.8.2005), res ipsa loquitur is only a rule of
evidence and operates in the domain of civil law specially in case of torts and
helps in determining the onus of proof in action relating to negligence. It
cannot be pressed in service for determining per se the liability for
negligence within the domain of criminal law. Res ipsa loquitur has, if
at all, a limited application in trial on a charge of criminal negligence.

4. In cases, however, where because of the very nature of the
event the plaintiff can only prove the accident, but cannot prove how it
happened to establish negligence, the rule of res ipsa loquitur has been
invoked. In Pressing Co. Pvt. Ltd. and Another (AIR 1977 SC 1735) the Apex Court
observed :

“The normal rule is that it is for the plaintiff to prove
negligence, but as in some cases considerable hardship is caused to the
plaintiff as the true cause of the accident is not known to him, but is solely
within the knowledge of the defendant who caused it, the plaintiff can prove
the accident but cannot prove how it happened to establish negligence on the
part of the defendant. This hardship is sought to be avoided by applying the
principle of res ipsa loquitur. The general purport of the word res
ipsa loquitur is that the accident ‘speaks for itself’ or tells its own
story.”


5. In Syad Akbar case (supra) when the driver of a bus
was charged of causing the death of a child by negligent driving and where the
eye witness was treated hostile, the Sessions Judge applied ‘res ipsa
loquitur’ and held the accused guilty. The view was affirmed by the High
Court. After considering the facts of the case in detail and various judicial
pronouncements of Indian and foreign authorities regarding its application in
criminal cases, the Apex Court set aside the conviction awarded on the basis of
application of res Ipsa loquitur only.

6. Even though the principle is applied with great caution in
criminal cases, its application is not ruled out in cases with high probability
and where the defendant does not come forward to rebut the inference. In a case
where the conductor of a bus had committed similar misconduct 36 times prior to
the time he was found guilty, the Court observed “Be that as it may, the
principle of res ipsa loquitur, namely, the facts speak for themselves is
clearly applicable in the instant case [B. S. Hullikatti (2001) 2 SCC 574]. In
State of Punjab v. Modern Cultivators, Ladwa 1965 AIR 17, damages were
claimed for defendant’s negligence which caused break in the bank of canal. The
Supreme Court upheld the application of res ipsa loquitur holding that
there would not have been a breach in the bank of the canal if those in
management took proper care and the breach itself would be prima facie
proof of negligence. Similarly where damages were claimed by the heirs of three
persons who died as a result of the collapse of the clock tower in Chandni Chawk
Delhi, the SC upheld invoking the rule for the reason that the mere fact that
there was a fall of clock tower, which was exclusively under the ownership and
control of the appellant would justify raising an inference of negligence so as
to establish a prima facie case against the appellant (Municipal
Corporation of Delhi v. Subhagwanti and Ors., 1966 AIR 1750).

7. The application of the maxim was examined in cases of
corruption where the accused is trapped and caught. The following observations
of Krishna Iyer J in Rughubir Singh v. State of Haryana, 1974 AIR 1516
are often relied upon in such cases :


“But we may notice that even if the statutory presumption is unavailable, Courts may presume what may in the ordinary course be the most probable inference. That an Assistant Station Master has in his hands a marked currency note made over to him by a passenger whose bedding has been detained by him for which no credible explanation is forthcoming and he is caught red-handed with the note, is a case of res ipsa loquitur. The very thing speaks for itself in the circumstance. We need not, therefore, scrutinize the substance of the argument based on the inapplicability of S. 4 of the Evidence Act.”

Following the aforesaid observations, the Court in State of AP v. V. Vasudeva Rao, (2003) INSC 560 (13.11.03), where an Asstt. Collector, Weights and Measures was trapped for demanding bribe, held that the very fact that the accused was in possession of the marked currency notes against an allegation that he demanded and received the amount is res ipsa loquitur.

8.    Commenting on growing dependence on res ipsa loquitur in case of driver’s negligence, the Supreme Court in Shyam Sunder & Others v. The State of Rajasthan, (1974) INSC 53 observed that over the years the general trend in the application of the maxim has undoubtedly become more sympathetic to plaintiffs. Concomitant with the rise in safety standards and expanding know ledge of the mechanical devices of our age, less hesitation is felt in concluding that the miscarriage of a familiar activity is so unusual that it is most probably the result of some fault on the part of whoever is responsible for its safe performance.

9.    Proceeding for imposition of penalties under the Income-tax Act and other fiscal legislation, as distinguished from prosecution, are not criminal in nature. They are quasi criminal, but require existence of mens rea to be shown. The standard of proof for imposition of penalty is not as rigorous as that for prosecution which proceeds on proof of commission or omission beyond doubt. Penalties for any default under the Act are dictated by preponderance of probabilities as appearing from totality of circumstances. In cases where the fact situation is found to be res ipsa loquitur decisively pointing to such pre-ponderance of probabilities, the burden cast on Assessing Officer is considerably discharged in matters of penalty, which is not the case when prosecution proceedings are launched for any offence.

Exceptio Probat Regulam

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The ‘ WORD’

The maxim describes the role of an exception in inferring,
establishing, confirming and explaining the general rule to which the exception
relates. Understood in its ordinary and literal sense, it means that presence of
an exception establishes that a general rule exists. Derived from medieval Latin
legal principle Exceptio probat regulam in casibus non exceptis,
it indicates existence of a rule having application in cases other than those
stated in the exception.

2. Fowler in ‘Modern English Usages’ explains the principle
with the help of example of an order giving “special leave for men to be out of
barracks tonight till 11 p.m.” Application of the maxim will interpret grant of
special leave as implying a general rule requiring men to be in earlier.
Similarly, a sign that says “parking prohibited on Sundays” (the exception)
proves that parking is allowed on other six days of the week (the rule). The
phrase is also invoked to claim the existence of a rule that usually applies,
when a case to which it does not apply is specially mentioned.

3. The above is, however, a view of the rule somewhat loosely
worded and works differently in different contexts. At times the word ‘prove’
actually means ‘test’. An unusual case in that sense is used to test whether or
not a rule is valid. If the rule stands up to the unusual case, then that
reinforces its truth, if not, then the rule is disproved. In such a case the
main rule and the exception supplement each other in which one gives meaning to
other.

4. Exceptions in law are generally by way of a negative
provision, specific exclusion, proviso or explanation. In tax laws while the
general rule is stated by way of the main provision, exclusions are provided for
by proviso to the general rule. A proper understanding of the law therefore,
requires reading the general rule and the proviso together. The proviso in tax
laws apart from proving the existence of the general rule, confirming,
explaining or harmonising the provision, gets its scope and meaning from the
general rule of which it is an exception.

5. Explaining the purpose of a proviso in a taxing statute,
the Supreme Court in Commissioner of Income-Tax vs. Indo-Mercantile Bank Ltd.
[1959] 36 ITR 1, observed, “The proper function of a proviso is that it
qualifies the generality of the main enactment by providing an exception and
taking out, as it were, from the main enactment, a portion which, but for the
proviso, would fall within the main enactment. Ordinarily, it is foreign to the
proper function of a proviso to read it as providing something by way of an
addendum or dealing with a subject which is foreign to the main enactment.” In
this case whereas the main provision contained in Section 24(1) of the
Income-tax Act, 1922 provided for set-off of loss under one head against profit
under another, the proviso which restricted such set-off was attempted to be
used to prevent set off within the same business head arising from two different
businesses. The Court refused to accept the argument observing that a proviso
must be considered with relation to the principal matter to which it stands as a
proviso. Since the proviso in dispute has no positive words which would support
an interpretation in favour of the disintegration of the head ‘business’, it
cannot stop set-off within the same head of income.

6. To put if differently, in taxing statutes an exception
contained in a proviso takes its scope and meaning from the main provision.
Being a carved out exception, in no circumstance can it be construed in such a
manner as to obliterate and swallow up the main provision to which it is a
proviso. In Commissioner of Income-Tax vs. Ajax Products Ltd., (55 ITR
741 SC) Section10(2)(vii) of the I.T. Act, 1922 [Section 41(2) of I.T. Act,
1961] came for consideration in reference to insertion of words “whether during
the continuance of the business or after cessation thereof” in the proviso by
Act 67 of 1949. Arguments were advanced for the Revenue that insertion of these
words takes away the essential condition in the main provision that the asset
should have been used for business conducted during the previous year. Rejecting
the argument and reiterating their observations in Indo- Mercantile Bank case (supra)
about the scope of the proviso, the Court held that as a result of the amended
proviso, surplus arising from machinery sold or discarded or demolished or
destroyed can be taxed even when such events take place after cessation of
business, but only if the machinery was used in the business carried on for any
part during that financial year, as the amended provision has to be considered
with relation to the principal matter to which it stands as a proviso. Unless
the language is so clear that a proviso may be construed as a substantive
clause, it cannot do violence to the main provision.

7. Harmonious construction of the provision and the exception
contained in proviso thereto require consideration of the two as a whole so as
not to set at naught the real object of the main enactment or put in danger the
legitimacy of the rule in its globality. Deciding about retrospective or
prospective application of the proviso to Section 43B inserted by the Finance
Act, 1987 making exception to the general rule contained in Section 43B in
respect of payments of tax, duty, cess or fees, if payment of such liability is
made on or before the due date of furnishing of return, the Orissa High Court in
Commissioner of Income Tax vs. Pyarilal Kasam Manji and Co. 198 ITR 110
went into the intention of the Legislature, the objects and reasons of the main
provision, the mischief sought to be remedied and came to the conclusion that
the proviso, although stated to be applicable w.e.f. 1.4.1988, is to
cover cases from April 1, 1984.

8. In CIT vs. Hico Products Pvt. Ltd. (No.2) Bom, 201
ITR 575 the issue was whether proviso to Section 40A (5)(a) carves out a
different category of director-employees so as to free them from separate
ceilings of allowability of expenditure on payment of salary as laid down in
sub-clause (i) of clause (a) and on provision of perquisite as laid down in
sub-clause (ii) or subjects them, like any other employee, to such separate
ceilings subject to overall ceiling of Rs.72,000. Applying the characteristics
of a proviso as laid down by the Courts, the Bombay High Court held that the
proviso carves out a separate category of employee-directors and, unlike other
employees, subjects them to uniform ceiling of Rs.72,000.

9. What applies to provisos equally applies to specific
provisions laying down exceptions to the general rule. Reference may be made to
the provisions of Section 37(1) containing the general rule of allowability of
business expenditure laid out or expended wholly and exclusively for the
purposes of the business or profession. Exceptions to the general proposition
are contained in Sections 40 and 40A. It will be too simplistic to hold that what is not excepted is allowable under the general rule as the allowability of unexcepted is still to be judged by the touchstone of the broad basis in Section 37(1). The same applies to exceptions contained in explanations. Section 37(1) itself has an explanation carving out exception to the general rule in respect of expenditure incurred by an assessee for any purpose which is an offence or which is prohibited by law.

10. To sum up ‘exceptio probat regular’ is a rule of commonsense in which exceptions prove existence of a general rule and the two make a cohesive whole wherein each derives its scope and meaning from the other. The two cannot be read independently unless there are clear words indicating the exception as laying down a substantive provision.

Autrefois acquit

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The Word

1. ‘Autrefois acquit’ is a preemptory plea to be taken
by the defendant in a criminal proceeding to estop the government from carrying
on with a trial against him. Its etymology is derived from Anglo-French meaning
‘formerly acquitted’. Related to this is ‘Autrefois convict’ and ‘autrefois
attaint’ literally meaning ‘formerly convicted’ and ‘formerly attainted’.


2. The significance of the term lies in the precept embedded
in Anglo-Saxon common law predating the eleventh century, which protects a
person from being tried and indicted for the same offence more than once. Once a
defendant is found not guilty; the case cannot be re-opened for holding him
guilty regardless of any compelling inculpatory evidence found subsequently, nor
can he be tried for the same offence under the same or any different Act.
Conversely, ‘autrefois convict’ protects a person convicted once to be
convicted again under any Act in any criminal proceeding involving action on the
same set of facts.

3. The roots of the principle, as stated by Bhagwati J. in
Maqbool Hussain v. State of Bombay, AIR 1953 SC 325, are to be found in the
well-established rule of common law of England that “where a person has been
convicted of an offence by a court of competent jurisdiction, the conviction is
a bar to all further criminal proceedings for the same offence”. [Per Charles J.
in Reg. v. Miles, (1890) 24 QBD 423(A)]. To the same effect is the
ancient maxim ‘Nimo bis debut punir pro uno delicto’ meaning no one ought
to be twice punished for one offence or, as it is sometimes written, ‘pro
eadem cause’ i.e., for the same cause. This is the principle on which
the party persued has available to him the plea of ‘autrefois convict’ or
‘autrefois acquit’.

4. The fifth amendment of the American Constitution
enunciated the principle as :

“. . . . . . nor shall any person be subject for the same
offence to be twice put in jeopardy of life or limb, not shall be compelled,
in any criminal case, to be witness against himself”.


The principle of protection against double jeopardy, as it
has come to be known, is another expression for ‘autrefois convict’ or ‘autrefois
acquit’.

5. The principle is embodied in Indian laws in S. 26 of the
General Clauses Act, 1897, which states that “where an act or omission
constitutes an offence under two or more enactments, then the offender shall be
liable to be prosecuted and punished under either or any of those enactments,
but shall not be liable to be punished twice for the same offence”. The maxim
finds expression also in S. 403(1) of criminal Procedure Code 1898 when it says,
“A person who has been tried by a Court of competent jurisdiction for an offence
and convicted or acquitted of such offence shall, while such conviction or
acquittal remains in force, not be liable to be tried again for the same
offence, nor on the same facts for any other offence for which a different
charge from the one made against him might have been made u/s.236, or for which
he might have been convicted u/s.237”.

6. The aforesaid common law doctrine and provisions in Indian
as well as foreign laws provided the background for the guarantee of fundamental
right enshrined in Article 20(2) of the Constitution of India, which reads as
under :

“No person shall be prosecuted and punished for the same
offence more than once.”


S. 3(38) of the General Clauses Act, applicable for the
interpretation of the constitution by virtue of Article 367, defines an
‘offence’ to mean any act or omission made punishable by any law for the time
being in force. Expatiating on Article 20(2), the Supreme Court in Maqbool
Hussain case (supra) observed :

“It incorporated within its scope the plea of ‘autrefois
convict’ as known to the British Jurisprudence or the plea of double jeopardy
as known to the American constitution but circumscribed it by providing that
there should be not only a prosecution, but also a punishment in the first
instance in order to operate as a bar to a second prosecution and punishment
for the same offence.”


The Court also, having regard to the whole background,
imported the requirement of prosecution and punishment ‘before a Court of law or
judicial Tribunal’ for invoking Article 20(2) of the constitution and held that
“in order that the protection of Art. 20(2) be invoked by a citizen, there must
have been a prosecution and punishment in respect of the same offence before a
Court of law or a Tribunal required by law to decide the matters in controversy
judicially on evidence on oath, which it must be authorised by law to
administer, and not before a Tribunal which entertains a departmental or an
administrative enquiry, even though set up by a statute, but not required to
proceed on legal evidence given on oath”.

7. The applicability of these two essential ingredients
viz. (i) prosecution and punishment, and (ii) by a Court of law or judicial
Tribunal, came to be examined in the above case where the question to be decided
was whether confiscation of gold by Customs authorities with option to pay an
amount in lieu of such confiscation is punishment by Court of law/judicial
Tribunal to justify the plea based on ‘autrefois convict’ against
pursuing criminal proceedings under the Sea Customs Act and Foreign Exchange
Regulations Act. The Court concluded that far from being authorities bound by
rules of evidence or procedure established by law and invested with power to
ensure their own judgments or orders, the Sea Customs Authorities are merely
constituted administrative machinery for the purpose of adjudging confiscation,
increased rates of duty and penalty prescribed in the Act. As to the nature of
confiscation, it was held that confiscation is more in the nature of proceedings
in rem than proceedings in personam. On both the counts the
protection of ‘autrefois convict’ was denied.

8. In effect the decision in earlier proceedings not only provides res judicata for the succeeding ones, but prevents proceedings to go ahead. In tax laws where an act or omission attracts penalty and is also subjected to prosecution, plea of double jeopardy has been raised in certain prosecution proceedings based on the order imposing penalty. In Gulab Chand Sharma v. H. P. Sharma, Commissioner of Income-tax, Delhi, 95 ITR 117, penalty was imposed u/s.274 read with S. 271 and S. 273 for making a false return and prosecution proceedings were also launched u/s.277 of the Income-tax Act, S. 193 of IPC and also S. 467/471 of IPC, the prosecution proceedings were sought to be quashed on the plea of ‘autrefois convict’. The Court after detailed discussion of various provisions held that the proceedings for the imposition of penalty taken against the accused under the Income-tax Act are distinct from the criminal complaints filed against him. They can, therefore, continue simultaneously. Imposition of penalty is neither a prosecution, nor a punishment for any offence to bar prosecution proceedings. The objects of the two provisions are different. It is an anathema to suppose that when a civil remedy is available, criminal prosecution is completely barred. The two types of actions are quite different in content, scope and import [Pratibha Rani v. Suraj Kumar, 155 ITR 190 (SC)]. The one containing the prosecution and punishment is to vindicate public justice by punishing the offender, whereas the object of the penalty proceedings is to render evasion unprofitable and to secure to the State the compensation for the damages for attempted evasion. They are mutually exclusive remedies [Po Ummali Umma V. lAC, (1967) 64 ITR 669 (Ker.)]


Impotentia excusat legam

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The

Law does not compel one to do that which one cannot
possibly perform. Where the law creates a duty or charge and circumstances
make it impossible to be performed for no fault of his, the law will, in
general, excuse him. The principle is expressed in the Latin maxim
‘impotentia excusat legam’ literally meaning ‘law excuses impossibility’.
The maxim is referred to in English judgments as ‘lex non cogit ad
impossibilia’ and is akin to Roman maxim ‘nemo tenetur ad impossibilia’.

2. As per Broom’s Legal Maxims “Where the law creates a duty
or charge, and the party is disabled to perform it, without any default in him,
and has no remedy over there, the law will in general excuse him, and though
impossibility of performance is in general no excuse for not performing an
obligation which a party has expressly undertaken by contract, yet when the
obligation is one implied by law, impossibility of performance is a good
excuse”.

3. Broom distinguishes obligation undertaken by the party
under a contract and one which is cast on him or implied by law. While the
former is not excused unless so provided expressly, the latter i.e.,
obligation implied by law stands excused by a supervening or other impossibility
beyond the control of the person obliged. The application of maxim in legally
implied obligation is illustrated by the case in which consignees of cargo are
prevented from unloading a ship promptly by reason of a dock strike. In the
absence of an express agreement to unload in a specified time, there was implied
obligation to unload within a reasonable time and the performance having become
impossible, the maxim ‘lex non cogit ad impossibilia, execuses it.

4. In Industrial Finance Corporation of India v. Spinning
and Weaving Mills, (2002) INSC 201, the Supreme Court was seized with the
question as to whether the guarantors of loan advanced by the plaintiff to the
respondent were discharged from their obligation on nationalisation of the
respondent’s undertaking and consequent vesting of its properties, which were
given as security, with the Government. Reliance was placed from the side of
guarantors on the provision of S. 141 of the contract Act under which a surety
is entitled to the benefit of every security which the creditor has against the
principal debtor and, if the creditor loses or without the consent of the surety
parts with the security, the surety is discharged to the extent of the value of
the security. The plea of ‘impotentia excusat legam’ from the side of the
plaintiff was sought to be countered on behalf of the sureties and it was argued
that loss of securities by the creditor will cover both voluntary and
involuntary act or acts of the creditor which will discharge the sureties from
their obligation to the extent of their value. After extensive discussion, the
Supreme Court held recourse to the principle of impossibility as misplaced and
held that despite vesting of properly in the government consequent to
nationalisation the contract of guarantee being an independent contract
unaffected by nationalisation and consequences thereof has, in all fairness, to
be honoured to fulfil the contractual obligation.

5. Even though the application of doctrine of impossibility
was considered not relevant, the IFCI decision (supra) makes in-depth
discussion of the doctrine. Even in matters of contractual obligation
distinction is to be drawn between cases where the event which causes the
impossibility was or might have been anticipated when the promisor, by an
absolute contract bound himself or where the impossibility arises from the act
or default of the promisor and cases where it cannot reasonably be supposed
to have been in the contemplation of the contracting parties when the contract
was made. In the latter case the principle of impossibility will apply. It
is for this reason that an act of God, in some cases, excuses the breach of
contract. It is not, however, uncommon in large contracts to incorporate a
force majeure clause providing for circumstances in which the performance
will be excused.

6. In Appeal No. 95/2007 decided on 17-3-2007 in the matter
of M/s. CSL Securities (P) Ltd v. Securities and Exchange Board of India,
the Securities Appellate Tribunal (SAT) relied on the doctrine of impossibility
as explained in the case of IFCI (supra) and held that if on
corporatisation, the erstwhile proprietor shareholder could not continue to be a
whole-time director for the required period of three years under Para 4 of
Schedule III of SEBI (Stock Brokers and Sub-brokers) Rules 1992, the company
will not be liable to pay the fees for the period for which the founder
shareholder has already been paid.

7. There are situations of impossibility sometimes in legal
provisions also. The maxim of ‘impotentia excusat lagam’ requires
application of legal provision keeping in view the impossibility of
implementation so as not to insist on application of that part of the provision
which is not capable of application. In Standard Chartered Bank v. the
Directorate of Enforcement, (2005) 4 SCC 50, the applicability of the
provision prescribing punishment of imprisonment and fine for an offence came to
be considered in the context of offence by corporations which, being juristic
persons, are incapable of being imprisoned. While both the majority as well as
minority judgments relied on the maxim ‘Lex non cogit ad impossibilia,
they differed on whether the entire provision is to be ignored or the same is to
be modified so as to remove the impossibility. Delivering the minority judgment
Srikrishna, J observed that the application of the maxim could persuade the
Court to ignore the language of the statutory provision in the case of juristic
person, there being no warrant for dissecting of the Section and treating only
one part as capable of implementation when the mandate of the Section is to
impose the whole of the prescribed punishment. K.J. Balkrishnan J, on the other
hand, delivering the majority decision, quoted from Bennions Statutory
Interpretation and observed that if an enactment requires what is legally
impossible, it will be presumed that Parliament intended it to be modified so as
to remove the impossibility element.

8. The principle also known as doctrine of frustration
finds expression in the Contract Act. As per Lord Radcliffe, “Frustration
occurs whenever the law recognises that without default of either party a
contractual obligation has become incapable of being performed, because the
circumstances in which performance is called for would render it a thing
radically different from that which was undertaken by the contract” (Davis
Contractors v. Fareham UDC, 1956AC696) S. 56 of the Contract Act provides
that an agreement to do an act impossible in itself is void. It further provides that a contract to do an act which, after the contract is made, becomes impossible or, by reason of some event which the promisor could not prevent, unlawful, becomes void when the act becomes impossible or unlawful. Impossibility renders the act unlawful and therefore unenforceable.

Ignorantia Juris

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The ‘WORD’

The ‘WORD’

N. C. Jain
Advocate

Ignorantia Juris

‘Ignorantia Juris’
is generally a defence against the violation of law which the courts are quite
circumspect in accepting in view of the legal maxim ‘ignorantia juris non
excusat’ or ‘ignorantia legis neminem excusat’ meaning that
ignorance of law does not excuse. The principle holds that a person who is
unaware of a law may not escape liability for violating that law merely because
he or she was unaware of it.

2. The rationale behind the doctrine is that if ignorance of
law is taken as an excuse, it would be conveniently used by any person charged
with criminal offence or subjected to civil lawsuit without any conceivable
basis to decide on such ignorance. The law, therefore, imputes such knowledge to
all within the jurisdiction, no matter how transiently.

3. The maxim is juxtaposed to ignorance of facts relevant to
the charge of violation of law or commission of offence which is contained in
the maxim ‘ignorantia facit excusat’. While the ignorance of facts
excuses, ignorance of law does not. If the heir pleads ignorance of the
death of his ancestors, he is ignorant of fact but ignorance of rights vested in
him on the death of ancestor is ignorance of law which does not generally afford
an excuse.

4. In order, however, for the maxim to apply it is necessary
that the law in question is properly published and distributed. In Harla v.
State of Rajasthan, 1951 AIR 467 where Jaipur Opium Act 1923 was passed by
Council of Ministers but not promulgated or published in gazette, the Supreme
Court observed that natural justice requires that before a law can become
operative, it must be promulgated or published. It must be broadcast in some
recognisable way so that all men may know what it is, or at very least, there
must be some special rule or regulation or customary channel by or through which
such knowledge can be acquired with the exercise of due and reasonable
diligence. In the absence of any special law, or custom, it would be against the
principle of natural justice to permit the subjects of a state to be punished or
penalised by laws of which they had no knowledge and of which they could not,
even with the exercise of reasonable diligence have acquired any knowledge. The
court referred to the decision in Johnson v. Sargent, ILR 1944 Karachi
107 where such a publication or publicity was held to be necessary particularly
in regard to orders of empowered authorities as compared to Acts of British
Parliament which are publicly enacted. The debates in the case of Parliamentary
legislation are open to the public and the Acts are passed by accredited
representatives of the people who in theory can be trusted to see that the
constituents know what has been done. They also receive wide publicity in papers
and now, on wireless.

5. The maxim based on presumed knowledge of law, however,
stands considerably diluted with heavily increasing corpus of national
legislation which works more in favour of lawyers rather than citizens for whom
it is enacted. Taking a practical view, the Courts in genuine cases of ignorance
take account of total facts and circumstances including the object of
legislation, nature of default, its impact and its social cost. In cases
involving penal action, particularly in fiscal matters, where the determinative
issue is existence of reasonable cause or deliberate, contumacious conduct on
the part of the defaulter, ignorance of law is taken as a material factor. The
decision of the Supreme Court in Hindustan Steel Ltd. v. State of Orissa,
(1972) 83 ITR 26 (SC) and similar other decisions could be taken as suggestive
of ignorance of law being taken as relevant to establish absence of guilty
intention when it lays down two basic requirements for imposition of penalty,
viz. deliberate defiance of law and conscious disregard of obligation. Both
these mental states presuppose knowledge of law and obligations flowing
therefrom.

6. The Courts in taking such liberal view have even gone to
the extent of excusing defaults arising out of wrong legal advice given by
eligible legal consultants. In Shyam Gopal Charitable Trust v. DIT
(Exemption), 290 ITR 99, 105, Delhi High Court, while deciding appeal
against order of imposition of penalty u/s.272A(2)(e), recalled the observations
of the Kerala High Court in State of Kerala v. Krishna Kurup Madhava Kurup,
AIR 1971 Ker 211, which was approved and extracted by the Supreme Court in
Concord of India Insurance Co. Ltd. [1979] 118 ITR 507.

"I am of the view that legal advice given by the members of
the legal profession may sometimes be wrong even as pronouncement on questions
of law by Courts are sometimes wrong. An amount of latitude is expected in such
cases for, to err is human and laymen, as litigants are, may legitimately lean
on expert counsel in legal as in other departments, without probing the
professional competence of the advice".

The Court, however, made it clear that it cannot be taken as
laying down a general proposition that in all cases where the failure is
attributed to legal advice, it should be taken as constituting sufficient cause.

7. Such dilution in the application of ‘ignorantia juris
non excusat’ even though justified on grounds of modern day multiplicity and
complexity of litigation coupled with standard of education, is to be
resorted to with utmost caution and subjected to the satisfaction that such a
plea is without any taint of malafide or element of recklessness, gross
negligence or a mere ruse. Willful or deliberate default or disregard of
obligation should not be camouflaged as bonafide mistake caused by ignorance of
law. In V. G. Paneerdas & Co. P. Ltd. v. CWT, 284 ITR 444, the Madras
High Court while commenting on the plea of ignorance of the provisions of
Finance Act 1983 bringing closely held companies into the ambit of wealth tax
observed "Going beyond the well known principles that the ignorance of law is no
excuse, it has to be pointed out that the assessee could not point out any
material fact showing that it was prevented from getting to know the relevant
provisions of the Finance Act 1983." In the facts of the case, the court held
that the provision was well published and a much discussed affair, it is clear
and unambiguous and the assessee was assisted in tax matt

Actus Curiae Neminem Gravabit

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The Word

The legal maxim ‘Actus Curiae Neminem Gravabit’
expresses the fundamental principle that Courts are to dispense justice and any
action of theirs, which is found erroneous or bad should not be allowed to
prejudice the interest of any party. Literally meaning that the act of the Court
shall prejudice nobody, it is a maxim founded upon justice and good sense and
affords a safe and certain guide for administration of law. The maxim operates
on principle of restitution by relegating the parties to the same position which
prevailed before the order causing the prejudice was passed.


2. The doctrine as explained by the Supreme Court in
Karnataka Rare Earth & Anr. v. The Sr. Geologist, Department of Mines and
Geology, (2004) 2 SCC 783 is not confined in its application to erroneous
acts only. The same is applicable to all such acts as to which it can be held
that the Court would not have so acted had it been correctly apprised of the
facts and the law. In the case before the Apex Court (supra), the mining
lease granted to the appellant was challenged in a public interest litigation
and the grant order was quashed by a Single Judge Bench of the Karnataka High
Court. The order of the Single Bench was confirmed by the Division Bench and
also by the Supreme Court. During pendency of appeal before the Supreme Court,
however, the lessees were permitted, by an interim order, to operate the
quarries and transport granite blocks after paying applicable royalty. The
lessee appellant as a result of the interim order, continued the work of
extraction and exported granite on 24-1-1996, which was after their appeal was
dismissed on 18-1-1996. The Department of Mines, by an order, demanded price of
blocks exported against which writ petition was filed by the lessees. The
lessees’ writ petition was dismissed by the High Court. In appeal, the Supreme
Court rejected the plea of absence of knowledge of the Supreme Courts’ order
dismissing the appeal. Lahoti J. speaking for the Court referred to the doctrine
of ‘Actus Curiae Neminem Gravabit’ and observed —

“When an act of the party, persuading the Court to pass an
order which at the end is held as not sustainable, has resulted in one party
gaining advantage which it would not have otherwise earned, or the other party
has suffered an impoverishment which it would not have suffered but for the
order of the Court and the act of such party, then the successful party
finally held entitled to a relief, assessable in terms of money at the end of
the litigation, is entitled to be compensated in the same manner in which the
parties would have been if the interim order of the Court would not have been
passed.”

The applicants were asked to pay the price of exported blocks
as demanded by the Department. For the purpose of the law, the Court observed,
it is enough that the appellants have enjoyed the benefit under the interim
order of the Court which has stood vacated with the dismissal of their appeal.

3. The maxim has also formed the basis for interpreting the
provisions of statutes. In Bharat Damodar Kale and Anr. v. State of A.P.,
(2003) 8 SCC 599, the issue for consideration was whether the limitation of one
year contained in Chapter XXXVI of the Code of Criminal Procedure is applicable
to the institution of prosecution or to the taking of cognizance by the Court.
Taking support form the maxim, the Court held,

“The legal phrase ‘Actus Curiae Neminem Gravabit’
which means an act of the Court shall prejudice no man, or by a delay on the
part of the Court neither party should suffer, also supports the view that the
Legislature could not have intended to put a period of limitation on the act
of the Court of taking cognizance of an offence so as to defeat the case of
the complainant.”

It was, accordingly, held that the limitation governs the
filing of complaint and the Court will not take cognizance if the complaint is
filed beyond the prescribed period of one year.

The above decision also makes it clear that taking of
cognizance is an act of the Court over which prosecuting agency or the
complainant has no control. In other words, failure to take action of such a
nature is an act of the Court and, if it causes prejudice, the maxim is
attracted.

4. The maxim is quite significant in view of the delays in
dispensation of justice, particularly in criminal matters. The following
observations of the Supreme Court of US in Parker v. Ellis, 362 US 574
(1960) are quite relevant in the context of delays on the part of the Courts in
rendering judgments :

“The rule established by the general concurrence of the
American and English Courts is, that where the delay in rendering a judgment
or a decree arises from the act of the Court, that is, where the delay has
been caused either for its convenience, or by the multiplicity or press of
business, either the intricacy of the questions involved, or of any other
cause not attributable to the laches of the parties, the judgment or the
decree may be entered retrospectively, as of a time when it should or might
have been entered up. In such cases, upon the maxim ‘Actus Curiae Neminem
Gravabit’ which has been well said to be founded in right and good sense,
and to afford a safe and certain guide for the administration of justice — it
is the duty of the Court to see that the parties shall not suffer by the
delay. A nunc protunc order should be granted or refused, as justice
may require in view of the circumstances of the particular case.”


5. In a recent case of Food Corporation of India and
Another v. SEIL Ltd. & Others, (2008) 3 SCC 440 where while ordering payment
to be made by the appellant for sugar supplied to the Central Government, the
Court omitted to give direction about payment of interest and such directions
were given in the review petition. The Supreme Court in appeal found nothing
wrong in it holding that “A clear error or omission on the part of the Court to
consider a justifiable claim on its part would be subject to review, amongst
others, on the principle of ‘Actus Curiae Neminem Gravabit’ (an act of
the court shall prejudice none)”.

6. The maxim applicable to the action of the Courts is equally applicable in administration of law. Being based on justice and good sense it provides safe guidance in legislative as well as administrative actions. In tax laws collection of taxes on the strength of erroneous order is required to be refunded with interest. Failure of authorities to pass assessment orders within the prescribed period of limitation prevents the authorities to complete the assessment resulting in no prejudice to the assessees. Provisions exist where the legislature has laid down periods for completion of proceedings or passing of orders, but legislature has desisted from providing for consequences which are adverse to the assessees in case of failure to take action or pass order within the period. For instance, S. 254(2A) expects the Income Tax Appellate Tribunal to decide appeals within a period of four years, S. 12AA(2) enjoins upon the Commissioner to pass order granting or refusing registration of trust/institution before the expiry of six months from the end of the month in which application was received, but failure to adhere to these time limits does not result in dismissal of appeal or the application.

7. One has, in this context, to consider the provision of S. 245HA(1)(iv) introduced vide Finance Act 2007 where under, an application allowed to be proceeded with by the Settlement Commission is to abate if the Commission fails to pass settlement order u/s.245D(4) within the time prescribed u/s. 245D(4A), irrespective of whether the failure to pass order is attributable to applicant or not. One may attempt to justify the provisions technically on the basis that the Settlement Commission, even though proceedings before it are judicial proceedings, is not a Court. But what constitutes guidance to the Courts in dispensation of justice should ideally not be ignored by the Legislature in making laws. In the spirit of the Supreme Court decision in Bharat Damodar Kale’s case (supra), passing or not passing an order over which the applicant has no control is an act of the Commission. In the Scheme of the Settlement mode of determining the tax liabilities, it will not be correct to say that abatement does not prejudice the interest of the applicant, particularly when the facts disclosed and additional income offered for tax is allowed to be utilised for framing assessment under the normal assessment mode.

Ex Abundanti Cautela

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The Word

A Latin expression, literally meaning ‘as abundant
caution’ is a legislative practice followed to obviate any possibility of a
view different from what is intended by the Legislature. By its nature,
therefore, a provision ‘ex abundanti cautela’ explains the provision
contained in a statute to put certain areas beyond controversy and clarify the
legislative intent in situations where a reasonable apprehension can exist of a
different interpretation being taken by the courts.


2. Strangely, a provision to provide certainty and clarity is
often itself a matter of controversy as to its nature. Whether a particular
provision is ‘ex abundanti cautela’ or an independent provision is quite
often a subject of debate. This issue becomes significant because the provision
not considered ‘ex abundanti cautela’ results in a restricted meaning
eliminating, by implication, all that is not said therein. On the other hand a
provision held ‘ex abundant cautela’ does not restrict the provision in
any way and allows it to have the meaning which it would have, even if the
cautioning provision had not existed. It merely dispels apprehension about a
possible view in respect of certain items/areas in relation to the provision to
which it is ‘ex abundanti cautela’.

3. A few examples will make the import of the expression
clear. Under the Central Excise tariff, item 17(2) is ‘paper subject to
coating’. The nature of item 17(3) inserted for the category ‘carbon paper’ was
subject matter of dispute in a case where demand was raised in respect of
‘carbon paper’, for the period prior to introduction of item 17(3). The
Department took the plea that the amendment was merely ‘ex abundanti cautela’,
as carbon paper was always covered under item 17(2). The Supreme Court after
considering the case from different angles, upheld the Department’s view that
carbon paper was covered by item 17(2) (Collector of Central Excise Kanpur v.
Krishna Carbon Paper Co., 1988 AIR 2223).

4. In Central Provinces Transport Services Ltd. v.
Raghunath Gopal Patwardhan, (1957 AIR 104) — a case under the Industrial
Disputes Act — an employee was prosecuted for a charge of theft in 1950, but was
acquitted in 1952, after which he claimed reinstatement and compensation. The
employer refused to entertain the application, inter alia, on the ground
that the applicant was not an employee, as dismissed employees are not employees
under the Act. The Act in S. 2(10) defines an employee ‘to mean any person
employed by an employer to do any skilled or unskilled, manual or clerical work
for contract or hire or reward in any industry and includes an employee
discharged on account of any dispute relating to a charge, in respect of which a
notice is given u/s.31 or 32 whether before or after the discharge”.
(emphasis supplied). It was argued on behalf of the employer that the inclusive
part of the definition reflects the legislative intention to include only those
who are proceeded against u/s.31 and u/s.32 and not all the discharged employees
in general, as otherwise there was no need for the further provision in S. 2(10)
that discharged employees would in certain cases be employees. Disagreeing, the
Supreme Court observed :

“In our opinion, the clause was inserted ‘ex abundanti
cautela’ to repel a possible contention that employees discharged u/s.31
and u/s.32 of the Act would not fall within S. 2(10) and cannot be read as
importing an intention generally to exclude dismissed employees from that
definition.”


5. The provision ‘ex abundanti cautela’ is generally
in the form of a sub-section or an inclusive expression or explanations
expressly stated as ‘for benefit of doubt’ and also sometimes as non-obstante
clause. The examples of inclusive expression in tax laws can be multiplied.
Wherever the Legislature finds it difficult to express a term of wide import in
language, it leaves it open to the judiciary to provide meaning to it, taking
care to include or exclude specific areas where there can be possibility of
different interpretations, as a measure of precaution. The very definition of
‘income’ is of the nature. The same is the case with ‘transfer’ u/s.2(47),
‘salary’ u/s.17(1), ‘perquisite’ u/s.17(2) and host of other provisions where
specific areas are specified as included within these terms instead of a general
broad-based definition.

6. Examples of provisions expressly stated as for removal of
doubt can also be multiplied. One such example is explanation inserted in S.
10A, S. 10AA and S. 10B to repel the possibility of profits derived from the
site development of computer software not being treated as profit derived from
export of computer software. Another explanation in S. 10B dispels the possible
impression that cutting and polishing of precious and semi-precious stones do
not fall within ‘manufacture or produce’ in that Section. S. 263 which gives
power to the Commissioner of Income-tax to revise the order of the Assessing
Officer has provision ‘ex abundanti cautela’ by way of explanation to say
that orders passed by the Assessing Officer in pursuance of the directions
u/s.144A and orders passed by Joint Commissioners in exercise of power of
Assessing Officer conferred on them will be orders of the Assessing Officer,
subject to the revisional power of the Commissioner of Income-tax. More and more
explanations are being inserted, as a measure of precaution, to clarify the
legislative intention whenever there is any indication arising from the Court’s
decision that a view different from what is intended can possibly be taken.

7.    Even non-obstante clauses are sometimes taken as ‘ex abundanti cautela’. In a case relating to Administration Evacuation of Property Act, 1950 where the nature of a non-obstante provision contained in S. 12(1) came for consideration, the provisions “not-withstanding anything contained in any other law for the time being in force, the custodian may cancel any allotment or terminate any lease or agreement ….. ” was argued as being a provision which overrides a bar imposed by any law, but not the bar imposed by a contract under which the lease was held. The Supreme, Court, after considering various aspects of the case, came to the conclusion that the operative portion of the Section which confers powers on the custodians to cancel the lease or vary the terms thereof is unqualified and absolute and that power cannot be abridged by reference to the provision that it could be exercised “notwithstanding anything contained in any other law”. The non-obstante provision is obviously intended to repel a possible contention that S. 12 does not, by implication, repeal statutes conferring rights on lessees and cannot prevail as against them and has been inserted ‘ex abundanti cautela’. (Raibahadur Kanwar Rajnath & Others v. Pramod C. Bhatt, Custodian of Evacuee Property, 1956 AIR 105).

8. In deciding  as to whether  the expression  is ‘exabundanti cautela’ or not, the courts are generally guided by the object of the legislation and the purpose it is intended to serve. The following ex-tract from the decision rendered by Justice Krishna Iyer in R. S. Joshi STO, Guj. v. Ajit Mills Ltd., Ahd., & Another, 1977 AIR 2279 succinctly brings out the approach.

“A law has to be adjudged for its constitutionality by the generality of cases it covers, not by the freaks and exceptions it martyrs. The professed object of the law being clear, the motive of the Legislature is irrelevant to castigate an Act as a colour able device. The interdict on public mischief and the insurance of consumer interests against likely, albeit unwitting or ‘ex abundanti cautela’, excesses in the working of a statute are not merely an ancillary power, but surely a necessary obligation of a social welfare State.”

Quo warranto

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The Word

1. A Latin expression for ‘by what warrant ?’ is a legal
process demanding to know by what right a person exercises the controversial
authority. As one of the prerogative writs, the process is a constitutional
remedy which can be availed against a person not qualified to hold a public
office or post. The petition filed against a person alleged to have usurped any
franchise or liberty or office of public nature enables enquiry into the
legality of the claim which a person asserts to an office or franchise and to
oust him from such position if he is found to be a usurper. As observed by the
Supreme Court in the University of Mysore v. C. D. Govinda Rao and Another,
AIR 1965 SC 491, “the procedure of quo warranto confers
jurisdiction and authority on the judiciary to control executive action in the
matter of making appointments to public offices against the relevant statutory
provision; it also protects a citizen from being deprived of public office to
which he may have a right. It would be seen that if these proceedings are
adopted subject to conditions recognized in that behalf, they tend to protect
the public from usurpers of public offices; in some cases, persons not entitled
to public office may be allowed to occupy them and to continue to hold them as a
result of the connivance of the executive or with its active help, and in such
cases, if the jurisdiction of the Courts to issue writs of quo warranto
is properly invoked, the usurper can be ousted and the person entitled to the
post allowed to occupy it”.


2. Halsbury in Law of England, 3rd Vol. II (P.145) puts it as
under :

“The writ of quo warranto is a common law process of
great antiquity a writ of right for the king against one who claimed or
usurped any office, franchise or liberty. An information in the nature of
quo warranto is obviously its modern form.”


Post the aforesaid observations, informations in quo
warranto were abolished by Administration of Justice (Miscellaneous
provisions) Act, 1938 giving power to grant an injunction to restrain the
executive of power in an office to which a man is not entitled. The injunction
took place with all the old substantive rules, though the cumbersome and
reconciled procedure of the old writ had been given up.

3. The writ of quo warranto is a discretionary remedy
which the Court may grant or refuse. For a citizen to claim such remedy, he has
to satisfy the Court that (a) the office is of public and of a substantial
nature, (b) it is created by statute or by the constitution itself, and (c) The
respondent has asserted his claim to the office.

4. The remedy of quo warranto is a limited remedy. The
jurisdiction of the High Court to issue such writ can only be used when the
appointment is in clear violation of statutory provisions and rules. Where the
order of appointment is within law, but mala fides of the appointing
authority is alleged, the High Court of Delhi in P. L. Lakhanpal v. Ajit Nath
Ray, AIR 1975 Delhi 66 held that even though it is indisputable that mala
fide action is no action in the eye of law, the motives of the appointing
authority in making the appointment of a particular person are irrelevant in
considering issue of writ of quo warranto. The Court in R. K. Jain v.
Union of India, (1993) 4 SCC 119, held that the evaluation of comparative
merits of the candidates would not be gone into such litigation. In B.
Srinivasa Ready v. Karnataka Urban Water Supply and Drainage Board Employees
Association (2006), coming out of SLP (C) No. 9393/ 2006, the question to be
decided was whether an order appointing a person ‘until further orders’ can be
challenged in a writ. It was argued that a writ of quo warranto would not
lie against order ‘Until further orders’, as it is not a regular appointment.
Moreover it ensures that appointment continues without limit. Holding that a
writ will not lie, the Court in the facts of the case observed that “When the
statute does not lay down the method of appointment or terms of appointment, the
appointing authority who has power to appoint has absolute discretion in the
matter and it cannot be said that discretion to appoint does not include power
to appoint on contract basis”.

5. The existence of the legal right of the petitioner which
is alleged to have been violated, is the foundation for invoking the
jurisdiction of the High Court in matters of writs. This orthodox rule regarding
the locus standi to reach the Court has gradually undergone a change and
the constitutional Courts have been adopting a liberal approach in dealing with
the cases or dislodging the claim of a litigant merely on hyper technical
grounds. This rule is particularly relaxed in quo warranto matters. The
Supreme Court in Ghulam Qadir v. Special Tribunal & Others, (2002) I SCC
33, observed that there is no dispute regarding the legal proposition that
rights under Article 226 of the Constitution of India can be enforced only by an
aggrieved person except in the case where the writ prayed is for habeas
corpus or ‘quo warranto’.

6. Courts have, however, been taking the view that the writ
of quo warranto should be refused where it is an outcome of malice or ill
will. The Supreme Court in Dr. B. Singh v. Union of India and others,
(2004) 3 SCC 363, held that only a person who comes to the Court with bona
fides and public interest can have locus. Coming down heavily on busybodies,
meddlesome interlopers, wayfarers or officious interveners having absolutely no
public interest except for personal gains or private profit either of themselves
or as a proxy for others or for any other extraneous motivation or for glare of
publicity, it was held that apart from credentials of the applicant and prima
facie correctness and definiteness, the information should show gravity and
seriousness involved.

7. Other grounds on which a writ can be refused are when it
is vexatious or would be futile, or when an alternative remedy will be equally
efficacious or where there is mere irregularity in the election of the office.
Refusal can also arise in cases of laches or where there has been prior
acquiescence of the applicant in respect of the act complained of.

Mandamus

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The Word

Literally meaning ‘command’ or ‘order’ in Latin, the term ‘mandamus’
has come to be used in law for a judicial remedy in the form of an order from a
superior court to a court, tribunal, authority, board, corporation or any other
individual or body charged with the performance of a public duty, to discharge
that duty. Mandamus compels them to do acts which they are obliged under
law to do or refrain from doing, which they are not authorised to do in
discharge of public duty or statutory duty. The remedy is in the form of a
prerogative writ under Articles 32 and 226 of the Constitution of India.


2. While there are judicial remedies by way of appeals,
certiorari and others to remedy the wrong done, the order of mandamus
is an effective remedy against injustice caused by non-performance of duty
affecting legal rights vested in the person aggrieved by such non-performance of
the public duty. It lies in cases where there is a specific right, but no
specific legal remedy for enforcing that right and also in cases where, even
though there is an alternative remedy, the mode of redress is less convenient,
beneficial and effective or where there is a total absence of jurisdiction. When
a petition for issue of writ of mandamus was filed seeking directions to
the State to refund money illegally collected as tax, the same was held not
maintainable, because a claim for such refund could always be made in a suit
against the authority which had illegally collected the money as tax. Further,
it was held that in the absence of statutory provision whereby the tax realised
had to be refunded when the appellate authority set aside the assessments, no
duty was cast on the State to refund the amount it had realised which was
subsequently found by the appellate authority to be not in accordance with law.
The question whether the State was bound u/s.72 of the Contract Act to return
the amount on the ground that it was paid under mistake was a matter to be
decided in a regular suit and not in proceedings under Article 226 [Sugan Mal
v. State of M.P., 56 ITR 84 (SC)]. In another case where mandamus was
sought for stopping the recovery proceedings by the TRO for alleged
irregularities, the Supreme Court observed that the existence of an alternative
remedy is not generally a bar to the issuance of a writ or order in the nature
of prohibition. But, in order to substantiate a right to obtain a writ, an
applicant has to demonstrate total absence of jurisdiction to proceed on the
part of the officer or authority complained against. It is not enough if a wrong
Section or provision of law is cited in a notice or order if the power to
proceed is actually there under other provision [Isha Beevi v. TRO, 101
ITR 449 (SC)].

3. Mandamus does not lie to enforce a private right,
neither to enforce a duty of purely ministerial nature which the officer is
bound to perform under orders of competent authority, nor in matters where duty
is discretionary, not imperative. Mandamus was sought against the CBDT
claiming refund of taxes paid for years in respect of which no appeals were
preferred and assessments were allowed to become final. The claim was made on
the basis of the decision in appeal relating to an earlier year, received after
those assessments became final which revealed that no tax was payable in those
years. Rejecting the writ, the Supreme Court held that it is doubtful that the
Central Board can exercise any judicial power and direct refund. Nor is there a
statutory duty cast on it to consider applications for refund, and so a writ of
mandamus would not issue from the court. [Raja Jagdambika Pratap
Narain Singh v. CBDT, 100 ITR 698 (SC)].

4. A public duty enforceable through mandamus must
also be an absolute duty i.e., one which is mandatory and not
discretionary. Where a bottling company’s application for grant of licence was
rejected by the Commissioner and in a writ filed against the Commissioner, the
High Court not only quashed the order but also directed the Commissioner to
grant the licence, the Supreme Court disapproved mandamus on the ground
that in order to compel the Commissioner, by an order of mandamus, to
grant the licence, it must be shown that under the Act and the Rules framed
thereunder there was a legal duty imposed on the Commissioner to issue a licence
without the prior approval of the State Government. In this case the
Commissioner was under no legal duty to grant the licence till he received the
prior approval of the State Government. [Chingleput Bottles v. Majestic
Bottling Co., (1984) INSC 60].

5. Distinction has to be drawn between public duties
enforceable by mandamus and duties arising merely from contract.
‘Contractual duties’ are enforceable as matters of private law by the ordinary
contractual remedies such as damages, injunction, specifics performance and
declaration. Such duties are not enforceable by mandamus which is
confined to public duties and is generally not granted if other remedies are
adequate.

6. While mandamus applies to public duties only, it is
not necessary that the person or the authority on which the statutory duty is
imposed, need be a public official or an official body. A mandamus may
issue, for instance, to official of a society to compel him to carry out the
terms of the statute under or by which the society is constituted or governed
and also to companies and corporations to carry out duties placed on them by the
statutes authorizing their undertakings. A mandamus would also lie
against a company constituted by a statute for the purpose of fulfilling public
responsibilities. A writ would lie even against a private individual. The words
‘any person or authority’ used in Article 226 are not to be confined only to
statutory authorities and instrumentalities of the State. They may cover any
other person or body performing public duty. The form of the body concerned is
not very much relevant. What is relevant is the nature of the duty imposed on
the body [Andi Mukta Sadguru Shree Muktajee Vandas Swami Suvarna Jayanti
Mahotsav Smarak Trust v. V. R. Rudani, 1989 AIR (SC) 1669].

7. The remedy is prerogative. Apart from existence of
alternative remedy, the Court may decline to interfere where circumstances so
warrant, including the delay in making claims. In Jagdambika Pratap Narain’s
case (supra) the Supreme Court upheld the order of the High Court,
observing that Article 226 of the Constitution is not a blanket power regardless
of temporal and discretionary restraint. If a party is inexplicably insouciant
and unduly belated due to laches, the Court may ordinarily deny redress.

8. Mandamus may take the form of ‘Alternative
mandamus’ when issued upon the first application for relief, commanding the defendant either to perform the act or to appear before the Court to show cause for not performing it. It may be ‘Pre-emptory’ when it is an absolute and unqualified command to do the act in question and is issued when one defaults on, or fails to show sufficient cause in answer to ‘alternative mandamus’.  It is Continuing  mandamus when issued in general public interest commanding performance for an unstipulated period of time for preventing miscarriage of justice. Such an order has relevance where a mere issue of mandamus would be futile against a public agency guilty of continuing inertia and thus continuing mandamus may be issued [Vineet Narain v. UOI, 1998 AIR (SC) 889].

9. Mandamus is a relatively inexpensive and expeditious remedy. In an era where extensive powers are vested in the executive and their inaction in discharge of duties or action which is malafide, beyond jurisdiction or influenced by extraneous considerations might play havoc with the life and liberties of individuals and orderly running of societies mandamus works as the most effective instrument to ensure order and justice. No wonder, the trend of judicial pronouncements is towards a liberal approach with the object of extending its scope and taking a broader view of its coverage. As observed by the Supreme Court in Rudani’s case (supra) “the judicial control over the fast expanding maze of bodies affecting the rights of the people should not be put into watertight compartments. It should remain flexible to meet the requirements of variable. circumstances. Mandamus is a very wide remedy, which must be easily available to reach injustice wherever it is found. Technicalities should not come in the way of granting that relief under Article 226”.

Certiorari

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The_Word

Certiorari is a latin term used in law referring to a
type of writ seeking judicial review. Derived from Certiorare, it
literally means ‘to search’. In law it is used for requesting the court to look
for irregularity and provide remedy against injustice meted out.


2. Historically in the U.K., Certiorari was used to
bring the record of an inferior court into the King’s Bench for review or to
remove indictment for trial from that court. It evolves now as a general remedy
to bring decision of an inferior court or Tribunal or Public Authority before
the superior court for review, so that the court can determine whether to quash
such decisions or allow them to operate. In the U.S.A., Certiorari is one
of the two ways to have a case from US Court of Appeal reviewed by the U.S.
Supreme Court. Appeal being one, Certiorari is the other. In India,
Certiorari is not an alternate remedy, but operates generally in cases where
the relevant statute does not provide for remedy and where gross injustice has
occurred or where fundamental rights are violated.

3. The provisions in many modern statutes attempt to keep
away decisions of authorities — administrative or judicial — from review by the
higher courts by making these decisions ‘final’ or ‘conclusive’. The legal
import of these words was discussed by Denning L.J. in R v. Medical Appeal
Tribunal ex p.Gilmore, (1957) I.O.B. 574, 583. His Lordship observed “The
remedy by certiorari is never to be taken away by statute except by the
most clear and explicit words. The word ‘final’ is not enough. That only means
‘without appeal’. It does not mean without recourse to certiorari. It
makes the decision final on facts, but not final in law. Notwithstanding that
the decision is by a statute made ‘final’, certiorari can still issue for
excess of jurisdiction or for error of law on the face of the record”.

4. The Constitution of India in Articles 32 and 226 grants
remedy by way of certiorari. Article 32 grants right to move the Supreme
Court for enforcement of fundamental rights by authorising the court to issue
directions or orders or writs including writs in the nature of habeas corpus,
mandamus, prohibition, quo warranto and certiorari. Similar
powers under Article 226 have been vested in High Courts. Powers of High Courts
are not confined to enforcement of fundamental rights, but extend to other cases
involving breach of right resulting in failure of justice.

5. Writs of certiorari are issued after review of
records of proceedings of the Tribunals or Public Authority having legal
authority to determine questions affecting the rights of subjects and having the
duty to act judicially. Writ quashes the orders which go beyond jurisdiction. It
is corrective in nature issued to the inferior tribunals dealing with civil
rights of persons as a public authority and is issued for absence of
jurisdiction, wrongly usurping the jurisdiction, acting in excess of
jurisdiction or failing to exercise jurisdiction. Certiorari is also
issued for violation of principles of natural justice. Errors apparent on the
face of the record are, for the purpose of interference by certiorari,
treated as errors of jurisdiction.

6. The Court acting in certiorari does not act in
appellate jurisdiction, but only in supervisory capacity. It, therefore, follows
that while a decision to deny certiorari lets the lower court’s ruling
stand, it does not constitute a decision by the Supreme Court/High Court on any
of the legal issues raised. The decision to grant or deny certiorari is
discretionary.

7. Determination of jurisdiction in many cases involves
decision about the existence of ‘jurisdictional fact’ which must exist before a
court, Tribunal or an Authority assumes jurisdiction over a particular matter.
By erroneously assuming existence of such jurisdictional fact, no authority can
confer upon itself jurisdiction which it otherwise does not possess. The Supreme
Court in Arun Kumar and Others v. U.O.I., (2006) 286 ITR 89 (SC) was
seized of the question of the legality of Rule 3 of I.T. Rules dealing with
house perquisite. While holding the Rule as intra vires, the Court held
that ‘concession’ under clause (ii) of Ss.(2) of S. 17 is a ‘jurisdictional
fact’. It is only when there is a concession in the matter of rent respecting
any accommodation provided by an employer to his employee that the mode, method
or manner as to how such concession can be computed can arise. In other words,
concession is a ‘jurisdictional fact’, method of fixation of amount is ‘fact in
issue’ or ‘adjudicatory fact’. It was therefore, held that in spite of the legal
position that Rule 3 is intra vires, valid and not inconsistent with the
provisions of the parent Act u/s.17(2)(ii) of the Act, it is still open to the
assessee to contend that there is no ‘concession’ in the matter of accommodation
provided by the employer to the employee and hence the case did not fall within
the mischief of S. 17(2)(ii) of the Act. The jurisdiction to invoke Rule 3
arises only when the existence of concession in the matter of rent is
established. The decision led to insertion of an explanation to S. 17(2)(ii)
nullifying the effect of the Supreme Court decision.

8. In Province of Bombay v. Kusaldas S. Advani  & Ors., 1950 AIR 222, where the order of the State Authorities requisitioning land was challenged in a writ of certiorari for want of jurisdiction, the existence of ‘Public purpose’ was a ‘jurisdictional fact’. The issue was whether determination of such fact is judicial, quasi-judicial or administrative act. Kania CJ, Fazal Ali, Patanjali Shastri and Das JJ held that on proper construction of S. 3 of the ordinance, the decision of the Bombay Government that the property was required for a public purpose was not a judicial or quasi-judicial decision, but an administrative act and the High Court of Bombay had, therefore, no jurisdiction to issue a writ of certiorari in respect of the order of requisition. In their dissenting judgment, Mahajan and Mukherjea JJ held the view that the Government of Bombay is a body of persons having legal authority to determine questions affecting the rights of subject and in deciding whether a land was required for public purpose ul s.3 of the Ordinance, it had to act judicially. The conditions necessary for the granting of a writ of certiorari were, accordingly satisfied and the High Court of Bombay had power to issue the writ.

9. The observations of Denning L. J. (supra) that the remedy by certiorari is never to be taken away by the statute, finds expression in Indian judicial decisions. Articles 323-A and 323-B provide for setting up Administrative Tribunals and other Tribunals for adjudication or trial of disputes in respect of recruitment and conditions of service of public servants and disputes with regard to other matters including levy, assessment collection and enforcement of any tax. Both these Articles exclude the jurisdiction of all courts except the jurisdiction of the Supreme Court under Article 136. The legality of ouster of jurisdiction of High Courts was considered by the Supreme Court in L. Chandrakumar v. UOI, (1997) 3 SCC 261 in a matter decided by the Central Administration Tribunal set up under Article 323-A. The Act constituting the Tribunal in S. 28 incorporated the provision of the Constitution providing for ouster of jurisdiction of courts except the Supreme Court under Article 136. The Apex Court was to decide whether the power to exclude jurisdiction of all courts runs counter to the powers of judicial review conferred on the High Courts under Article 226/227 and on the Supreme Court under Article 32 of the Constitution. It was held that such Tribunals could not be held to be substitute of the High Court for the purpose of exercising jurisdiction under Article 226/227 of the constitution. Following this judgment, the Court in RK lain v. U.O.I., 1993(4) SCC 119 held that judicial review applications lie to the High Court against judgment of CAT and only thereafter one can approach the Supreme Court. The procedure is based on the basic structure doctrine in relation to Art. 226, 227 of the Constitution which cannot be circumvented by any law which seeks to oust the jurisdiction of the High Court. National Tax Tribunal is a Tribunal set up under Article 323 B. The Act constituting the Tribunal having similar provision ousting the jurisdiction of High Courts is under challenge. With the view already taken by the Supreme Court in the matter, the sustainability of this part at least is doubtful.

10. Whether remedy of certiorari is available when remedy is prescribed in the relevant statute itself? The issue was considered by the Supreme Court in Commissioner of Wealth Tax, Hyderabad v. Trustees of H.E.H., (2003) INSC 193. As observed, it has been settled by a long catena of decisions that when a right or liability is created by a statute which itself prescribes the remedy or procedure for enforcing the right or liability, resort must be had to that particular statutory remedy before seeking the discretionary remedy under Article 226 of the Constitution.
This rule of exhaustion of statutory remedies is, no doubt, a rule of policy, convenience and discretion and the court may in exceptional cases issue a discretionary writ of certiorari. Such cases are where there is complete lack of jurisdiction for the officer or Authority or Tribunal to take the action or there has been a contravention of fundamental rights or there has been a violation of rules of natural justice or where the Tribunal acted under a provision of law, which is ultra vires.

Non Sequitur

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The ‘WORD’

Non Sequitur
is latin for ‘it does not follow’. It is used in speech and reasoning to
describe a statement in which premise and conclusions are totally unrelated but
are used as if they are. In other words, where a conclusion, even if correct, is
sought to be derived from the premise from which such conclusion does not
follow, it is said to be non-sequitur.


2. The expression is often used in legal decisions to
discard, declare irrelevant or unrelated an argument used to establish a
particular fact or a legal position. The fact that a statement or conclusion of
facts or law is non-sequitur does not necessarily imply that the same is
incorrect. What it implies is that the same does not logically follow from the
premise from which it is arrived at. In other words the premise and the
conclusions are unrelated having no cause and effect relationship.

3. A legal decision is a combined effect of finding of
relevant facts — direct and inferential — and application of appropriate legal
principles to the problems disclosed by those facts. Finding of a particular
factual situation from a bundle of facts, not all leading to the same legal
situation, is one area where the conclusion can be termed non-sequitur
i.e., not arising from the facts presented. In Alembic Chemical Works Co.
Ltd., v. CIT Gujarat, 1989 AIR 1913, where the issue was whether payment to
a Japanese company for supply of requisite technical know-how was revenue
expenditure being laid out for existing business or capital expenditure on a new
business, the High Court on reading of various clauses of the agreement
concluded that initiation and exploitation of the new process as per the
know-how brought in their wake a new venture requiring an altogether new plant
and, accordingly, held it capital expenditure. In appeal the Supreme Court
basing their decision on terms of the same agreement held the conclusion drawn
by the High Court as non-sequitur.

4. Doctrine of ‘Precedent’ makes the decisions of higher
judicial authorities binding on all lower judicial bodies operating within the
jurisdiction. Doctrine of ‘stare decisis requires Courts to stand by
their earlier decisions, unless a review becomes necessary for reasons of
compelling contemporary social conditions or when additional reasons exist
pointing to a wrong precedent having been created. Legal decisions favouring the
stand of the concerned parties are, therefore, cited to support the views
advocated by them. But, as held by the Supreme Court in State of Orissa v.
Mohd Illiyas, (2006) ISCC 275, reliance on such decisions without going into
the factual background of the cases before it, is clearly impermissible. A
decision is a precedent on its own facts. It is an authority for what it
actually decides and no more. Their Lordships quoted with approval the
observations of Earl of Halsbury L. C in Leathem (1901) AC 495 (HL) to the
effect that every judgment must be read as applicable to the particular facts of
the case in which such expressions are found. When arguments are based on the
earlier legal decisions of the same or higher judicial authority without due
consideration of the factual background in which those decision were made, the
resulting decision becomes non-sequitur as the conclusion therein does
not follow the cited cases. In Wajid Ali Abid Ali v. CIT Lucknow, 1987
AIR 2074 where the Court was to give meaning to the word ‘cease’ in the context
of a partner ceasing to be a partner and large number of cases were cited, the
Court for the above-stated reason did not consider it necessary to be bogged by
these decisions, holding “These (cases) though throwing light, however, are
non-sequitur for the issue before us”.

5. In Azadi Bachao Andolan v. UOI reported in 263 ITR
706 where the Supreme Court was to adjudicate on the legality of the Circular
No. 789, dated 13-4-2000 making certificate of residence issued by Mauritius
Authorities as sufficient proof of residence and beneficial ownership, the
argument about the inconsistency of the impugned Circular with the provisions of
the Act, was found to be total non-sequitur for the simple reason that
the impugned Circular No. 789 was a Circular within the meaning of S. 90 and,
therefore, should have legal consequences contemplated by Ss.(2) of S. 90 and
not any other provision of the Act. In other words, the Circular, it was held,
shall prevail even if inconsistent with the provisions of Income-tax Act 1961,
insofar as the parties covered by the provisions of DTAC are concerned, as the
convention overrides the provisions of the Act. The consistency of what is
contained in the Circular, therefore, needs to follow the provisions of S. 90
which alone prevails.

6. Many a time, an order is supported by several reasons out
of which some may be found to be of no relevance to the determination of issue
involved. Mention of such reasons is held non-sequitur even if the
conclusions are upheld in appeal. In State of Maharashtra v. Chandrabhan
Tale, 1983 AIR 803, the Supreme Court was to decide on the legality of the
second proviso to Rule 151(1)(ii)(b) of the Bombay Civil Service Rules 1959
which provided for award of subsistence allowance at rupees one per month to a
government servant who is convicted and sentenced to imprisonment and whose
appeal against the conviction is pending. Concurring with his fellow Judge who
held that rule as illegal, inter alia, for reason of ludicrously low
amount of subsistence allowance, Chinnappa Reddy, J considered the observations
about the nature of public employment opportunity made by the fellow judge as
non-sequitur and held that “Though the view that public employment
opportunily is national wealth in which all citizens are equally entitled to
share and that no class of people can monopolise public employment in the guise
of efficiency or other ground, is correct, it is non-sequitur“.

He did not favour the right to equal opportunity to public
employment to be treated as a new form of private property and saw no reason to
introduce a new concept of property so as to bring in its wake the vestiges of
the doctrine of leissez faire and create, in the name of efficiency, a
new oligarchy.

Ab inconvenienti

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The Word

Literal interpretation is normally the rule, unless such an
interpretation leads to injustice, absurdity, extreme hardship or fails to avoid
the mischief sought to be avoided when different rules of interpretation are
applied to arrive at the most probable legislative intent conforming to the
objectives of the legislation. An interpretation is sometimes assailed on ground
of inconvenience likely to be faced if a particular view is taken. Such
challenges based on argumentum ‘ab inconvenienti’, though relevant in
judicial decisions, have a limited force and is generally applied with great
care.


2. “Every Legislation” as observed by Krishna Iyer, J in
Swantraj & Others v. State of Maharashtra, 1974 AIR 517 “is a social
document and judicial construction seeks to decipher the statutory mission,
language permitting, taking the cue from the rule in Heydon’s case of
suppressing the evil and advancing the remedy”. Laws enacted for general
advantage do sometimes result in individual hardship, notably in laws relating
to limitation, registration, attestation and the like. Such individual hardships
or injustice are not taken as having bearing on the legality and do not become
the basis for rejecting a natural construction. Arguments based on inconvenience
assume significance only when the resulting hardship is likely to be faced by
the community at large or affects the general good of the society.

3. The aforesaid view finds expression in Mohinder Singh
Gill and Anr. v. The Chief Election Commissioner, [1978 AIR 851 (SC)] where
an order of the Election Commission directing repoll in the entire constituency,
on destruction of papers and ballot boxes of some segments in a mob violence,
was challenged as arbitrary and violative of any vestige of fairness. The
failure of the Commission to provide opportunity before directing a repoll was
an argument taken by the appellant against which the plea ‘ab inconvenienti’
was advanced on behalf of the Commission, considering the supposedly large
number of persons affected. Reliance was placed on the earlier decision of the
Supreme Court in Subhash Chander Sinha’s case (1970) 3 SCR 963, where
re-examination was ordered by the Board after the examination was vitiated by
adoption of unfair means on a mass scale. In that case Hidayatullah, J repelled the plea of violation of natural
justice in not affording opportunity of hearing to affected persons. The Court
upheld the action taken without prior opportunity, considering that students
generally had outside assistance in answering question which results in
impossible plurality, frustrating the feasibility of notice and hearing.

4. While agreeing with the ratio of Subhash Chander (supra)
based on argument ‘ab inconvenienti’ dispensing with natural justice of
providing hearing in that case, the Supreme Court in Mohinder Singh Gill (supra)
distinguished that case from the case directing repoll. The Court observed
“attractively ingenious and seemingly precedented, argumentum ‘ab
inconvenienti’ has its limitation and cannot override established
procedures”. Whereas vitiated examination was not a case of any particular
individual who was charged and rested on conduct of a vast majority of examinees
at a particular centre, there is no such plurality in vitiated election as the
candidates concerned stand on a different footing from the electorate in
general. The plea of ‘ab inconvenienti’ was, therefore, held
inapplicable, and not giving the notice was taken an infirmity. As observed by
the Court, there may be a parallel in electoral situation if the Election
Commission cancels a poll because it is satisfied that the procedure adopted has
gone away on a wholesale basis.

5. Even in cases of hardship or inconvenience to persons in
general, Courts are generally reluctant to go by such considerations if the
interpretation/action otherwise conforms to the purpose and objective of the
legislation and such difficulties are possible to be taken care of by other
measures. A few decided cases will bring out the judicial approach in the
matter. In Smt. Ujjain Bai v. State of Uttar Pradesh, 1962 AIR 1621 (SC)
the issue was the entertainability of a writ petition challenging the order of
the sales tax officer, which was filed when the appellate proceedings before the
sales-tax authorities were in the midstream. The Court disapproved the argument
‘ab inconvenienti’ of the State. As it is the duty of the Court to
enforce a fundamental right of a party, if any authority has infringed his
rights, considerations based upon inconvenience are, of no relevance”. In a
situation like this, the Court indicated measures to avoid alleged inconvenience
including allowing the petitioner to withdraw the petition with liberty to file
it at a later stage, or, if the party does not agree to withdraw, may adjourn it
sine die till after the remedies are exhausted.

6. Swantraj and Ors v. State of Maharashtra, (supra),
was a case where the issue involved was whether the licence under the Drugs and
Cosmetics Act, 1940 which permitted stocking and selling drugs in a specified
vehicle, covered the brief interval of storage in the godown before loading the
drugs on to the appellant’s van. An argument ‘ab inconvenienti’ was
advanced from the side of the appellant and it was contended that it would be
impossible to furnish the details of very many possible places where for short
intervals drugs may have to be stored awaiting the arrival of the van. Krishna
Iyer, J speaking for the Court, referred to the paramount purpose of the
regulations through licensing as setting in motion vigilant medical watch over
the proper protection of drugs and medicines and held that the objective will be
frustrated if godowns, temporary stores, etc. can be unlicensed. The argument
‘ab inconvenienti’ was held to be affording no answer.

7. In Bengal Immunity Company Ltd. v. The State of Bihar and Ors., (1954) INSC 120, the Court was to decide the constitutionality of inter-state sales tax levied by the State of Bihar in respect of sales made in some other State but delivered in Bihar for consumption purpose. Delivering the dissenting judgment holding it constitutional, J. Das, Venkatararna Ayyer and B. P. Sinha JJ considered, among other, the argument ‘ab inconvenienti’ and disapproved its application. They observed that “even with reference to the inconvenience that might result from the multiplicity of assessment proceedings, it is one which is capable of being removed without disturbing the existing scheme of the Constitution, by Parliament enacting a law constituting an Authority under Article 367 and conferring on it power to receive from the sellers one consolidated statement of all their sales outside their State and determining the precise extent thereof effected in the several States and making that determination final for purposes of assessment by the States. That would, on the one hand, secure to the States the finance legitimately due to them and at the same time, save the sellers from the harassment of multiplicity of proceedings.

8. The  question   as  to  whether   a voluntary income-tax return showing income less than the taxable limit filed on the last day would be a valid return so as to deprive the Department of the power to initiate reassessment proceedings u/s.34(1) of the Income-tax Act, 1922, was decided in assessee’s favour rejecting the Department’s argument ‘ab inconvenienti’. Countering the argument that if the return is held valid, the Department will be drivert to complete the assessment proceedings within a few hours or lose the right to send a notice u/s.34(l), the Court observed that the Income-tax Officer could have avoided the result by issuing a notice u/ s.23(2) and not remaining inactive until the period was about to expire. All laws of limitation lead to some inconvenience and hard cases. The remedy is for the Legislature to amend the law suitably [The Commissioner of Income-tax, Bombay v. V Ranchhoddas Karsondas, 1959 AIR 1154 (SC)].

Debitum in Presenti

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The

‘Debitum in presenti’ refers to the debt which is a present obligation in contradistinction to the debt which may become an obligation in future on the happening of certain event. When a statute mentions ‘debt’ in any context or, where a debt is implied, it refers to ‘debitum in presenti’ i.e., a sum of money which is now payable or will become payable in the future by reason of a present obligation.

2 Existence of an obligation to pay is the essence of a debt. The same may be payable in present in which case it is ‘debitum in presenti, solvendum in presenti’ or payable on future when it is ‘debitum in presenti solvendum in futuro’. Irrespective of the time of payment, an obligation in order to become enforceable debt has to exist in presenti. The debt payable in present may be termed as ‘debt accruing or due’ and one payable in future as ‘debt owing’ but in both the cases they are debt represented by an existing obligation. The Supreme Court of California in People v. Arguello, (1969) 37 calif 524 observed “Standing alone , the word ‘debt’ is as applicable to a sum of money which has been promised at a future day as to a sum now due and payable. If we wish to distinguish between the two, we say of the former that it is a ‘debt owing’, and of the latter that it is a ‘debt due’. Where no obligation exists, it is only a contingent debt howsoever probable and howsoever soon it may become a debt.


3 The significance of ‘debitum in presenti’ may be understood with reference to certain decided cases where the decision depended on existence of debt. The material point of consideration in a such cases was whether an obligation is created or is yet to be created. In Shanti Prasad Jain v. The Director of Enforcement, 1962 AIR 1764 (SC), the appellant had a claim against a foreign company, in settlement of which the company deposited certain amount in the appellant’s account with a foreign bank in India on the condition that the amount can be withdrawn only for the purpose of purchase of machinery from the foreign company after obtaining import licence from the Government. In a dispute arising under FERA, the appellant was charged u/s.4(1) of the Act for giving loan to a non-resident bank in violation of the FERA regulations. The Supreme Court held that there was no present debt owing to the appellant, as the right of the appellant to the amount in deposit in the bank was to arise only on happening of contingency such as grant of import licence. The Court quoted with approval the observations of Lord Lindley in Webb v. Stanton, (1883) QBD 518,




where the point for decision was whether an amount payable by a trustee to the beneficiary in futuro could be attached by a judgment creditor as a debt ‘owing or accruing’. Answering in negative, the Court observed, “I should say, apart from any authority, that a debt legal or equitable can be attached whether it be a debt owing or accruing; but it must be debt, and a debt is a sum of money which is now payable or, will become payable in the future by reason of a present obligation, debitum in presenti, solvendum in futuro”. It was held that money which may or may not become payable from a trustee to his cestui que trust are not debts.


4 A similar issue arose in Raymond Synthetics Ltd. & Ors. v. UOI & Ors., 1992 AIR 847(SC), where the company issued shares and was required to make allotment within 10 weeks of the closure and refund the excess share application money within 8 days of the company becoming liable to repay. Allotment was made before the expiry of permitted period of 10 weeks and the issue arose whether interest is payable from the expiry of 10 weeks or from the date of allotment. The Court considered the issue together with the provisions of S. 73(1A) of the Companies Act, whereunder in the event of permission not being granted by the Stock Exchange before the expiry of ten weeks from the closure, the allotment is to become void and held that a debt remains contingent till the permission is received or the period of ten weeks is over. In the facts of the case it was held that the debt became due on expiry of 10 weeks.

5.    The issue generally arises in matters of income taxation where there is change of ownership of business or managing agency rights in the middle of the accounting period. In E. D. Sassoon & Co. Ltd. v. the CIT, (1954 AIR 470) where the managing agency was transferred by the appellant before the completion of the definite period of one year service which was a condition precedent to their being entitled to receive the remuneration or commission.

The question arose as to whether the appellant was chargeable to tax in respect of the commission for the broken period up to which they rendered services. It was held that no debt payable by the companies was created in favour of transferor. No remuneration or commission could, therefore, be said to have accrued to them at the date of transfer. Even though they rendered services as managing agents for the broken period, their contribution or parenthood cannot be said to have brought into existence a debt or a right to receive the payment or in other words I debitum in presenti solvendum in futuro’.

6.    Similar issue was decided in Cottons Agents Ltd. Bombay v. CIT Bombay, 1960 AIR 1279 (SC), where answering the question as to whether any income accrued to the transferor from transfer of managing agency agreement before the end of the financial year, the Court observed, “On our view of the managing agency agreement, the commission of the managing agents became due at the end of financial year and that is when it accrued; and there were neither any debt created nor any right to receive payment when each transaction of sale took place.”

7.    An interesting  question  came for decision  in J. Jermons v. Aliammal & Ors., (1999) INSC 275. The tenant in that case was served with a prohibitory order restraining payment of debt due from him to the defaulter viz. the landlord. The tenant in compliances to the notice stopped payment of rent after the receipt of notice. Thereafter, on receipt of notice u/s.226(3), he made payment to the TRO. The landlord sued him for eviction on ground of default in payment of rent to him. Accepting the argument that the rent which became due after the receipt of notice was not a debt covered by the notice, the Court held that the word ‘debt’ in the said prohibitory order is used in the sense that it is ‘debitum in presenti’ or ‘debitum in presenti, solvendum in futuro’. In that sense, rent that would become due and payable in future is in the nature of contingent debt and was not covered by the notice which was good only for rent that had become due up to the date of notice.

8.    The relevance of ‘debitum in presenti’ was elaborately discussed and applied in Kesoram Industries and Cotton Mills Ltd. v. CWT, (1966) 59 ITR 767 (SC). In this case the dividend proposed to be distributed was shown in P & L A/c. but declared at the general meeting held after the close of the year. The question arose as to whether the amount set apart as dividend was a debt owed by the company on the valuation date. It was held that nothing had happened as on the valuation date beyond a mere recommendation of the directors as to the amount that might be distributed as dividend, there was no debt owed by the company on that date. A further question arose as to whether the provision made for taxes in respect of the year was a debt. Even though the judgment was divided, both majority as well as minority decision examined the issue of creation of ‘debitum in presenti’. Whereas the majority decision held that it was a present liability of ascertained amount and, therefore a debt, the minority view was that the liability to pay tax arises only on the 151 day of April of the assessment year and hence was not a debt on the valuation date.

9.    In tax matters ‘debitum in presenti’ is the basis for determining accrual of income and expenditure under mercantile system. The material point is I whether any debt became due to or from the assessee. As held by the Supreme Court in Morvi Industries Ltd. v. CIT, 82 ITR 835 (SC), income accrues when if becomes due. The postponement of the date of payment does not affect accrual of income. The fact that the amount of income is not subsequently received would also not detract from or efface the accrual of the income.

Sub-silentio

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The Word

Literally sub-silentio means ‘under or in silence’.
When used in relation to a finding in a judicial decision, it refers to ‘without
notice being taken or without making a particular point of the matter in
question’ [Merriam-Webster’s Dictionary of Law]. As a doctrine, it determines
the value, as a precedent, of a decision to be followed in other cases.

2. The cardinal rule of ‘Stare Decisis’ requires
standing by the decided cases, upholding precedents and maintaining former
adjudication. The doctrine of binding precedence ensures stability and
uniformity in judicial interpretation and keeps the scale of justice even and
steady without being liable to waiver with every new judge’s opinion. The
question, however, arises as to whether all declarations or conclusions
constitute binding precedents. A decision which is not express and is not
founded on reasons, nor does it proceed on consideration of issues, cannot be
deemed to be a law or authority of a general nature binding as a precedent. Such
a decision is sub-silentio and is deprived of its value as precedent. As
observed by R. M. Sahai J in State of U.P. and Anr. v. M/s. Synthetics and
Chemicals Ltd. and Anr., (1992) 87 STC 289 (SC), “Restraint in dissenting or
overruling is for sake of stability and uniformity, but rigidity beyond
reasonable limits is inimical to the growth of law. Law declared is not that can
be culled out, but that which is stated as law to be accepted and applied. A
conclusion without reference to relevant provisons of law is weaker than casual
observation. In the absence of any discussion or any argument, the order was
founded on a mistake of fact and, therefore, it could not be held to be law
declared”. Overruling its own earlier decision in Synthetics and Chemicals
Ltd. v. State of U.P. and Anr., (1990) 1 SCC 109, the Court held that the
decision fell in both the exceptions viz. the rule of sub-silentio
and being in per incurrium to the binding authority of the precedents.

3. The issue involved in the case was the competency of the
U.P. State Legislature to impose sales tax on industrial alcohol in view of the
Ethyl Alcohol (Price Control) Order, enabling the Central Government to control
its prices. The High Court, following the earlier 1990 decision of the Supreme
Court (supra) held the levy as beyond the legislative competence. In
appeal, it was argued before the Supreme Court that reference to sales tax in
their earlier decision was accidental, in per incurrium and not arising
from the judgment. The levy of sales tax was not in question at any stage of
arguments, nor was the question considered as it was not in issue and the Court
gave no reason whatsoever for abruptly stating that sales tax was not leviable.
Agreeing with the arguments, the Court in 1992 decision held the earlier
decision as not an authority for the proposition canvassed by the assessee.

4. In Armit Das v. State of Bihar, 2000 AIR SCW 2037,
where the issue involved was the crucial date for determination whether a person
is juvenile as per the Juvenile Justice Act. Various decisions were cited to
canvass the view that the crucial date was commission of offence. Disagreeing
with their value as precedent, the Court observed that “a decision not
expressed, not accompanied by reasons and not proceeding on conscious
consideration of an issue cannot be deemed to be a law declared to have a
binding effect as is contemplated by Article 141. That which has escaped in the
judgment is not ratio decidendi. This is the rule of sub-silentio
in the technical sense when a particular point of law was not consciously
determined”.

5. In CIT v. Kanji Shivji & Co., (242 ITR 0124) where
there were conflicting decisions of the Supreme Court itself as to the
applicability of Explanation to S. 40(b) — whether prospective or retrospective
— the Court overruled its own decision in Rasik Lal & Co. v. CIT, (229
ITR 458), which held the explanation as prospective on the ground that in that
case, the explanation was not really an issue. In Chamber of Income-Tax
Consultants v. Central Board of Direct Taxes, (1994) 209 ITR 660, the Bombay
High Court considered the observations of the Supreme Court in Associated Cement
Co. (1993) 201 ITR 435 as to the inclusion of professional services within the
ambit of S. 194 C and held the same as not constituting a precedent when read as
a whole.

6. A decision is the outcome of consideration of the facts of
the case in reference to different related and inter-dependent provisions of
law. A declaration as to the meaning of any word or expression in the statue is
possible on reading the provision as a whole. If, for whatever reason, including
the failure on the part of the party to the proceeding to bring it to the
Court’s notice, the decision is made without consideration of another provision
or aspect of the matter which would have had a material influence on the
outcome, the declaration or conclusion becomes sub-silentio. In
Dhrangadhra Municipality v. Dhrangadhra Chemical Works Ltd., [174 ITR 77 (Guj.)],
where the issue concerned maintainability of suit u/s.72 of the Contract Act for
claiming refund of octroi paid under mistake and reliance was placed on the
Supreme Court decisions in Sales Tax Officer v. Kanhaiya Lal, AIR 1959 SC
135 and D. Cawasji & Co. v. State of Mysore, AIR 1975 SC 813 upholding
such maintainability, the Gujarat High Court did not go by those decisions for
the reason that in these cases the Court’s attention was never invited on that
aspect of the matter which concerned any prejudice or legal injury suffered by
the aggrieved party. The Court cannot be assumed to have spoken on it though it
was never canvassed before it. “Precedents sub-silentio and without
arguments are of no moment”, observed the Court in Divisional Controller
KSRTC v. Mahadeva Shetty, 7 SCC (2003) 199.

7. Courts may sometimes conclusively decide in favour or
against a party because of some legal point which it pronounces upon, ignoring
another point which too should have been decided in favour or against for
arriving at the conclusion reached. In such a case, that point passes sub-silentio
and the decision cannot be an authority so far as the point ignored is
concerned.

8. It is now well settled that a decision is not deprived of
the authority of precedent merely because it was badly argued or inadequately
reasoned. While total absence of argument and consideration vitiates the
precedent, inadequate arguments or consideration do not, unless they miss
something vital to the total outcome in a decision.

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Delhi HC pulls up IT Dept. for filing appeal where issue of law is well-settled

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17 Delhi HC pulls up IT Dept. for filing appeal
where issue of law is well-settled


Income-tax Department has come under sharp criticism from the
Delhi High Court for filing appeal against Tax Tribunal decisions in which issue
of law is well-settled.

A Bench comprising Chief Justice Dipak Misra and Justice
Manmohan said that the judicial capital is extremely limited and should not be
wasted in needless litigations.

“In our view, appeals should not be filed in matters where
either no question of law arises or the issue of law is a settled one. We give
this direction because the ‘judicial capital’ in terms of manpower and resources
is extremely limited,” the Court said. The Court’s direction came on a petition
filed by the Revenue Department challenging an order of Tax Tribunal ITAT.

The Court, which was inclined to impose cost on the
Department, refrained by warning it to be careful in future before filing appeal
against ITAT.

 

(Source : Internet – www.forum4finance.com dated
10-8-2010)



“Only economic prosperity can produce progress. Prosperity arises out of
innovation and enterprise, from the technological ingenuity and the skills
that are housed in the great companies. Prosperity needs to move seamlessly
across the world so that no country is left behind. This means the corporate
CEO and the ambassador are locked in partnership.”


— PEPSICO Chairperson & CEO, Indra Nooyi addressing Indian Ambassadors in New
Delhi.

(Source :
The Economic Times, dated 14-9-2010)

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CAG slams tax authorities’ weakness for appeals

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16 CAG slams tax authorities’ weakness for appeals


The Comptroller and Auditor General of India (CAG)
has come down heavily on the Tax Department for fostering “a perception that it
has a tendency to opt for appeals even when it is on a weak wicket” and this “appealititis
is more detrimental when applied on small taxpayers constituting a large chunk
of appellants.” In a first-of-its-kind holistic study of appeals, the CAG report
on the Appeal Process, tabled in the Parliament on Friday, minced no words when
it said point-blank that the proliferation of appeals decisions were prompted by
counsels of Income-tax Appellate Tribunal. They could also be fuelled by the
Assessing Officers (AOs) deciding to play safe “rather than judge a case on its
merits and save the system of the strain that weak cases place on it.”

Stating that the dimensions of disputes in
income-tax remain ‘staggering,’ the report said the aggregate amount locked up
in appeal at various levels is `2.2 lakh crore, which could almost wipe off the
revenue deficit of the Union Government in 2008-09. It said that for the span
2006-09, the audit analysed data and 48% of the demands raised by AOs remain
uncollected with disputes accounting for 45% of the uncollected demands, and 22%
of the demands raised in assessments at disputes by taxpayers. Even as the
implementation of Appellate orders is placed low in the AOs priorities,
inadequate attention on correctness in implementation of Appellate orders led to
mistakes amounting to `1,456 crore in 385 cases, it said, adding that 97% of
these mistakes led to under-assessment of tax benefitting the taxpayer which
“raises doubts on the integrity of the process.”

The audit also highlighted the constraints under
which it had undertaken this study in the absence of a centralised database on
appeals at the State level which hampered the selection of the audit samples.
“Poor maintenance of records across the assessment and judicial wings of the
Department is an area of concern,” it said, adding that the Department produced
only 49% of the records it requisitioned for audit and it was as low as 5% in
the case of Delhi office. Despite a steady reduction in the number of appeals
referred to the Commissioners of Income-tax (CsIT), the inventory of appeals
with CsIT was building up because of low disposal of appeals which was one-third
of the targeted level, it said. At the current levels of disposal, the CsIT
(Appeals) would take 2.4 years to clear the inventory. The average time taken
for disposal of a case is 14 months, which is substantially longer than the
global norms. It further said low-end appeals (with demand less than Rs.1 crore),
constituted 66% of the total appeals. Hence, CAG suggests hiving off of small
taxpayers’ disputes and such segregation would promote greater focus on the ‘big
ticket’ appeals with rationalisation of workload of the CsIT (A). Stating that
the assessment process is evidently unable to satisfy the small taxpayer, the
category which is least equipped to bear the cost of litigation, the CAG said
that this must be viewed alongside the fact that the success rate of the
Department at various levels of appeals is “low and appeals go decidedly in
favour of the taxpayers.” Even as there are some provisions in the Act such as
imposition of penalty that lead to disputes, it said deviations from prescribed
procedures by AOs have also contributed to rows. It also excoriated the tendency
to escalate the disputes to higher levels and “instances of inaction in such
cases where a second appeal would have safeguarded revenue.” There is lack of
consistency while considering a case for second appeal with divergent actions
weakening the Departmental stand in appeals. “The absence of independent
evaluation of decisions for escalation creates unchecked avenues for arbitrary
exercise of discretionary powers by the AOs,” it said, and added that there is a
need to remove ambiguities in the provisions of the Act to reduce the use of
discretion by the AOs. It said the penal provisions of the Act calls for a
relook, since “the deterrent edge to these provisions is being blunted due to
inability to sustain the penalty orders in appeals.”

(Source : The Hindu Business Line, dated 13-8-2010)

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Oxford English Dictionary — Online dictionary spells doom for printed version

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15 Oxford English Dictionary — Online dictionary
spells doom for printed version


It’s been in print for over a century, but in
future the Oxford English Dictionary — the authoritative guide to the English
language — may only be available to peruse online. Publisher Oxford University
Press said that burgeoning demand for the dictionary’s online version has far
outpaced demand for the printed versions. By the time the lexicographers behind
the dictionary finished revising and updating the latest edition — a gargantuan
task that will take many more years — publishers are doubtful there will still
be a market for the printed form.

The online Oxford English Dictionary now gets 2
million hits a month from subscribers. The current printed edition — a hefty
20-volume, £ 750 set published in 1989 — has sold about 30,000 sets in total.

The first instalment of the Oxford English
Dictionary was published in 1884, and it kept growing for decades until the
complete text went out in 1928. It was the first comprehensive English
dictionary since Samuel Johnson’s ‘A Dictionary of the English Language’
published in 1755, and has evolved to become the accepted authority on the
meaning and history of words.

(Source : The Times of India, dated 30-8-2010)

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ExtractNow (Size 1MB)

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81 ExtractNow (Size 1MB)


This utility allows you to extract multiple
archives quickly and easily. Supports ZIP, RAR, ISO, BIN, IMG, IMA, IMZ, 7Z,
ACE, JAR, GZ, LZH, LHA, TAR, SIT archive formats. Extract files into current
directory, named folder, or favourite folder of choice. Integrates with Windows
Explorer via special context menu items
http://www.extractnow.com/

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ExplorerXP (Size 410 KB)

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80 ExplorerXP (Size 410 KB)


This is a fast, small, compact file manager for
Windows 2000/XP. Unlike the regular Windows Explorer, it displays the total size
of each folder and allows you to browse multiple folders from a tabbed
interface. It also supports multi-rename, split and merge, etc. You can download
it from http://www.explorerxp.com/

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Gadwin PrintScreen (Size 2.75 MB)

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79 Gadwin PrintScreen (Size 2.75 MB)


This captures the contents of the screen with a single
keystroke. The captured screen can then be sent to the printer, or saved to disk
as a file in six different graphics file formats (BMP, JPEG, GIF, PNG, TIFF,
TGA). Gadwin PrintScreen can capture the entire Windows screen, the active
window, or a specified area, when the hot key is pressed. The hot key defaults
to the PrintScreen key but users can define other keys too to initiate a
capture. Gadwin PrintScreen allows you to e-mail the captured images to
recipients of your choice.


http://www.gadwin.com/download/ps_setup.exe

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Mozilla Firefox 3.0 (size 7.14 MB)

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78 Mozilla Firefox 3.0 (size 7.14 MB)


A small, fast and easy to use browser, it includes tabbed
browsing and pop-up blocker. The new version 3 has improved performance, add-ons
manager, download manager, smart location bar, better password manager and
malware protection. Please look up

http://majorgeeks.com/download.php?det=2248

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Merriam-Webster Concise Dictionary

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77 Merriam-Webster Concise Dictionary

(Size 1.59MB)

This contains more than 40,000 entries, clear and
concise definitions, written pronunciations, and variant spellings. The iFinger
engine under the hood works both online and offline, checking spelling
automatically or allowing you to run manual text searches for specific queries.
Internet required while installing this software. Download from http://www.download.com/Merriam-Webster-s-Concise-ictionary/3000-2279_4-10059666.html

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Here is some freeware software that could be of help during everyday computer usage.

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76 Here is some freeware software that could be of
help during everyday computer usage.

Dictionary Software (the first two)

WordWeb 5.5 (Size 7.44MB)

This is a one-click English thesaurus and
dictionary for Windows that can look up words from almost any program. It works
off-line, but can also look up words in web references such as the Wikipedia
encyclopedia. Features of the free version include : Definitions and synonyms,
Proper nouns, Related words, Pronunciations, 1,50,000 root words, 1,20,000
synonym sets, Fixed web reference tabs, etc. It can be downloaded from
http://wordweb.info/

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Issues for professionals.

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75 Issues for professionals.


Top 5 issues for practice members :



  •   retaining quality clients



  • balancing work and personal issues


  • attracting the right clients


  •   staying on top of professional development requirements


  • balancing the volume of work.

 


  • Top 5 issues for business members :



  • managing work/life balance


  •   health/stress


  • developing management skills


  • keeping up with the volume of work


  • developing leadership skills.



(Source :
Internet Newswires)

 

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Inflation to touch 17% by September, says Barclays.

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74 Inflation to touch 17% by September, says
Barclays.


Global Investment banker Barclays Capital has
projected that inflation may surge to 17% by September on back of another round
of hike in fuel prices in the same month. ‘We believe WPI inflation will remain
in double-digit territory until May 2009. We expect WPI inflation of 17% by
September 2008,’ the report said. For the week ended June 28, wholesale
prices-based inflation touched a new 13-year high of 11.89% — much higher than
the Reserve Bank’s tolerance limit of 5.5% for the current fiscal. According to
the report, the government is likely to hike fuel prices by 10-20% again as
early as September to limit fiscal risks. Rise in the price of the Indian crude
oil basket to $ 145-150 per barrel from the current $ 132 per barrel could be
the trigger for another round of increase in fuel prices, it said.

(Source : The Economic Times, 14-7-2008)

 

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UK urges return to wartime frugality.

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73 UK urges return to wartime
frugality.



Waste not, want not. Evoking an era of World War II
austerity, British families are being urged to cut food waste and use leftovers
in a nationwide effort to fight sharply rising global food prices.


With food and energy prices soaring around the
world, a constant supply of high-quality, affordable food is no longer
guaranteed, the officials are warning Britons.

Tim Lang, professor of food policy at London’s City
University, said junk food will remain readily available, but good-quality,
nutritious produce could become scarce worldwide. The government says the public
might find one solution by looking into their garbage pail. Britons throw out
4.5 million tonnes of edible food a year, or about $ 830 worth per home —
wastefulness the government says contributes substantially to rising prices.

(Source : The Times of India, 13-7-2008)

 

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AICPA Ph.D. programme.

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72 AICPA Ph.D. programme.


 

The CPA profession has created an Accounting
Doctoral Scholars programme to help reverse a shortage of Ph.D. accounting
faculty in U.S. colleges and universities. The new programme is being
spearheaded by the largest accounting firms and will be administered by the
American Institute of Certified Public Accountants Foundation.

 

To date, more than 70 of the country’s biggest
firms, along with several state CPA societies, have committed a total of $ 15
million to the program. The firms will recruit top employees for the program and
encourage them to become accounting professors in the audit and tax disciplines.

(Source : Internet Newswires, 30-7-2008)

 

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CVC recovers Rs.19.62 crore in corruption cases.

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71 CVC recovers Rs.19.62 crore in corruption
cases.

The Central Vigilance Commission (CVC) has
recovered Rs.19.62 crore after investigating corruption cases in government
departments and public sector undertakings during the first-half of the year.

 

While the Commission advised major penalty
proceedings in 651 cases, it advised imposition of major penalties in 350 cases
during the period.

 

The central watchdog, which has been mandated by
the Supreme Court to monitor the issue of granting sanction for prosecution of
officials in various government organisations, advised prosecution
in 84 cases and the requisite orders were sanctioned in 49 cases.

(Source : Internet Newswire, July 2008)

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Current oil prices abnormal : OPEC Chief.

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70 Current oil prices abnormal :
OPEC Chief.


Crude oil prices above $ 120 a barrel are
‘abnormal’ and could fall to around $ 78 under the right circumstances, said
OPEC President Chakib Khelil on Tuesday.

(Source : Mumbai Mirror, 30-7-2008)

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Stalin made a saint ? Holy Christ !

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69 Stalin made a saint ? Holy
Christ !



The Orthodox Church in Russia is under growing
pressure to make former Soviet dictator Josef Stalin a saint if he wins a
popularity poll to nominate the greatest Russian in history.


The Soviet leader, responsible for the deaths of 15
million people during his 31-year dictatorial rule, is in second place in online
voting that seeks to nominate the greatest Russian historical figure. Stalin has
undergone a remarkable renaissance in recent years with opinion polls naming him
Russia’s greatest post-revolution leader after Vladimir Putin — PTI

(Source : The Times of India, 24-7-2008)

 

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Inbound Investments and Recent Developments in FDI Policy

Lecture Meeting

Subject : Inbound Investments and Recent Developments in
FDI Policy

Speaker : Mr. Somashekhar Sundaresan, Advocate

Venue : IMC Hall, Churchgate, Mumbai.

Date : 8th April, 2009

1.
Introduction of the Subject :


 a) The learned speaker at the outset observed that the Foreign Direct Investment (FDI) Policy has always been a contentious issue. Recently in an attempt to simplify the FDI policy, the Dept. of Industrial Policy and Promotion (DIPP), Ministry of Commerce and Industry has issued three Press Notes being PN 2, PN 3 and PN 4 all of 2009. These notes and related issues will be the subject matter of today’s discussion. To describe in nutshell, Press Note No 2 seeks to bring in clarity, uniformity, consistency and homogeneity into the methodology of calculation of direct and indirect investment in Indian Companies engaged in varied sectors and activities. Press Note No. 3 gives guidelines for transfer of ownership and control of Indian Companies from the hands of resident Indians to non-resident entities. Press Note No. 4 lays down the policy of downstream investment by Indian Companies.

    b) As a normal rule, investments of Non-Resident Individuals, Companies and other N.R. bodies in Indian Companies require approval of Govt. The issue becomes complex where the investment is made by Indian Companies in which there is already a foreign shareholding. Till recently, though the condition of getting approval from Foreign Investment Promotion Board (FIPB) was prescribed, the criteria and expected norms and preconditions to be fulfilled for getting such approval were never laid down or prescribed. Again, one has to keep in mind the various rules and norms applicable to investments, depending on category and nature of activity of Investee Co. For example foreign investment is prohibited in Defence-related sectors, whereas certain caps or ceilings on percentage of foreign holdings are applicable to other categories. There are also some automatic routes not requiring approvals. In software industry for example even 100% foreign investment is permitted. Where F.I.P.B. initiated action against companies for not taking required approvals, F.I.P.B. required the companies to get their offences compounded through RBI. In the absence of specific guidelines on the criteria to be applied, the position of so-called erring industries was unenviable and precarious.

    c) After explaining the background, the Learned Speaker moved to detailed analysis of each Press Note and gave his comments thereon.

2. Press Note No. 2 of 2009

    Press Note 2 has introduced a new concept of treating an Indian Company as a foreign Co., for the purpose of FDI, if it is owned and controlled by persons other than Indian citizens and Indian Cos. For deciding exact category of such investee Co., the concept of owning 50% plus one share will be the determining factor.

    The concept of takeover and control regulation, where control is exercised without owning 50% plus one share is not adopted as is apparent from Press Note No. 2. What is being adopted is ability to control the composition of Board of Directors. The nationality of Directors is not relevant. So, if 50% plus one share is owned by foreign individuals and/or foreign body corporates, such Indian Co. will be deemed to be Foreign Co., for purposes of deciding the percentage of foreign investment in any Indian investee Co. For deciding the question of approval of F.I.P.B., it will also be necessary to look into issues like nature of activity, prohibited fields, sectoral caps on investments, etc. So long as investor Co. is owned and controlled by Indians, the existence of foreign shareholding in such Investing Co. can be ignored.

3. The line drawn by Press Note No. 2 is that so long as the percentage of foreign investment is less than 50%, the Co. will be treated as owned and controlled by Indians, giving it freedom to make investments in other Cos. and will be considered as investment by Indian Co. There is a general rule that the status of holding Co. whether an Indian Co. or foreign Co, decides status of its wholly-owned subsidiary. If there is a wholly-owned subsidiary of a deemed foreign holding Co. and the holding Co. in turn is owned and controlled by foreign interest, even then the subsidiary Co. will not automatically become deemed foreign Co., but the degree of foreign control will be measured by percentage of foreign stake in the holding Co. This is a departure from general rule made by Press Note No. 2.

4. Press Note No. 3 of 2009

    This Note deals with issues arising from transfer of shares. Earlier the Reserve Bank Master Circular of October 2004 dealt with threshold caps, cross-border transfers and pricing of such transfers. Now, as per this Press Note, any transfers of shares from Resident to Non-Resident, if not resulting in a change in ownership and control from Indian hands to foreign hands, does not require approval of F.I.P. Board.

5. Press Note No. 4 of 2009

    a) This deals with downstream investment where an Indian Co. having foreign shareholding invests in another Co. If such Co. makes investment in shares of other Indian Co., it is called downstream investment.

    b) Any economic sector in which such Indian Co. is operating will be its operating field. This will include even Non-Banking Financial Cos. Investment of such operating Co. in another Co. is considered by this Press Note.

    c) If the activity of a Co. is not prohibited as in case of Defence-related fields, then investment in that Co. through FDI will be permitted, subject to sectoral restrictions or ceiling on percentage holding. To illustrate, a software activity is not a prohibited activity, so any investment in such software company even by deemed foreign company is not prohibited, nor will it be violation of Exchange Control Regulations. However, where a company wants to act purely as investment company and does not participate in the activity of investee Co., then the approval of F.I.P.B. will be required.

    d) In respect of Non-Banking Financial Cos. having many activities such as financing, hire-purchase, underwriting shares and rendering other services, then approval will have to be taken by NBFC.

e) Where a foreign company wants to buy and sell shares on Indian stock market, FII Registration will be necessary. There are restrictions on holdings and dealings of Foreign Institutional Investors in Indian companies; percentage caps, sectoral restrictions govern such investments. In contrast with restrictions on purchase of shares, sale of shares by Non-resident on stock exchange is permitted. After such sale, the proceeds can be repatriated without any prior permissions or approvals.

f) There is restriction on buying shares on stock exchange. Where shares are purchased for investment purposes, the approval of F.I.P.B. will be necessary. For operating-cum-holding company the real test will be whether ultimate investee company is on automatic route or whether there exist any restrictions qua activity, or percentage holding.

6. The learned Speaker thereafter ably replied various questions raised by participants. The meeting then terminated with a vote of thanks to the learned Speaker Mr. Somashekhar Sundaresan.

MVAT Audit — Some important issues

Lecture Meeting

Subject : MVAT Audit — Some important issues



Speaker : Govind Goyal, C.A.


Venue : I.M.C. Hall, Churchgate, Mumbai.



Date : 21st January 2009








(1) While introducing the subject, the speaker said that
Notification of October 2008, introduced new Form No. 704 being Report of the
Auditor. The Commissioner of Sales Tax issued a Circular stating that all
Reports submitted after 10th November 2008 shall be in new Form No. 704 and not
in old Form.

(2) After studying the new Form, the WIRC of the Institute
made representation to the Commissioner of Sales Tax (CST) that certain clauses
in the new Form need to be changed, since they cannot be certified by Chartered
Accountants and are inconsistent with provisions of law. After discussion, the
Commissioner agreed that those clauses need to be changed. Another Circular was
issued in December 2008 clarifying that for year 2007-2008, the Auditor will
have an option to submit his Report either in the old Form or in the new Form
No. 704 and the same should be submitted before 31st January 2009.

(3) In Part-I of old Form No. 704, there were 9 statements to
be certified by the Auditor. This number is now increased to 15 certificates. He
has now to certify that he has read and understood the instructions given in the
new Form. He has also to certify that the dealer was carrying on his business
activity from the principal place and additional places registered with the
Sales Tax Department. It is difficult for the Auditor to issue such certificate.
His duty is to audit books with the supportings. Similarly, the new Form
requires him to certify that all transactions recorded in the books of accounts
are reflected in bank statements. This is not possible particularly when the
dealer followed mercantile system.

(4) In Part-II, general information about business of auditee
is required to be given. Now certain ratios are to be reported and they are :

à
Net turnover to total turnover


à
Cash Sales to Total Sales


à
Cash Purchases to Total Purchases


However, neither the MVAT Act nor the Central Sales Tax Act
defines Cash Sales or Cash Purchases. It is not clear whether they include
cheques, or credit card.

(5) The auditor has to certify details of purchases over
Rs.5,00,000 from new local suppliers. The term new local suppliers means persons
from whom no purchases were made in preceding year. This casts additional
responsibility to find out the position for preceding year also. This makes the
Auditor’s duty onerous.

(6) Part-III of Report contains schedules :


In one schedule, the Auditor has to certify figures of
Sales/Purchases per returns, the figure determined from books and
re-conciliation of differences with reasons.

(7) In reporting, the Auditor has to give details of the
Auditor who has certified the accounts statements under the Income-tax Act. The
speaker observed that this is again inconsistent because there may be cases
where audit is conducted under the Companies Act or Co-op Societies Act or Trust
Act; but those may not be required under the Income-tax Act.

(8) Determination of Gross Turnover of Sales and Purchases :


Turnover means aggregate of Sale Price or Purchase Price of
transactions effected during the year. Sales/Purchase includes not only
Sale/Purchases of goods traded or manufactured by the dealer, but also covers
spares, components, packing materials, fuel. It also includes Capital goods. Net
turnover will not include taxes collected or paid. However, the gross turnover
of Sales/Purchase will include tax collection. Labour charges are to be excluded
since they are not sale of goods. Deduction should also be made of goods
returned within 6 months from the date of sale. While determining the turnover
the Auditor must take note of sale/purchase of scrap, sale/purchase of capital
goods like plant and machinery and miscellaneous purchases included in printing
& stationery, in repairs and maintenance charges, and in sales promotion
expenses. The Auditor must keep in mind the accounting standards, and the
guidance note of the Institute states that taxes collected by dealer as well as
excise duty shall not form part of income. If any portion of collection of tax
and duty has remained unpaid, the same should be shown as liability.

(9) For determining turnover of inter-State sales, deduction
is also to be made of freight and transport charges included in sale price.
Thereafter for Gross turnover of sales, the taxes collected and excise duty is
to be added.

For quantifying taxable sales in Maharashtra, deduction is to
be made of inter state sales, exempt sales, labour charges and taxes and excise
duty collected, to arrive at net taxable turnover liable for MVAT.


Computation of Tax : The taxable turnover is to be
bifurcated into five Schedules according to their categories. The tax rates are
NIL for Sch. A (exempt goods), 1% for Sch. B Goods, 4% for Sch. C and specified
rate for petroleum and liquor referred in Sch. D and for residuary goods in Sch.
E the rate is 12.5%. The Auditor will determine and state net taxable sale under
each schedule giving entry No. and tax rate. If the dealer has collected excess
tax, the same stands forfeited in favour of Government.

(10) In turnover of purchases after necessary deductions, the
Auditor has to verify taxes paid on purchases for determining set-off or input
tax credit.

Conditions for allowance of set-off :

a) Goods purchased should be from registered dealers.

b) The entries in the register should be supported by tax invoices.

c) The purchase register and tax invoice should give the date, invoice No., name and address of supplier, registration No., net purchase price and VAT charged separately. The provisions of Rules 52, 53 and 54 dealing with set-off working should .be borne in mind. If the VAT charged is not mentioned separately, set-off will not be granted. The aggregate amount of set-off is subject to statutory deduction per Rule 53 and negative list per Rule 54.

11) Tax on purchase of goods and packing materials used for manufacture and packing of tax-free goods is not allowed for set-off.
 
12) Where there is difference in tax due or set-off claimable per working by Auditor and per returns of dealer, the auditee should be advised to file revised return and pay the difference before finalising and submitting Form No 704. A note should be taken of revised return. In the said report, the auditor should also state the period for which further set-off is due and resultant refund due.

13) Works  contracts:

In works contracts, determination of taxable quantum of sale forming part of Final Bill and the tax rate applicable thereon is the most complicated region in M-VAT Audit.

14) Whether a particular contract is a works contract or a sale simpliciter is a matter of controversy. Judgments of the Apex Court on works contracts of almost similar nature vary from each other. Assuming a particular contract is a works contract, determination of sale component is equally challenging. The gross amount of bill is a composite figure involving sale of material and sale of services. Tax is not leviable on service element under MVAT. Rule 58 prescribes mode of determination of sale price. From gross amount of bill eight items of deduction are to be made; some of which are:

i) Architect’s  or designer’s  fees

ii) Labour and service charges in respect of contract

iii) Water charges

iv) Profit margin of dealer in respect of Labour/ service charges. The balance constitutes sale price on which tax is payable @4% or @12.5% (general rate) or @ 8% under the composition scheme, depending on category of goods involved.

15) In actual practice, dealers undertaking works contracts are reluctant to disclose items like expenses on services, architects fees and their profit margin. To overcome this, the State Government has evolved a table for various types of contracts, such as construction contract, fabrication, painting, air conditioning, repairing and annual maintenance contract. The rate of deduction for component of services are mentioned against each category of con-tract. To illustrate, in building construction contract the value of services will be taken” at 30% and the balance of 70% will be treated as sale of material liable to VAT.

16) In Practice, it was found that contractors felt that in spite of prescribed table, it is not possible for them to make invoice. A representation was made to design a scheme akin to composition scheme. So u/s.42 of the MVAT Act, composition scheme is designed providing 8% of total contract value will be regarded as MVAT payable. Another representation was made requesting for reduction of rate of 8% on construction contract which was reduced to 5% from 20th June 2006.

If construction contractor is opting for composition, then their set-off on purchases is reduced.

17) Where composition is not opted, the normal set-off as per Rule is permitted. If, it is opted, the set-off claim is scaled down, if composition is un-der 8% scheme, set-off amount will be reduced by 36%. If composition is under 5% scheme, set-off clause will be reduced by an amount being 4% of total purchase price. The normal composition rate is 8% applicable to all works contracts, whereas building contractors can opt for 5% for construction contract and 8% for contract other than construction contract. The set-off on works contract other than construction contract is to be scaled down by 3% of purchase amount and for construction contract this scaling down is by 4%.

18) Unlike the composition scheme applicable to hoteliers or retailers where entire turnover is required to be considered, construction contractors can opt composition @ 5% qua contract. Similarly, under other composition scheme the dealer is not permitted to collect tax from customers. But under the works contract composition scheme, the dealer can collect tax. These aspects must be kept in mind while determining gross turnover and net turnover. While going through profit & loss account, the Auditor should verify whether hire charges are credited to profit & loss account. These may be in respect of leasing of goods. Earlier there was a separate Act-‘Right to use goods Act’. All amounts received for leasing of goods, machinery, furniture were liable to MVAT atapplicable rates which are 12.5% for leasing of machinery, furniture and 4% for computers. So these receipts should be considered in determining gross and net turnovers.

19) Provisions applicable to mandap decorators, hotel industries, 2nd-hand car dealers, retailers and bakary dealers:

Though the composition scheme to  mandap decorators was announced in 2007, the same was made applicable from 1-4-2005. All these dealers can discharge their tax liability by paying 1.5% tax on total turnover.

In case of dealers in hotel industries, second-hand car trade, retailers and bakery dealers, the Auditor should verify weather they have applied for in prescribed form to the Revenue authorities for coming under the composition scheme. Application has to be made either at the time of registration or at the beginning of financial years. Once the dealer opts for the scheme, he cannot come out of the scheme till the end of that financial year. Similarly these dealers are not permitted to collect tax from customers. This is a pre-condition. Therefore, sale price will not be treated as inclusive of tax. The tax @ 8% will be payable on entire sale price. In case of hotels charging rent for rooms, since rooms are immovable property, the rent earning is not liable to MYAT tax.

Where room hire charges are inclusive of breakfast or breakfast & lunch or breakfast, lunch & dinner, the charges attributable to these facilities are determined by applying the following table to gross rent collection, viz. :

For breakfast        –  5% of total rent
For breakfast & lunch    –  10%
For breakfast, lunch  & dinner   –  15%

The amount worked out at applicable rate to gross room rent will have to be considered for arriving at taxable sale price.

20) Determination of taxable turnover in case of C.F.I. Units located in backward area:

Where units are enjoying incentives whereby they do not have to pay any tax on turnover of sales, turnover of sales and purchases are determined in normal manner but set-off on purchases will not be allowed, but they are entitled to claim refund of taxes paid on purchase including tax paid on capital goods.

CFI unit in backward area, similar deduction is to be made. From final bill, the payment is made to CFI units for purchase of goods used in works contract. The remaining amount will be liable to tax @ 4% or 12.5% as the case may be.

21) As regards refunds till March 2007, the refunds due per return up to March 2007 were allowed to be carried forward. But refunds due for 2007-2008 cannot be carried forward. Refund due as per return or revised return for March 2008 or due as per Audit Report cannot be carried forward.

22) Re : Medicine  dealers  if pharmacies:

Till June 2007, turnover was determined as per MRP Scheme. From July 2007 the determination is to be made as done in normal dealers. Till June 2007 tax was collected from manufacturers on basis of MRP. The said scheme is discontinued. All medicine dealers had to submit stock statement as on 30-6-2007.

23) MVAT applicable to liquor licence dealers: S. 61:

Turnover limit of Rs.40 lakhs applicable to normal dealers does not apply to liquor licence dealers.

The dealer may permit other dealer to use his licence for liquor trading. The person using the licence has also to get his accounts audited, irrespective of the amount of turnover.

24) As regards Kirana merchants, they can opt for the composition scheme. If they have opted for the composition scheme, the tax rate will be 5% or 8%. If they have not opted, difficultly arises in determination of turnover of various categories of goods liable for different rates e.g., sugar, wheat, pulses are tax free, whereas on items like toothpaste, tax is 5% and on sale of dry fruit the rate is 4%. Very often he makes one cash memo for all these items, so also he does not make cash memo but records sales in his diary. As per Circular of the Commissioner and guidance note of WIRC, in all such cases, the turn-over of sales is to be determined in ratio of turnover of purchases as per purchase register. By applying above ratio, the sales turnover is determined.

25) Textile  processors:

Till 31st March 2005, they were exempt from tax. This was withdrawn under the MVAT Act. Processing is a works contract. On basis of purchases of chemicals and other materials, the taxable turnover is determined. In response to representation of Textile Processors Associations, the Finance Minister in Budget speech, assured that textile processing will not be treated as works contract and their trade will be exempt. Notification was then issued granting exemption to textile processors. Set-off will not be allowed on taxes paid on purchase of materials and capital goods. However, per Notification of 23rd October 2008 as per Rule 53(10) they will be entitled to claim set-off on purchases of capital goods and taxes on material used for processing. The exemption being applicable from 1-4-2005, those textile processors who have paid VAT as works contractors, can revise their returns and claim refund of taxes paid.

The revised Audit Report will have to be submitted giving reasons for revision. Revised Report should be filed only after the revised returns are filed by the dealer.

26) Verification  of CST  Returns:

S. 5(1) to S. 5(3) describe three different categories of inter-State sale, export sale & export sale without taking delivery of import. In such cases the ultimate consumer should pay charges of Bill of Entry, Customs duty and forwarding charges. Otherwise claim u/ s.5(2) may get disallowed.

S. 5(3) deals with transaction where the sale is effected to actual exporter. Such dealer should furnish declaration Form H which can be given for inter-State purchases as well as local purchases. Sale on Form 11 is treated as inter-State sale even if exporter is located within Maharashtra.

Export of goods without taking delivery through negotiation of Railway receipt or lorry receipt. The movement of goods should not be broken, if the claim of inter-State sale is to be proved. Secondly all dealers in the transaction must be registered dealers. Under CST, it is also necessary to collect Form E-1 from the selling dealer and Form ‘C’ from the purchasing dealer. In the event the dealer negotiating the documents fails to collect Form E-1, but collects only Form C, then such transaction will be treated as inter-State transaction liable to CST. The dealer negotiating Railway or lorry receipt has to issue Form E-2 to the purchasing dealer.

S. 6A of the CST Act deals with branch consignment transfer.

(27) Branch  transfer and  consignment sales:

Where movement of goods from one State to another State is otherwise than under contract of sale, then it is to be considered as branch transfer or consignment transfer. The conditions for falling under category of branch transfer are:

a) Sale is not under  contract  of sale

b) The consignee or branch should furnish declaration in Form F.

The Auditor should make note of missing Form C and Form F, and if the same are expected to be received, tax difference need not be paid. The revised return also need not be filed if dealer is confident of receiving missing forms. Suffice if the Auditor clarifies his stand in final report on chances of receiving missing forms.

(28) Time limit  for submitting    Audit Report:

As regards due date for submitting Audit Report in Form-704 it is 31st January 2009; the speaker informed that representation is made to the Commissioner for extending the date up to 31st March 2009. The speaker advised that without waiting for such extension, the Auditor should file report by 31st January 2009.

The learned speaker then replied queries raised by some members. The meeting terminated with a vote of thanks to the learned speaker.

TDS Law & Procedure – Recent Developments

Subject : TDS Law & Procedure — Recent Developments

Speaker : Rajesh Kothari, C.A., Past President, B.C.A.S.

Venue : I.M.C. Hall, Churchgate, Mumbai.

Date : 13th May, 2009.

1. Mr. Kothari, while introducing the subject remarked that the provisions of TDS are not only complex, difficult to interpret and still more difficult to implement. It expects the deductor to discharge his duties gratis on time bound basis. For due performance there is no reward but any failure on his part attracts not only interest, penalty and prosecution but he has to suffer disallowance. The injustice is aggravated where procedural changes are made in last week of March made effective from 1st April of the year following. For example, introduction e-payment of TDS is to be made after 1st April, 2009 instead of using paper challans. On 11th April, 2009, the Press Note has extended the time limit for e-payment till 1st July, 2009. Till then TDS can be paid by using challans presently in use.

2. Changes made in Sections & Rules :

i) Sec. 199(1) of the Act dealing with grant of credit of TDS was amended to provide for a situation where income becomes assessable in the hands of person other than the recipient due to operation of Sections 60, 61, 64, 93 & 94 of the Act.

ii) In case of AOP or Trust, the Rule provides that where the income is assessed in the hands of a member, the credit for TDS thereon will be available to him.

iii) In case of a Trust the credit will be given to Trustee. Where the income is assessable in hands of beneficiary, the credit will be available to him.

iv) Where the asset generating the income is held by Partner on behalf of firm, the credit for TDS will be available to the firm.

v) Where deductee is holding asset as Karta of his HUF the credit of TDS will be available to the HUF. A practical difficulty may arise where asset of HUF is held by a member other than Karta, the income though gets assessed in hands of HUF, the credit of TDS may be in jeopardy. Similar difficulty may arise in case of partial partition of HUF. In that case, the assessment of income will get continued as HUF income even though the partitioned asset will go outside the books of HUF.

vi) In case of a property deposit, security, units or shares held by an individuals jointly with others the credit of TDS will be given in the ratio of share of deductee and other co-owners.

3. The mechanism provided for claiming of Credit :

    In the above situations the concerned deductees have to furnish a declaration to the deductor giving details of names, addresses and PAN of or co-owners to whom the credit of TDS is to be given. There is no specific Form of Declaration. It can be given on plain paper also. Though no time limit is prescribed for furnishing the information to deductor, the deductee should ensure that such declaration is submitted before deductor effects deduction.

    The deductor has to issue certificate of deduction in the names of persons mentioned in the declaration.

4. Method of Accounting decides the Year of Assessability

    The speaker observed that different methods of accounting followed by deductor & deductee may cause mismatch of information given by deductor to I.T. Dept. and the year in which the deductee is submitting such income to tax. The deductee will be entitled to get credit.

5. Judicial views on TDS provisions :

    Delhi High Court as well as P & H High Court have taken a stand that credit should not be denied to the assessee on technical ground.

    i) In case of Escorts Ltd. the company was following accrual method. The Certificate for TDS was not available at the time of filing the return. The assessment was completed. The assessee claimed the credit in the year in which TDS certificate was received.

    ii) The Delhi High Court held that Sec.155 (14) empowers the Assessing Officer to consider the TDS even after 2 years from completion of assessment. Hence the A.O. should have given the refund of tax even though the assessment was completed.

    iii) In case of Sonal Bansal before the P & H High Court, the assessee, holding Deep Discount Bonds, received proceeds on maturity. The difference between maturity value and issue price was treated as interest by Bond issued and TDS was effected thereon. However, these bonds were purchased in the market at premium. The bond holder treated the difference between maturity value and his cost as interest since the seller of Bonds to him had paid Capital gain tax. So in such case, interest accounted will be less than income adopted for TDS. The Court took the view that he is entitled to tax credit because otherwise no one would get credit for TDS suffered.

6. Other Procedural Amendments

i) Rule-38 has been amended. There is no change in time permitted for effecting payment of TDS to Government. The only change is applicable to tax deducted by Government. Such tax had to be paid into the treasury on same day. Now, the time limit as is applicable to Non-Government organisation will apply even to Govt. So now the time limit will be 7 days from end of month in which tax is deducted. The time limit of 2 months will not apply, as the Government accounts are on cash basis.

ii) The payments can be made quarterly after obtaining permission of A.O. The mode of payment is for the first time prescribed in the Rule. Instead of challan No.280, now the challans should be in Form No.17 to be paid electronically.

iii) No consequences are prescribed for not paying challans electronically after 1st July, 2009. Tax deducted prior to 31.03.2009 can be paid by old challans.

iv) The new mode of payment will also apply to Government. In Form No.17, there is no need to put Assessment year but Unique Transaction Reference No. (UTN) is to be put. The challan has to make reference deductee-wise, giving the PA Nos. of the deductees , if they are ten or less. If the deductees are more than ten, a separate statement is to be prepared. In the Challan you have to give PAN of Deductor & the name of his Bank. Last year on 14th July, 2008, CBDT has come out with a Circular No.5 of 2008 to deal with payment from third party’s Bank A/c. The software will develop unit Transaction No. which is to be given in all statements submitted to LT. Department. There may be situations where PAN is not validated or where deductee’s PAN is wrong put, there may be some difficul ties.

v) Challan No.17 does not provide for the information under which Section the tax is deducted. However, in Form 26Q the section under which payment is made is to be given; as well as Name and PAN of deductees section-wise. Therefore Form No.17 must be used separately for each section.

vi) Form 27Q applies  to TDS from payment  to Non-Residents or Residents but not Ordinary Residents.

Similar difficulty may arise in case of concerns having multiple branches and multiple PAN Nos./TAN Nos. Difficulties AI will arise in matching payments. Though payments can be made by credit card or Debit card, no facilities are available in software on websites. Similarly, in case where service tax is paid in a Bank other than permitted Bank, the assessee can’t be asked to pay tax again.

vii) As regards Tax Collected at Source, the Press Note states that the time limit will be 7 days from end of month & the time limit of 2 months does not apply to TCS.

7. Amendments in time limit for Issue of TDS Certificates

i) Rule 31 deals with issue of IDS Certificate. It applies from 01.07.2009. Formats of Form No. 16 & 16A remain unchanged. In respect of provision made in the accounts at year end, the TDS was payable before 31st May. Thereafter deductor was duty bound to issue certificate within 7 days i.e. 7th June. Now, it is provided that certificate should be given within one week from date of payment to Government. A Consolidated Certificate can therefore be issued within 1 month from close of the year. So, in cases where tax is paid after 30th April to 31st May, a separate certificate will have to be given.

As regards duplicate certificate the only change is that deductor should certify it as duplicate certificate.

8. Additional Information to be provided in Forms of TDS Certificates & in the Returns

i) Form No.16 has been modified. The new form includes TDS certificate No.(optional), UTN, Information whether PAN is uploaded and validated by LT. Department, Information about Gross Amount paid/ credited to such employee. This amount will be different from amount chargeable as salary due to perquisites and exempt allowances. The details of perquisites are required to be given in Form 12-BB (though now not in existence).

ii) Form 16A certifies payments other than Salary. Certificate of TCS is to be given in Form No. 27E. Earlier there was a provision for issue of consolidated certificate, the consolidation of TCS between two periods, April to September and October to March is now deleted. Now TCS Certificate is to be issued every month.

iii) Rule-31A  –  Quarterly   Statement   of TDS and TCS – This is to be furnished in Form 24C. If any deductor has to cancel the TAN, he has to approach TDS Officer for cancellation. Till the cancellation is not effected, obligation of filing Returns, Challans & other information continues.

iv) It is now provided that Form No.24C is to be filed on quarterly basis whereas Forms 24Q, 26Q, 27Q should be compiled on quarterly basis but the same are to be e-filed collectively before 15th June of succeeding financial year. Uptil now the obligation to submit Form 24Q and 26Q on software like diskettes or CDs was applicable to bodies corporate or concerns and individuals to whom Tax audit was applicable or where number of deductees are less than 50. Now, since every assessee has to make e-filing, hence filing through diskettes or C.D. Rom is not necessary.

v) The time limit for submitting Form 24C is 15th July, 15th October, 15th January and for March quarter it will be 15th June. Form 24C is newly introduced and is designed afresh. The information is to be filed on quarterly basis.

9. Filing of the details of total expenses incurred each month under each head to which TDS applies i.e. Sec. 192 to 195

i) The total expenses will include revenue as well as capital expenditure on which IDS is deductable. It will also include the amounts on which tax is not deducted due to submission of declarations or orders of Assessing Officer permitting non-deduction.

ii) Where u/s:194C, TDS is required to be made the debit effect may be to various account heads like Printing and Stationery, Advertisement and Publicity, Repairs and Maintenance etc. Therefore, Form 24C should contain the details of all such account heads and expenses from which IDS is made. This creates the need to keep back up support if TDS assessment is taken up.

iii) As regards salary, the Form requires you to mention expenses for the month on which TDS is liable to be deducted as well as the amount of salary on which IDS is deducted. As per law, for working out TDS on Salary, a bonafide estimate of salary for the whole year is required to be made for ascertaining TDS amount. As regards exemption and allowances, it is difficult to ascertain on monthly basis.

iv) As regards Returns for Tax collection at source, Similar Form Nos. 24Q, 26Q & 27Q are not to be filed every quarter though the back up information is to be maintained. Form 16AA is omitted.

10. New Requirements of Form No.27 BB applicable to TDS on payment to Non Residents. (applicable Forms No. 15CA & 15CB)

As per Form 15CA, information is to be given by a person making payment to NR. Such person has first to obtain certificate from Chartered Accountant. Such certificate will be in Form 15CB and remittance cannot be made unless this Form is submitted. After the Form is submitted electronically thereafter print out is to be signed and submitted to tax authority through deductor. The PAN of the recipient is also to be given.

11. Recently, Bombay High Court has held (293 ITR) that even if deductor has not deducted the tax, it cannot be recovered by the LT. Department from the deductee.

12. In 115 TTJ it is held that if the employer is not issuing certificate in Form 16 to employee then the A.O. must use his statutory power to enforce compliance from employer.

13. In Hindusthan Coca Cola’s case it was held that if the tax is deducted from employee, he will not be liable to pay to Govt. any shortfall in deduction for any mistakes of the deductor. In such cases, deductor may suffer disallowance u/s. 40(a).

14. In case of Mahindra and Mahindra vs. DCIT it was held by Special Bench that time limit for reopening as applicable to normal assessment will also apply to l’DS assessment. No enquiry can be initiated after expiry of 4 years or 6 years depending on facts and circumstances.

15. Supreme Court in Larsen and Toubro case has held that employer is not under obligation to collect supporting evidence in respect of claims of employees. Similarly, TDS is required to be deducted from salary to foreign employee even if income is not liable to tax.

The meeting then terminated with a vote of thanks to the learned speaker Mr. Rajesh Kothari.

Certain issues on Accounting Standards with special emphasis on AS-22 and AS-10 — Revised.

Lecture Meeting

Subject : Certain issues on Accounting Standards with
special emphasis on AS-22

(Deferred Tax) and AS-10 (Fixed Assets)- Revised.


Speaker : Narendra P. Sarda, Past President, ICAI


Venue : Walchand Hirachand Hall, IMC



Date : 23-4-2008


1. Scope and coverage of subject :



The speaker dealt with recent developments, revisions and
reviews of existing Accounting Standards, as well as the new Accounting
Standards which will be taking effect from accounting years ended 31st March
2008 and subsequent two years. He divided the subject into five heads, viz. :

(i) AS-22 — Accounting for Taxes on Income

(ii) AS-10 Fixed Assets — Revised Standard (yet to become
effective).

(iii) AS-11 — Accounting for Changes in Foreign Exchange
Rates — Certain Issues and Developments.

(iv) AS-15 — Employees Benefits — Certain Issues and
Developments.

(v) Recent Pronouncement of Institute in respect of
Derivative Instruments.


2. General :


The Institute has announced that Company’s Accounting
Standards Rules are applicable to any accounting year commencing on or after 7th
December 2006.

Issues :

A question arises in cases where certain deviation in
existing standard is recommended by the Institute but not yet incorporated in
Rules, then for reporting on compliance of Accounting Standards u/s.210, whether
the Auditor should report such deviations as and by way of information or should
qualify true and fair view of accounts. The speaker said that the deviation
should be reported as information and not as qualification.


3. AS-22 — Accounting
for Taxes on Income :


Issues and Developments in respect thereof :




(a) Timing difference considers tax effects of differences
in book income and taxable income. Timing differences get reverted in future
and are taken care of by incorporating Deferred Tax Assets and Deferred Tax
Liability. The permanent differences are due to disallowances. They are
ignored for Deferred Tax treatment.

International Accounting Standard (IAS-12), takes Balance
Sheet approach for deferred tax treatment. Such situation arises in
revaluation of assets, as well as in amalgamations and mergers.

(b) Tax outgoing is treated as an expense chargeable to
Profit & Loss Account. It includes two elements, current tax and deferred tax.
In a situation when there is no profit from current year’s activity, but
surplus in accounts is due to reversal of deferred tax liability. In such case
whether the dividend can be declared out of such surplus ? According to the
speaker, it is permissible.

(c) For determining the liability under MAT, not only
current tax provision but deferred tax provision is also to be added back.

(d) Accounting of Deferred Tax Asset — When turning
differences are having the effect of reducing accounting income below taxable
income, it gives rise to deferred tax asset; whereas when accounting income is
more than tax income, it results in deferred tax liability. For deferred tax
asset, Para 15 and Para 17 of AS-22 are relevant. Para 15 states that if there
is a reasonable certainty of recovering the losses in future, then only
deferred tax asset should be recognised.

Para 17 talks of virtual certainty of future profits
sufficient to absorb current and brought forward losses and depreciation.
Before creating deferred tax asset, the auditor should ask for convincing
evidence about certainty of future profit. Accounting Standard Inter-pretation
(ASI) No. 9 provides guideline for verification of credibility of evidence
propagated by client companies. This factor assumers still greater importance
when the current years’ losses include long-term capital losses. This is
because such losses can be set off only against long-term capital gains.

(e) Financial Report Review Board (FRRB) of the Institute
verifies the published accounts recognising deferred tax assets and ascertains
from concerned members whether due care is taken by them in this regard
i.e., virtual certainty of future profits, particularly when the amount is
material.

(f) Reassessment and review of deferred tax asset created
in earlier years can be made if the circumstances demand such adjustment after
proper review.

(g) In amalgamation of two companies or absorption of
loss-making by profit-making company, the deferred tax assets/liabilities of
loss-making company should be dealt with after considering profits and
profitability of amalgamated company ASI-11 deals with both situations.

If the loss-making company is taken over in amalgamation
scheme and that company has not created deferred tax asset due to
non-existence of virtual certainty of future profits, then the profit-making
company taking over such loss-making company can create deferred tax asset in
its books, since it will be entitled to claim set-off of such losses.

(h) There may be a situation that a newly started company
has losses and unabsorbed depreciation for last 3 years, which gives rise to
deferred tax asset. At the same time, it has provided depreciation in accounts
which is less than depreciation allowable under the IT Act, in such case it
will give rise to deferred tax liability. Therefore both deferred tax asset
and liability will require consideration. Unless there is virtual certainty of
future profits, deferred tax asset should not be accounted. Since to the
extent of deferred tax liability there is certainty, the deferred tax asset
can be accounted to that extent. This issue is covered in background material
of the Institute on AS-22.

(i) As regards tax rate, if at the end of the year the
budget has provided for a change in rate of tax, it should be given effect to.
No discounting of rates is permitted.

j) Presentation of deferred tax asset/liability. Earlier year’s brought forward balances should not be mixed up with current year’s figures and current year asset/liability cannot be net out. In Schedule VI, the deferred tax liability should appear after unsecured loans but before current liabilities and provisions, so also deferred tax asset should appear after investments but before current assets.

k) If deferred tax effect is not accounted in earlier years, but is proposed to be accounted in current year, then such adjustment can be made through revenue reserve. It there is no reserve, then it should be debited to profit and loss account.

l) If a company is having tax holiday for certain years, say, u/s.80IA or u/s.80IB, then though there is timing difference in accounting income and tax income, ASI-3 provides that if out of timing differences, some figures are going to reverse after tax holiday period, it is necessary to provide deferred tax liability only on such amounts. ASI-5 considers the situation where company’s income is covered by exemption u/s.l0A and u/s.l0B.

m) ASI-4 deals with losses under the head Capital gains, which are adjustable only against future capital gains. Therefore normally there cannot be virtual certainty. So ASI-4 advices not to create deferred tax asset with reference to capital loss.

n) ASI-6 considers situation under MAT liability where book profit is higher than taxable income, the tax is payable with reference to book profit @ 7.5% plus surcharge. In such cases, on timing differences the tax at normal rate of” 30% plus surcharge should be considered.

o) In respect of quarterly reporting of income for listed companies, the average rate of tax on an income should be ascertained. Such rate should be applied to the income for the quarter.

II. AS-IO – Fixed Assets – Revised Standard (yet to become effective) :


i) Exposure draft was issued in 2006. After considering the views thereon, Press Note of the Institute, announced in August, 2006 that the draft is finalised. It was proposed to make it effective from 1-4-2009. Yet the effective date is not announced, presumably because the Company Law Board will have to modify the Accounting Standard Rules suitably.

There are some conceptual differences in the Revised Standard. This is so in respect of spares and components which are purchased or in stock at year end. If these components are exclusively for use in plant and machinery, then requirements of Revised Standard will have to be complied with.

ii) The Revised AS-10 will be dealing with Accounting of Fixed Tangible Assets as well as Depreciation Accounting, which was hitherto governed by AS-6. So earlier AS-6 will stand withdrawn after its merger with revised AS-10. From the earlier AS-10, Para 14 & Para 24 will continue. Para 14 deals with assets held for disposal, so also Para 24 deals with non-current assets for disposal.

iii) Institute has issued ASI-2 on machinery spares which has discussed the circumstances when it will be machinery spares and when it will be fixed assets. This interpretation will also become inoperative after revised AS-lO becomes operative. After such date, machinery spares, which can only be used in machinery will be treated as machinery and not as part of inventory spare and components under current assets. So ASI-2 dealing with inventory will not apply to machinery spares.

iv) For real estate developers, the applicable Accounting Standard will be AS-10 and not AS-7. For revised treatment to machinery spares, the test of economic benefits will be required to be satisfied. So also cost thereof should be’ ascertainable. For subsequent expenditure on existing fixed asset, current repairs will be charged to profit and loss account, but substantial expenditure which increases existing capacity of machinery will be capitalised and depreciated thereafter.

v) Revised AS-10 also deals with component accounting. While accounting, the WDV of component replaced should be transferred to profit and loss account and cost of new components should be capitalised and depreciated. Alternatively, old component’s WDV can continue and of new component to be debited to Profit and Loss account. These are the two options given.

vi) Where inspection of useful balance life is a costly affair as in case of aircrafts or where major replacement is a feature of, say, every four years, it was earlier recommended to spread such cost over four years by creating provision every year. But, now it is not permitted by AS-29. This Standard does not permit provision where expenditure is not actually made. Provision can be made for existing obligation and not for future obligation.

vii) The solution is to capitalise such expenditure and then amortise over certain years and write off old unamortised amount. Cost of dismantling of old asset can be added to new asset and depreciated.

viii) On the issue of Revaluation of Fixed Assets, the speaker listed the rules to be followed, viz. :

a) Revaluation should be done uniformly for en-tire class of assets like building machinery, etc. Revaluation at fair value and not any ad-hoc value.

b) Revaluation should be done uniformly every year to arrive at fair value.

c) For depreciation Para 13 of AS-10 dealing with depreciation accounting, the rates should be at prescribed rates unless circumstances warrant higher rates. In any case, lower rate than pre-scribed rate cannot be adopted.

d) Para-16 of AS-10 (revised) describes depreciation as a systematic allocation of cost over useful life. Components, having different useful life, should be depreciated at different rates. The rate and depreciation should be reviewed every year in the light of information about useful life.

e) Method of depreciation should also be reviewed every year. When there is a change in rate, it is change in estimate and not change in accounting policy. When method is changed from SLM to WDV, it is change in accounting policy. For this the change should be prospective.

f) In the past when asset is revalued the book value goes up. Additional depreciation due to revaluation should be adjusted by withdrawing such differential amount from revaluation reserve. However, in Revised Standard, depreciation on revalued asset will appear in profit and loss account – Now withdrawal from revaluation reserve will not be permitted.

III. AS-ll (Revised) Accounting of changes in foreign exchange rates:

This Standard was originally passed in 1993. It was revised in 2003 and made effective from 1-4-2004. In earlier Standard it was provided that increase in liability for repayment of unpaid price of fixed assets like plant and machinery had to be capitalised. A view was taken while finalising the Revised Standard that such change is a finance charge and credit or debit should be taken to profit and loss account. However, as Schedule VI needed capitalisation, the Institute announced that Schedule VI will prevail over Revised Standard i.e., Capitalisation was approved.

Now, this position is again changed. In respect of accounting year commencing on or after 7-12-2006, the Companies Accounting Standard Rules are coming into play. While Government agreeing with the Institute’s views re: finance charge has put a note to Accounting Standard Rules that in spite of Schedule VI, such exchange difference can be taken to profit & loss account. On 17-7-2007 the Institute issued pronouncement that the note to A. S. Rules should be given effect in respect of capitalisation, made between 2004 to 2007. For assets acquired between 1993 to 2003, the position will not be disturbed. Between 1-4-2004 to 6-12-2006, Schedule VI protection is still available. A legal view is taken that since Schedule VI is part of the Companies Act, it will prevail over Rules in spite of the view taken by the Government and the Institute.

IV. AS-15 –    Retirement Benefits    for Employees:

The Standard was originally issued in 1993 and revised in 200S. The new Standard covers entire gamut of benefits except share-based benefits. This was originally to become effective from 1-4-2006 which date is postponed to the year commencing after 7-12-2006. The issues are:

The liability accrues at the point when the service is rendered and not at the time of payment. The Institute has issued FAQs containing 18 questions and replies thereto. This Standard applies when employer-employee relation subsists.

i) In case of gratuity which becomes payable only after completion of five years still provision has to be made for the liability accruing each year. The liability is to be quantified by actuarial valuation.

ii) Leave encashment is also required to be provided. Maximum accumulation is 240 days whereas availment each year is 30 days. In such case the actuary should evaluate the liability.

iii) As regards P.P. contribution by employer the liability is determined, but as regard gratuity it is to be evaluated.

iv) In revised Accounting Standard AS-IS, the matter is not left entirely to actuary. It now provides that liability to be ascertained by applying Projected Unit Credit method (PUC).

v) As regards VRS benefit, the amount paid is amortised over five years. But the new Standard provides that it is an expenditure of current year and cannot be deferred, because it is not an asset. VRS paid up to 31-3-2009can be amortised, but payments thereafter cannot be amortised but to be wholly debited to profit and loss account, so also earlier year’s amortisation cannot be carried beyond 1-4-2010.

vi) Where earlier year’s liability is sought to be provided for the first time, the prior year’s liability can be debited to revenue reserves or another option of amortisation over five years is given by revised AS-IS. However, such treatment should be reported by way of note as information or disclosure and not as qualification to true and fair view.

 v) Derivative Instruments Accounting and Institutes Views:

i) The Institute’s announcement dated 28-3-2008 on issues is applicable for accounting year ended 31-3-2008.

Derivative instruments being financial instruments are covered by Accounting Standard-30 which will be applicable from 1-4-2011. Till then it is recommendatory. The foreign exchange derivative contracts as well as other derivative contracts put the company to huge liabilities. Derivative contracts comprise of index, exchange and commodity derivatives. Though AS-30 is not put in operation, still AS-1 is applicable insofar as concept of prudence, for providing for losses.

ii) Where there is profit in some and losses in other derivatives, whether provision should be made contractwise or classwise or on global basis. The global treatment is certainly not correct. The categorywise treatment is recommended. If net is a loss it should be provided, if net is gain the same is to be ignored.

iii) Hedging transactions – if in underlying contract of purchase/sale there is a loss and in derivative contract there is a gain, then both are to be netted.

(iv) If there are derivative contracts covered by AS-11, Paras 36 and 37 talk about hedging, whereas Paras 38 and 39 talk about derivatives speculation and trading. If on 31st March the position shows a loss, but on subsequent Balance Sheet date, there is a gain, such subsequent event accruing in next year cannot be taken into accounts.

The meeting was terminated with a vote of thanks to the speaker.

Royalties and Fees for Technical Services in International Trade

Lecture Meeting

Subject : Royalties and Fees for Technical Services in
International Trade.



Speaker : Pinakin D. Desai, Chartered
Accountant, Past President, BCA.


Venue : Walchand Hirachand Hall, IMC.



Date : 7th May 2008








(1) Scope and coverage of the subject :



The learned speaker first set out the scope and coverage of
the subject he will be dealing with. He clarified that he would not be dealing
with situations where such incomes are received by resident assesses, but he
would consider situations where the resident assessee is effecting the payments
to a non-resident individual firm or company, since obligation to withhold tax
will arise only with reference to such payments. A resident payer has to put a
question to himself whether the non-resident has a liability to pay tax in India
on royalty or on fees for technical services (FTS) received by him from a
resident company. It is only then that he becomes liable to withhold tax.

(2) Fundamental Rules :


(a) Normally a person is liable to pay tax on his income in a
country in which he is resident. However, there are exceptions to this rule
e.g., A U.K. company though liable to tax in its own country on income
received in India, all the same, tax laws in India may fix a liability on such
company to pay tax in India on Income accruing, arising or received in India. In
such case a simultaneous obligation is cast on an Indian payer to withhold tax
on such payment to the U.K. company.

(b) Where a non-resident is having a business connection or
permanent establishment in a source country, say, India, then such non-resident
is liable to pay tax on income from business connection or from permanent
establishment.

(c) In respect of royalty or technical services, the
liability to Indian Tax arises even if the services are rendered outside India.
In such cases, one has to look to provisions of treaty under D.T.A. Agreement.
If the tax is payable in source country under the treaty as well as under
domestic law, then withholding at prescribed rate will have to be made. In
another circumstance where tax is payable under domestic law but not under the
treaty, or conversely tax is payable under the treaty but not under domestic
law, or where the tax is required to be paid at lower rate, then such
non-resident recipient company can make payment in each case, at a rate most
beneficial to him.

(d) Tests to be applied to applicability of treaty
provisions : It is advisable to read all provisions of the treaty since
prima facie impression about non-taxability may get negatived by some other
provisions in the treaty. To illustrate, in the India-U.A.E. treaty the articles
are saddled with a number of barriers and conditions.

(e) Concept of beneficial ownership : Concessional or
beneficial treatment is allowable, provided the recipient is the beneficial
owner of that income. Where such recipient acts only as a conduit between the
payer and the actual beneficial owner, then benefit of concession gets lost. In
Nat West case the AAR held that the company in Mauritius is only an intermediate
vehicle between the payer and the real beneficial owner. Hence, it will not get
exemption.

(3) Fees for technical services : Applicable provisions :


(a) Domestic Law : When an Indian company makes
payment of fees for technical services, then per S. 9(1) (vii) tax is leviable
regardless of situs and nature of services; whether managerial, technical or
consultancy service. All these are regarded as technical services and there is
tax withholding obligation. Technical service means a service requiring
application of required skill and knowledge of service provider. It does not
include a normal or routine commercial service; like that of an agent promoting
sales outside India of products of his principal in India. Hence, determination
of exact nature assumes importance. There are three concepts :

(i) Whether payment is for a product or a service. Where a
readymade product is acquired, there is no element of service. But when such
product is customised or tailor-made according to requirement of customer, it
involves supply of service.

(ii) Whether it is a service from equipment or whether it
is payment for user of equipment. To illustrate, where rent is paid for use of
car or house, it is payment for use of that asset. But, where the payment is
to hotel for boarding and lodging, it is a service, so also use of taxi with
driver or payment for rail or air-travel fare. In these cases use of equipment
is incidental to use of service.

(iii) Technical service v. technology-driven
service : Examples :

(a) Live telecast music event : Though this
involves use of highly sophisticated equipments, the user is in fact
interested in the product that is entertainment programmes. So also on-line
game on portal or Internet service or on-line tax information provider’s
services. All these services are technology-driven services and not
technical services.

(b) Physical service v. electronic service. Due to
development of electronics, one can instead of purchasing a book from shop
or purchasing rail or air ticket on counter can avail the same from website
or by e-booking. All the same, the nature of service remains
technologically-driven service.

(c) In recent decision of the Mumbai High Court in
Diamond Co. case reported in 169 Taxman, the Hon. Court has analysed the
concepts of technology-driven services, royalty and fees for included
services. The company was engaged in services of grading the diamonds
involving specialised knowledge of gemologists. After applying various
tests, the certificate of gradation was given. This was regarded as
technologically-driven service.



(4) Different facets of technical service :


The Supreme Court in Ishikawa jima-Harima Heavy Industries Ltd. reported in 288 ITR 409 (SC) has held that the liability to pay tax under domestic law arises only when there is a live connection or a live territorial nexus between the service and the place where services are rendered. This is a prime condition before applying S. 9(i)(vii), as the said Section itself provides that when an Indian company has availed of any technical service from non-resident in respect of source of income outside India then such payment will not be regarded as accruing in India, since such payment is for earning income from source outside India. The explanation to S. 9(i) (vii) provides a protection in this respect. If a UK company has undertaken a turnkey project or construction project  in India,  the project  is located in India and technical services are provided by the UK company, then such services will be regarded as part and parcel of project and the same will be regarded as project executed by the UK company. The income from execution will be taxed in India. The UK company will be deemed to be having permanent establishment in India.

(5)    In many treaties there is not only Article on fees for technical service, but also Article on Independent Personal Service (IPS) say professional service. If in a treaty there is no Article dealing with Fees for Technical Services (FTS),but there is Article on Independent Personal Service, such Article can make a Brazil company liable to domestic tax, if it receives fees from an Indian company, even if there is no fixed base or PE in India.

(6)    Where a payment  is taxable under  one article of treaty, but not under another article of the same treaty, the foreign enterprise may follow beneficial rule.

(7) Fees for Induded    Service    (FIS) :

This primarily deals with technical service, but its coverage is narrower than fees for technical service (FTS) and is akin to S. 9(i)(vii). Under this Article, tax will be payable by a Brazilian company in India on technical services received from Indian company even though services are not performed in India and it has no PE in India.

A treaty may have two sets of Articles, one dealing with FTS and other with IPS applicable to individual or firm. In a situation where fees for technical services are taxable in India and also under Article with FTS, but not taxable under Article IPS since such FE is not having PE, then FE can follow beneficial rule whereby IPS article will override FTS Article.

(8) Fees for Induded    Service    (PIS) :

It primarily is applicable to FTS. A technical service becomes included service in circumstances where the person giving service makes available technical knowledge, experience, skill, know-how or process or in addition to service makes available or transfers plan or technical design. The plans of architects or designs for installation and maintenance of machinery are illustrations, which are handed over to the payer of consideration. Similarly, software developed by a technician programmer makes available the software to his customer is another instance of included service.

Where a right to use a patent is acquired by an Indian company and if before effectively putting it to use, in conjunction with it his existing process set-up, and if there is a need for modification which is also provided by FE, then this additional service can be termed as included service. The tax will be payable at the time of making payment as per Article 12(4)(a).

(9)    Most-Favoured Nation Clause (MFN Clause) :

Though  on plain  reading of treaty  tax is payable, still there may be certain Articles whereby tax may not become payable, where there is MFN protocol. This clause is generally provided at the insistence of enterprise providing the service to ensure continued patronage of service receiver. However, the receiving company can provide for its freedom to enter into contract with some other service provider in future, whereby present contract will stand modified.

(10) Procurement of designs:

Where intention of receiving enterprise is to buy a product or a customised design and not standard design,  the judicial  views  are divided.

In Abhishek Developers v. ITO, 3719-3722/B/04 (Bang.) and in Indian Hotels Co. Ltd. v. ITO, ITA No. SS3/M/2000 (Mum.), the customised designs were considered as products. As against this, in MRPL v. DCIT, (ITA No. 1826/M/04). In Centex Merchants Pvt. Ltd. v. DCIT, (94 ITD 211 Cal.) and in TAG Report of OECD such supply was treated as technical service.

In all these contracts intent or object behind availing service needs to be looked into. Is the object to buy a service or to buy a product? There can also be a mixed contract. S. USA taxes it at 10% plus Sch. If technical service is connected with a PE, then S. 44D becomes applicable and tax will be 40% plus Sch. after deducting expenses of the P.E. i.e., on net income. The IDS will still be at 10% even if receipt by FE is effectively connected with FE’s PE. One has to keep in view the probable litigation on application of S. 40(a)(i).

(11) Royalties:

This covers payment of royalties for branded products, payment for use of LP.R.s (Intellectual Property Rights).

Traditional view is, when use of intellectual property rights is made available for commercial exploitation, the consideration received is Royalty. Similarly providing use of confidential basis of information or right which is not in public domain gives rise to royalty.

Key question to be asked by recipient of consideration is what does the payer of consideration get in return for such payment, Does he get use of IPR ?

(12) Inherent features of IPR Grants:

(a)    IPR is the result of owner’s skill, effort, exertion, intellect and/ or suffering.

(b)    Owners possession usually constitutes his tool of trade.

(c)    IPR’s are not in public domain, but are possessed secretly.

(d)    Such IPRs mayor may not be registered or protected.

(e)    Grantee is permitted to do what otherwise may be infringement.

(f)    Grantee is enabled to do what owner could have done.

(g)    Grantee  can commercialise  the product.

(13)    Illustrative  rights  of copyright  holder:

(a)    Literary work is protected by the Indian Copyright Act (ICA)

(b)    Literary work includes computer programme [So2(0) of the Indian Copy-right Act (ICA)]

(c)    Exclusive rights of copyright holder are described in S. 14 of LCA. and they are,

(i)  To reproduce work

(ii)    To issue copies  to public

(iii)    To make  translation

(iv)    To make  adaptation

(v)    To sell or offer for sale.

(14)    The learned speaker then illustrated and displayed a chart illustrating the exact nature of receipts in the hands of grantor & grantee of licence, is Product v. Underlying IPR.

Apprehended confusion ….Product v. Underlying  IPR:



(15) Definition of Royalty – Expl. 2 to S. 9(i)(vi) :

This is to be viewed from point of view of payer When payer gets any of the following rights, then it is payment of royalty.Where payer is getting any right for use any patent, invention, secret formula or secret process or similar property or for use of any copyright of any scientific, literary, artistic book, (It covers music drama, software or IPR) then such payment is royalty.

(16) There are subtle differences in definition, scope of royalty including exceptions under the Income-tax Act and the definition under UN Model. The speaker elucidated those differences through display of studies. The same are as follows :

As per Explanation Z’to S. 9(1)(vi) the royalty takes in its fold consideration received for

(a) any transfer of all or any right (including the granting of a licence in respect of films or video tapes for telecast or radio broadcasting)

(b) transfer of any right to use equipment

(c) disclosure of any knowledge, experience or skill on technical, industrial, commercial matter popularly known as undivulged know-how;

Exceptions : The following is not covered
(a) Payment is for business or source of income outside India.
(b) Consideration for sale, distribution or exhibition of cinematographic films.
(c) Capital gain income from sale, transfer of IPR.

(17) U.N. Model definition:
Definition of royalties per S. 9(I)(vi) is very wide. Treaty definitions normally are more beneficial under U.N. Model, definition of royalty:
The term ‘royalties’ as used in this Article means payment of any kind received as a consideration for the use of or right to use, any copyright of literary, artistic or scientific work including cinematograph films, any patents trademark, design or model, plan, secret formula or process or for the use of or right to use industrial, commercial or scientific equipment or for information concerning industrial, commercial or scientific experience. Therefore what is not royalty is business income taxable in the country of residence.

(18) Judicial development in taxation of royalty:
(a) Asian Satellite Decision: In this case, payment was made for use of service from equipment service provider who had server and equipment at his disposal, satellite transponder was used. The payment received from such user, whether a royalty ? According to the assessee he was using only a commercial service, but per Dept. it was payment for use of process since the words in S. 9(i)(vi)are use of secret formula or process. Per the Tribunal, a formula may be secret, but process need not be secret. By use of process, the data becomes available to user, hence it is covered by term royalty. The other cases are of Grindwel Ltd. & Kotak Mahindra, holding that use of server, the consideration par-takes colour of royalty. According to speaker, these decisions require reconsideration.

(19) Equipment hire  v. Service:

As definition of royalty includes consideration for use of or right to use industrial, commercial or scientific equipment, the user has to ask two questions to himself, namely:

(a)    Am I requiring  the use of equipment,  or

(b)    Am I acquiring  service  of the equipment?

In the former case he needs physical possession, custody and control of property. There should be no concurrent user by other and thirdly the risk of operation  is with  him  as user.

In the latter case, treaties  are not uniform  e.g., the India-USA DTAA covers equipment rental also. But in India-Netherlands DTAA, it does not. Impact of MFN clause. In Belgium treaty, the scope was amended due to favourable treaty with Sweden.

(20) TDS compliance:

TDS compliance  assures  great  importance  due  to rigours  of S. 40(a)(i). It is advisable  to take certificate u/s.  195(2) to overcome  chances  of disallowance  of expense  and  also  to avoid  litigation  on failure  to deduct,  confrontation   on interest  and penalty  for non-deduction   and  paying  tax out of own pocket. The assessee payer has no authority  to decide whether  tax is deductible  or not. It is advisable to follow safer course  of withholding  tax before payment to non-resident.

The meeting terminated with a vote of thanks to the learned speaker.

Recent Global Developments in International Financial Reporting Standards

 Subject : Recent Global Developments in International Financial Reporting Standards

Venue : IMC Hall, Churchgate, Mumbai

Speaker : N. P. Sarda, CA, Past President, ICAI

Date : 25th November, 2009

1. Bird’s-eye view of Development of International Accounting Standards from inception to date :

    1.1 In 1973, Accounting Standards Committee was formed to propose International Accounting Standards. In 2001, the name of the committee was changed to International Accounting Standard Board and the standards that were prescribed by the Board were titled as International Accounting Standards (IAS). The Accounting Standards hitherto published will be merged with IFRS. In the course of time, new standards may be formulated which will get added. Under the old regime of IAS, forty-one International Accounting Standards were introduced, out of which 12 standards were withdrawn or superseded by new standards, leaving twenty-nine International Accounting Standards. There are nine IFRS already in existence. The 9th IFRS has been issued on 12th November 2009.

    1.2 So far, several interpretations were issued on International Accounting Standards (IAS). Henceforth, interpretations on new Standards (IFRS) will be included in literature on IFRS.

2. The global developments, their present status and issues embedded therein :

    2.1 In India in 1987, decision was taken to set up at our Institute’s level an Accounting Standard Board. After its formation, it was decided to formulate our own independent Accounting Standards (AS), rather than verbatim adopting their international counterpart. Subsequently, in 2007, it was decided to convert present Indian standards to IFRS.

    2.2 In 1997, it was decided to achieve comparability and to improve existing standards. It was decided to revise ten Accounting Standards, such as AS-2 Valuation of inventory, AS-7 Accounting for construction contracts, etc.

    2.3 In 2003, another improvement project was undertaken by International Accounting Standard Board of revising fourteen Accounting Standards.

    2.4 There exist three types of Accounting Standards, viz. US GAAP evolved by US, International Accounting Standards and National Accounting Standards of each country. US GAAP was competing with International Accounting Standards. On many issues. However, it was decided to co-ordinate and close down the differences by taking up long term/short-term projects in that direction.

    2.5 There is one fundamental difference between US GAAP and International Financial Reporting Standars, namely, US GAAP lays down the rules, whereas IFRS sets out the principles.

    2.6 On 15th November, 2007 a decision was taken that companies located outside the US can follow principles of IFRS which need not be reconciled with US GAAP. But, if any company has to enter US capital market, then it must reconcile its accounts with US GAAP requirement.

    2.7 The European Union with its twenty-seven member countries and their respective parliaments decided that consolidated financial statements of listed companies should be as per IFRS. As regards unlisted companies or stand-alone units like holding companies and their subsidiaries it was left to discretion of member states. The trend of thinking of these governments is to make IFRS mandatory even to unlisted companies and stand-alone accounts. Thus, there are three-tier arrangements presently existing for dealing with presentations, disclosure requirements and the rules applicable to listed companies and stand-alone companies.

    2.8 Pursuant to this decision, the UK Parliament has passed legislation that all listed companies and even stand-alone companies will have to prepare consolidated account statements as per IFRS principles. For unlisted companies, IFRS applicable to SME i.e., Small & Medium Enterprises sector will be used and for very small enterprises (Micro Units) another standard as prescribed will be used. Similarly, for companies in the US, there are three-tier arrangements for presentation and consolidation.

3. IFRS for SMEs :

    3.1 The printed materials by way of Accounting Standards, Interpretation iterature in case of US GAPP runs into 17,000 pages and in case of IFRS, this runs into 2,500 pages. For small and medium sector companies, IFRS printed material is only 250 pages which, such SMEs will have to follow.

    3.2 In Europe, all the 27 member countries took a decision to totally adopt and follow IFRS and parliament passed suitable legislations accepting IFRS.

    3.3 Countries like Australia, New Zealand, Korea, and Sri Lanka have adopted IFRS, subject to their right to exercise their option about additional disclosures.

    3.4 A need to have a second look at the disclosure requirements of IFRS is being felt. A project called project on evaluation of disclosures is being undertaken to avoid conflict between IFRS requirements about disclosures, local requirements and economic situation in India. A decision is taken keeping in mind the strong view taken by IFRS that though guidance note can be provided, it should not conflict with principles pronounced in IFRS. Such guidance notes will not form part of the standards prevailing in the country. The IFRS Board is very assertive on this point. This makes it a difficult task to convert Indian Standards into IFRS with narrow scope for variation. In Europe, its twenty-seven member countries as well as countries in rest of the world have decided to go nearer to IFRS, but at the same time, retaining their right to deviate if local situations so demand. Though many changes are not permitted, the countries can decide about the dates/years from which the new standards will become applicable. So, many countries have decided to go for modified standards which will be close to IFRS instead of adopting IFRS directly.

    3.5 The regulators of Accounting Standards in India hold the same view. The Ministry of Corporate Affairs, SEBI, RBI, IRDA & ICAI are unanimous on issuing Indian Standards and not to endorse IFRS directly.

3.6 Global situation : The countries in Europe, Australia, New Zealand made their own standards. The countries like Korea, Sri Lanka, Hong Kong followed the IFRS verbatim. But, Singapore and Philippines accepted some of the standards and dis-agreed with some others. For example Interpretation Note No. 2 & 15 were not accepted by Singapore. Obviously, they cannot certify IFRS compliance. Some countries like India have made new standards applicable from 2011. So also Pakistan, Indonesia, Taiwan, Vietnam are trying to go nearer to IFRS in next four years. China has prepared thirty-eight Accounting Standards, which are at par with IFRS.

4. Issues and controversies arising from IFRS :

4.1 Recent global development and the financial crisis : In the last two years, a lot of debate has generated on whether crisis is due to accounting failure or due to some other reasons. The final view is that the crisis is attributable to failure of economic system. Banks were advancing loans on mortgage of properties. Attention was given only to value of property and not to repayment capacity and integrity of borrower. This practice worked well till property prices were rising. But this over-optimism brought about the disaster when property prices started dwindling. The borrowers opted to surrender properties, overflowing the banks’ balance sheets with properties in place of recoverable loans. In India, however, due to proper monitoring by RBI about secured loans against mortgage, restricting the discretion of banks on the extent to which such loans can be given, the disaster could be avoided to some extent.

4.2 Another reason for the economic crisis was that in India, the bankers not only look into the sufficiency of security but also verify integrity of bor-rower. But in the USA the scenario was that when loans were transferred to another bank, the portfolio of investments held as security were also transferred as financial products. The insurance companies gave guarantee. But when portfolio became bad, the recovery of debt became doubtful. The financial products, valuation of which is complex, when transferred to other bank, no conservative principles were followed. So also, when loans were given against property, the erosion in value of property resulted in losses to lender institutions. In the process of finding solution, it was decided that the standard-setters of financial reports should come out with new standards. As financial products are complex for evaluation, the standard-setters should give guidance on principle to be followed for financial instruments. IAS-39 is proposed to be revised by issuing IFRS-9. Another reason for the crisis was that many companies are having financial commitments which remain outside the books and do not get reflected in balance sheets. To illustrate, companies enter into Derivative contracts, the profit or loss gets crystallised when contracts are settled or options are exercised at future dates. Some companies enter into forward contracts for covering foreign exchange risk pertaining to purchase/import of raw materials. The fluctuations in import prices are very high. So, very often companies suffer heavily on actual settlements of contracts entered into, say, before 12 or 24 months. Such obligations do not get reflected in the accounts. This is a lacuna. In March, 2008, the Institute came out with Notification about derivative instrument in AS-30 which is not yet made mandatory, but recommendatory. Still, if a company desirous of following it, keeping in mind concept of prudence as per AS-1, can make suitable provision for losses that are likely to arise in derivatives, forward contracts and make account statements transparent and realistic. The financial failures of business enterprises due to such contracts of derivatives also have contributed to economic crisis.

4.3 As a step in the direction of solution, Financial Advisory Board was appointed by International Accounting Standard Board. US Financial Advisory Board is advised to study the situation and submit its report and recommendations.

4.4 The Board has observed that failure of the economy is not due to erroneous accounting but due to inherent system failure in incorporating liabilities and losses arising from derivatives, forward contracts, credit policies of granting loans against properties and financial instruments. It also recommended simplification of Accounting Standards on Financial Instruments (IAS-39) by issue of guidance note. International Accounting Standard Board took review of IAS-39. The issues arising therefrom touching subjects of presentation, disclosures were incorporated in IAS-32 issued in 1995. The other complex issues like recognition, measurement and valuation and other difficult issues were taken up in 1999, which were incorporated in IAS-39. For presentation and disclosures, IFRS-7 was issued. Now the AS-32 will contain only disclosure requirements. Some radical changes were made in basic concepts in accounting hitherto followed. For example, in IFRS, redeemable preference shares are not treated as capital or shareholders’ funds. It is a liability and not equity. Similarly, for IFRS, fully convertible debentures are considered as equity and not liability. Hence, when AS-32 will become effective, Schedule VI of the Companies Act will have to be revised. For IFRS, substance is more important than form. Therefore, for giving effect to IFRS, changes will have to be made in Financial Instruments Standard by simplifying it. These changes will be necessary in IAS-32 on financial instruments and in IFRS-7 on disclosures. The impact of financial instruments of liabilities arising through forward contracts, derivatives and other liabilities not appearing in balance sheet, age analysis of credit risks, portfolio valuation based on rate of interest. All present disclosures in standards on fixed assets and inventory does not cover issues arising in financial instruments.

The applicable standards are :

IAS-32 for Presentation

IAS-39 on Recognition Measurement and Valuation

IRRS-7 on Disclosures

4.5 IAS-39 on Recognition, Measurement and Valuation is being discussed globally on simplification. In India, on this issue AS-30, AS-31 & AS-32 are introduced; AS-30 deals with Recognition and Measurement. AS-31 is on Presentation and AS-32 is on Disclosure. The contents of these standards are at par with corresponding International Standards, but they are yet to be made effective. A project is undertaken in three parts by International Accounting Standards Board.

4.6 In the first part, issues on recognition, measurement and valuation are dealt with.

In the second part, impairment of investment and in third part, issues on hedging will be dealt with.

The first part is completed on 12th November, 2009 called IFRS-9. The second and third part will be completed in last quarter of 2010.

5. Classification, recognition & valuation of financial instruments :

5.1 There are four categories — Financial instruments include investments, loans and advances, deriva-tives and other financial assets and on liability side it includes every debt and equity other than current liability. The principles of valuation in IFRS-39 require adoption of fair value and not market value. So, if the inflow of actual yield of interest and amount due on maturity is known, then the fair value will have to be arrived at. To illustrate, investment of Rs.100 is purchased at Rs.91 which on maturity after 3 years will fetch Rs.100 and in inter-mediary years, it is fetching interest @ 7% and market value is, say, Rs.95. For fair value, one has to find out discounted value. In this case, the inflow will be @ 7% for 3 years and Rs.100. On maturity. after three years, suppose, discounted value is Rs.97, then for IFRS, the historical cost of Rs.91 as well as market value of Rs.95 is not relevant but discounted value Rs.97 will have to be adopted. This method of valuation is called amortised cost method. There are two methods in IFRS either amortised cost or fair value. This method can be followed if inflow is known and certain. The present value of such inflow is considered.

5.2 In IFRS-9, there are three methods of classification. First is fair value and second is amortised cost or discounted cost. Third is loans and advances to be valued at amortised value. To illustrate, if the loan of Rs.10 crores is given on security of property of Rs.8 crores and recovery is not likely, then under IFRS, for valuing security offered, the time that will be required for realisation of security will be taken into account. If the time for realisation is, say, 3 years, then discounted value of security of Rs.8 crores will be considered at say Rs. 5.50 crores. The difference between loan of 10 crores and present worth of securities i.e., Rs. 4.50 crores will be charged to Profit & Loss account by way of provision for bad and doubtful debt. The value of secured advance will appear at Rs. 5.50 and not Rs.8 crores for IFRS and the advance will become performing asset for presentation in balance sheet. So, the time value of money plays an important role in IFRS.

5.3 In IFRS-4, the following principles are extremely important. They are :

1. Historical costs do not play any role. It is always the present worth or discounted value, because user of financial statements is not interested in historical cost but present worth or fair value. For arriving at fair value, allowance is to be given to discounted value.

2. Time value of money : If the asset subjected to valuation carries normal interest which is realisable, then no discounting is necessary. But where no interest is likely to be received, then the value of asset needs discounting.

3. Substance over form : This is illustrated by a hypothetical case. If a company has declared VRS for its employees giving certain time allowance to opt, the company expects that, say 10 employees will accept retirement. But, actually, say, only 3 employees have opted and the company accepted their retirement. Then, as per IFRS, the provision for liability should not be only for three employees, but for all the likely employees, since the liability exists on balance sheet date. Such liability can be discounted. So, though legal obligation has not arisen, the constructive obligation requires consideration under IFRS.

In case of holding and subsidiary companies, for deciding whether consolidation will be required, the company will have to consider effect of the powers vested in holding company. If company ‘A’ is holding 49% of shares of company ‘B’ and under a contract or a MOU, the right to appoint managing director and finance director is vested in company ‘A’, then though holding is less than 50%, still the company ‘A’ holds right to decide effective financial management of the company ‘B’. Hence, consolidation of both Balance Sheets will become necessary. The same situation will prevail if majority of directors can be appointed by the company ‘A’. So, lead control test is satisfied. Thus, in IFRS substance over the form requires consideration.

4. For IFRS, the balance sheet plays more important role. Normally, the Profit & Loss account is considered important, since it decides profit for the year, the tax liability, the quantum of staff bonus, the dividend policy and other effects. In IFRS, balance sheet is supreme, since user of financial statements is more concerned with real state of affairs of the company. He needs an assurance that all provisions are made for actual or constructive liabilities and assets are valued not by historical cost but at fair value by making provision for impairment. At the same time, extra prudence through excessive provisions should not harm the interest of existing shareholders. The balance be-tween interests of existing and prospective shareholders is expected to be maintained. IFRS-9 will become mandatory from the year 2012.

6. Difference between IAS-39 and IFRS-9 :

6.1 Instead of the above four categories of principles in IAS-39, the fourth terminology for categorisation of shares and securities, is securities available for sale. Where securities cannot be termed as trade investments or long-term investments or other investments, then the same can be categorised under the head ‘Securities available for sale’. If value of such investments have materially appreciated, then the difference can be recognised by considering investment at fair value or realisable value and crediting other comprehensive income which shown in the balance sheet under ‘Reserves’.

6.2 In IFRS-9 instead of four methods only two methods are suggested, namely, fair value and amortised cost or discounted value of future proceeds. The intention for making investment will decide its category. Considering practical difficulties in determining fair value, International Accounting Standards Board, in its exposure draft has provided guidance on measurement of fair value. If there is active market for investments, then such value or in absence of active market, there is an alternative formula in finding out fair value. First level is evidence of trend of active market, second level is comparison of your security with similar security in active market. The third level is to consider cost of investment as surrogate of fair value.

6.3 When security is intended to be held till maturity and its amortised cost is considered, the variations in market value will have no effect on value, since it is to be held till maturity. But, if any of such securities are disposed of before maturity, still as per IFRS-9, revaluation need not be carried out. In IAS-39 on valuation of investment there were different rules to deal with appreciation and depreciation. In IFRS-9, these rules are substituted by simple principles viz., the impairment is to be identified with specific investments.

6.4 As regards valuation of equity shares, the principle in IAS-39 deals with embedded derivatives. In derivative contracts, what a party can receive or pay depends on price of commodity, rate of inflation or rate of exchange or rate of interest. An embedded derivatives are still complex. If asset is given on lease and if the rent is made depend on say rate of inflation say if inflation goes up by 1% the rent will go up by say 20%. This is contract of embedded derivative where outcome cannot be preciously determined. IFRS-9 covers only financial assets and not financial liabilities. Impairment of holding are to be considered later.

7. The present status of IFRS-9 & IAS-39 applicable to India :

7.1 The concerned authorities in India are ICAI, Ministry of Corporate Affairs, SEBI, RBI, Insurance Authority and the companies. The issues to be tack-led are — whether IFRS is to be adopted in total in the same form whereby Indian standards will cease to exist.

7.2 The trend of thinking of the above authorities is that IFRS can be applied only to public interest entities and Indian Standards will continue to apply to other entities.

7.3 Public interest entities need to be defined. It will include top listed companies or corporations, which have borrowed abroad or companies having subsidiaries abroad or have issued equities abroad. Therefore, IFRS will be applicable from 1-4-2011 to Insurance, Banking and Financial Institutions.

7.4 From 1-4-2013, the IFRS will be applicable to category 2 companies which will include all listed companies or companies having turnover over Rs.2,000 crores or borrowing more than Rs.500 crores.

7.5 For all the rest of companies, the question is whether they should follow existing AS or IFRS. These categories are SME’s (Small & Medium Enterprises), which are not equipped with advanced knowledge, required for IFRS. They can follow simpler accounting standards in India and progressively be prepared to follow IFRS by knowing its under-lying principles. A change in their mindsets and taking steps towards appreciating differences between Indian Standards and IFRS is the need of the day.

The learned speaker thereafter replied the questions raised from audience and concluded his speech.

The meeting was terminated with vote of thanks to the speaker.

to sense it and stub it.

  •  that the pro-active action the Chairman, prevented a brewing crisis in human relations which would have adversely impacted the company’s operations.

  •  the importance of HR policies and timely action.

  •  that HRD keeps its finger on the ‘pulse’ of the organisation.

Rajshree Sugars takes Axis to Court

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19 Rajshree Sugars takes Axis to Court


Coimbatore-based company files case in Madras HC over Forex losses

Chennai : The markets were rattled when Hexaware announced
late last year that it has provisioned for $ 20 to $ 25 million to cover its
forex losses. Even as the company was trying to deal with the issue, there were
murmurs that Hexaware was only the tip of the iceberg and that corporate India
is sitting on a time bomb. More credibility has just been added to the fears.

The latest to join is Coimbatore-based Rajshree Sugars and
Chemicals when it filed a case against Axis Bank in Madras High Court alleging
that the forex derivative product sold to them by the bank did not take care of
their needs. The currency involved and the quantum of losses is not known yet.
R. Varadarajan, chief operating officer of Rajshree told TOI that his company
has indeed filed a case around a forex derivative sold to it by Axis.

Even a conservatively-run Sundaram Brake Linings, part of the
TVS group, has pulled up its bankers and dragged them to the Courts, alleging
that their bankers have mis-sold derivative products. The monies involved here
is not much though. Sundaram Brake said that it has rejected a demand of Rs.1.76
crore from one of the banks saying that the contract was void. Small and
medium-sized companies are up in arms against their bankers. Many of these
companies have been caught on the wrong foot due to the weakening of US dollar
against several currencies, including the euro, Swiss franc and Japanese yen in
the current fiscal.

(Source : The Times of India, 20-3-2008)

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Cost of fuel gone up ? Don’t feel so bad !

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18 Cost of fuel gone up ? Don’t feel so bad !


Over the weekend, I filled up my car’s fuel tank, and I
thought fuel has become really expensive after the recent price hike.

But then I compared it with other common liquids and did some quick
calculations, and I felt a little better.

To know why, see the results below — you’ll be surprised at
how outrageous some other prices are !

Diesel (regular) in Mumbai : Rs.36.08 per litre

Petrol (speed) in Mumbai : Rs.52 per litre

Coca Cola 330 ml can : Rs.20 = Rs.61 per litre

Dettol antiseptic 100 ml Rs.20 = Rs.200 per litre

Radiator coolant 500 ml Rs.160 = Rs.320 per litre

Pantene conditioner 400 ml Rs.165 = Rs.413 per litre

Medicinal mouthwash like Listerine 100 ml Rs.45 = Rs.450 per
litre

Red Bull 150 ml can : Rs.75 = Rs.500 per litre

Corex cough syrup 100 ml Rs.57 = Rs.570 per litre

Evian water 500 ml Rs.330 = Rs.660 per litre
Rs.500 for a litre of WATER ? ? ? ! ! ! And the buyers don’t even know the
source (Evian spelled backwards is Naive.)

Kores whiteout 15 ml Rs.15 = Rs.1000 per litre

Cup of coffee at any decent business hotel 150 ml Rs.175 =
Rs.1167 per litre

Old Spice after shave lotion 100 ml Rs.175 = Rs.1750 per
litre

Pure almond oil 25 ml Rs.68 = Rs.2720 per litre

And this is the REAL KICKER…

HP deskjet colour ink cartridge 21 ml Rs.1900 = Rs.90,476 per
litre ! ! !

Now you know why computer printers are so cheap ? So they
have you hooked for the ink !

So, the next time you’re at the pump, don’t curse our
honorable Petroleum Minister — just be glad your car doesn’t run on cough syrup,
after shave, coffee, or God forbid, printer ink !

And for all you Scotch drinkers . . . the comparison cannot
be made.

— BE HAPPY . . . .


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App for docs : iPhone app to replace the stethoscope ?

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14 App for docs : iPhone app to replace the
stethoscope ?


The iPhone could soon replace the doctors’ best
friend, the traditional stethoscope, thanks to a free application created by a
University College London researcher.

Peter Bentley invented the ‘iStethoscope’
application which monitors heartbeat through sensors in the iPhone as just a bit
of fun. And, more than three million doctors across the world are signing up for
the free application.

(Source : The Hindu, dated 1-9-2010)

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IT Dept. worried with 50% TDS data mismatch cases

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13 IT Dept. worried with 50% TDS data mismatch
cases


Tax deducted at source (TDS) has become a
problematic issue with the Income-tax Department, as in more than 50% TDS refund
cases, it is facing an uphill task in matching the data provided in the
assessee’s income-tax returns with the TDS deductor’s information available with
the NSDL.

And the mismatch is resulting in the assessee
running from pillar to post to get back the refund due to him from the
Department.

“It’s a pan-India problem; the Government wants the
system to be fully computerised so that things are streamlined,” said Jamshedpur
Commissariat DCIT (TDS) S. M. S. Tauheed recently.

 

(Source : The Financial Express, dated
10-8-2010)

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Govt. to change role of accounting standards body

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12 Govt. to change role of accounting standards body


The Government plans to redefine the functions of
the National Advisory Committee on Accounting Standards (NACAS) to convert it
into an independent regulatory entity to monitor the quality of audit undertaken
across the corporate sector in the country.

The proposal, made by the Corporate Affairs
Ministry to the Parliamentary Committee on Finance that looked into the
Companies Bill, 2009, says the revamped NACAS should be allowed to oversee and
monitor the performance of standard-setting bodies for the accountancy and audit
professions.

Autonomous institutions such as the Institute of
Chartered Accountants of India (ICAI) and the Institute of Company Secretaries
of India, under the administrative control of the Corporate Affairs Ministry,
are the standard-setting bodies for accountancy and audit professions.

The Ministry response came after the Parliamentary
Committee, which submitted its report last week, expressed concerns over the
global economic crisis and the failure of big companies and suggested the
formation of an independent regulator to recommend standards for corporate
financial reporting, corporate audit and the quality of service of professionals
associated with ensuring compliance with such standards. It also wanted this
body to oversee, monitor and supervise the bodies involved in setting such
standards.

(Source : Internet www.taxguru.in, dated
10-9-2010)

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Debate over mobile phones and cancer

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47 Debate over mobile phones and cancer



Three prominent neurosurgeons told the CNN interviewer Larry
King that they did not hold cell-phones next to their ears. “I think that the
safe practice ,” said Dr. Keith Black, a surgeon at Cedars-Sinai Medical Centre
in Los Angeles, “is to use an earpiece so you keep the microwave antenna away
from your brain.”


Dr. Vini Khurana, an associate professor of neurosurgery of
the Australian National University who is outspoken critic of cellphones, said
“I use it on the speaker-phone mode. I do not hold it to my ear.” And CNN’s
chief medical correspondent, Dr. Sanjay Gupta, a neurosurgeon at Emory
University Hospital said that like Dr. Black he used an earpiece.

Along with senator Edward Kennedy’s recent diagnosis of a
glioma, a type of tumour that critics have long associated with cellphone use,
the doctors’ remarks have helped reignite a long-simmering debate about cell
phones and cancer.

That supposed link has been largely dismissed by many
experts, including the American Cancer Society. The theory that cellphones cause
brain tumours “defies credulity”, said Eugene Flamm, chairman of neurosurgery at
Montefiore Medical Centre.

(Source : The Times of India, 4-6-2008)

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After Warren Buffett, who ?

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46 After Warren Buffett, who ?



Warren Buffett speaks

At the 1996 annual meeting, an investor asked what would
happen to Berkshire Hathaway if Buffett were to get hit by a truck. The question
pops up more often than toast at breakfast. “I usually say I feel sorry for the
truck,” Buffett sometimes quips. Over the years he’s tried various come backs.


1985 : In an article about Berkshire’s long-term
commitment to the company it acquires, Buffett noted : “The managers have a
corporate commitment and therefore need not worry if my personal participation
in Berkshire’s affair ends prematurely” (A term I define as any age short of
three digits.)

1986 : “This is the proverbial ‘truck’ question that I
get asked every year. If I get run over by a truck today, Charlie (Munger) would
run the business, and no Berkshire stock would need to be sold. Investments
would continue.”

Also, Buffett surmised that the stock might “move up a
quarter or a half point on the day that I go. I’ll be disappointed if it goes up
a lot.”

(Source : The Times of India, 25-5-2008)

 

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Bust that stress

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45 Bust that stress



Stress is evil and can only wreak havoc on our mind, body and
spirit. One can learn to cope with the following survival kit :



  • First, find out what’s causing the stress. A relationship issue, financial
    loss, failure, an accident or a change that’s not necessarily negative, like
    shifting to a new house, a mar-riage or a long trip can be the source. Some
    common stressors are a violent parent or spouse, a bullying boss, being
    trapped in a bad marriage or job, excessive workload or responsibilities, a
    medical illness or chronic pain, or memories from a trauma, like sexual abuse.


  •  It’s equally important to become aware of your individual coping style. Find
    out what you perceive as the cause of stress and how you’re emotionally
    responding it.


  • Once identified, you need to evaluate how many changes you could incorporate
    in your environment and even in yourself. The assessment has to be honest and
    realistic. You can seek advice from within the family or friends or take
    professional help.


  • Learn to tell the difference between facts and fears. You can only deal with
    reality and then treat your fears.


  • Don’t constantly micromanage, Learn to accept uncertainty and your limitations
    in certain situations.


  • Know your limits — don’t be too competitive or expect too much of yourself.


  • Avoid comparing your finances and happiness with those who are better off.


  • Accept offers of practical help. Don’t hesitate to reach out and talk to
    someone.


  • Try to spend time with people who are rewarding rather than critical and
    judgmental.


  • Learn time management and relaxation techniques. Exercise !


(Inputs from
Dr. Bharat R. Shah, Psychiatrist, Lilavati Hospital, Mumbai)

(Source :
The Times of India, 25-5-2008)

 

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Acts of exemplary leadership

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44 Acts of exemplary leadership



1. Be
authentic

2. Establish
and maintain credibility

3. Create an
environment of respect and trust

4. Sense and
diagnose the work environment

5.
Communicate clearly

6.
Demonstrate common sense leadership

7. Manage

8. Inspire
hard work, attention to detail, and a commitment to quality.

(Source :
Internet news wires)

 

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Indian carriers save Rs.15 cr. by switching over to e-tickets

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43 Indian carriers save Rs.15 cr. by
switching over to e-tickets


Within a week of shifting from carbonised air-tickets to
e-tickets, the Indian air carriers have managed to save estimated Rs.15 crore,
providing them a way to cut costs after the rise in Aviation Turbine Fuel (ATF)
prices.

(Source : Internet news wires)

 

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Independent directors on audit firm boards

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42 Independent directors on audit firm
boards


U.S. Treasury panelists recommended independent directors at
auditing firms to improve their governance and transparency as well as to help
protect investors.


Currently, the largest accounting firms — Deloitte & Touche (DLTE.UL),
Ernst & Young (ERNY.UL), KPMG (KPMG.UL) and PricewaterhouseCoopers (PWC.UL) — do
not have independent directors
and are at times criticised for lacking transparency.

Panelists assembled by the Treasury Department to develop
recommendations for the industry said they were “particularly intrigued by the
idea of independent board members with duties and
responsibilities similar to those of public company non-executive board
members.”

(Source : Internet news wires)

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Audit quality

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41 Audit quality



More than three-quarters (78%) of audit committee members who
participated in a recent survey commissioned by the Center for Audit Quality
rated overall audit quality ‘very good’ or ‘excellent,’ and 82% said it has
improved in recent years.


About 53% of the audit committee members agreed that overall
audit quality is ‘very good,’ while 25% described it as ‘excellent.’ About 87%
said the risk of inaccuracies in financial statements due to fraud is ‘not very
high,’ and 60% agreed that the risk declined after the passage of the
Sarbanes-Oxley Act.

Nearly two-thirds (65%) agreed that investors should have
more confidence in the markets as a result of the 2002 law.

The Internet survey of 253 audit committee members was
conducted between Jan. 7 and Feb. 20 by The Glover Park Group. Participants in
the survey represented a range of publicly-traded companies. All served on at
least one audit committee in 2007. Six in 10 served on two or more audit
committees, and half were committee chairs. About 56% began their service as
audit committee members prior to the passage of SOX.

Nearly all of the respondents (99%) said they devote more
time to their committee work as a result of SOX. About 90% said they work more
closely with external auditors.

(Source : Internet news wires)

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PCAOB norms

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40 PCAOB norms



The Public Company Accounting Oversight Board today adopted
rules for annual and special reporting of information and events by accounting firms that are registered with the PCAOB.


S. 102(d) of the Sarbanes-Oxley Act of 2002 provides that
each registered public accounting firm shall submit an annual report to the
Board, and also may be required to report more frequently, to provide
information specified by the Board. The reporting requirements in the new rules
are the first such requirements adopted by the Board.

PCAOB Chairman Mark Olson said, “With today’s action, the
Board is putting in place requirements that will ensure that fundamental
information about each of the more than 1,800 firms registered with the PCAOB is kept up-to-date and that each firm promptly discloses certain
significant events. With this foundation in place, the Board can also, in the
future, add other reporting and disclosure obligations that may appropriately
serve the public interest.”

The reporting framework includes two types of reporting
obligations. First, each registered firm must annually provide basic information
about the firm and the firm’s issuer-related practice over the most recent
12-month period. Information to be reported annually includes, among other
things, information about audit reports issued by the firm during the year,
certain disciplinary history information about persons who have joined the firm,
and information about fees billed to issuer audit clients, in various categories
of services, as a percentage of the firm’s total fees billed.

Second, the rules and forms adopted by the Board identify
certain events that, if they occur with respect to a registered firm, must be
reported by the firm within 30 days. These reportable events range from such things as a change in the firm’s name or contact information to the
institution of certain types of legal, administrative, or disciplinary
proceedings against a firm or certain categories of
individuals.

The Board will make each firm’s annual and special reports
available to the public on the Board’s web site, subject to exceptions for
information that satisfies specified criteria for confidential treatment.

(Source : Internet news wires)

 

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Management-oriented auditing

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39 Management-oriented auditing



Today, the idea of detection or verification being the
‘be-all and end-all’ of internal auditing still prevails, but with improvements.
(It is not, however, the sole reason for internal auditing, which will be
explained in this article.)


The detailed checking to detect errors and fraud is giving
way to user-friendly systems designed to do the same thing. Internal auditors
today rely on up-to-date systems, which they have tested, to guard against
improprieties.

They substitute their knowledge of risks, operating goals,
systems, and management drudgery of item-by-item checking. They have moved from
simple verifiers/attesters to the broad management-orientated internal auditing.

Attributes of management-orientated auditor. He is not an
internal adversary, but a ‘management confidante’ whose role is akin to an
“internal consultant’s”. He is not the dreaded internal sleuth but a management
ally. Even though his role might be likened to the ‘eyes and ears of
management’, this attribute need not be associated to a spy or a snooper.

Modern-day internal auditors do what the chief executive
officer, manager or supervisor of an organisation would do in appraising
operations if he (that is, the CEO/manager) himself had the time.

Management-orientated auditing fundamentals. To be an
effective modern-day management-orientated internal auditor, a person needs to
be aware of the following skills : (i) knowing the modern methods, (ii) the
people they deal with, (iii) the population or audit universe to cover, (iv) how
and when to communicate (entailing good interpersonal skills), (v) knowing the
professional audit standards for his guidelines, (vi) awareness of his audit
goals, vii) knowing the facts surrounding the things he is auditing, (viii)
being aware of the controls in those surroundings, (ix) the causes of deviations
in those surroundings, (x) what effects that could arise as a result of the
present situation and finally, (xi) being able to suggest improvements or
positive (not negative) corrections.

(Source : Internet news wires)

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FM’s observations at CC & DG meeting

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38 FM’s observations at CC & DG meeting



The Finance Minister of India, Mr. P. Chidambaram, in his
inaugural address delivered at the 24th Annual Conference of Chief Commissioners
and Directors General of Income Tax in New Delhi on
the 9th June 2008, congratulated the Income Tax Department for direct tax
collection of Rs.3.14 trillion.


He, however, observed that the quality of tax scrutiny could
further improve if tax authorities repose more trust on taxpayers and not view
every case generated by the computer-aided scrutiny selection with suspicion.





[Source : Press Release No. 402/92/2006-MC (24 of
2008) Govt. of India/Ministry of Finance 17-6-2008]

 



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Education needed for move to IFRS

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37 Education needed for move to IFRS



All eyes are on the Securities and Exchange Commission as it
prepares to issue a detailed roadmap this summer for the transition to
International Financial Reporting Standards, but some representatives gave hints
about what might be in that roadmap at a conference held by the Financial
Accounting Standards Board in New York.


FASB Chairman Bob Herz likened the move to IFRS, while
accountants continue to use U.S. generally accepted accounting principles, to
“trying to ride two horses at once.” He said FASB was in the process of updating
its memorandum of understanding with the International Accounting Standards
Board on convergence, but said it was up to the SEC to give a date for the
transition.

AICPA CEO Barry Melancon said a modification of the Tax Code
by Congress would be the best way to handle differences such as the
last-in/first-out inventory method, which is not supported in IFRS. “The LIFO
issue is primarily a tax issue,” he said. He sees growing awareness among
corporate CPAs of the move to IFRS. He believes the time is now to set a date
certain for the transition. “You converge, converge, converge, but at some
point, you have to adopt,” he said.

(Source : Internet wires)

 

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Tax sleuths do some serious networking

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36 E&Y : Merger volume plunged 30%


 

Total global deal volume weighed in at $ 1 trillion during
the first 19 weeks of 2008, down nearly 30% from $ 1.4 trillion during the same
time last year, according to a new analysis by Ernst & Young LLP’s Transaction
Advisory Services group.

 

Nevertheless, deal activity remains strong in emerging
markets. So far in 2008, total transaction volume surged more than 14%, to
$ 90.7 billion in the so called BRIC countries (Brazil, Russia, India, and
China).

 

The infrastructure, financial services, real estate, oil and
gas, media and entertainment and technology sectors lead overall transaction
volume, according to E&Y. Because of their currently undervalued assets, those
sectors also have the biggest chance to stimulate a market rebound, the firm
added.

(Source : CFO.com, 16-6-2008)

 

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E&Y : Merger volume plunged 30%

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36 E&Y : Merger volume plunged 30%



Total global deal volume weighed in at $ 1 trillion during
the first 19 weeks of 2008, down nearly 30% from $ 1.4 trillion during the same
time last year, according to a new analysis by Ernst & Young LLP’s Transaction
Advisory Services group.


Nevertheless, deal activity remains strong in emerging
markets. So far in 2008, total transaction volume surged more than 14%, to
$ 90.7 billion in the so called BRIC countries (Brazil, Russia, India, and
China).

The infrastructure, financial services, real estate, oil and
gas, media and entertainment and technology sectors lead overall transaction
volume, according to E&Y. Because of their currently undervalued assets, those
sectors also have the biggest chance to stimulate a market rebound, the firm
added.

(Source : CFO.com, 16-6-2008)

 

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Are speculative traders parasites or making gold from dross ?

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34 Are speculative traders parasites or making gold from
dross ?


The global financial market has become ‘a monster,’
responsible for ‘massive destruction of assets,’ according to the President of
Germany and former head of the IMF, Horst Kohler. It ‘grotesquely’ remunerates
its executives, he added.


According to Kenneth Griffin, founder and head of the $ 20
billion Citadel Investment Group — one of the biggest and most successful
American hedge fund companies — international finance has been functioning on
the judgment of ’29-year-old kids’ who ‘control the capital markets of
America . . . young guys right out of business school.’

As a general rule, the margin required to buy an oil futures
contract is 10%. Pledge $ 10,000 and buy $ 100,000 worth of oil. Or why be a
piker ? Put up $ 100,000 and buy a million-dollar contract. The price goes up
one dollar five minutes later and you’ve made a million.

These are not transactions between producers and consumers,
when the classical economic rules would function. These trades, unregulated,
have virtually no useful economic role. They have become a form of parasitical
professional gambling that distorts the transactions between producers and
buyers.

Kohler compared the speculative bankers with alchemists, who
purported to make gold from dross. It is not a bad comparison, and our
contemporaries have, thus far, done better than their medieval counterparts, who
often ended burned at the stake.

(Source : Daily News & Analysis, 25-5-2008)

 

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Ex-UBS staff charged over tax fraud

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33 Ex-UBS staff charged over tax fraud


Two bankers, including a former employee of UBS, the world’s
leading wealth manager, have been charged by US authorities with helping an
American billionaire evade income taxes on about $200 million of assets
deposited in Swiss and Liechtenstein bank accounts.

(Source : Business Standard, 15-5-2008)

 

The new alchemists

 

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$ diplomacy : China using investments to build political influence on world stage

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82
$ diplomacy : China using investments to build political influence on world
stage

Flush with more than $2
trillion in foreign exchange reserves, China has directed its state firms to
scour the globe for opportunities. As it does so, China is playing by its own
rules, giving its firms an edge over US and other multinational companies bound
by internationally mandated restrictions intended to promote fair competition.

In addition, Brazil and
other developing countries, which once saw China as an ally, are now realising
that Chinese companies are competing on their own turf for resources and market
share. And some analysts say the US has been slow to perceive that China is
using investment to build political heft.

Chinese firms have bought
stakes in Brazil’s electrical grid; they are building steel mills, car plants in
that country. A simple formula, or deviously foresighted? Time will tell — and
soon.

(Source: Hindustan Times dated 27th July, 2010)

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House Panel calls for harmonisation of Provisions of Companies Bill with International Financial Reporting norms

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11 House Panel calls for harmonisation of
Provisions of Companies Bill with International Financial Reporting norms


 

The Standing Committee
of the Parliament, which thoroughly examined The Companies Bill, 2009, has
observed that there are several matters included in the Bill, which need
modification with a view to harmonising them with the International Financial
Reporting Standards (IFRS). The Committee has, therefore, desired that all such
matters requiring harmonisation with IFRS should be considered and appropriate
amendments may be made in the relevant proposals contained in the Bill. The
Standing Committee on Finance (SCF) presented its Twenty-First Report, which
pertains to the Ministry of Corporate Affairs, to the Parliament recently.

The Committee’s
examination of the subject and the replies of the Ministry received thereon
reveal that the following provisions/clauses of the Bill require modification
for achieving convergence with IFRS :



2(1)(b) :
(Definition of the term ‘accounting standard’)

 

46(2) : Utilisation of securities premium
account

 

49(1) : -do-

 

59(3) : Reduction of share capital

 

110(2) : Prescription of depreciation rates

 

117(1)

and

 

117(4) : Financial statements to comply with
accounting standards

 

201 :
Schemes of mergers and


amalgamations.




(Source : www.taxindiaonline.com, dated
8-9-2010)

 

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Global tax forum starts peer review of countries

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The global forum of more than 90 countries, working towards
improving tax transparency and exchange of information, has launched the peer
review of member-nations, including India.

India is a Vice-Chair of the Peer Review Group, which is part
of the Global Forum on Transparency and Exchange of Information for Tax
Purposes.

The review, which forms part of the international fight
against cross-border tax evasion, would initially start with 18 jurisdictions,
including India, according to the Organisation for Economic Cooperation and
Development (OECD).

“We are very happy that the Global Forum is now moving to
launching the peer reviews which are a guarantee that there are major progress
towards full tax cooperation.

OECD, which coordinates activities on international tax
standards, said the reviews would be carried out in two phases.

In the first phase, regulatory framework (of each country)
would be assessed while the second phase would look into the effective
implementation in practice.

Regarding the review procedure, the official said that each
assessment team would be made of two countries and someone from the secretariat.

“The reports would be presented to the whole Peer Review
Group (30 countries) for endorsement and then to whole Global forum (over 90
countries) for approval,” the official noted.

Other countries that would be included in the peer review
process are Australia, Barbados, Bermuda, Botswana, Canada, Cayman Islands,
Denmark, Germany, Ireland, Jamaica, Jersey, Mauritius, Monaco, Norway, Panama,
Qatar, Trinidad & Tobago.

Apart from India, Japan, Singapore and Jersey are also
Vice-Chairs of the Peer Review Group. These countries have been chosen for a
three-year period. The Group would be chaired by France.

The review process is in response to the G-20 leaders’ call
to improve tax transparency worldwide, during their Pittsburgh Summit in
September 2009.

“This is the most comprehensive, in-depth review on
international tax co-operation ever . . . With these reviews we are putting
international tax co-operation under a magnifying glass. The peer review process
will identify jurisdictions that are not implementing the standards. These will
be provided with guidance on the changes required and a deadline to report back
on the improvements they have made,” the Global Forum’s Chair Mike Rawstron said
recently.

Meanwhile, the issue of exchanging tax information between
nations came into limelight after G-20 leaders pledged to crackdown on tax
havens during their London Summit in April last year.

(Source : Business Standard, dated 21-3-2010)

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Naxalism — Reaching out to tribals

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The Naxalite crime at Dantewada is a chilling reminder of how
political extremists are using tribal grievances as cover in their violent
attempt to overthrow the Indian republic.

There have been angry calls to escalate the conflict and send
in the army. But while gunfire will have to be met with gunfire, the authorities
should take care not to further alienate tribals, which is just what the
Naxalites want.

Their hero Mao Zedong once said : “The guerilla must swim in
the people as the fish swims in the sea.” Our India must try hard to win back
the confidence of tribal India.

Development activity is one answer. Business groups can play
a role here. The tribal areas are rich in minerals, but companies have cynically
ignored tribal interests in the rush to get mining rights, preferring to bribe
politicians instead. Mining camps run behind barbed wires are no answer.
Companies should reach out to tribals and try to understand their genuine
grievances, not as fashionable CSR, but as a core business strategy —even if it
costs lots of money.

(Source : Quick Edit in Mint, dated 8-4-2010)

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OECD estimates $11 tn parked in tax havens

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  1. OECD estimates $11 tn parked in tax havens

The
Organisation for Economic Cooperation and Development (OECD) has estimated
that about $11 trillion, more than 10 times the amount committed by G-20
leaders to revive the world economy, is held in tax havens, even as it
released the black list of non-cooperative nations. Estimates of the
value of assets held in tax havens range from $1.7 trillion to $11.5 trillion,
the OECD said while naming Malaysia, the Philippines, Uruguay and Costa Rica
as countries that have not agreed to implement international tax standards.
Mauritius, the country from where large amounts of investments are routed
to India, figures among the nations that have substantially implemented tax
standards. Among the countries that have committed themselves to the
internationally agreed tax standards but have not yet implemented them are
Singapore, Switzerland, Bahamas, Bermuda, British Virgin Islands, and Cayman
islands.

(Source : Media
Reports & Internet, 03.04.2009)

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Income-tax files throw up tough posers for political parties

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  1. Income-tax files throw up tough posers for political
    parties

Did the
Bharatiya Janata Party spend the money collected in the name of the Gujarat
Relief Fund on itself ?

Why did the
Income-tax (I-T) Department take a sudden U-turn to grant Income-tax exemption
to the Congress ? How can leaders of the Communist Party of India justify
purchase of shares in private limited companies with party funds ? And how can
political parties contest elections in Bihar when they are either bankrupt or
have meagre funds ?

Questions,
and more questions, came up as DNA carried out an exhaustive analysis of the
I-T returns filed by the country’s major political parties seeking tax
exemption. These returns have for years remained secret, but thanks to recent
efforts and many spirited appeals by the Association for Democratic Reforms,
an NGO working for improving transparency in the electoral process, the
details are now tumbling out.

Over the
past several days, DNA has been combing through these returns with the
assistance of experts. Several startling facts have emerged, foremost being
the callousness with which the I-T Department has been scrutinising these
returns. There are huge gaps in the claims of many political parties in their
I-T returns. How could the bankrupt RJD of Lalu Prasad contest elections in
Bihar year after year ? How was it possible for the Janata Dal (United) to
fight elections in Bihar with assets worth just a few lakh rupees ? The BJP’s
balance sheets for 2001-06 show that it collected Rs.2.68 crore as a ‘Gujarat
Relief Fund’ during this period, but not a single paisa from that was
disbursed for relief. Also, it’s not clear if this relief fund is part of
BJP’s net worth of Rs.102.70 crore in the financial year 2005-06.

There were
two I-T cases pending against the Congress. Soon after the Congress-led United
Progressive Allian’The balance sheet of 2001-02 shows that the AO raised tax
demands of Rs.1.80 crore and Rs.14.79 lakh, respectively, on the two
donations. Strangely, the Congress returns do not show who donated these
amounts. In 2002-03, when the BJP-led NDA was still in power, the Assessing
Officer increased the tax demand on these donations to Rs.2.57 crore and
Rs.18.12 lakh, respectively. The Congress went in for fresh appeal to the CIT
(Appeals). Within months of coming to power, the party got a favourable order.
The CPI(M) had disclosed donations worth only Rs.27.70 lakh to the Election
Commission between 2003 and 2007, placing it among India’s poorest national
parties. DNA has published a series of reports on donations declared by
political parties to the Commission.

But the
CPI(M) is among the richest parties in the country. According to its returns,
the party’s donations, a majority of which are below Rs.20,000 each, add up to
a whopping Rs.84.84 crore between 2001 and 2006.

For the CPI,
the returns bring up some uncomfor-table questions. The party’s auditor, Pune-based
P. G. Bhagwat, has stated that several private equity shares running into
lakhs have been purcha-sed by CPI leaders. The auditors have, however, not
given out names of the CPI leaders in whose names the shares were purchased.
What makes things more suspicious is that 2 of the private firms, both based
in Mumbai, are shown to have closed business.

(Source : DNA,
Media Reports & Internet, 06.04.2009 )

 

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DIPP set to clear confusion on PN-1

17. DIPP set to clear confusion on PN-1

    The Department of Industrial Policy and Promotion (DIPP) would soon come out with a clarification stating Press Note 1 of 2005 would not be applicable in cases where joint ventures involving foreign companies do not exist anymore. Press Note 1 makes it mandatory for a foreign company to get a no-objection certificate from its Indian partner before setting up a new business in the country in the same field. The Department is bringing out the clarification to clear confusion among foreign investors as they tend to seek Foreign Investment Promotion Board’s (FIPB’s) approval pertaining to PN-1 even if they have discontinued their partnerships.

    (Source : The Economic Times, 31.03.2009)

Tata Industries gets I-T demand on round-tripping

 16. Tata Industries gets I-T demand on round-tripping

    The Income-tax (I-T) Department has sent a notice to Tata Industries, raising a demand of Rs.298 crore on capital gains on the sale of shares in Idea Cellular, held through a wholly-owned Mauritius-based subsidiary, Apex Investments, to Birla TMT Holdings in India.

    In this connection, the Department depended on the Securities Exchange Commission (SEC) filings made by US-based Cingular AT&T, the merged entity of Cingular Wireless and AT&T, when it sold its shareholding in Idea.

    Earlier, the international tax division of the Department had sent a show-cause notice to the company for not paying tax deducted at source (TDS) on payments made to Cingular AT&T.

    The Department has also said that the transaction violates Foreign Exchange Management Act (FEMA) regulations on overseas investments by Indian companies in joint ventures and wholly-owned subsidiaries.

    These investments, according to the notice, have also violated telecom regulations in India since Tata Industries held two licences simultaneously – one directly and the other through substantial holdings in Idea, which it has now exited, the report said. Officials said the Enforcement Directorate, which is responsible for enforcing exchange control laws, was also being asked to look into the issue. In a response to a questionnaire, a Tata Industries official said, “TIL has received an order from the I-T Department under Section 143(3) of the IT Act for assessment year 2007-08. TIL has filed an appeal with CIT Appeals and the hearing is awaited”.

    (Source : Media Reports & Internet, 08.04.2009)

    (Source : The Times of India, 19.03.2009)

Tax havens : OECD efforts yield rich dividends; Standards become global benchmark for exchange of tax information

15. Tax havens : OECD efforts yield rich dividends; Standards become global benchmark for exchange of tax information
    Following the G20 meeting and communiqué, the OECD Secretariat has provided a detailed report on progress by financial centres around the world towards implementation of an internationally agreed standard on exchange of information for tax purposes. The report available here consists of four parts :

  •      Jurisdictions that have substantially implemented the internationally agreed tax standard.

  •     Tax havens that have committed to the internationally agreed tax standard, but have not yet substantially implemented it.

  •     Other financial centres that have committed to the internationally agreed tax standard, but have not yet substantially implemented it.

  •      Jurisdictions that have not committed to implement the internationally agreed tax standard.

    Welcoming the outcome of the G20 meeting, OECD Secretary General Angel Gurria said, “Recent developments reinforce the status of the OECD standard as the international benchmark and represent significant steps towards a level playing field. We now have an ambitious agenda, that the OECD is well placed to deliver on. I am confident that we can turn these new commitments into concrete actions to strengthen the integrity and transparency of the financial system”.

OECD’s future challenges :

  •      Achieving a rapid and effective implementation of standards : Many of these commitments will require legislative changes and the negotiation of specific bilateral agreements in order to become effective, and the OECD stands ready to assist jurisdictions in their implementation.

  •      Speeding up the negotiations of tax information exchange agreements (TIEAs) : Small tax havens lack the resources to enter into negotiations with a large number of countries. The OECD’s 2002 Model Agreement on Exchange of Information on Tax Matters sets out an option for multilateral rather than bilateral TIEAs that the OECD intends to explore over the coming weeks. The OECD is also examining how the Nordic experience of multilateral negotiations leading to simulta-neous bilateral agreements could be adopted more widely.

  •      Extending the scope and role of the OECD’s action : The OECD Global Forum currently encompasses more than 80 jurisdictions and carries out self reviews and peer reviews to assess progress in implementation of the standard.

  •      The time has now come to re-examine the membership, the architecture and the role of the Global Forum in setting standards and evaluating progress. The Global Forum will undertake more robust reviews to strengthen the implementation of the standard.

    Politics behind listing of tax havens : Since China and France locked horns over naming of tax havens, US President Obama had to broker a peace. And that is how Hong Kong and Macau escaped from being named as non-compliant tax havens. They were in the declaration mentioned only as China’s Special Administrative Regions. Even Swtizerland was named as a non-compliant ‘financial centre’ rather than tax haven. Three other tax havens which escaped the dragnet prepared by the OECD are Isle of Man, Guernsey and Jersey.

    Three European Union Members which have been put in the gray list are Belgium, Austria and Luxembourg. All of them have protested but agreed to legislative amendments to peel off banking secrecy regulations.

    (Source : Media Reports & Internet, 05.04.2009)

CBDT task force to advise on preventing tax treaty misuse

14. CBDT task force to advise on preventing tax treaty misuse

    The Central Board of Direct Taxes (CBDT) has set up a special task force to suggest ways to prevent abuse of double taxation avoidance agreements (DTAAs), said a government official, who did not wish to be identified. The task force would look at the prevalent global best practices adopted by the US and others to see how they can be replicated here and ensure India’s tax treaties are transparent and promote information-sharing.

    India’s attempts to amend the treaty with Mauritius, from where the country receives 43% of its foreign investments, have so far met with tremendous diplomatic resistance from the island nation.

    The just-concluded G-20 summit on global financial crisis in London had raised the pitch on scrapping DTAAs. DTAAs are pacts between two countries that seek to eliminate double taxation of income or gains arising in one country and paid to residents or companies of the other country. The idea is to ensure that the same income is not taxed twice.

    However, in some cases, these treaties are misused to avoid taxes, leading to a loss of revenue to a country’s exchequer. This is called treaty shopping, where residents of a third country take advantage of a tax treaty between two countries by routing their investments from there to avoid taxation. As per some available estimates, India loses more than $600 million every year in revenues on account of the DTAA with Mauritius.

    New Delhi had also considered a limitation of benefit clause in the treaty, to prevent ineligible entities from taking advantage, the official said. Through this clause, the government can put in conditions such as listing on the local stock exchange in any of the countries, ceiling on turnover and cap on expenditure for carrying out operations in one of the contracting States.

    (Source : Media Reports & Internet, 06.04.2009)

The awful truth about tax havens

13. The awful truth about tax havens

    The crackdown on tax havens is already being hailed as one of the good things to come out of the financial crisis. Rightly so. Now that punitive tax rates have disappeared, there’s no justification for errant rich states, pesky principalities and dodgy developing nations to profit from helping the rich of the world stay that way.

    Looking at the threatened sanctions, it’s easy to see why the tax havens rolled over. The ‘toolbox’ of counter-measures includes cutting off aid to poor countries, withholding taxes on cross-border payments and not allowing tax deductions for business expenses in the bad lands. That’s enough to change tax evasion from a national profit centre to an economic disaster.

    The G20’s success is welcome, but raises two impertinent questions. First, considering how quickly the promises of compliance came once the G20 nations got tough, why did it take so long ? The answer is simple. Politicians weren’t really keen to put substantial pressure on Switzerland, Luxembourg, Andorra, Vanuatu and the like. Tax havens — like offshore havens for gambling, prostitution and other vices — are fun to condemn but pleasant to use. Second, will the G20 nations stick to their resolve ? Post-crisis resolutions could easily prove as durable as the typical New Year variety. The newly beefed up global Financial Stability Board and the OECD’s Financial Action Task Force are supposed to ensure enforcement. They should work fast and hard to establish good habits. Otherwise, politicians and their rich friends will once again discover the need for a safe haven from populist extremists.

    (Source : Business Standard, 06.04.2009)

New partnership law in place, but legal and tax hurdles remain

12. New partnership law in place, but legal and tax hurdles remain

    The Ministry of Corporate Affairs (MCA) has started registering firms under the newly-enacted Limited Liability Partnership (LLP) Act. However, a flow of applications is unlikely till tax laws are changed, say experts. At present, the Income-tax Act does not recognise LLP firms.

    A limited liability entity is a hybrid of existing partnership firms and full-fledged companies. A minimum of two partners will be required for formation of an LLP and there will not be any limit to the number of partners, unlike the current limit of 20 members in a partnership firm.

    On the other hand, in the traditional law on a partnership firm, every partner is liable, jointly with all other partners and also severally, for all acts of the firm done while he is a partner, irrespective of his stake.

    India recognises several forms of business entities, including sole proprietorship, Hindu Undivided Families, partnership firms (which provide flexibility, but with unlimited liability jointly or severally) and companies, which have limited liability but far less flexibility and high compliance requirements.

    Under the LLP model, chartered accountants, company secretaries or even advocates can set up multi-disciplinary firms that will act as ‘one-stop’ shop for people to avail of various professional services. Existing laws impose the restriction that these professional services cannot be carried out through companies, but only through partnership firms.

    The Income-tax law does not recognise an LLP. There are two ways to tax an LLP : The first is to tax only the partners and not the firm. This is followed in the US under what is called a ‘pass- through vehicle.’ The second way it to tax an LLP firm on the lines of corporates.

    Both the Corporate Affairs Ministry and the Parliamentary panel had recommended that companies and firms be exempted from capital gains tax for the purpose of conversion to LLP.

    The ICAI Act hasn’t recognised LLP but it is being considered by the Council. A group has given draft recommendations to the Council, which would come out with a regulation soon.

    (Source : Business Standard, 05.04.2009)

CVC Report — A plan to curb corruption

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10 CVC Report — A plan to curb corruption


It’s a truism that corruption is pervasive in
India. An equally troubling aspect is that our leaders, administrators and civil
society are aware of the problem. And in spite of a plethora of laws to control
the problem, it only continues to grow.

Now the Central Vigilance Commission (CVC) has
issued a national anti-corruption strategy that it hopes will make a difference.
There is much to be said in favour of the report : It high-lights the issue very
well and makes a series of thoughtful solutions. But that is just about what CVC
can do. The levers that can ameliorate the problem lie elsewhere.

The matter is clearly highlighted in section III
of the report where CVC talks about the strategy to address political and
administrative corruption. The problem of funding electoral and other
expenditures of political parties is highlighted clearly. Insensitivity of civil
servants and their remoteness from citizens at large is also discussed.

The CVC’s solution to these problems is threefold.
One, strengthening political will to confront corruption; two, building ethical
competence in public officials; and finally, strengthening administrative
reforms. This is like putting the cart before the horse. If political will did
exist, then the matter would have been sorted out a long time ago.

By putting a large part of the onus on
strengthening of political will, CVC has taken the problem in a different,
psychological, direction. That is a different and intractable issue.

The solutions are fine on paper, as is the
Prevention of Corruption Act, 1988. The reality is very different and altogether
nasty.

(Source : The Mint, dated 30-8-2010)

(Can legal and administrative measures alone
eliminate corruption ?)

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National Rural Employment Guarantee Scheme — A joke worth Rs.1

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9 National Rural Employment Guarantee Scheme — A
joke worth Rs.1


 

Here’s the cruel underbelly of modern India :
Villagers in Rajasthan’s Tonk district are paid `1 per day for work under the
Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), and a State
Minister justifies it as consistent with the work done.

 

The political apathy and corruption that cause such
incidents are well known. But at issue are MGNREGS’ structural weaknesses which
make rooting corruption out a tough task. Why was the work not supervised for
quantity and quality ? Perhaps because, as a recent report suggests, village
leaders in the state discourage third-party supervision of MGNREGS.

Supervision is also required at higher levels — not
even the smallest amount of work justifies a wage of `1 per day. The problem is
little political will exists to undertake the high cost of monitoring
corruption. The results are conflicting responsibilities and interests for the
administration, and a cruel joke for the poor.

(Source : Quick Edit in The Mint Newspaper,
dated
30-8-2010)

[Is the cost incurred by our nation on our
non-performing MPs and MLAs and other political representatives justified ?]

 

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SC — Damages for road deaths without deciding on guilty

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8 SC — Damages for road deaths without deciding on
guilty


In two judgments last
week, the Supreme Court (SC) ruled that in road accidents, insurance companies
should pay compensation under the ‘no-fault liability’ clause in the Motor
Vehicles Act, irrespective of the circumstances of the deaths. In one appeal,
Indra Devi v. Bagada Ram, the death was invited by the negligence of the
deceased driver himself. The Rajasthan HC asked the recipients of the
compensation to return the amount with interest to New India Assurance Co. as
the claimants were not entitled to the amount. The SC set aside the High Court
order and asserted the ‘no-fault liability’ u/s.140 of the Act did not depend
upon the conduct of the driver or the victim. In the second case, Eshwarappa
v. CS Gurushanthappa, the drunk driver and his four friends died while
rashly driving to a temple without informing the car-owner. The Accidents
Tribunal denied any compensation. However, the SC ruled even in such cases,
‘no-fault liability’ cannot be avoided.

(Source : The
Business Standard, dated 23-8-2010)

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Eight gifts that do not cost a penny !

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7 Eight gifts that do not cost a penny !


1. The gift of
listening :

But you must REALLY
listen.

No interrupting, no
daydreaming,

No planning your
response.

Just listening.

2. The gift of
affection :

Be generous with
appropriate hugs,

Kisses, pats on the
back, and handholds.

Let these small
actions demonstrate the

Love you have for
family and friends.

3. The gift of
laughter :

Clip cartoons.

Share articles and
funny stories.

Your gift will say,
“I love to laugh with you.”

4. The gift of a
written note :

It can be a simple

“Thanks for the
help” note or a full sonnet.

A brief, handwritten
note may be remembered

For a lifetime, and
may even change a life.

5. The gift of a
compliment :

A simple and
sincere,

“You look great in
red,”

“You did a super
job,”

Or “That was a
wonderful meal”

Can make someone’s
day.

6. The gift of a
favour :

Every day, go out of
your way

To do something
kind.

7. The gift of
solitude :

There are times when
we want nothing better

Than to be left
alone.

Be sensitive to
those times and give

The gift of solitude
to others.

8. The gift of a
cheerful disposition :

The easiest way to
feel good is

To extend a kind
word to someone.

Really, it’s not
that hard to say,

“Hello” or “Thank
You”.

(Source :
Internet)

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With Rs.75K crore stuck in disputes, Tax Department proposes e-solutions

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5 With Rs.75K crore stuck in disputes, Tax
Department proposes e-solutions


 

The Income-tax Department has proposed a national
e-management system for quick disposal of tax disputes, with more than `75,000
crore, an amount close to a fifth of the Government’s annual direct tax
collections, locked in litigations.

The new system will allow the Tax Department to
make optimum use of its workforce, reduce painful wait for the disposal of tax
appeals and free up resources quickly.

The system would track the entire life cycle of
appeals to ensure expeditious settlement through a more equitable distribution.

More than 1.78 lakh appeals were pending with the
Commissioner Appeals (Income-tax), the first level of litigation, as on February
1, 2010, with amounts locked-up running into several thousands of crores.

(Source : The Economic Times, dated 30-8-2010)

(In our view, the real issues are lack of knowledge
and expertise, productivity and integrity in the Appellate machinery and
non-adherence to the decisions of the Higher Courts leading to repetitive
appeals.)

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An obituary of Common Sense printed in the London Times

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6 An obituary of Common Sense printed in the London
Times


 

Today we mourn the passing of a beloved old friend,
Common Sense, who has been with us for many years. No one knows for sure how old
he was, since his birth records were long ago lost in bureaucratic red tape. He
will be remembered as having cultivated such valuable lessons as :



  •   Knowing when to
    come during the rain;


  •   Why the early bird
    gets the worm;


  •   Life isn’t always
    fair; and


  •   Maybe it was my
    fault.


Common Sense lived by
simple, sound financial policies (don’t spend more than you can earn) and
reliable strategies (adults, not children, are in charge).

His health began to
deteriorate rapidly when well-intentioned but overbearing regulations were set
in place. Reports of a 6-year-old boy charged with sexual harassment for kissing
a classmate; teens suspended from school for using mouthwash after lunch; and a
teacher fired for reprimanding an unruly student, only worsened his condition.

Common Sense lost
ground when parents attacked teachers for doing the job that they themselves had
failed to do in disciplining their unruly children.

It declined even
further when schools were required to get parental consent to administer sun
lotion or an aspirin to a student; but could not inform parents when a student
became pregnant and wanted to have an abortion.

Common Sense lost the
will to live as the churches became businesses; and criminals received better
treatment than their victims.
Common Sense took a beating when you couldn’t defend yourself from a burglar in
your own home and the burglar could sue you for assault.
Common Sense finally gave up the will to live, after a woman failed to realise
that a steaming cup of coffee was hot. She spilled a little in her lap, and was
promptly awarded a huge settlement.

Common Sense was
preceded in death, by his parents, Truth and Trust, by his wife, Discretion, by
his daughter, Responsibility, and by his son, Reason.

He is survived by his
4 stepbrothers :

I Know My Rights

I Want It Now

Someone Else Is To
Blame

I’m A Victim

Not many attended his
funeral because so few realised he was gone. If you still remember him, pass
this on. If not, join the majority and do nothing.

(Source :
Internet)

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I-T ex-official moves SC to make declaration of foreign bank A/cs mandatory while filing returns

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4 I-T ex-official moves SC to make declaration of
foreign bank A/cs mandatory while filing returns



The Supreme Court has admitted a petition, filed by
a retired Chief Commissioner of Income-tax, which suggests that a legislation be
made to make it mandatory for taxpayers to declare offshore bank accounts while
filing annual returns. The premise behind the suggestion is to enable the
Government to take effective measures to seize wealth parked in Swiss and other
offshore bank accounts by Indian residents.

The petitioner is KVM Pai, retired Chief
Commissioner of Income tax, Mumbai and the suggestion it contains is in
consonance with the recent legislation passed in the US making it compulsory for
US residents to declare their offshore bank accounts, even if such declarations
do not yield any tax revenue. Mr. Pai also pitches for the setting up of an
intelligence unit under the auspices of the Income-tax administration to help
detect those who have illegal deposits in offshore banks and corroborate the
data with the information furnished in their tax returns.

Quoting a 1980 study carried out by International
Monetary Fund (IMF), Mr. Pai pointed out that Indians hold the largest share of
deposits in Swiss banks. Referring to other studies quoted in the petition, he
points out that there are deposits worth $ 11.6 trillion in tax havens. One such
reference relates to Raymond Baker’s ‘Capitalism’s Achilles Heel’ which holds
that half the world’s slush money lying in tax havens belongs to Indians. Mr.
Baker has recently estimated the annual capital flight to tax havens at $1
trillion per year.

Mr. Pai also states in his petition that the
governments of France and the US have been successful in securing the release of
huge unreported funds from Swiss banks belonging to US residents but the Indian
Government did not make any such serious effort except for scheduling meetings
with Swiss authorities.

Recently, due to pressure from the US and the UK,
the Swiss government agreed to disclose the names of account holders, but only
if the respective governments formally ask for it. It is understood that the
Swiss government has agreed to provide France the details of 3,000 French
customers who have deposits worth $ 4.3 billion in Swiss accounts and the US
government with details of 4,450 customers having $ 18 billion in deposits.

(Source : The Economic Times, dated 30-8-2010)

 

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Return of double-dip fears — Jackson Hole conference shows US still not out of the hole

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3 Return of double-dip fears — Jackson Hole
conference shows US still not out of the hole



We have come a long way from the ‘Great Panic of
2008’, but there’s a long road ahead to robust growth, confident consumer
spending and lower unemployment. That was the essence of US Federal Reserve
Chairman Ben Bernanke’s speech at this year’s Jackson Hole conference last week.
It was a rather subdued Mr. Bernanke who sought to reassure his audience, by all
accounts. Confessing candidly that “central bankers alone cannot solve the
world’s problems”, Mr. Bernanke exuded guarded
optimism about the sustainability of the ongoing recovery in the US economy. He
conceded that the recovery “appears somewhat less vigorous than we expected”,
and did not rule out the possibility of deflationary tendencies reasserting
themselves. The thrust of Mr. Bernanke’s statement, which his critics have
attacked as “Nero fiddling while Rome is burning”, was to suggest that the good
news from the US economy was not good enough. Based on the latest national
income growth data for the US, released last week, US authorities have revised
downward the annual estimated rate of growth from the more optimistic initial
number of 2.4% to a significantly lower 1.6% in the quarter ending June 2010.
Export growth is near zero, unemployment levels are high and consumer spending
is still weak. “The prospect of high unemployment for a long period of time,”
said Mr. Bernanke, “remains a central concern of policy.”


Mr. Bernanke’s prognosis suggests that the spectre
of double-dip recession continues to haunt US policy-makers. It is now clear
that the economic slowdown the US faces is more structural than cyclical. This
means there are limits to monetary policy, a fact that Mr. Bernanke openly
confessed even as he assured his audience that the US Federal Open Market
Committee (FOMC) would be open to using all the weapons in its monetary policy
arsenal to stimulate growth, prevent deflation and ensure price stability.
Ending his speech, Mr. Bernanke said, rather chillingly, “Although what I have
just described is, I believe, the most plausible outcome, macroeconomic
projections are inherently uncertain, and the economy remains vulnerable to
unexpected developments.” That is more than a sobering thought. Are Mr. Bernanke
and his Jackson Hole companions being more cautious than necessary or more
optimistic than warranted ? Perhaps the Jackson Hole audience was trying to make
up for past hubris or is afflicted by the paranoia of failed magicians. The
problem for the US is that while monetary policy is unlikely to make much of a
difference, there isn’t much room for fiscal policy either, though the Barack
Obama administration has done more than most developed country governments to
use fiscal policy to stimulate demand. The US needs a boost of confidence in
itself and an investment in its capabilities.

(Source : The Business Standard, dated
30-8-2010)

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Tax evasion at the top

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2 Tax evasion at the top


The Government gave out some interesting numbers.
The Revenue Secretary told a news conference that nearly 96% of the 32.5 million
who pay income-tax reported a taxable income of under `5 lakh; and only 2.2% (i.e.,
715,000 people) reported taxable income of over `8 lakh. Why is this
interesting ? Because when you match these with the income numbers put out by
the National Council of Applied Economic Research (NCAER), on the basis of its
household surveys, some numbers make sense while others don’t. For instance,
NCAER projected for 2009-10 that some 32.3 million households would have annual
incomes of over `2 lakh — which is a reasonably good fit with the total number
of people paying income-tax (the threshold being taxable income of Rs.1.6 lakh).

When you look at the high-income category, however,
the numbers diverge hugely. NCAER says that in 2009-10, there should have been
3.8 million families with annual income of over Rs.10 lakh, a figure that is
more than five times the 715,000 people who report income over `8 lakh (on the
plausible assumption that taxable income of `8 lakh is broadly compatible with
total income of Rs.10 lakh, because of the various tax exemptions available).
Admittedly, some households have more than one income earner, so it could be a
case of clubbing the incomes of husband and wife. Still, it would appear that,
while there is probably not much tax evasion by the middle class, those in the
upper class continue to be predominantly tax evaders.

The good news is that the extent of evasion may be
coming down — sharply. Back in 2004-05, only 122,000 people reported taxable
income of over Rs.10 lakh, whereas nearly six times that number now report
taxable incomes of over Rs.8 lakh. While incomes have been rising rapidly at the
top of the pyramid, few would have expected that India’s highest earners would
multiply so rapidly over five years. In other words, tax compliance has improved
dramatically — but even then, the scope for much greater compliance exists.

That conclusion would be contested by Surjit Bhalla,
who has argued that the rich are the most tax compliant group in the country
(with only 50% practising evasion !). He has used National Sample Survey data to
contend that there were 250,000 people with incomes over Rs.10 lakh in 2004-05
(when there were only 122,000 people reporting that amount of tax income), and
that the population of high-income earners would have gone up to 360,000 in
2006-07. On that kind of track, the number by 2009-10 should have been about
620,000. But since we have 715,000 reporting taxable income of `8 lakh and more,
it looks like 100% tax compliance by the high-rollers —which strains credulity.

Still, if compliance is improving, thank the spread
of tax deduction at source, and the cross-matching of computerised data with
regard to credit card spends, mutual fund investments and the like. But if one
were to assume that three-box cars are bought by only those in this income
bracket, there is another data point worth looking at — because 350,000
three-box cars were sold in the country last year. On the assumption that most
people buy a new car after five years, this figure too suggests many more
high-income people than exist in the tax records.

The point of focussing on this group is that 60% of
all income-tax revenue (or Rs.72,000 crore) comes from these 715,000 people ! If
the number coming into this category were to double, income-tax collections
would go through the roof.





(Source :
The Business Standard, dated 4-9-2010

— Weekend
Ruminations by T. N. Ninan)




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Centre moves SC on levy of service tax on rental income

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Miscellanea

Raman Jokhakar
Tarunkumar Singhal
Chartered Accountants

15 Centre moves SC on levy of service tax on
rental income

 

The Centre today sought the Supreme Court’s intervention in
deciding the constitutional validity of the Finance Act, 2007 that empowers the
Government to impose service tax on rental income from commercial properties.

A Bench headed by Justice B. N. Agrawal while seeking reply
from Retailers’ Association of India, Confederation of Real Estate Developers’
Associations of India and Multiplex Association of India
on the transfer petition filed by the Centre also stayed proceedings before
various High Courts.

The Centre through the Department of Revenue has sought
transfer of petitions pending before the High Courts of Bombay, Madras, Kolkata,
Punjab and Haryana and Kerala on the ground that there was a likelihood of
conflicting decisions.

According to the petition, retailers, real estate developers
and multiplex owners had filed writ petitions before various High Courts
challenging levy of service tax on leasing, letting, renting or any other
similar arrangement in respect of immovable property for use in furtherance of
business or commerce.

It further said that they had challenged the constitutional
validity of the Finance Act, 2007 on the ground that it was beyond the
legislative competence of the Union and thus Parliament cannot levy
such a tax.

(Source : Internet, 19-8-2008 —

Also widely reported in print media)


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SC asks tax authorities to seek technical help

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1 SC asks tax
authorities to seek technical help


The Supreme Court has asked the Central Board of
Direct Taxes (CBDT) and other tax authorities to get help of technical experts
while deciding income-tax liability of cellular service providers.

The order came after a batch of appeals by
income-tax authorities against the ruling of the Tribunal favouring Bharti
Cellular Ltd. and other service providers. The question was whether manual
intervention was involved in the technical operations by which cellular service
providers were given the facility by BSNL/MTNL for interconnection.

A related question was whether TDS was to be
deducted by service providers when they paid interconnect charges/access/port
charges to BSNL.

“The problem which arises in these cases is that
there is no expert evidence from the side of the Department to show how human
intervention takes place, particularly, during the process when calls take
place,” the order passed by a Bench headed by Chief Justice S. H. Kapadia said.
“We are only highlighting these facts to emphasise that these types of matters
cannot be decided without any technical assistance available on record.”

The Supreme Court underlined “with the emergence of
our country as one of the BRIC countries and with the technological advancement,
matters like the present one will keep on recurring and hence, the time has come
when the Department should examine technical experts so that the matters could
be disposed of expeditiously and further it would enable the Appellate forums,
including this Court, to decide legal issues based on factual foundation.”

(Source : The Business Standard, dated
23-8-2010)

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Cyber News

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14 Cyber News

Design flaws in bank sites

A
majority of websites suffer from design-related flaws which could make their
customers vulnerable to cyber-theft, according to a recent study by Atul Prakash,
an Indian-American professor at the University of Michigan and his doctoral
students, Laura Falk and Kevin Borders. The team surveyed web-sites of 214
financial institutions and found that three-fourths of them had at least one
design flaw. Significantly, these were not flaws that could be fixed with a
patch, but stemmed from the very flow and layout of the sites, the researchers
revealed “Our focus was on users who try to be careful, but unfortunately some
bank sites make it hard for customers to make the right security decisions when
doing online banking,” Prakash said. Such flaws leave cracks in security that
hackers could exploit to gain access to private information and accounts, the
study noted.

 

  Studying abroad

A
California-based education information provider recently launched
www.studyplaces.com, targeted primarily at Indian students who form a chunk of
overseas universities in many parts of the world. The portal disseminates
information, connects and guides students to over 2,00,000 courses from 10,000
colleges worldwide including universities in India, the US, UK, Europe,
Australia, New Zealand, Singapore, Canada and West Asia. It utilises the
expertise of professionals, many of them alumni of Stanford, IIMS, IITS and
Wharton, to offer guidance to students looking for higher study options. “The
portal is an attempt to help students make the right career choice based on
credible information and professional counseling,” says founder Amitabh Nagpal.
It offers platform for career counselling and college planning and helps
students find, compare, evaluate and select the right course and institution. In
addition, it provides free online counselling and free practice tests for AIFEE,
GMAT, IIT-JEE, TOEFL, etc. The site has a team of 20 counselors, each
specialising in one or more educational domains, which use tools such as
psychometric tests to ascertain students’ aptitude and interests. The students
can also access information on fee structures, expenses involved, life on
campus, and application procedures.

 

  Saving time

The
Wall Street’s www. ExecutiveLibrary.com is an amazing site for those interested
in accessing information for research and other uses. Since early 1990s, the
world has been using the Net to research finance, stocks, economic trends,
demographics, and industry information. And the problem has been not a lack of
information but a surfeit of data, with fewer and fewer sources providing useful
information. To address this, the portal has created a public directory that
lists only the most relevant business sites. Currently, the portal has links to
1,500 useful sites where users can read news, research companies, get answers to
legal questions, hunt for jobs, look up medical information, download software,
and find other information. In addition to a content-heavy homepage, which lists
hundreds of news and reference sources, users can avail the research link which
provides access to the government, financial market research, statistics,
economy, business and law, marketing and advertising information. In that sense,
it’s a great time-saver for those who use the Net for professional and credible
information on a regular basis.

(Source
: Business India, 21-9-2008)

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Delhi High Court convicted Senior

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13 Delhi High Court convicted
Senior

Advocates

The Delhi High Court convicted senior advocates R.
K. Anand and I. U. Khan in the BMW expose case for obstructing administration of
justice. “They are senior advocates and they did not tender either conditional
or unconditional apology for their conduct in the BMW case,” a Division Bench of
Justices Manmohan Sarin and Madan B. Lokur said, in their 112-page verdict in
the contempt case relating to the expose.


Recommending that they be stripped of their
designation of senior advocate, the Court asked them not to appear in the Delhi
High Court and its subordinate Courts for the next four months as punishment.


The Bench also imposed a fine of Rs.2,000 on each
of them and rapped them for their ‘irresponsible’ behaviour, saying “we are not
dealing with young lawyers. Both are seasoned lawyers and such conduct was not
expected of them.

(Source : Internet, 21-8-2008

— Also widely reported in print media)

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Foreign cos must report exempted income to I-T.

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12 Foreign cos must report exempted income to I-T.


Taxmen will now be able to keep a closer tab on
income exempt under foreign tax treaties. The Central Board of Direct Taxes (CBDT)
has said that any income arising in India, but exempt from the country’s tax
laws, because of a double tax avoidance treaty, must be first reported to the
Tax Department before availing the exemption.

Even if the income is taxable outside India, the
assessee must include it in the total income chargeable to tax in India, the
board has said in a recent notification. “Relief will be granted in accordance
with the method for elimination or avoidance of double taxation provided in such
agreement,” the Notification added.

With a large number of foreign companies operating
in India, the Department has found that there are many cases where either they
are not reporting their exempt income or underreporting it.

While the assessee can avail the same foreign tax
credit even now, the Tax Department will get a much better understanding of his
earnings, a Finance Ministry official explained.

The Department’s missive, however, only relates to
earnings of resident companies and individuals. Tax experts are of the view that
with increased movement of workers and the cross-border nexus between companies,
the Notification will help the Department get a better understanding of the
income of such assessees.

“It looks like the Department’s intention is to get
a complete picture of a person’s global earnings regardless of the benefits
under the tax treaties,” Amitabh Singh, partner Ernst and Young said. The
clarification is the latest in the CBDT’s efforts to plug loopholes in the
country’s international tax laws given that a large number of MNCs have set up
shops in India through back offices and subsidiaries and are availing benefits
under tax treaties.

(Source : Internet, 8-9-2008)

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Plastic containers may be deadly for your brain.

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11 Plastic containers may be
deadly for your brain.


Plastic containers may be deadly for your brain.
Canadian researchers have found that Bisphenol A (BPA), the chemical used in
making plastic containers, might be responsible for impairing many brain
functions such as learning and remembering.

They also fear that it could be a factor behind
Alzheimer’s, schizophrenia and depression.

BPA is globally used in making plastic water
bottles, baby food bottles, food containers and dental prostheses.

In their study, the researchers at the University
of Guelph found that BPA might be leaking into the solid or liquid foods kept in
the plastic containers.

When these foods and liquids are consumed, they
said, the chemical might be getting into the human system, disrupting
communication between brain neurons which is vital in understanding and
remembering.

(Source : The Times of India, 5-9-2008)

 

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MNCs seek detectives’ help to check IPR violations

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10 MNCs seek detectives’ help to
check IPR violations


In order to provide brand protection and curb
duplication of products, IT, pharma, electronics, telecom and electrical goods
manufacturing giants are approaching private detectives to safeguard them
against Intellectual Property Rights (IPR) violation.


Detective agencies have also been approached by
national and international industry associations to extend help for safeguarding
their products.


According to an ongoing study commissioned by the
Ministry of Human Resource Development, the estimated losses due to piracy in
motion pictures is 7.3%, sound recordings and musical compositions 24.5%, books
21%, and the highest is in the software domain, reaching 292.8%.

While recent trend of piracy has badly affected
Indian film and musical industry, we are doing our best to bring this fake
business to end.

To recommend improvements in the working of the
Intellectual Property (IP) regime in India in terms of IT enabling and
networking of operations and enhancing human resource capabilities, the
Federation of Indian Chambers of Commerce and Industries (Ficci) and Department
of Industrial Policy and Promotion (DIPP), Ministry of Commerce and Industry,
have also joined hands to set up a working group.

DIPP has taken note of Ficci’s recommendations and
it has been decided to digitise all the patents granted till date and open it up
for online public access.

Showing concern over the trend, the patent office
has started e-filing of patent and trademark applications through its website
http://www.patentoffice.nic.in.

The term ‘Intellectual Property’ reflects the idea
that its subject matter is the product of the mind or the intellect. These could
be in the form of patents, trademarks, geographical indications, industrial
designs, layout-designs (topographies) of integrated circuits, plant variety
protection and copyright.

According to the data released by the industries
body, the filing of patent applications has increased from 4,824 in the year
1999-2000 to 28,882 applications in the year 2006-07. The grant of patents has
shot up from 1,881 in 1999-2000 to 7,359 in 2006-07.

“Although companies and administration are doing
their best to stop it, we feel that a separate wing from the government to
tackle this crime would help us and the firms,” an expert said.

(Source : Business Standard, 25-8-2008)

 

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Bridging the GAAP

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9 Bridging the GAAP



The Asian Crisis in the 1990s made the world sit up
and recognise the need for corporate governance as a mechanism to safeguard
investments in public enterprises and heightened the importance of having a
global Generally Accepted Accounting Principles (GAAP) for comparability and
transparency of financial information across continents. The US accounting
scandals of Enron, Worldcom, Adelphia or the European scandals of Ahold or
Parmalat enforced the view that a framework of governance and global GAAP needs
to emerge to safeguard capital in companies, which in the digital age is without
the protection of political or physical borders.


David Tweedie, the Chairman of International
Accounting Standards Board said in the Europe Club of Canada on 25 April 2008
that : “In the midst of the Asian financial crisis, several companies whose
financial statements seemed to indicate that they were secure, suddenly went
bankrupt casting great doubt on the veracity of the statements and in particular
the national accounting standards in use. While it is important not to overstate
the role of accounting standards and practices in precipitating the Asian
financial crisis, it is clear that confidence in financial reporting practices
in that region disappeared.” “As a consequence, financing, much of it short term
in nature and not subject to any capital controls, was withdrawn. Interest rates
rose, investment ground to a halt, and an economic slowdown followed. In the
aftermath of the crisis, it was unlikely that confidence in the existing or any
revised national standards could be restored rapidly, indeed, if ever. The
obvious choice was to move to an internationally accepted set of standards.”
Since 2001, the mission given to IASB was to create a single set of
principles-based global financial reporting standards that are used throughout
the world’s capital markets. The overriding principle is that irrespective of
the country of origin of a transaction, whether in New York, New Delhi, or
London, the accounting should provide a consistent answer to the same economic
transaction.” The Institute of Chartered Accountants of India, National
Committee of Accounting Standards and the government of India have affirmed that
India will transition into International Financial Reporting Standards (IFRS) as
the accounting principles for the country from April 1, 2011. Entities which are
either listed companies or companies filing for a listing or companies having
over a threshold of sales of 100 crore or public debt of over 25 crore are
covered by the first wave. These are called public interest entities. The small
and medium enterprises (SMEs) will be covered at a later date which is yet to be
decided.

The dilemma — incremental or big bang approach ?
Nations around the world are faced with the dilemma of whether their national
accounting standards should be aligned to IFRS or take the big bang approach of
adopting IFRS as written by IASB and follow standards that are globally applied,
irrespective of the economic environment.

In India, a debate is raging amongst various
stakeholders, including the government whether we should converge or adopt IFRS.
While the former would mean that we amend and modify IFRS standards to be
relevant to India, the latter would mean that we adopt IFRS standards as they
are written by IASB to be the accounting language of India. ICAI in their
decision paper on convergence has stated, “Convergence with IFRS — all at one
approach — that IFRS will be adopted for public interest entities for accounting
periods starting on or after 2011”. But doubts are now arising due to differing
views of various stakeholders on how the roadmap to 2011 will be drawn.

IFRS with modifications by various countries would
result in multiple and possibly conflicting versions of IFRSs globally. A
misplaced sense of national pride or intense pressure from industries make
countries amend or alter IFRS principles to suit the national requirements. This
becomes IFRS as applied by a specific country as opposed to IFRS as issued by
IASB. This would defeat the purpose of global convergence, which is to move
toward a single set of high-quality accounting standards for use throughout the
world. This rationale is reflected in the US Securities and Exchange
Commission’s (SEC) announcement of the elimination of the requirement for
foreign private issuers to reconcile their IFRS financial statements to US GAAP.
The SEC has stated that the reconciliation requirement is being dispensed with
only for financial statements prepared using IFRSs as issued by the IASB so as
“to encourage the development of IFRS as a uniform global standard, not a
divergent set of standards applied differently in every nation”.

We have this wonderful opportunity to move into a
globally acceptable financial principles, which is considered comprehensive and
followed by over 120 countries in the world. By 2011, IFRS is expected to be
followed by 150 countries. How can we call ourselves a global power and not
adopt global standards as our own ? In due time, by virtue of India’s economic,
intellectual and geo-political weight, we will be a principal player in
formulating these standards.

Way forward the roadmap to 2011 needs to be
comprehensive as it has been detailed in the ICAI’s concept paper on convergence
with IFRS in India. Out of the 38 effective IFRS standards, there are only 2
standards in India that have no difference with IFRS and six have minor
differences. Eighteen standards of IFRS will need a level of technical
preparedness by the industry and the professionals for implementation or would
have conceptual differences with the Indian standards. Ten standards need
changes in laws and regulations for them to comply with the principles of IFRS.
The effort to harmonise is still huge as there has to be a consensus amongst the
various stakeholders including the government as some of the provisions of the
Companies Act or other Acts like the RBI Act etc., need to be amended for
compliance with IFRS principles.

The tax laws, companies law and other laws for specialised industries including banking, insurance etc., need to be reviewed to determine the differences with IFRS as we currently apply them and mechanism to deal with them on convergence.

Though IFRS has been written with the intention of global application, we would also need to evaluate whether under the Indian economic environment, application of any specific IFRS principle would make our industries vulnerable to the results and if there is a compelling reason that such applications will be inappropriate in India. Such deviations should be few and rare.
 
There is still a long road ahead. We need all the stakeholders – the industry, ICAI, government, RBI, SEBI, tax authorities and other regulators to engage in the transition process to IFRS. The debate we need to engage in is to holistic ally review, if any, application is inappropriate for India and address such issues in the transition provisions including those relating to first time adoption. The thought behind actions needs to be clearly articulated and debated. We have some time ahead and can meet the deadline of 2011, but clarity of thought and speed of action would be of essence.

We need all stakeholders – industry, ICAI, government, RBI, SEBI, tax authorities – to engage in the transition to IFRS, says Kaushik Dutta.

(Source: BusinessStandard,25-8-2008)

Large US banks may fail amid recession

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8 Large US banks may fail amid
recession



Credit market turmoil has driven the US into a
recession and may topple some of the nation’s biggest banks, said Kenneth Rogoff,
former chief economist at the International Monetary Fund.


“The worst is yet to come in the US,” Rogoff said
in an interview in Singapore. “The financial sector needs to shrink; I don’t
think simply having a couple of medium-sized banks and a couple of small banks
going under is going to do the job.”

The US housing slump has triggered more than $ 500
billion of credit market losses for banks globally and led to the collapse and
sale of Bear Stearns Cos, the fifth-largest US securities firm. Rogoff said the
government should nationalise Fannie Mae and Freddie Mac, the nation’s biggest
mortgage-finance companies, which have lost more than 80% of market value this
year.

US Treasury Secretary Henry Paulson asked Congress
on July 13 for emergency powers to inject “unspecified” amounts of government
funds into the companies if necessary.

Banks repossessed almost three times as many US
homes in July as a year earlier and the number of properties at risk of
foreclosure jumped 55%, according to RealtyTrac Inc, an Irvine, California-based
seller of foreclosure data. US builders probably broke ground on the fewest
houses in 17 years last month, according to a Bloomberg News survey.

Rogoff told a conference in Singapore that the
credit crisis is likely to worsen and a large bank may fail, Reuters reported
earlier. Rogoff, 55, is a professor of economics at Harvard University. He was
the IMF’s chief economist from August 2001 to September 2003.

The world’s largest economy is already in a
recession, and the housing market will continue to deteriorate, Rogoff said. The
US slowdown will last into the second half of next year, he said, predicting a
faster recovery in Europe and Asia.

The Federal Reserve, which has left its key
interest rate at 2% after the most aggressive series of rate reductions in two
decades, risks raising inflationary pressures, he said.

(Source : Bloomberg, Singapore — Business
Standard, 20-8-2008)

 

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Two-thirds US firms paid no income tax in 1998-2005

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7 Two-thirds US firms paid no
income tax in 1998-2005


Two out of every three United States corporations
paid no federal income taxes from 1998 through 2005, according to a report
released by the Government Accountability Office, the investigative arm of
Congress.


The study, which is likely to add to a growing
debate among politicians and policy experts over the contribution of businesses
to Treasury coffers, did not identify the corporations or analyse why they had
paid no taxes. It also did not say whether they had been operating properly
within the tax code or illegally evading it.


The study covers 1.3 million corporations of all
sizes, most of them small, with a collective $ 2.5 trillion in sales. It
includes foreign corporations that do business in the United States.

Among foreign corporations, a slightly higher
percentage, 68%, did not pay taxes during the period covered — compared with 66%
for United States corporations. Even with these numbers, corporate tax receipts
have risen sharply as a percentage of federal revenue in recent years.

The GAO study was done at the request of two
Democratic Senators, Carl Levin of Michigan and Byron L. Dorgan of North Dakota.
In recent years, Senator Levin has held investigations on tax evasion and urged
officials and regulators to examine whether corporations were abusing tax laws
by shifting income earned in higher-tax jurisdictions, like the United States,
to overseas subsidiaries in low-tax jurisdictions.

Senator Levin said in written remarks that “this
report makes clear that too many corporations are using tax trickery to send
their profits overseas and avoid paying their fair share in the United States.”
But the GAO said that it did not have enough data to address the role of what
some policy experts say is a crucial factor in profits sent overseas.

That factor, known as transfer pricing, involves
corporations charging their overseas subsidiaries lower prices for goods and
services, a common move that lowers a corporation’s tax bill. A number of
corporations are in transfer-pricing disputes with the Internal Revenue Service.

Either way, the nearly 1,000 largest United States
corporations were more likely than smaller ones to pay taxes.

In 2005, one in four large United States
corporations paid no taxes on revenue of $1.1 trillion, compared with 66% in the
overall pool. Large corporations are those with at least $ 250 million in assets
or annual sales of at least $ 50 million.

At a basic corporate tax rate of 35%, all the
corporations covered in the study in theory owed $ 875 billion in federal income
taxes. But because the tax code allows corporations to claim legally an array of
deductions, write-offs, operating losses and tax credits, the actual taxes paid
were much lower.

Joshua Barro, a staff economist at the Tax
Foundation, a conservative research group, said that the largest corporations
represented only 1% of the total number of corporations, but more than 90% of
all corporate assets.

The vast majority of the large corporations that
did not pay taxes had net losses, he said, and thus no income on which to pay
taxes. “The notion that there is a large pool of untaxed corporate profits is
incorrect.” In 2004, a GAO study said that 7 in 10 of all foreign corporations
doing business in the United States, or foreign-controlled corporations, paid no
taxes from 1996 through 2000, compared with 6 in 10 United States corporations.

(Source : Business Standard, 14-8-2008)

 

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Compliance Report of Transfer Orders, 2008 — Scant respect for Government — CBDT directions

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6 Compliance Report of Transfer
Orders, 2008 — Scant respect for Government — CBDT directions


CBDT has noticed that nearly 50% of the officers
transferred are not relieved so far and so have not joined their new places of
posting. This is non-compliance of Government’s order and has been viewed
seriously by the Competent Authority.

Board notices that many officers are not being
relieved by CCIT (CCAs)/DGsIT on the pretext that their representations are
pending before the Board. Board wants the field to note that as per Para 11 of
Transfer Policy, further representations from the officer would be considered
only after the officer joins his place of posting and applies through proper
channel and such petition shall not confer any right whatsoever on the officer
to continue on their previous post in defiance of Government’s orders. Failure
to comply with the Governments orders would lead to actions both against the
non-complying officer as well as their Controlling officer.


Now the CBDT directs that, all officers under order
of postings may be relieved immediately and a consolidated report of their
relieving as well as joining dates may be sent to the Board by 18th August 2008
without fail. [CBDT F.No.A-35015/44/2008-Ad.VI, dated 13th August, 2008]. This
is today — we are almost sure that disobedience will continue. How can these
disobedient officers instill any discipline in their subordinates ?


Disobedience of the Board is not confined to CBDT;
CBEC is no better. On 16th August 2008, Saturday — a holiday for the CBEC, the
Board issued a transfer order of 11 Joint Commissioners/Additional
Commissioners. What was the urgent need for issuing this order on a Saturday,
especially when the whole of Government of India was on a vacation with three
holidays ? (CBEC office order No. 195/2008 dated 16-8-2008)

(Source : Taxindiaonline.com)

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India’s Best Kept Secret — The Official Secrets Act — An ‘Invalid’ Act ?

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5 India’s Best Kept Secret — The
Official Secrets Act — An ‘Invalid’ Act ?


The State’s regressive omerta code, was never
notified. It isn’t actually a law !


Here’s the untold story of the Official Secrets Act
(OSA) 1923: It was passed in April 1923 by the Legislative Council. The Act was
never notified in the Gazette of India.


To become law, every Act must be notified in the
Gazette of India. The National Archives of India, Ministries of Home and Law say
they are
not in possession of any such Notification. None exists in the 1923 Gazette of
India either.

The OSA was amended twice, in 1951 and 1967, and
made more stringent. But only the amendments were notified in the ‘Extraordinary
Gazette of India’. Legal luminaries say that if an Act is not notified, it is an
‘invalid’ law.

Why The British wanted OSA :

In 1923, Bolsheviks could fester unrest in India
directly or indirectly. They have “increased our troubles on the North West
Frontier and Waziristan”. This could “lead to a rupture with Afghanistan”.
Prominent ‘Mussalman’ leaders have shown sympathy with the Afghans. Unwise to
disregard possibility of ‘fanatical Muslims in India’ acting in sympathy with
them. Increased Japanese activity in Burma calls for better means for ‘obtaining
information’, Post- (First World) War enemy powers are out to ferret secrets. In
the event of a war between Japan and America, the former may try to arouse
Indian feelings against the British Empire. There are no existing laws to deal
effectively with such activities.

(From the note prepared by General C. W. Jacob,
Chief of General Staff, in 1921. Document sourced from the National Archives of
India, Delhi.)

“I checked all the dates from 1923 and no such
Notification for the OSA exists.” Maj. Gen. V. K. Singh Ex-Raw.

“It’ll jeopardise any more future prosecutions
under the OSA. Technically, it’ll all be invalid.” Hosbet Suresh, Ex-Judge,
Bombay HC.

“If it has not been notified, the very validity of
the Act can be challenged in Court.” Rajindar Sachar, Ex-CJ, Delhi HC.

“After the RTI Act came into force, the OSA has no
place . . . even its relics cannot remain.” Veerappa Moily, Congress pointsman.

“The law was perpetuated by the bureaucracy, to
insulate itself from public scrutiny.” Aruna Roy, Ex-NAC Member.

In 2007, the Administrative Reforms Commission
(ARC) headed by senior Congress leader Veerappa Moily finally decided to bite
the bullet on the draconian Official Secrets Act (OSA). It put it on record that
an Act “enacted in the colonial era” (1923) had no place in democratic India.
The controversial piece of legislation had to either be amended or scrapped. But
as is wont to happen, a committee of secretaries set up later by the upa
Government examined and rejected the Moily panel recommendation. The status
now : a Cabinet subcommittee is taking a
second look at the suggestions put up by the ARC.

Meanwhile, research into the origins of the OSA has
thrown up a shocker, putting a question mark on the very validity of the Act.
Documents accessed under the RTI Act from the Ministries of Home Affairs (MHA)
and Law and Justice, as well as the National Archives of India (NAI), show the
OSA was never notified in the Gazette of India—a mandatory requirement to make
any Act a law.

(Source : An article by Saikat Datta, Outlook
India

— From Internet)

 

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Revenue Department tells FIPB to reject telecom FDI from tax havens

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4 Revenue Department tells FIPB to
reject telecom FDI from tax havens


In another instance of Indian tax authorities
adopting a hard-nosed stance to prevent abuse of tax avoidance treaties, the
Revenue Department recently opposed a proposal of a Cyprus-based company to
increase its stake in an Indian telecom services company from 40% to nearly 74%.


The Foreign Investment Promotion Board (FIPB)
rejected the proposal on security concerns and the Revenue Department is saying
the source of funds is not clear.


Advising FIPB, the nodal agency for approving
foreign investment proposals, to reject the proposal, the Department pointed out
that gains from the future sale of the shares in question would not be taxable
in India due to the double taxation avoidance agreement (DTAA) with Cyprus.

The Revenue Department’s stance assumes importance
given that India is trying to renegotiate the Cyprus treaty with an eye on
taxing capital gains taxable in the jurisdiction in which the income is earned.
This is not the first instance of such an effort by India. In fact, it has
already reworked the DTAA with the United Arab Emirates and removed the capital
gains tax exemption clause. India is also trying to renegotiate a similar treaty
with Mauritius.

It may be recalled that the Tax Department is
currently in litigation with Vodafone on paying withholding tax for acquiring
Hong Kong-based Hutchison’s stake in a Mauritius-based outfit that held a
majority stake in Indian mobile service provider Hutch-Essar.

FDI is rising sharply from Cyprus and Mauritius,
compared with inflows from developed countries like the United States and the
United Kingdom. From an inflow of $ 58 million in 2006-07, FDI from Cyprus rose
sharply to $ 834 million in 2007-08. In the first two months of the current
fiscal, FDI from Cyprus stood at $ 177 million.

Similarly, FDI from Mauritius rose from $ 6.3
billion in 2006-07 to $ 11 billion the next year. In the first two months of the
current fiscal, FDI from Mauritius stood at $ 2.85 billion.

With overseas companies structuring their
investments to maximise benefits and minimise tax cost by routing investments
through tax havens, preventing abuse of tax treaties is high on the agenda of
the Indian Revenue authorities.

(Source : Business Standard, 19-8-2008)

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Reliance, TCS on Larry Summers’ disclosure report

11. Reliance, TCS on Larry Summers’ disclosure report

    Two Indian companies — Reliance Industries (RIL) and Tata Consultancy Services (TCS) — figure in the financial disclosure report submitted by Lawrence Summers, Director of President Barack Obama’s National Economic Council. The disclosure document, submitted on March 23, showed how Summers and other senior advisors to Obama earned large salaries from the companies they were involved with and served in lucrative positions on corporate boards.

    The documents show that RIL paid Summers $187,500 in 2008 as ‘advisory board fees’. Asked about the disclosure, an RIL spokesperson said, Summers, besides other international luminaries, was part of the Reliance Industries International Advisory Board and the Reliance Innovation Leadership Council that guided the company on global issues. Summers had resigned from both these commitments before he joined the US Government on January 20, the spokesperson added. Summers’ disclosure form, which covers his income in 2008 and the first three months of this year, also shows that TCS paid him $67,500 for a ‘speaking engagement’ on September 21, 2008.

    Summers also received ‘speaking fees’ of $67,500 from JP Morgan, $45,000 from Citigroup, $135,000 from Goldman Sachs and $67,500 from Lehman Brothers, which went bankrupt in the mortgage crisis last year. In fact, Lehman, which declared bankruptcy in September, paid Summers $67,500 for an engagement on July 30, the filing showed. Summers, a former US Treasury Secretary and Harvard University President, received $2.7 million in speaking fees from a range of organisations and companies.

    (Source : Business Standard, 06.04.2009)

Stress management

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77 Stress management

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

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

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

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

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Gururaj Deshpande to co-chair Obama’s Advisory Council

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

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

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

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

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

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

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

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

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

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

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Desi lawyers teach English to US attorneys

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74 Desi lawyers teach
English to US attorneys

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

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

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

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

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Double standards Case :

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72 Double standards
Case :

US :
Asbestos-related suits

India : Bhopal Gas
tragedy

 

Damage :
US : 700,000 people affected

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

 

Caused by :
US : Asbestos fibres

India : Methyl
Isocyante gas released from the factory

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

India : Dow
refuses to take liability of Carbide

 

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

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

 

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

 

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Online evaluation sparks revolution

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73 Online evaluation
sparks revolution

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

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

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

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

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IFAC president warns against auditor rotation

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71 IFAC president
warns against auditor rotation

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

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

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

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

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

(Source : www.ifac.org)

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

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


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

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

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

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

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

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Vodafone deal : Tax burden draws flak

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  1. Vodafone deal : Tax burden draws flak

The
Government’s attempt to change its tax laws in order to slap a $ 2 billion tax
bill on Vodafone for its roughly $ 11.1 billion purchase of Hutch Essar in
2007, is meeting with stiff resistance from powerful US investors. Claiming
that the move has killed investment appetite in India, US investors have
written to the Finance Minister Pranab Mukherjee, asking for a review of the
Revenue authorities decision to tax cross-border investments with
retrospective tax legislation enacted in 2008.

The strongly
worded letter, expressing concerns about India’s investment climate has also
been sent to principal secretary to PM, T. K. A. Nair, Cabinet Secretary K. M.
Chandrasekhar, Deputy Chairman, Planning Commission, Montek Singh Ahluwalia
and the Commerce Ministry. The letter has been written by the National Foreign
Trade Council (NFTC), an association of 300 US business enterprises engaged in
all aspects of international trade and investment.

According to
the NFTC, any necessary changes made to the laws should be with prospective
effect only, rather than through retrospective changes in interpretation of
current law or application of withholding tax provisions.

The NFTC
warns that the move “creates an impression among foreign investors that
investing in India brings with it a significant risk of tax liabilities
arising from unforeseen new interpretations of tax laws and retrospective tax
changes’’. ‘‘Our members will have limited funds to invest overseas and this
new interpretation may cause several of them to reconsider investing in India,
looking instead to other countries which have not taken this position and
which act in a perceived less arbitrary manner in taxing foreign investors,’’
it added.

Pointing out
that US-based MNCs have a history of robust investment in India, NFTC said ‘‘
Indian Revenue authorities have begun to argue that India is entitled to tax
certain capital gains on global M&As taking place outside of India.’’

(Source :
Internet & Media Reports, 8-8-2009)

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