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Infosys Plans to Stem MBA-MTECH Attrition

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The existentialist dilemma before Indian democracy is stark :
it cannot co-exist with financial honesty. It does not matter if you are
personally incorruptible; you have to be institutionally corrupt in order to
engage in the business of democracy. The moral code of elections is
uncomplicated : Don’t ask. Don’t tell. And for God’s sake don’t get caught.


M. J. Akbar
in India Today, dated 10-1-2011

58 Infosys plans to stem MBA-MTECH attrition

Infosys, the country’s second largest information technology
services firm, is aggressively planning to increase the number of its business
consultants by re-skilling many of its engineers.

“Every quarter, a lot of people leave us for higher courses
like MBA and MTech. We have seen a rise in the interest level of our employees
for consulting work. To tame this and provide growth opportunity for engineers,
we are planning to introduce a new initiative as part of our iRace (Infosys Role
and Career Enhancement) programme,” said Mohandas Pai.

In-house CAT : In-house engineers with over two years of
experience can opt for this programme. The company is expected to do a pilot
test soon and to implement the programme next year. “We will conduct a test for
the employees and if they pass the test, they can join our consulting team,” Pai
added.

(Source : Business Standard, dated 21-1-2011)

 

(Comment : Our profession needs a similar programme)

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RBI promises parity if foreign banks form arms

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New Page 1

The existentialist dilemma before Indian democracy is stark :
it cannot co-exist with financial honesty. It does not matter if you are
personally incorruptible; you have to be institutionally corrupt in order to
engage in the business of democracy. The moral code of elections is
uncomplicated : Don’t ask. Don’t tell. And for God’s sake don’t get caught.


M. J. Akbar
in India Today, dated 10-1-2011

57 RBI promises parity if foreign banks form arms

The Reserve Bank of India (RBI) is dangling the carrot of
near level-playing field to foreign banks such as Citigroup and HSBC, if they
convert into wholly-owned subsidiaries which is essential for systemic safety,
instead of functioning as parents’ branches, leaving room for instability.

MNC banks would be allowed to set up branches at their will
in smaller cities, barring some security-sensitive regions, and list their
shares on stock exchanges with at least 25% Indian holding, said a central bank
discussion paper on Presence of Foreign Banks in India.

Global banks would have a minimum capital adequacy ratio of
10% and lower priority sector lending target than domestic private peers.

There are 34 foreign banks operating in India as branches,
accounting for 7.65% of total banking assets as on March 31, 2010, up from 9.03%
a year ago. If credit equivalent of off-balance sheet assets are included, their
share was 10.52%. The share of top five foreign banks alone was 7.12%.

(Source : The Economic Times, dated 22-1-2011)

 

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SC blames own verdicts for declining standards

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New Page 1

The existentialist dilemma before Indian democracy is stark :
it cannot co-exist with financial honesty. It does not matter if you are
personally incorruptible; you have to be institutionally corrupt in order to
engage in the business of democracy. The moral code of elections is
uncomplicated : Don’t ask. Don’t tell. And for God’s sake don’t get caught.


M. J. Akbar
in India Today, dated 10-1-2011

56 SC blames own verdicts for declining standards

The Supreme Court reprimanded governments for abuse of
discretionary land allotment powers before turning reflective and admitting that
some of its judgments have contributed to the all-round falling standards.

The Bench’s remarks came during the hearing of a petition,
which accused the Madhya Pradesh Government of allotting 20 acres of prime land
at a throwaway price to the Kushabhau Thakre Trust, which has BJP leaders L. K.
Advani and Venkaiah Naidu as trustees. Before reserving verdict, the Court said
: “Discretionary power was to be used in public good. In the last 50 years, this
is exercised just for the opposite. The man who abides by law feels he is a
fool. Every state, not only Madhya Pradesh, who has got discretionary power has
abused it.

(Source : The Times of India, dated 19-1-2011)

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Political governance — End the drift

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New Page 1

The existentialist dilemma before Indian democracy is stark :
it cannot co-exist with financial honesty. It does not matter if you are
personally incorruptible; you have to be institutionally corrupt in order to
engage in the business of democracy. The moral code of elections is
uncomplicated : Don’t ask. Don’t tell. And for God’s sake don’t get caught.


M. J. Akbar
in India Today, dated 10-1-2011

55 Political governance — End the drift

Decision-making isn’t a synonym for governance. Even so, it’s
a good pointer to a ruling dispensation’s ability to be on its toes. On that
score, data shows UPA-II fared badly in 2010. The cabinet’s record on number of
decisions taken in 2010 compared to earlier was below par. Between 2005-08
during the Congress-led coalition’s first tenure, the cabinet took an average of
242.5 decisions yearly. The annual average since 2005 is 183. In 2010, however,
the Cabinet managed consensus on just 112 decisions, the lowest single-year
figure since the UPA came to power. Amazingly, decision-making actually
decelerated post-2009, when the Left was no longer around to ambush it !

(Source : The Times of India, dated 18-1-2011)

 

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Fuel Pricing — Death by policy

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New Page 1

The existentialist dilemma before Indian democracy is stark :
it cannot co-exist with financial honesty. It does not matter if you are
personally incorruptible; you have to be institutionally corrupt in order to
engage in the business of democracy. The moral code of elections is
uncomplicated : Don’t ask. Don’t tell. And for God’s sake don’t get caught.


M. J. Akbar
in India Today, dated 10-1-2011

54 Fuel Pricing — Death by policy

The new Union minister for petroleum and natural gas Jaipal
Reddy can implement the brightest ideas from the smartest bureaucrats and yet
the root of the problem that resulted in the murder of Mr. Yashwant Sonawane, a
district official in Maharashtra who sought to curb the adulteration of petrol
by the kerosene mixing mafia, will not be touched unless India’s fuel pricing
policy is shaped by the logic of simple economics. Various estimates have been
provided in the past few days of the size of the domestic black market in
kerosene. Some put it upwards of Rs.16,000 crore annually. This is a huge amount
of money that can finance large and even globally powerful mafias, not to
mention two-bit gangsters like the ones who killed Mr. Sonawane. There was a
time when Mumbai was in the grip of smugglers. With some simple policy steps
like lower tariffs, liberalisation of gold imports and such like these
all-powerful mafias were marginalised and largely confined to Bollywood movies.
In the case of kerosene and diesel an export smugglers mafia has been created
with India’s lower priced fuels smuggled to Nepal and Bangladesh.

The only way in which mafias get eliminated is by the
elimination of the economic basis for their existence. It is not prohibition
that finally ended the power and wealth of bootleggers and illicit liquor mafia,
but a liberal policy that allowed the sale of properly priced alcohol.

As a first step, the Government must reduce the price
differential between diesel, kerosene and petrol. This will not only have the
positive effect of reducing the fiscal burden of the humungous oil subsidy, but
also encourage a more rational use of both diesel and kerosene. The
under-pricing of these two fuels has encouraged the growth of highly
energy-inefficient and environmentally dangerous means of power generation and
fuel utilisation. Moreover, for an import-dependent country like India
subsidised fuel increases the trade deficit and contributes to external payments
problems.

(Source : Business Standard, dated 31-1-2011)

 

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SC : No govt. wants a strong judiciary

fiogf49gjkf0d

New Page 1

The existentialist dilemma before Indian democracy is stark :
it cannot co-exist with financial honesty. It does not matter if you are
personally incorruptible; you have to be institutionally corrupt in order to
engage in the business of democracy. The moral code of elections is
uncomplicated : Don’t ask. Don’t tell. And for God’s sake don’t get caught.


M. J. Akbar
in India Today, dated 10-1-2011

(Source : Business Standard, dated 15-2-2011)

53 SC : No govt. wants a strong judiciary

The Supreme Court said no government wants a strong judiciary
and added that meagre budgetary allocations by the Centre and states came in the
way of setting up of courts and infrastructure to speed up the justice delivery
system.

It said : “No government wants a strong judiciary . . .
Budgetary allocation to judiciary is less than 1% by the governments. This shows
their commitment towards judiciary.” The remark from a Bench of Justices G. S.
Singhvi and A. K. Ganguly came when it was told that only one witness has been
examined in the last four years in the Amar Singh phone-tapping case, which has
been marred by adjournments.

(Source : The Times of India, dated 12-2-2011)

 

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Taxing wealth — Has the time come for the super-rich to pay more taxes ?

fiogf49gjkf0d

New Page 1

The existentialist dilemma before Indian democracy is stark :
it cannot co-exist with financial honesty. It does not matter if you are
personally incorruptible; you have to be institutionally corrupt in order to
engage in the business of democracy. The moral code of elections is
uncomplicated : Don’t ask. Don’t tell. And for God’s sake don’t get caught.


M. J. Akbar
in India Today, dated 10-1-2011

52 Taxing wealth — Has the time come for the super-rich to
pay more taxes ?

One of the high points of economic and fiscal reform in India
in the past two decades has been the progressive moderation of direct tax rates.
Thanks to this, the ratio of direct to indirect taxes has risen, a sign of
greater progressiveness and equity in India’s taxation system. Direct taxes are
not easily passed on, as indirect taxes tend to be, and so their incidence is
more directly on the individual or firm paying the tax. While this has been a
positive trend, the ratio of total tax revenues to national income has, in fact,
come down in recent years and remains below 12%. India has a very low tax/GDP
ratio by world standards. Apart from widespread tax evasion and avoidance, the
complete exemption of certain types of income from taxation, like agricultural
income, has made it that much more difficult for the tax authorities to capture
all taxable incomes.

The wealth of just 657 BS billionaires has been estimated to
be Rs.16 lakh crore. Taxing away just 0.1% of that would yield a revenue of
Rs.16,000 crore. A 10% long-term capital gains tax, with the securities
transactions tax dumped, and a death duty or inheritance tax can easily generate
another Rs.10,000 crore, netting a cool Rs.26,000 crore of additional direct tax
revenue, without hurting the middle class. Not only would this help Mr.
Mukherjee in his fiscal house-keeping but it would give his party a talking
point at a time when it is being accused of corruption and currying favour with
corporates. Some, including the stock market, would cry foul and the Government
must factor that negative response in. But many would cheer a Government dipping
into the deep pockets of the super-rich.

(Source : Business Standard, dated 15-2-2011)

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Survey — Legal, Tax and Accounting Aspects

Lecture Meeting

Subject : Survey — Legal, Tax and Accounting Aspects



Speaker : Dilip Lakhani, Chartered Accountant


Past President, BCAS


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



Date : 26th November 2008


1. Introduction :



At the outset while identifying the reasons prompting the Tax
Department to conduct a survey is that though theoretically every assessee has
to pay tax on income he actually earns, in actual practice the assessee pays tax
only on the income he discloses. Very often, the gap between the two is found to
be mordantly large, resulting in generation of undisclosed income and
undisclosed wealth. To counteract this practice, the Legislature has given wide
powers to tax authorities to conduct surveys and search proceedings. Though
these provisions are legally valid, controversies arise in their implementation.
It also gives rise to many issues in accounting the differential incomes
disclosed at the conclusion of the survey or search.

2. Search (S. 132) and survey [S. 133(A)]

— comparative study :

Though repercussions of Search are more drastic, the Survey
provisions, according to the speaker are more risky for the following reasons :

The first reason is that a warrant for search needs approval
of the highest administrative authority,
namely, Director General of Investigation (a rank equal to Chief Commissioner)
who issues the warrant only after careful and in-depth study of all relevant
facts, circumstances and background of the case.

Another safeguard is that before coming to the decision of
taking search of any assessee, care is taken to ensure that the assessee’s case
satisfies at least one of the three basic conditions. The authority must record
the reason to believe that the assessee is understating his income. He has to
spell out why the search is to be conducted and what is the information
available for conducting the Search.

This process of collection of data to arrive at this
satisfaction takes two to three months. It is only after such satisfaction that
the Director General of Investigation issues a warrant.

As compared to this, S. 133A does not contain similar
preconditions of satisfaction. It provides that the Income-tax authorities may
visit the place of business of the assessee to carry out the Survey. It can take
place if there is fall in turnover, fall in G.P. ratio or non-compliance by the
assessee during assessment proceeding. The only condition is to get approval of
the Additional Commissioner of Income-tax.

3. Analysis of legal, accounting and tax aspect of survey proceedings :


Survey connotes comprehensive inspection of place of business
or profession. A survey cannot be conducted at place of residence. The survey
party can inspect the books of accounts, documents, take inventory of stock,
cash, valuables, investments, all of which thereafter will be inventorised.

After 1-6-2002, survey party is given power to impound books
of accounts and documents and take custody of the same after inventorisation. No
other asset can be impounded.

Normally survey cannot be conducted at residence, since it is
not a place of business. If in the return of income it is shown as any other
place of business, then the survey can be conducted at residence as well as in
any other place of business, say, godown or branch or additional place.

4. Timing for commencement of proceedings :


As regards timing to commence Survey, the same should be
within normal business hours. Once proceedings start, the same can continue till
it is concluded i.e., even beyond hours of business. The Search
proceedings should commence only between sunrise and sunset.

5. Places that can be covered under survey proceedings :


Where the assessee states that his books of accounts are with
his C.A. or Advocate, then the survey can be conducted even in office of the
C.A. or Advocate. However, In 1994, the CBDT issued a Circular stating that
normally Survey should not be conducted in office of C.A., but he should be
asked to produce those books at the place of business of his client who is being
surveyed. If the C.A. refuses to co-operate, then the office of the C.A. can be
surveyed. But the scope of survey will have to be restricted to the books and
other documents of that particular client only and not to books, etc. of C.A.
himself or his other clients.

6. Authorities who can conduct the survey proceedings :


The Income-tax authorities defined in explanation to S. 133
are Commissioner, Asst. Commissioner, Income-tax officer and Inspector, so also
officers of investigation wing i.e., Asst. Director, Director of
Investigation, Deputy Director of Investigation, Additional Director of
Investigation and Inspector. But Chief Commissioner and Director of
Investigation cannot conduct survey. The reason is they are senior officers.

7. Rights conferred on the Officers :


The rights of officers in survey party include right to enter
premises and verify whatever is available in the premises. But the officers
cannot take personal search. The officers in such cases ask the assessee and
others present to empty their pockets and place the papers, documents before the
officers’ table which can then be inspected. It is important to note that though
inspector is an authority in search party, his powers are very limited viz.
to verify books and documents and put identification marks on books and
documents. Except these two powers, he has no other authority. However, in
practice, stock inventory, cash count is done by the inspector. So also very
often statement is recorded in handwriting of the Inspector and signed by the
assessee and countersigned by an officer. The statement is recorded u/s.133A(3),
in search proceedings u/s.132(4), the oath is to be administered before the
statement is recorded. However, u/s.133A, the authorities have no power to
administer oath. Therefore, even if the assessee makes a false statement,
provisions of prosecution under the Indian Penal Code cannot be invoked. Three
important Sections of I.P.C. are excluded in survey proceedings. These are S.
179, S. 180 and S. 181 of the Indian Penal Code, which apply to refusal to make
statement, refusal to give evidence and refusal to give reply. But in search
proceedings, if any of these events occurs, the assessee can be prosecuted. S.
166 of I.P.C. provides that if a Government servant exercises any power for
which he is not authorised, he can be imprisoned for one year.

8. Rights of assessee during survey :


As far as search proceedings are concerned, the rights are given as guideline. These are applicable even during the survey proceedings. The assessee can do his normal functions required for carrying on his business activity, he and his assistants can go out for the assessee’s work. The only restriction is that he should remain present when his statement is to be recorded.

There is no power to arrest or confine the assessee to his business premises.

After inventory is taken, the assessee is asked to put values against each item of stock inventorised. But per law, after inventorisation, the function of survey comes to end. It is only at the time of assessment that the assessee can be called upon to evaluate and prove the valuation and to reconcile the same with stocks shown in books.

During the survey the search party insists on valuation and to quantify the difference solely with a view to persuade or compel the assessee to make high amount of declaration. But such action is not as per law. The survey party or even search party cannot restrict the movement of the assessee. This is held by Delhi High Court in its discussion on rights of assessee during survey proceedings, refer 194 ITR. U / s.132, governing search proceedings, there is power to break open doors, cupboards, cash boxes, false ceiling while making search of unaccounted valuables. No such power exists in S. 133A. If the cupboard or safe is locked, the officer can record his satisfaction about existence of valuable stored in it and get search warrant, whereby he can get the power to break open such containers.

As regards sealing of business premises or god owns, there is no such power to seal premises or god own with search authorities, nor survey authorities. [Shyam Jewellers 196 ITR 239.]

Generally survey proceedings end with recording statement and taking declaration from the assessee.

9. Retraction of declaration of disclosed amounts by assessee:

Whether the statement can be retracted? The statement is not recorded on oath. If it is so recorded, then it casts higher burden on the assessee to prove what he said was not correct.

Before retracting the statement the assessee should first consider the material gathered during survey and its value. Mere blanket retraction will not help the situation. But where materials gathered indicating concealed income form a small part of the disclosed amount, which is either through pressurisation or otherwise, then the assessee can retract his statement saying that it is taken under coercion. Retraction shall be made at the earliest point of time. Retraction statement should clearly set out the circumstances and factual events compelling him to disclose higher amount in his original statement recorded.

10. Three basic principles to be borne in mind are:

i) The amount disclosed in statement is not a conclusive evidence. One has to give due weightage to the circumstances leading to disclosure.

ii) Confessional statement given under ignorance of legal rights is not having evidential value. To illustrate, an assessee not aware of exemption to capital gain, discloses and includes such amount in his declaration statement, still no tax can be levied on such capital gain.

iii) The law is always open to convict a person if evidence is found to be false. Hence, even if declaration is produced before the Court, which is retracted, the Court will verify whether the evidence or material gathered, is sufficient to justify declared sum. If the answer is affirmative, then retraction will not stand the test of law. In converse situation, the Court will uphold retraction.

11. Issue of summons  during  survey  proceedings:

The power to issue summons is given when the assessee is creating hindrance in proceedings or not giving statement when called upon, then the officer can issue summons u/s.131 calling the assessee to attend his office on appointed day and time. S. 131 gives all powers of a Civil Judge to Af), Actually, if the assessee has cooperated and if stocks, cash valuables are inventorised, then summons is not necessary. This was held in 58 ITD 492 and 27 BCAJ 475, which supports the law that summons cannot be issued indiscreetly.

As decided in 246 ITR 353, a bar is put on recording the statement of the assessee over long periods. The recording of statements has to be completed within reasonable time.
 
In survey proceedings, the authorities persuade the assessee to declare large amount assuring him that penal proceedings will not be invoked if he discloses such amount as indicated by officers. However, such assurance has no legal base.

Penalty u/s.271(1)(c) can be levied only when there is concealment of income or filing of inaccurate particulars. Hence, filing of returns is a prerequisite. If the due date for filing the returns of current year is not yet expired and if the disclosed amount is not related or attributable to earlier year’s income, then there is no ground to initiate S. 271(1)(c)proceedings.

12. Accounting treatment to stock and cash difference :

The undisclosed stock included in the stock inventorised can be brought into books by debiting stock and crediting income. Thereafter the assessee can pay tax as Advance Tax. In 190 ITR 43 (Born.) it was held that where due date for filing has not yet expired, no penalty can be levied if such difference is submitted to tax as income. So, if the undisclosed stock or cash or any valuables not disclosed relate to current financial year and not earlier year, then the assessee need not file declaration regarding such stock, but can incorporate the same in current year income and pay tax. This position will not be applicable if such undisclosed income relates to earlier year. The speaker said that a survey is something like voluntary disclosure scheme always available to the assessee by disclosing it as current year income.

13. Power to impound stocks, cash and other assets, books of accounts & documents:

Prior to 1st June, 2002, there was no power to impound anything from business premises. After 1st June, 2002, officers can impound books of accounts and documents and no other assets. The definition of books of accounts is contained in S. 2 (12A) and documents are defined in S. 2(22A). So any loose papers noting unaccounted sale may not fall in the definition of books of accounts, still survey party can inventorise them and will require the assessee to produce them at the time of assessment proceedings. Those documents which are unsigned, which are undated, unsigned Memorandum of Understanding, may not be documents.

14. Presumptions:

In S. 132(4A) there are certain presumptions, viz. (i) contents  of documents are presumed to be true; (ii) The handwriting will be presumed to be of the assessee unless proved otherwise, (iii) signatures will be presumed to be of assessee unless proved otherwise.

However, all these presumptions available during search proceedings are not available during survey proceedings.

15. Presence of CA. during the course of surveyor search:

The speaker felt that such presence will facilitate the proceedings in its smooth functioning. Unfortunately, S.C in 62 Taxrnan 73, has held that whatever is noted in proceedings is the statement of facts. The concerned person is not yet accused and no charge sheet is filed against him, so the work of investigation is in nature of finding of facts, hence CA. or an Advocate has no role in these proceedings. Based on this their presence is not permitted.

16. Time limit for return of impounded documents:

After impounding the documents, ten days’ time is given to retain them, after which those documents are returned unless the officer takes permission of CIT or Director of investigation to retain them for further time by recording the reasons. Such recording is necessary even at the time of impounding.

In 156 ITR, S.c. has held that documents collected even during illegal search can be a piece of evidence which the Dept. can use against the assessee. The Commissioner while giving permission for retaining documents beyond ten days has to record the reason for giving such permission and according to the Speaker, he should intimate the same to the assessee. In search & survey, no appeal is provided. The only remedy is writ which is expensive.

When disclosure of excess cash and excess stock is made, the difference is treated as income. But where there is a shortage, then the Dept. will presume that the difference is unaccounted sale. But entire estimated sale price will not constitute income, a due deduction of cost of material can be claimed from such sale. The same is the position of cash on hand. If cash of, say, Rs.5 lakhs is found but cash per books is, say, Rs.1 lakh, the entire difference though treated as unaccounted sale, the assessee can claim cost of unaccounted purchase as deduction and the difference alone will be concealed income. Again, since the source for unexplained investment is proved, provision of S. 69C or other sub-sections of S. 69 will not apply. Therefore entire shortage of stock or cash will never constitute income. Accounting entries to regularise excess stock or excess cash in the same financial year by debiting stock or cash and crediting income. The entry can be made at any time, at the time of surveyor thereafter. Excess stock can be entered in stock book with corresponding entries in financial books. However, in case of a manufacturer, the incorporating entries of sales (unaccounted) will expose him to liability under indirect taxes like excise, sales tax, vat. In case of traders, if the amount is credited as commission, then service tax gets attracted. As against this, it is possible to argue that income was from derivative trading speculation or commodity trading. Though the source gets explained, the confrontation in Indirect Taxes, VAT, etc. can be avoided. In case of less cash and more stock being found, a set-off can be claimed. Hence due care should be taken when the assessee is made to disclose. He can reserve his explanation till the date of assessment proceedings.

17. Copies of statements recorded:

Can the assessee ask the authority to furnish him copies of statements – The answer is in the negative. The judicial view is that the assessee gets the right to demand it only when any such statement is used against him.

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

Completion of ‘Four years of Right to Information Act’

Lecture Meeting

Subject : Completion of ‘Four years of Right to
Information Act’
— A meeting organised by BCAS jointly with IMC and P.C.
Governance Trust

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

Date : 12th October, 2009


Part-A :

A brief report on proceedings of the meeting.

On 12th October, 2009 the BCA Society, Indian Merchants’
Chamber and P. C. Governance Trust jointly organised the above meeting in
which many august institutions and NGOs in the city participated in
celebrating the Fourth Anniversary of Right to Information Act introduced on
12th October, 2005.

(1) The meeting started with opening speech of Julio
Rebeiro representing, Indian Merchants’ Chamber. The speaker outlined the
objective and purpose of the Act and gave valuable suggestions on strategy to
be adopted for effective implementation. He expressed his satisfaction that
not only masses in cities but also in villages are becoming aware of the
utility of the Act, which will help in checking corruption and will make Govt.
authorities accountable and answerable.

(2) Narayan Varma representing BCAS Foundation said that
his Foundation has started RTI Clinic and is attending through telephone
service the complaints and grievances of the members of public. The Foundation
publishes articles in newspapers, writes books, articles and publications
which are widely appreciated. He stressed the need to make public movement
more effective.

(3) Anand Castolino of Bombay Catholic Sabha, informed that
his institution organises many meetings in various parts of city of schools
and college students, senior citizens and many others. The persons attending
the meetings participate actively. Every week, clinic is held in the Mahim
office to help persons suffering in hands of corrupt and irresponsible Govt.
authorities.

(4) Paramjeet Singh explained work done by his Dharma RTI
Mission. His concern has established Help Centres aided with computer and
other equipments. The RTI Help Centre is focussing on collecting information
from schools, colleges about non-receipt of Govt. grants and provides
assistance in filing applications. The slum areas in Govandi are also visited
where meetings are held of residents to register their grievances. These are
then forwarded to concerned offices and are followed up thereafter.

(5) Ashok Ravat represented Forum of Free Enterprise, M. R.
Pai Foundation and N. A. Palkhiwala Memorial Trust. He complained about the
road blocks created by administrative persons in replying the applications
filed. The authorities invariably try to take shelter u/s.8 of the RTI Act to
avoid giving answers to questions raised and to furnish details. He informed
that Books, Guides and Information materials are published explaining various
provisions of the Act and Rules. The forum of free Enterprise is also keeping
in touch with Bank Depositors Association. Instances of frauds on depositors
by private banks and co-op. banks have become rampant. Unfortunately a
favourite plea is put forth by those Banks that they are outside the scope of
the Act. He stressed the need to remedy this unfortunate position. Another
road block put in by Govt. authorities is the common plea that the question
does not fit in definition of information. To overcome this, his organisations
are advising those applicants to approach State Information Commission since
S. 81 empowers the Commission to investigate into complaints.

(6) Mr. Rasikbhai representing Tarun Mitra Mandal, reported
that his organisation is conducting various seminars, programmes in Mumbai,
Thane and Navi Mumbai to train public on use of RTI Act effectively. His RTI
centre assists public in drafting applications, appeals and other procedural
matters for better implementation.

(7) The above representations were followed by short
lectures of a few students of law college.

In concluding remarks, the Chairman expressed satisfaction
that the movement is gathering momentum. He hoped that there will be proper
reciprocation from authorities in Govt. and public sector undertakings to make
the legislation meaningful and will bring transparency and will reduce
corruption. Hon. Justice Dhananjay Chandrachud was then requested to enlighten
the audience on this occasion.

Part-B :


Speech of Hon. Justice Dhananjay Chandrachud, Mumbai High
Court

The Hon. speaker said that the society should look to the
legislation not as a tool to raise issues but should consider it as a
movements and as an effective tool to achieve goal of transparency, efficiency
and should inculcate a spirit of social commitment amongst Public servants. It
should become a new way of life, an awakening in the society. It should
replace the apathy, the indifference in the heart of a citizen and should
encourage him to raise his voice against malpractices, which will improve
radically the functioning of Public bodies. The act will replace scepticism
with optimism, will replace apathy with active interest, will replace feeling
of absence of power with sense of actual power. It will encourage involvement,
by shedding indifference and alienation. It will replace the governance from
the hands of administrators into the hands of subjects who are the
beneficiaries. The reports that are published about the issue of non-receipt
of pensions, non- receipt of ration cards, distribution of lands to landless,
issues concerning Aanganwadi, Balwadi and variety of issue concerning
millions.

The Hon. speaker shared his experience on many of those
issues coming before the judiciary, where the judiciary could realise the hard
reality about the injustice done to the subject, by administrators.

Hon. Justice Chandrachud stressed, that there can be no
development without empowerment. Both are interwoven providing information
about governance is a sure way to empower the citizen in quest for
development.

‘At basic level, the right to information provides access to information. It is a means to an end and not an end in itself. There is a much deeper meaning in right to information. It means governance, which makes administrators realise their accountability to society. Though today we are at the threshold, the efforts should be in the direction of attaining the goal at availing access freely without barriers. Dealing with issues concerning judiary, Hon. Chandrachud said that de-regulation is becoming a Mantra of the day, in process of greater involvement of private sector. Impact of liberalisation or deregulation. Right to know is a constitutional right and the same cannot be abrogated confining the scope of the Act only to Govt. administration or public bodies.

Definition of Information given in the Act, covers information relating to any private body which can be accessed by a Public authority under any other law for the time being in force. Therefore, according to Hon. speaker, what can be accessed by Public authority can be accessed by any individual citizen also. Therefore, though the implementation is presently focussed on Public governance or Public officials, it has to be extended to private governance in course of time.

The implementation will have to be carried out at two different levels. Firstly, creating awareness of right in all stratas of society in Urban and Rural areas. It should be institutionalised by going beyond individuals. Their experiences should be shared. For easy and quick access the speaker said that the judicial Dept. has developed a software to have quick reference to pendancies of cases before the Court. Taking it as sample, softwares can be developed to have an access to statistics about issues regarding disposal of pending applications, subjectwise areawise, the information as to whether Appeals are disposed of expeditiously or not and other administrative issues. Mechanisation of operations in every part of functioning will greatly help attaining process of transparency and administrative efficiency. S. 8 of the Act is misused by authorities to deny access to information. But unless the information is of commercial confidence or related to national security, the access can not be denied. We need an era, where disclosure must be the norm and suppression of information should be an exception. It is only then the goal of having a free society with informed citizens can be attained.

The meeting terminated with a vote of thanks to Hon. Justice Chandrachud and to all dignitaries representing activist organisations for actively participating in the meeting.

Foreign Investments in Real Estate

Lecture Meeting

Subject : Foreign Investments in Real Estate



Speaker : Rajesh Kapadia, Chartered Accountant,


Past President, BCAS


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



Date :
16th July 2008








(1) While reviewing the trend of prices of real estate over
the past three decades and while identifying the reasons for spurt in real
estate prices year after year, the speaker Mr. Kapadia candidly observed that
apart from other economic factors the main cause is the utter failure of the
Urban Land Ceiling Act, 1973 in attaining the declared objective for which it
was enacted. The objective of controlling the rising prices and bringing rates
of residential flats within reach of common man failed miserably. During the
period of emergency in the country and a few years thereafter, the prices of
residential flats were in the range of Rs.70 to Rs.80 per sq.ft. in South
Mumbai. Between 1986 to 1993 the prices remained fairly stable.

(2) After 1995 there is unprecedented rise in real estate
prices year after year. Now a new trend has emerged amongst the class of
developers of specialising in different categories, such as construction
projects for residential complexes, commercial spaces, hospitality i.e.,
hotels, industrial parks, malls and similar projects.

(3) To regulate the development projects, the regulating
authorities issued two Press Notes. But even these Press Notes excluded certain
categories from its purview e.g., Press Note 2 does not deal with
industrial park developments, which comes under automatic route. Similar
position exists in cases of development of warehousing, hotels, etc.

(4) As regards regulating the provisions applicable to
foreign investment in real estate developments, the speaker said that there are
four or five segments available to foreign investors who are either NRIs or
foreign venture capital investors or foreign institutional investors. For each
of these categories there are different norms.

(5) Regulations prohibit participation of foreigners in real
estate business as traders per se. However, real estate business does not
include development of townships, construction of residential and commercial
premises, roads, etc.

(6) On following two dates viz. 6th July 1991 and 3rd
March 2005, drastic changes were introduced in regulations which have made the
real estate business an attractive proportion to foreign investors. From 12th
January 2005 the permission of Govt. hitherto required for foreign investors was
done away with. As per Press Note No. 2, hundred percent investment in
development projects of townships, hotels and roads was allowed to non-resident
investors subject to the following conditions :

(a) For development of housing project, investment in land
acquisition of minimum 10 hectares which is equal to 25 acres, will be the
precondition. The question that needs consideration is whether a 100% subsidiary
Co. of a foreign company can acquire agricultural land for development. The
answer is that if the law of the State in which such agricultural land is
situated, permits such acquisition, then such company can purchase agricultural
land provided it takes steps to convert agricultural land into non-agricultural
land and uses it for development of building and not for purposes of
agriculture.

(b) Capitalisation norms and restrictions :


A foreigner making investment through a subsidiary in India
will be obliged to invest at least 10 million dollars. If investment is made
with Indian joint venture partner, then capital contribution will be 5 million
dollars. The investment should be within 6 months from commencement with lock-in
period of 3 years from date of investment.

(c) What constitutes joint venture :


The ratio of investment in such joint venture need not be
equal. The foreign investors can have dominating percentage. As regards period
of six months from commencement, Press Note No. 2 provides that the date should
be counted from the date when agreement to subscribe shares is entered into
between co-venturers. The minimum prescribed amount of 5 million is to be
brought in within six months. The condition of lock-in period of 3 years applies
to minimum investment and not to additional investment over and above minimum
investment.

(d) Time period for completion of project :


At least 50% of the project has to be completed within five
years from the date from which all the clearances are obtained. The investor
will not be permitted to sell undeveloped plot. It means that before effecting
any sale, he must have completed development of plot by carrying out
construction of roads, water supply lines, drainage, water storage and related
facilities. It means, the investor must develop 10 hectares of project plot
before effecting sale.

(7) The speaker then observed that the boom in real estate
trade is attributable to excess liquidity in the economy. Many foreign investors
find that they are suffering cash crunch though the lock-in period is yet not
over. For making the development project viable, they have already invested
funds over, say, 25 crores plus Stamp Duty @ 1% and if at that stage any
disputes or difficult situation arises, then to meet the liquidity challenges
the only way is to dispose of their surplus investment over minimum by
transferring their shares or to liquidate holdings through buy back of shares or
to liquidate the company. In another situation if construction has already
started but if constructed area cannot be disposed of profitably, the investor
will face serious difficulty. Where development of land, say, of 10,000 sq.
meters is undertaken, then built-up area of 50,000 sq.mtrs. will be available
assuming FSI of 5. In the event response to constructed area is very poor, then
the loss may be much higher. The foreign investor has to keep in mind all such
situations.

8) The speaker then clarified that in the event the project fetches good profit, then dividend can be declared, subject to transfer of required percentage to reserves.

9) As regards companies in real estate, with huge capital investment of, say, 100 crores, the foreign borrowing for purchase of land is not permitted. Such borrowing’s are permitted only for financing construction work. As issue of shares at premium is possible, in such a case the capital base can propor-tionately be kept smaller. However, it is necessary to look into Reserve Bank guidelines. The amount of premium can be considered, for satisfying the condition of minimum capitalisation. External Commercial Borrowings (ECB) is not permitted. On
1-6-2008 the Government has put a bar on issue of non-convertible preference shares or non-convertible debentures. Debentures must be convertible and time frame for conversion has to be observed. But, if the company has committed to issue non-convertible debentures prior to 1st June 2008, then such company can continue with its commitment. In another situation if company wants to change over to convertible debentures, then Reserve Bank should be approached before taking such step.

10) Another aspect is satisfying valuation norms prescribed by the Controller of Capital Issues, pre-vailing up to 1992. Though this order was abolished, valuation rules prescribed by CCI regulations still continue.

11) As regards conversion of preference shares in equity shares, such conversion is treated as transfer for ascertaining capital gains liability of shareholder.

12) As regards conversion of debentures into shares, S. 47(10) of the Income-tax Act provides that the same will not be regarded as transfer. Transfer of shares by one foreign Co. to another foreign Co. requires no permission, nor is it governed by transfer pricing rules, nor by pricing guidelines. The same principle applies to transfer by one NRI to another NRI. Where transfer of shares is from person resident in India to non-resident, no approval is required. This however is subject to compliance of guidelines, set out in circular of RBI of October 2004 and pricing guidelines.

13) Any gift by a resident to a resident outside India needs RBI approval. Where there is a transfer by a person outside India to a resident in India, the repatriation of price realised above fair value will not be permitted to such non-resident.

14) Mr. Kapadia then stressed the need on the part of non-resident investor to give serious thought to structuring aspects of joint venture investment, by planning of route to be adopted, by studying the provisions of DTAA, and FEMA, whereby the tax effect can be minimised and his investment will be ideally tax effective and cost effective.

15) The speaker thereafter touched upon the various segments of real estate trade. It cannot just be restricted to conventional form of construction of buildings, but also takes into consideration other forms. The capital investment requirement and form of organisational set-up vary from each other. The few illustrations are:

a) Real estate management company needs to have minimum net worth of 5 crores.

b) There was one more category of O.CB., where 60% of holdings were owned by non-residents. Now, 50% of Directors of such real estate management company should be financing directors. The unit should invest in real estate projects of which 80% should be in completed projects and maximum up to 20% in incomplete project. Investment in vacant land is not permitted. These provisions at present are in a draft form till guidelines are notified.

c) The other avenues in real estate are development of service plots, residential or commercial premises, development of townships, investment in manufacture of building materials, investment in joint ventures, and similar other forms of organisation. In respect of many of the avenues there are no limiting or restrictive conditions like minimum capitalisation or lock-in period. The only requirement is the investor should be an NRI, a person of Indian origin. All these investments will be on repatriable basis.

d) As regards foreign venture capital investors fund, clause 5(5) of Foreign Venture Capital Fund Regulations of 1998 plays an important role. The constitution of a venture capital undertaking has to be a company whose shares are not listed on a recognised stock exchange in India and which should not be engaged in an indus-try specified in negative list. The advantage is lock-in restriction and pricing restriction are done away with.

16. Regulations  Re : Real  Estate  Mutual  Fund:

The only requirement is that management of such mutual fund shall have at least 5 years expertise in real estate trade. The investment should be in a specified real estate asset and not in incomplete projects or projects under construction. It must be located in India and in such city as may be specified. The property should not be subject matter of any litigation. At least 35% of net assets of the fund will have to be invested directly into real estate asset and therefore such mutual fund will not be equity-oriented mutual fund. Distribution made by mutual fund will be subject to dividend distribution tax. The investment can also be made in shares, debentures, mortgage-backed securities. The investment in these can be 75% and balance 25% in any securities. No real estate mutual fund can invest more than 25% of its capital in unlisted shares. The NAV of the real estate mutual fund shall be published every 90 days.

17. While concluding his talk, the speaker narrated a quotable quote of Pandit Jawaharlal Nehru on the eve of Independence in 1947. Hon. Panditji said, “The achievement which we celebrate today is a step of opening as an opportunity to the greatest triumph. We should be wise enough to grab this opportunity and accept the challenge of future”. This statement applies even today in current economic scenario.

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

FDI inflow through tax havens increases manifold — Mauritius, Singapore & Cyprus contribute 61% of FDI inflow in 2007-08.

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68 FDI inflow through tax havens
increases manifold — Mauritius, Singapore & Cyprus contribute 61% of FDI inflow
in 2007-08.


FDI from Mauritius, jumped from Rs.28,759 crore in
2006-07 to Rs.44,483 crore in F.Y. 2008, registering a 55% growth, whereas FDI
inflows from Singapore rose by whopping 362% during the same period, an analysis
based on FDI data reveals. FDI from Cyprus rose over 12 times from Rs.266 crore
in F.Y. 2007 to Rs.3,385 crore.

(Source : The Economic Times, 20-7-2008)

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Pakistani investors stone Karachi Exchange.

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67 Pakistani investors stone Karachi Exchange.


Pakistan investors stormed out of the Karachi Stock
Exchange, smashed windows and cursed regulators after the benchmark index fell
for 15th day, the worst losing streak in at least 18 years. The index has
plunged 35% from the record of 15,676.34 on April 18.

(Source : The Economic Times, 18-7-2008)

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SEC sanctions E&Y.

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66 SEC sanctions E&Y.


Ernst & Young LLP, one of the so-called Big Four
accounting firms, agreed to forfeit more than US $ 2.9-million to settle U.S.
regulatory claims that it compromised its independence while auditing three
companies.


The firm “engaged in improper professional conduct”
after agreeing in 2002 to create an audio series of recorded interviews with
industry leaders in collaboration with Mark Thompson, a board member for three
of its clients, the Securities and Exchange Commission said in a statement on
Wednesday. It didn’t identify the companies.


Best Buy Co., the largest U.S. electronics dealer,
announced plans in 2004 to drop Ernst & Young as its auditor after learning
Thompson, a member of its audit committee, had a separate relationship with the
accounting firm. Thompson earned about half his income by coaching Ernst & Young
partners to conduct talk show-style interviews for its ‘Thought Leaders Series’
of compact discs, the SEC said.

The regulator also cited Ernst & Young’s Chief
Operating Officer, John Ferraro, for allowing the violations. He settled by
pledging to refrain from similar misconduct in the future. Thompson settled by
agreeing to forfeit US $ 123,900.

The firms, like the other defendants in the case,
didn’t admit or deny wrongdoing. Ernst & Young is giving up almost US
$ 2.4-million in audit fees, plus interest.

(Source : Internet Newswire, 6-8-2008)

 

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I-T nod likely to be made mandatory for remittances.

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65 I-T nod likely to be made mandatory for
remittances.


Sources said a certificate from Assessing Officer (AO)
prescribing the rate at which withholding tax is to be deducted would be
required. This regulation existed some years ago, but was done away with to make
the process less cumbersome. However, with increase in remittances, both
corporate and individual, there is a growing feeling in the Department that tax
could be escaping the Department’s eye.

 

Tax experts feel this condition would create an unnecessary
roadblock. They feel the Department should specify a threshold or exempt
requirement of NOC in cases where no tax is payable.

(Source : The Economic Times, 8-8-2008)

 

[Compilers’ Note : Bureaucrats always want to gain and
regain controls. Does the Department have the time and requisite resources to
scrutinise even the Remittance Certificates issued by CAs u/s.195 ?]

 

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Top companies ignore ICAI rule on forex loss treatment.

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63 Top companies ignore ICAI rule
on forex loss treatment.


First-quarter results of several big companies such
as Reliance Industries, Reliance Communications, Bharti Airtel and Jet Airways
would have been a lot worse had they followed the Accounting Standards (AS) 11
rules prescribed by the Institute of Chartered Accountants of India (ICAI).


Most of these companies, however, chose to comply
with Schedule 6 of the Companies Act, which is at variance with the treatment
prescribed in AS-11 for the exchange loss incurred on foreign
currency-denominated liabilities for acquiring fixed assets.


For example, if the forex loss on this account were
taken to the profit and loss (P&L) account as required under AS-11, the net
profits of Reliance Industries for the quarter-ended June would have been 23%
lower than reported. Similarly, Reliance Communications’ net profits would have
shrunk 70% if it had taken the forex loss on the P&L account.

“The effect of changes in foreign exchange rates
has to be charged to the profit and loss account. The standard has been notified
by the Government and is part of the rules. Any violation has to be dealt with
by the Government,” said ICAI President Ved Jain.

The problem is that the Companies Act has not gone
through a consequential amendment.

“The three agencies (Sebi, ICAI and the Ministry of
Company Affairs) need to work in tandem so that there’s no ambiguity,” said
Sanjay Aggarwal, Head, Financial Services, KPMG.

(With inputs from Business Standard Research
Bureau
)

(Source : Business Standard, 6-8-2008)

 

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ICAEW Joint Disciplinary Scheme fines KPMG £ 1.6 million.

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64 ICAEW Joint Disciplinary Scheme
fines KPMG £ 1.6 million.


In its latest batch of disciplinary orders and
regulatory decisions, the ICAEW has found KPMG at fault for its work on the 2000
audit of Independent Insurance Group.


The firm “accepted that loss could be turned to
profit by using stop loss insurance which was too good to be true”. KPMG’s audit
partner, named as a Mr. Sayers, was advised by the firm’s concurring partner to
confirm the stop loss terms directly with the reinsurers. No reason was provided
for why the audit partner failed to do this. Independent’s actuaries, Watson
Wyatt, told Sayers that they “did not understand why the reinsurers were writing
these contracts when they appear to be obviously loss making.”


It subsequently turned out that Independent had
agreed to pledge £ 141 million as a condition of obtaining the stop loss, and
there were further agreements which limited the liability of the reinsurers and
sought to pass risk on to an Independent subsidiary. In addition, a different
stop loss contract required the payment of a premium of £ 1.6 billion over four
years. Shortly afterwards Independent’s Chief Executive resigned and the company
went into liquidation.

Eight years after the event, KPMG were finally
reprimanded by the Institute, fined £495,000 and ordered to pay costs of £ 1.15
million.

(Source : Internet Newswires, 8-8-2008)

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Da Vinci copied Chinese art, says British historian.

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62 Da Vinci copied Chinese art, says British
historian.


Leonardo da Vinci’s drawings of machines are
uncannily similar to Chinese originals and were undoubtedly derived from them, a
British amateur historian says in a newly-published book.


Gavin Menzies sparked headlines across the globe in
2002 with the claim that Chinese sailors reached America 70 years before
Christopher Columbus.


Now he says a Chinese fleet brought encyclopedias
of technology undiscovered by the West to Italy in 1434, laying the foundation
for the engineering marvels such as flying machines later drawn by Italian
polymath Leonardo.

The 70-year-old sold more than a million copies of
his first book, “1421”, which argued Chinese sailors mapped the world in the
early 1400s before abandoning global seafaring.

To support his argument, Menzies publishes drawings
of weapons, mills and pumps from a 1313 Chinese agricultural treatise, the Nung
Shu, and from other pre-1430 Chinese books, next to apparently similar
illustrations by Leonardo, Di Giorgio and Taccola. “By comparing Leonardo’s
drawings with the Nung Shu we have verified that each element of a machine
superbly illustrated by Leonardo had previously been illustrated by the Chinese
in a much simpler manual,” he says.

(Source : The Times of India, 30-7-2008)

 

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Auditing your Auditor

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

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

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

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

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

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

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

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

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ICAI says Shahajahan scam may run into crores

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

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

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

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

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

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Case pile-ups a danger for democracy : PM

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

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

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

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

 

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Crisis of merit in lower judiciary

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

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

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

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

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

 

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DTC not to override tax treaties

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

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

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

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

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Another writ petition filed against foreign law firms and LPO

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

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

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

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

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

 

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JD(S) chief defends tainted netas

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

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

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

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

 

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New foreign asset disclosure rules enacted

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

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

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

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

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

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Operations of foreign accounting firms — India would want full reciprocity

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

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

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

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

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Ancestral property cannot be gifted away, says Bombay HC

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

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

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

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

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Include CAs in CBI teams on corporate scam probes

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


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

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Hyundai’s Chung told to pay $ 60 mn

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

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

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

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

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IIM-A grads look for money and more

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

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

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

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

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49 lakh I-T refunds pending : Govt.

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


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

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

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

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

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

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IFRS convergence : CBDT to start talks with CA institute

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

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

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

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India v. China — The roads not taken

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

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

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

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Coaching classes to hire CAs

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

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

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

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

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

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

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Arbitration delays

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  1. Arbitration delays

Arbitration delays hit investor mood. Leading US-based
investment bank Lehman Brothers, affirmed last week that India remained one of
the world’s hottest investment destinations, but while the market and business
opportunities beckon, the adjudication of commercial disputes is still a thorn
for many investors looking for a system that would make things easier.

Experts say arbitration, involving a friendly third-party
to help business disputes, suffers many handicaps in India, dampening foreign
investor sentiment somewhat. The Arbitration and Conciliation Act, 1996, has
failed to provide an effective alternative redressal for commercial disputes,
because arbitration has become the beginning of a litigation, while elsewhere
in the world, it usually marks the end. “Companies are losing trust in the
arbitration process in India. In-house advocates are advising their clients
not to insist for an arbitration clause in agreements”, says Dushyan Dave, a
senior Supreme Court Advocate.

Jurists argue that with a 2-Judge Bench decision in 2003,
the Supreme Court enlarged the extent to which Courts can intervene in
arbitration proceedings. This, says Dave, has increased litigation on arbitral
awards in the Indian Courts. “Several decisions by the Courts have truncated
Article 16 of the model law evolved by UNCITRAL. As a result, Judges can now
actually enter into an arbitration treaty while deciding on the question of
appointing an arbitrator”, adds Dave. The Law Commission had in 2003 said the
delays in arbitration proceedings have practically made it similar to the
Indian judicial system and an expensive proposition for corporate houses.
“Therefore, the commission had recommended fast track arbitration wherein
arbitrators were required to sit for five hours every day”.

(Source : Hindustan Times, dated 11.05.2009)

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Deal-making hubris

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  1. Deal-making hubris

Ratan Tata’s admission of poor timing in Corus and Jaguar
Land Rover deals must be applauded for courage and openness.

It is rare for a businessman to readily admit in public
that he has made a mistake with a major business decision. In recent times,
perhaps, only Warren Buffet has admitted to being “dead wrong” in the
investment decisions that he made in 2008. From that point of view, Ratan
Tata’s admission to a British newspaper of poor timing in the Corus and Jaguar
Land Rover (JLR) deals in 2007 and 2008, respectively, must be applauded for
courage and openness. But Mr. Tata was not the only Indian businessman to be
afflicted by the irrational M&A exuberance of those years.

The Tata group is now grappling with the consequences of
both acquisitions. The Anglo-Dutch steelmaker Corus, for which Tata Steel paid
$6.7 billion following a bruising auction against Brazilian rival CRN, is
currently reeling under losses. A rescue package for one of its UK plants fell
through after four international companies terminated their contract with the
organisation, raising fears of 2,000 job losses.

(Source : Business Standard, dated 12.05.2009)

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Tax Reforms in USA — Follow Obama’s lead

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  1. Tax Reforms in USA — Follow Obama’s lead

Before anyone in India gets hot under the collar about US
President Barack Obama’s tax proposals, because they might seem targeted at
job creation in ‘Bangalore’, it is important to understand what he is trying
to do. For, on any rational basis, it is hard to be critical. American
companies that invest abroad have been tax-exempt on the profits from such
businesses until they bring the profits back into the US; however, they have
been allowed to claim a set-off on the expenses related to such investment.
This has been an open invitation to invest overseas and not in the home
market, especially if the money is routed through tax havens so that the firms
pay no tax on their profits anywhere.

Mr. Obama has called this a ‘scam’, a term to which
American businessmen have taken umbrage, but it is hard to think of it in any
other terms. The figures trotted out, showing that effective tax rates on such
investments have been in the 2-3 percentage points range, support the
president’s drive to raise the effective level of tax on such corporate
activity, at a time when he is running a gigantic deficit and needs money for
other programmes. Indeed, India should do likewise (companies that borrow
money to invest overseas, and claim a tax set-off on the interest cost of the
loan, should not get a set-off unless they remit the profits home and pay tax
on it). In other words, this is not about jobs in Bangalore or Buffalo, though
that is how Mr. Obama put it somewhat dramatically.

(Source : Business Standard, dated 07.05.2009)

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Nominee is not sole heir of property : Bombay HC

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  1. Nominee is not sole heir of property : Bombay HC

A nominee of a property in a housing society does not
automatically become the absoluteowner of the property after the death of the
original owner, the Bombay High Court has ruled in an important order.
Delivering the verdict Justice A P Deshpande said it would be the personal law
of an individual that would determine the successor to the property and not
the nomination under the Cooperative Societies Act. “The Maharashtra
Cooperative Societies Act (MCSA) does not provide for a special rule of
succession altering the rule of succession laid down under the personal law,”
the Judge said, citing two earlier judgments. The Court held that a nominee
did not become the ‘absolute owner’ and was empowered only to hold the
“property in trust for the real owners, that too for the purpose of dealings
with the society”.

(Source : The Times of India, dated 06.05.2009)

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SC snubs retd Judges for charging heavy fee in arbitration cases

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  1. SC snubs retd Judges for charging heavy fee in arbitration
    cases

The Supreme Court has disapproved retired Judges charging
exorbitant fees in arbitration cases. A Bench comprising Justices R. V.
Raveendran and H. L. Dattu, while dismissing the appeal of the Centre
challenging a Delhi High Court order appointing a retired Judge of a High
Court as sole arbitrator in a dispute between the Railways and a contractor.
Institutional arbitration has provided a solution as the arbitrators fees is
not fixed by the arbitrator themselves on a case to case basis but is governed
by a uniform rate prescribed by the institution under whose aegis the
arbitration is held.

Another solution is for the court to fix the fees at the
time of appointing arbitrator, with the consent of parties, if necessary in
consultation with the arbitrators concerned.

What is found to be objectionable is parties being forced
to go to an arbitrator appointed by the court and then being forced to agree
for a fee fixed by such arbitrator, the Bench said.

(Source : Media Reports & Internet, dated 11.05.2009)

(Compiler’s Note : Arbitration proceedings have become
as costly and time-consuming as the main litigation. After getting an Award,
there is another round of litigation to get it enforced !)

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Black money trail : Swiss ready to revise treaty

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  1. Black money trail : Swiss ready to revise treaty

The Government has approached Swiss authorities to
renegotiate its Double Taxation Avoidance Agreement (DTAA), a tax treaty
between the two countries in force since 1995, to obtain details of bank
accounts maintained by Indians in Switzerland.

The Swiss Government has in the past refused to share bank
information pertaining to Indians with New Delhi on the ground that such
details were not necessary for application of the DTAA. Swiss authorities had
expressed inability to provide details, citing their own laws, since India’s
requests were related to enforcement of its internal tax laws.

India is part of the task force constituted by the G-20 at
its London summit to formulate a “global plan for recovery and reform which
promises to take action against non-cooperative jurisdictions, including tax
havens and also to deploy sanctions to protect public finances and financial
systems”. On alleged role of Swiss banks in the 2004 stock market crash, the
affidavit said that Securities and Exchange Board of India had in 2005 barred
Swiss financial institution UBS Asia from issuing and renewing any
participatory notes for a year. But this was following its refusal to disclose
information relating to an investigation carried out by SEBI, not for its role
in the market crash.

(Source : The Times of India, dated 04.05.2009)

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

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


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

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

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

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

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

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

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I-T dept. flouts rules, to pay costs

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  1. I-T dept. flouts rules, to pay costs

The Income-tax Department routinely imposes cost on
assesses for late filing of returns or delayed tax payment. For a change, it
was at the receiving end when the High Court imposed a cost of Rs.25,000 for
retaining books of accounts impounded from a city builder for almost five
years.

Justice D. V. Shylendra Kumar, while disposing of the
petition filed by Shubha & Prabha Builders Private Ltd., observed that the I-T
Department couldn’t flout its own rules and regulations.

(Source : Media Reports & Internet, dated 27.04.2009)

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Lalu gave railway jobs in lieu of land

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2 Lalu gave railway jobs in lieu of
land



In the worst attack on Railway Minister Lalu Prasad
since the allegations of his involvement in the fodder scam in the 1990s, the
JD(U) on Tuesday claimed that Lalu and his family acquired landed properties
worth over Rs.100 crore over the last four years through means that are not
above board.


State JD(U) President Rajiv Ranjan Singh released
land registry papers running in 500 pages as ‘evidence’. He claimed Lalu
‘invented’ three methods for amassing land. One, poor people’s plots were
transferred in the name of family members as deed of absolute sale in return for
railway jobs. Two, lands were gifted to Lalu’s kin by RJD leaders. Three, plots
exchanged ownerships in return of favours by the Railway Ministry.

The plots have been registered in the names of
Lalu’s wife Rabri Devi, daughter Misa Bharti and sons Tej Pratap and Tejaswi.
Some of the them have also been registered in the name of Delhi-based Delight
Marketing Company, owned by Lalu aide and Union Minister Prem Gupta’s wife,
Singh said.

The JD(U) leader said Lalu’s father-in-law Shiv
Prasad Choudhary was a landless poor in government records and, as such, was
given government land in 2000. Four years later, he became Shiv Prasad Yadav and
‘purchased’ land measuring 20 katthas and 21 dhurs from two persons. In 2006, he
gifted the land to Rabri.

Union Ministers Kanti Singh, Raghunath Jha and
Jayaprakash Yadav, too had gifted land to Lalu’s kin, Singh claimed, hinting it
was to wangle ministerial berths.

(Source : The Times of India, 13-8-2008)

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SEBI set to fine 7 investment bankers for ‘shoddy work’

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1 SEBI set to fine 7 investment
bankers for ‘shoddy work’


Capital market regulator SEBI is set to impose
penalties on some of India’s top investment bankers for what it considers
‘shoddy work’ done by them while handling public offerings over the past few
years. The regulator’s Market Intermediaries Regulation and Supervision
Department (MIRSD) has uncovered serious shortcomings in the due diligence
process for initial public and rights offerings, besides open offers, carried
out by seven investment bankers — Kotak, Enam, DSP Merrill Lynch, SBI Caps, HSBC,
Keynote and Aryaman Financial.

The regulator’s investigation has revealed major
lapses in the due diligence process relating to initial public offerings, rights
issues and also open offers, according to an official close to the development.
SEBI has set in motion adjudication proceedings for imposing a monetary penalty
against all these bankers, an official said.


He added that arbitration proceedings against Enam
and Kotak pertain to YES Bank and IDFC IPOs dating back to 2006. A SEBI probe
had revealed a scam involving manipulation of retail category in these IPOs. DSP
Merrill Lynch was also rapped by SEBI for the YES Bank IPO, as the regulator’s
inspection showed that the details of the promoters as mentioned in the IPO
document were different from those filed with the Reserve Bank of India.

HSBC and SBI Caps were charged with failure in
disclosing key details in open offers managed by them. In some cases, the
regulator has found 10-15 lapses in the offer documents, the official said. In
several cases, bankers have not followed the prescribed procedures while
conducting due diligence, said SEBI officials. SEBI Chairman C. B. Bhave had
told ET, in an interview shortly after taking over, that one of the issues SEBI
was actively looking at was to make merchant bankers more responsible,
post-issue.

In some cases, the merchant bankers had not even
verified the plant and machinery of the companies, the issues of which they had
managed. Besides, litigation against the company directors was not mentioned in
the public issue documents. Errors were also noticed in financial details
provided in the documents.

SEBI’s inspection also found serious deficiencies
in some IPOs. For instance, in one IPO, the regulator found out that the
post-issue capital of the company was higher than its authorised capital — a
clear indication of poor due diligence carried out by the issue’s merchant
banker. The same mistake was found in Weal Infotech IPO’s case and the regulator
has pulled up the merchant banker to the issue, Aryaman Financial.

SEBI has taken a grim view of the fact that
merchant bankers, who are entrusted with the task of vetting a public issue,
have failed to discharge their responsibilities fully, which is detrimental to
the interest of investors. Five of the merchant banks who were served notice by
SEBI declined to comment on the issue when ET contacted them. Keynote Financial
said it had not received any notice from the regulator. Officials of Aryaman
Financial were not available for comment.

It is not only in IPOs that serious lapses on the
part of merchant bankers were detected. Even in case of open offers, SEBI has
indicted merchant bankers. The market watchdog has taken HSBC to task on the
Garware Offshore open offer. In this instance, SEBI found out that the open
offer document did not furnish important details of the target company. The
offer was made by India Star Mauritius and the financial details of the
acquiring company were not given in the offer document.

Even the company’s paid-up capital was wrongly
mentioned in the financial data, officials said. SEBI has prescribed a standard
letter of offer containing various financial and other parameters of the
company. In fact, HSBC was given a warning by the regulator in an earlier case.

SEBI has moved against SBI Caps for the investment
bank’s failure to provide a vital piece of information about a company in the
open offer document. The open offer was made by a company listed on a regional
stock exchange, but the document did not mention the fact that the company would
soon list on BSE. Many investors tendered their shares in the offer, since they
did not possess the requisite information.

(Source : The Economic Times, 12-8-2008)

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Recent Developments in Direct Taxation

Lecture MeetingDate
: 14th July, 2010


Venue : IMC Hall, Churchgate, Mumbai


Speaker : Pinakin D. Desai, Chartered Accountant


Subject :
Recent Developments in
Direct Taxation




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

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




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



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



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

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




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



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



  •   Cases protected by Independent Personal Services Article



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



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

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

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




  •   Mutual fund units



  •   Convertible or non convertible debt instrument



  •   Coupon/warrants



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

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




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



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



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



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

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

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

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

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

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

  •     The arrangement not at arm’s length

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

  •     Lacks commercial substance

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

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

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

  •     Vijaya Bank (SC) 320 ITR 577  :

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

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

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

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

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

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

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

Drafting of Appeals, Representation and Rules of Evidence

Lecture Meeting

Subject : Drafting of Appeals, Representation
and Rules of Evidence

Speaker : Chetan Karia, Chartered
Accountant

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

Date : 6th August 2008





(1) The learned speaker, while setting out the scope and
coverage, remarked that the subject has three elements. Actually each element
can become a topic by itself for discussion. Still to make the discussion
concise and informative, he combined the first 2 elements, viz. drafting
and representation together and the third one was considered separately.

(2) The right of appeal is not an inherent right, but is
conferred by statute to ensure natural justice in arriving at fair and just
quantum of income through Appellate process. In CIT v. Ashoka Engineering
Co.,
194 ITR 645 (SC), the Supreme Court held that such provisions giving
right of appeal should be liberally construed.

(3) The speaker suggested that before filing an appeal, the
order appealed against needs a careful study. Apart from quantum addition and
its tax effect, one has to ascertain whether the additions are unjust and unfair
and also whether they are contrary to provisions of law. One should also examine
whether addition, though small in the current year, would set a bad precedent
for future. While deciding whether the appeal is really called for the merits
and strength of the case should be looked objectively. The appellant should also
keep in mind the powers of enhancement vested in CIT(A). There is no right to
withdraw the appeal. The entire assessment gets open before CIT(A) and his
powers are co-terminus with powers of the AO. CIT v. Rai Bahadur Hardotrai
Motilal Chamaria,
66 ITR 443 (SC).

(4) Drafting of Statement of Facts and Grounds of Appeal
: The statement of facts plays very important role in appeal proceedings.
The Appellate authorities while deciding the appeal need to have before them the
basic facts and events that transpired during assessment proceeding. Whatever is
stated in the assessment order is the version and viewpoint of the AO while
arriving at his decision. If the appellant is in disagreement with the AO’s
version, he has to convincingly put forth before the Appellate Authority, his
standpoint and facts of his case and evidences in support of those facts. At
this juncture, it is necessary to consider whether all these facts and evidences
were laid before the AO during the assessment proceedings.

As regards drafting of grounds of appeal, the speaker advised
that grounds should not be argumentative and lengthy, but should be short,
precise and to the point. Once it is decided that the appeal is to be filed,
then it must be filed strictly within the period of limitation.

(5) The various issues that need consideration in appeal proceedings are :


(a) whether the AO had jurisdiction to pass the impugned
order. Jurisdiction means not only territorial, but also consideration of period
of limitation within which the order is to be passed (S. 153), the financial
limits, obtaining prior approvals of superior authorities, recording in
assessment order and on proceeding sheets about his satisfaction that a
particular default was committed, particularly in penalty proceeding
u/s.271(1)(c). In appropriate cases jurisdiction should be challenged.

(b) Consideration of additional evidence : If
it is the case of the appellant, that the AO has not given sufficient
opportunity to present such evidence before passing the order or that the
assesses was prevented by sufficient cause from adducing such evidence, then
specific prayer should be made to take on record and consider such evidence
before passing Appellate order.

(c) The appellant can take additional grounds and press fresh
claims not set out in appeal memo, if the material relevant thereto is already
on record. In the following cases before Supreme Court and High Courts, this
issue has been considered and the ratios of those cases should be considered
before taking up such additional grounds. The assessee can make alternative
pleas for consideration of Appellate Authority, e.g., allowing
depreciation, if certain expenditure is treated as capital expenditure.

The citation of cases on making fresh claims not originally
claimed in grounds of appeal are as follows :

(i) CIT v. Kanpur Coal Syndicate, 53 ITR 225 (SC).

(ii) CIT v. Jute Corporation, 187 ITR 688.

(iii) National Thermal Power Co. Ltd. v. CIT, 229
ITR 383 (SC).

(iv) Ahmedabad Electric Co. v. CIT, 199 ITR 351 (Bom.)
(FB)


(d) The following judgments on filing of additional grounds
not originally taken in the appeal memo :

(i) Shilpa Associates v. ITO, 263 ITR 317 (Raj.),

(ii) Baby Samuel v. ACIT, 262 ITR 385 (Bom.).


It was held that additional ground can be taken any time
before the appeal is heard.

(e) The appellant should ensure that all taxes due on
returned income are paid before filing of appeal. S. 249(4) puts a clear bar or
powers of CIT(A) to entertain any appeal if taxes due on returned income are
unpaid on date of filing of appeal.

(6) Filing appeal before ITA Tribunal and filing of cross
objections :


Both the parties i.e., the assessee and the Assessing Officer, aggrieved by order of CIT(A) can file their appeal before the ITA Tribunal. The time limit is 60 days from the date of receipt of Appellate order of CIT(A) where the Department has filed an appeal to ITAT; the assessee can file cross objection to the Department’s appeal. In such cross objections the assessee can file an appeal on all grounds raised by him which have not found favour with CIT(A). So also where the assessee has claimed allowability on alternate grounds and CIT(A) has allowed on one ground and dismissed the other, then the assessee can raise cross objection against alternate ground dismissed by CIT(A).

(7) Representation before Appellate authorities:

The role of the representative is to assist the Court in arriving at correct and judicious judgment. While taking every effort to present the client’s case more effectively, the tax representative should not identify himself with success of client’s case. The facts of the case should be carefully studied before making appearance before the Court. The submission both on facts and on law should be compiled in the form of paper book.

The paper book should be exhaustive enough to cover all materials supporting the grounds but not bulky. The order in which the papers should be arranged should assist smooth flow of presentation of arguments to be made before the Appellate authorities.

In case of appeal before ITAT as per ITAT Rules, though bulky paper book is filed during proceedings, it is only those papers which are referred to in the Appellate order form part of the case records.

The rules governing the filing of additional evidence are Rule 46A of IT Rules for appeal before CIT(A) and Rule 29 of ITA Tribunal Rule, for appeal before the Tribunal.

8) Presentation of judgments, decided cases before the Court :

The accessibility to innumerable cases with citations has become possible due to computer technology. This calls for skill of a professional to be selective. it is not the decision, nor discussion in a judgment cited is to be relied upon, but the ratio decidendi is more important. There is difference between ratio and obiter dicta. Doctrine of precedents should also be borne in mind. Supreme Court judgment is binding on all authorities and becomes the law of the land. After the Supreme Court, the judgment of jurisdictional High Court has equal binding force in that State, till such judgment is reversed. Where there is no judgment of jurisdictional High Court, then judgments of High Courts of other States have binding force on the Tribunal. If there is conflict in judgments of two High Courts, the Tribunal can follow judgments which are closer to the case before it. So also the judgment of Special Bench is binding on coordinate Division Benches.

9) Some practical suggestions on presentation and on ideal behaviour of tax representative during hearing:

a) Dress Code: The prescribed dress to be worn should not be too gaudy.

b) Behaviour gestures, body language, should not be irritating, provocative but should be normal and decent.

c) Eye contact should be maintained with Members of the Bench.

(d) The speech, its tone and speed: The tone should be polite and should have clarity whereby the message gets conveyed.

e) It must always be remembered that the Appellate authority i.e., CIT(A) or the Tribunal Bench being deciding authorities, have every power to ask any question for finding of facts as well as for collecting information. The representative must reply all such questions patiently and to the point. He should never question the relevance of enquiry.

f) The representative should avoid the habit of interrupting when the representative of other side (DR) or members of the Bench are speaking.

g) The representative  should know where to stop.

(10) Rules  of evidence:

The authorities deciding the case, the AO, CIT(A) and the Tribunal have to give their findings while deciding the case. For that purpose support has to be taken of some credible and conclusive evidence. Such evidences is required to be brought on record by following certain procedure:

a) In Prabhavati S. Shah v. CfT, 231 ITR 1 (Born.); the Bombay High Court has held that the Rules put fetters on rights of the assessee to produce additional evidence, but not on Appellate authorities to consider it if they want to consider. Where the AO has made addition based on statement of any party behind the back of the assessee and contents of such statement is contradicted by the assessee, then he must be given opportunity to cross-examine the deponent. This is relevant while deciding merits of additions u/s.68 and u/s.69.

b) Income-tax proceedings are quasi-judicial civil proceedings and hence the provisions of the Evidence Act applicable to criminal proceedings are not applicable to Income-tax proceedings. This is held in the following cases:

    i) Dhakeshwari Cotton Mills v. CfT, 26 ITR 775 (SC)

    ii) Kishinchand Chellaram v. CIT, 125 ITR 713 (SC)

    iii) J. S. Parker v. V. B. Palekar, 94 ITR 616 (Born.)

    iv) Chuharmal v. CfT, 172 ITR 250 (SC).

c) Books of accounts regularly maintained are good evidence but not conclusive. This is held as evidence in V. C. Shukla’s case 3 SCC 410 (SC), 82 ITD 85 (Mum.) (TM).

d) If opportunity is not given to the assessee, such evidence is not good evidence and addition based thereon will not sustain. [Kishinchand Chellaram, 125 ITR 713 (SC)]

e) Cross-examination and statement of witnesses: if during the cross-examination the witness contradicts his earlier statement, then his statement cannot be relied upon by the AO for making addition and is to be completely ignored.

f) The information given by the witness should be factual and not based on hearsay. It is necessary to prove what is apperant is real. [Durgaprasad More v. CIT, 82 ITR 540 (SC)]

g) Rule 46A : The CIT(A) has full right to decide whether additional evidence should be admitted or not. Where it is the contention of the assessee that he was prevented by sufficient cause, he has to prove it.

h) Substantial cause and Rule 46A of the LT. Rules or Rule 29 of the ITAT Rules: The Supreme Court in K. Venkat Ramaiah v. A. Seetharam Reddy, AIR 1963 SC 1526 has ruled that in the interest of a fair judgment, the Appellate authority should take a sympa-thetic view and should not deny admission of evidence on hypertechnical ground.

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

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

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


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

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

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

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

(Source: Internet & Media Reports, dated 04.01.2010)

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

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


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

(Source:
Internet & Media Reports, dated 31.12.2009)


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

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


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

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

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

(Source: The Economic Times, dated 14.01.2010)

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Late or dozing in court? Judges may be in dock

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Late or dozing in court? Judges may be in dock


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

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

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

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

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

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

(Source: Internet & Media Reports, dated 12.01.2010)

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

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

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


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

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

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

(Source: The Times of India, dated 30.12.2009)

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

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Corporate governance cannot be mandated: Irani

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Corporate governance cannot be mandated: Irani


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

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

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

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

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

[UNI, January 9 2010]

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ASIC cracks down on auditors

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ASIC cracks down on auditors


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

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

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

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

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

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Music helps lower cholesterol

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42. Music helps lower cholesterol


Doctors have found that prescribing music can improve heart
health and lower cholesterol levels. Their research found that if a patient
listens to 30 minutes a day of their favourite music, it can go far beyond
simply relaxing them mentally — it benefits them physically by expanding and
clearing blood vessels. Doctors have tried the method on some patients in
America and it has been welcomed by British experts. It is believed to work by
triggering the release into the bloodstream of nitric oxide, which helps prevent
the build-up of blood clots and harmful cholesterol.

The findings are part of a growing body of research into the
effects of music on the human body. Scientists have found that songs can improve
endurance, while 18th century symphonies can improve mental focus.

When it comes to the effect on the bloodstream, however, the
key is not the type of music, but what the listener prefers. The same is true of
volume and tempo. “The music effect only lasts in the bloodstream for a few
seconds, but the accumulative benefit of favourite tunes lasts and can be very
positive in people of all ages,” said Michael Miller, Director of the Center for
Preventive Cardiology at Maryland University, who carried out the research. He
added : “We were looking for cheaper, non-pharmacological aids to help us
improve our patients’ heart health, and we think this is the prescription.”

The Maryland study, based on healthy non-smoking men and
women with an average age of 36, found the diameter of blood vessels in the
upper arm expanded by 26% in volunteers listening to music they found enjoyable.

Miller said blood vessel expansion indicated that nitric
oxide is being released throughout the body, reducing clots and LDL, a form of
cholesterol linked to heart attacks. He also warned that listening to stressful
music can shrink blood vessels by 6% — the same effect, according to previous
studies, as eating a large hamburger.

(Source : The Times of India, dated 23-12-2008)

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One in four company accounts flagged by auditors

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One in four company accounts flagged by auditors


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

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

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

[Sydney Morning Herald, January 11, 2010]

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Pay Rs.10k for wrong info in Govt. survey

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41. Pay Rs.10k for wrong info in Govt. survey


You may soon have to give authentic socio-economic data
sought by the Government. And if you don’t, you may be fined.

The Rajya Sabha passed an important legislation making it
mandatory for citizens and commercial establishments to part with accurate
information during the annual survey. Accordingly, every individual in the
country and private establishment will have to share desired information with a
designated statistical officer, else they will have to pay penalty which may, in
certain cases, extend up to Rs.10,000.

The Collection of Statistics Bill — introduced in the RS in
2007 — also provides for empowering the Centre to make rules to avoid
duplication and to maintain technical standard in data collection, which is
currently lacking during the annual survey in the absence of any legal backing.

Before pressing the House to pass the Bill, Union Minister
for Statistics and Programme Implementation G. K. Vasan said : “The new law will
have elaborate provisions to ensure that the information collected will not be
used for any purpose other than for statistical purpose. Identities of
individuals or companies will not be revealed to anyone during use/transfer of
such data within Government agencies which may need it for policy making.”

As against the existing law which only facilitates collection
of statistics of certain kinds relating to industries, trade and commerce, the
new law will empower the Government to collect data on economic, demographic,
social, scientific and environmental aspects of individuals and households.
Though the Government has been collecting such data under the National Sample
Survey, it is done voluntarily.

Stating the purpose of such a legislation, Vasan said : “It
is felt that the provisions of the current law are not adequate to meet the new
challenges arising out of liberalisation and globalisation regime manifested by
the WTO agreement.”

The Bill also has the provision of empowering panchayats and
municipalities to collect statistics through due procedures. Once the new law
comes into force, the Government will appoint statistical officers for each
subject of data collection at the district and block levels.

(Source : The Times of India, dated 20-12-2008)

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CA certificates under I-T Dept scanner

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43 CA certificates under I-T Dept scanner

 After the Satyam scam, the role of chartered accountants (CAs)
has come into focus again. This time the Income Tax (I-T) Department has found
that CAs have given false certificates, enabling Non-Resident Indians (NRIs) and
foreign nationals to evade taxes in India. The government agency has informed
the Institute of Chartered Accountants of India (ICAI), which regulates the
chartered accounting profession in the country, of the fraud. ICAI has powers to
take disciplinary action against errant members. Calling the fraud ‘a massive
violation of the law’, the Central Board of Direct Taxes (CBDT) Member Saroj
Bala (in charge of revenue) said, “A large number of such payments are outright
tax deductible in India and taxable in India, but are not taxed because CAs have
certified them not taxable. The ‘CBDT’ administers all direct tax issues in the
country, but the tip-off on this method of tax evasion came from a CA. Under the
Income-tax Act, a CA certificate can be obtained saying no tax needs to be
deducted while remitting money overseas, after which the Reserve Bank of India
permits the transfer of money. Bala said the department receives numerous such
certificates involving ‘thousands of crore of rupees’. A firm estimate of
revenue loss is not yet available as investigations are still on. The payments
that are under the I-T Department’s scanner are interest on overseas loans,
payments for contractual work by foreign firms in India and capital gains from
sale of assets (similar to the Vodafone-Hutch transaction). For instance, if an
Indian firm borrows from a foreign bank, under normal circumstances tax will
have to be deducted on the subsequent interest payment. But no tax is payable if
a CA certifies that the overseas entity that receives the interest payment is
not a tax resident of India. The I-T Department’s investigations have found that
the non-tax residency is not necessarily the case. “Some verifications and
inspections of certificates have been carried out and many defaulters found. We
are contemplating action against this false certification by CAs,” Bala said.
Indian tax rules also require tax to be deducted on payments from any income
earned by a company that has a permanent establishment (PE) in India.
Verification of many such CA certificates revealed that the foreign recipients
had PEs in India, but escaped the tax net. Investigations found that both small
and large accountancy firms are into this practice. “Normally, many CAs do not
apply their mind. They issue the certificate and make money,” she said, adding
that when confronted, some CAs claimed they were not aware of the tax
provisions.

(Source : Business Standard, 2-2-2009)

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What do newly qualified accountants want

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9 What do newly qualified accountants want




1. Competitive salary

2. Enjoyable and interesting work

3. Opportunities for promotion

4. A lively and sociable working environment

5. A convenient location

6. Rarely having to work more than 40 hours a week

7. A good pension scheme

8. …

9. …

10. A reputed employer

10. Opportunities to work abroad

12. State-of-the-art offices

(Source : AccountancyMagazine.com, January 2008)

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Meditate your way to a bigger brain

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  1. Meditate your way to a bigger brain

Push-ups, crunches and gyms are fine for building bigger
muscles and stronger bones. But can you meditate your way to a bigger brain ?

The answer is yes, as a new study has established that
certain regions in the brains of those meditating long term were larger than
in a similar group.

A group of researchers at the University of California Los
Angeles (UCLA), used high-resolution magnetic resonance imaging (MRI) to scan
the brains of people who meditate. Specifically, such people showed
significantly larger volumes of the hippocampus and areas within the orbito-frontal
cortex, the thalamus and the inferior temporal gyrus-regions known for
regulating emotions. “We know that people who consistently meditate have a
singular ability to cultivate positive emotions, retain emotional stability
and engage in mindful behaviour”, said Eileen Luders, study co-author and
postdoctoral fellow at the UCLA Lab of Neuro Imaging.

Luders and colleagues examined 44 people, 22 control
subjects and 22 who had practised Zazen, Samatha and Vipassana meditation,
among others. They had devoted an average of 24 years to the practice. More
than half of all the people who meditate said that deep concentration was an
essential part of their practice, and most meditated bet. 10 and 90 minutes
daily, said an UCLA release.

The researchers used a high-resolution, three-dimensional
form of MRI and two different approaches to measure differences in brain
structure.

These findings were published in Neuro Image.

(Source : The Times of India, dated 14.05.2009)

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Accounting fiction

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  1. Accounting fiction

US banks have started reporting profits, even repaying some
of the funds given to them by the government. But, as Nobel Laureate Paul
Krugman points out, a bank’s profits aren’t really hard numbers, since a great
deal depends on how much money the bank sets aside to cover the possibility of
future losses. As Citigroup’s $1.6 billion first quarter profits show, there
is quite a lot of elbow room for massaging the numbers. Around $700 million of
the bank’s revenues came from selling off its remaining stake in the Brazilian
credit card firm, Redecard.

Another $250 million were released from reserves, and $110
million came from a tax rebate. But most important of all, and perhaps
shocking, was the $2.7 billion boost to revenues from an accounting rule that
allowed Citigroup to buy back its debt at a lower price. US Financial
Accounting Standard 159 says that when a debt declines in value, banks have to
assume they bought the debt back and retired it. Since the notional buyback is
at less than sticker price, the bank has now made money on the deal !

Then there is the case of Bank of America, whose net income
rose to $4.25 billion in the January-March quarter, from $1.21 billion a year
earlier, only to find its stock price fall by a staggering 24 per cent. That
is because investors realised that out of the total increase, $1.9 billion
came from the bank’s sale of its stake in China Construction Bank, while
another $2.2 billion came from the fact that some of the Merrill Lynch debt
fell in value (long live FAS 159 !). Similarly, as Dr. Krugman points out,
Goldman Sachs changed its definition of a quarter so that (in Dr Krugman’s
words), “the month of December, which happened to be a bad one for the bank,
disappeared from this comparison”. JPMorgan Chase has also reported better
numbers, using FAS 159.

(Source : Business Standard, dated 23.04.2009)

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Accountants finally get a hearing aid for appeals

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  1. Accountants finally get a
    hearing aid for appeals


Tribunal, instead of Courts, to review regulatory decisions

Chartered accountants, company secretaries and cost
accountants facing disciplinary action from their professional regulators can
now appeal to a specialised Appellate Tribunal instead of a High Court.

The appeals will be heard by professionals who have
regulatory experience and can deliver speedy decisions, an official in the
Ministry of Corporate Affairs said. The delay at the heavily burdened High
Courts often hurts the careers of many professionals who seek a review of the
disciplinary action.

(Source : The Economic Times, dated 23-4-2009)


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One of the best mails ever . . . .

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32 One of the best mails ever . . . .

Speech by Thomas Friedman in the New York Times . . . .

“When we were young kids growing up in America, we were told
to eat our vegetables at dinner and not leave them.

 

Mothers said, think of the starving children in India and
finish the dinner.’

 

And now I tell my children

 

‘Finish your homework. Think of the children in India who will make you
starve, if you don’t.”

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Perspectives

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30 Perspectives


 


  •  “You offend God not only by stealing, blaspheming or coveting your neighbor’s
    wife, but also by ruining the environment.”

Vatican Bishop
Gianfranco Girroti, on the Roman Catholic Church’s new list of seven deadly
sins for the modern age, which include eco-abuse,

obscene
consumerism and genetic manipulation.

  •  “I didn’t know the Army had anything left to sell. I thought it had all been
    stolen long ago.”

An
unidentified Russian Army Officer, commenting on the military’s plan to raise
money by auctioning off

mansions, land
and even whole towns in its possession.

(Source :
Newsweek , 24-3-2008)

 

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SEC Advisory Committee takes up fair value accounting, drops discussion of IFRS

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28 SEC Advisory Committee takes up fair
value accounting, drops discussion of IFRS


The jury is still out on the absolute merits of fair value
accounting for financial statements, a variety of experts told the Securities
and Exchange Commission’s Advisory Committee on Improvements to Financial
Reporting in an open meeting on May 2, 2008, in Chicago.

 

“What are users most interested in ?” said one of the
participants. “Then there’s the issue of what’s doable. I think we’re finding
with [the Financial Accounting Standards Board’s (FASB) Statement of Financial
Accounting Standards (SFAS) No. 157, Fair Value Measurements] it’s challenging
for financial statements.”

 

The sub-committee’s report cautions against expanding the use
of fair value in financial reporting until a number of issues are better
understood and resolved, including the FASB’s project on the measurement
framework, which is looking at developing a consistent approach to determine
which measurement attribute should apply to different types of business
activities.

 

“What we have proposed is a framework not based on any one
asset, we’ve based it on activities,” said Susan Schmidt Bies, the Chair of
CIFR’s Substantive Complexity Subcommittee and a member of the Federal Reserve
Board from December 2001 through March 2007. “We think that’s what users want,
and it’s more based on what businesses do, because it asks what is the cash flow
recognised in the financial statement and how is that related to what’s going on
in the income statement.”

 

The sub-committee report says the SEC should recommend that
the FASB “be judicious in issuing new standards and interpretations that expand
the use of fair value in areas where it is not already required, until
completion of a measurement framework.”

(Source : Internet Newswires, 6-5-2008)

 

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Improve methodology for ranking ease of paying taxes

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27 Improve methodology for ranking ease of
paying taxes


The Chairman of the Prime Minister’s Economic Advisory
Council, Dr. C. Rangarajan, has taken issue with the World Bank over the
methodology used in the latter’s ‘Paying Taxes 2008’ study, which ranked various
countries in terms of ease of paying taxes.

 

India was ranked 168 among 178 countries. The corresponding
rank for Pakistan was 146, Sri Lanka 158 and Bangladesh 81.

 

“We feel there are serious shortcomings in the methodology
used by the World Bank study in making these rankings. Besides the judgments
made in the choice of the firm, taking the number of tax payments and time spent
with tax payments is far too simplistic,” Dr. Rangarajan said in his address at
the Fifth Asia Tax Forum, jointly organised by the Union Finance Ministry and
the National Institute of Public Finance and Policy here on Monday.

(Source : Internet newswires)

 

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Citigroup to lay off 9,000 as Q1 losses touch $ 5.1 billion

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25 Citigroup to lay off 9,000 as Q1 losses
touch $ 5.1 billion


Citigroup posted its second straight quarterly loss on
Friday, hurt by more than $ 16 billion of write-downs and costs related to
credit losses, and said it will cut another 9,000 jobs.

 

Though the $ 5.11 billion first-quarter loss was larger than
expected, analysts and investors expressed optimism that the largest US bank and
its new chief executive, Vikram Pandit, were taking necessary steps to move past
credit problems and drive down costs.

 



  •  Citigroup’s net loss pegged at $ 1.02 a share


  • Revenue has fallen 48% to $ 13.22 billion


  •  Citi has lost close to $ 15 billion in the last two quarters in asset
    writedowns


  • Bank has written down over $ 46 billion since the subprime lending crisis
    erupted mid-2007


  • Investment bank business has suffered the brunt of write-downs.

 


In the last two weeks, Citigroup has said it was selling its
Diners Club International credit card network and most of its North American
commercial lending and leasing business. Expenses, meanwhile, fell 2% from the
fourth quarter.

(Source : The Economic Times, 19-4-2008)

 

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Derivative blow : Axis makes Rs.72 crore provisions

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26 Derivative blow : Axis makes Rs.72 crore
provisions


Axis Bank today said it has made provisions of Rs.71.97 crore
during the fourth quarter of 2007-08 for six foreign exchange derivatives
transactions that have been repudiated by two of its customers.


While the bank has 188 derivatives transactions with an
aggregate mark-to-market (MTM) loss of Rs.673.55 crore at the end of March 2008,
there are six transactions where companies are not willing to honour the
contract. Of the 188 deals, 113 are outstanding transactions dealing in foreign
exchange derivatives where the aggregate MTM loss is Rs.547.72 crore.


While a host of banks, a majority of which are new-generation
private players, have sold derivatives products, Axis Bank is the first to
disclose the details of such transactions, some of which involved cross-currency
options and swaps.

The private sector bank did not disclose the identity of the
two companies that have gone to Court, but it is widely known that these are
Rajshree Sugars & Chemicals and Nahar Industries. The bank pointed out that the
outstanding contracts have not turned non-performing assets and involve MTM
losses. Reserve Bank of India guidelines require banks to treat assets as NPAs
90 days after default. ‘None of these assets has turned into an NPA,’ the bank
said in a statement.

The Reserve Bank of India (RBI) has initiated talks with
accounting standards regulator Institute of Chartered Accountants of India (ICAI)
to advance the mandatory implementation of accounting standards for derivatives
transactions by Indian banks and companies from its present 2011 deadline.

(Source : Business Standard, 22-4-2008)

 

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Commodity crash

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24 Commodity crash


The sudden price crash in global commodities markets last
week, after they had peaked at all-time highs at the start of the month, took
most observers by surprise. The shock value was all the more because it was the
steepest weekly drop in 50 years, exceeding by a substantial measure the
previous record weekly slump of 9.2%, way back in December 1980. That drop had
been triggered chiefly by a 20% hike in interest rates by US banks on
instructions from the Federal Reserve, which wanted to tame rampant inflation.
The present cave-in is also remarkable in that it has cut across the gold, crude
oil, metals and agro commodities markets, including corn, wheat and vegetable
oils.

(Source : Business Standard, 25-3-2008)

 

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Neta-builder nexus will sell Mumbai : Maharashtra CM

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51 Neta-builder nexus will sell
Mumbai : Maharashtra CM


Maharashtra chief minister
Prithviraj Chavan said that there was a “dirty nexus among government officials,
politicians and builders in Mumbai,” and that these forces have the intention to
‘sell’ the city.

(Source : Times of India, dated 10-1-2011)

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Inflation and reforms — You can’t fight inflation by dithering on reform

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49 Inflation and reforms —
You can’t fight inflation by dithering on reform


The common man’s headache
just got bigger. Food inflation spiked to 18.32% for the week ended December 25.
Worse, non-food prices seem northbound as well, including for petrol and
consumer durables. Borrowing costs too are up. Fears about the double whammy of
price rise and possible RBI rate hikes made the sensex nosedive last week, FIIs
exiting massively on the assumption of dented corporate earnings. Balancing the
persisting need to push growth with concerns on generalised inflation, RBI and
the government will have to take a tough call soon on more aggressive hardening
of monetary and fiscal policy, as IMF suggests.

(Source : Times of India, dated 10-1-2011)

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Why food is costlier

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50 Why food is costlier


Twenty years ago, a Maruti
800, with an air-conditioner fitted, cost a little less than Rs.2 lakh. Today it
costs about Rs.2.5 lakh. Twenty years ago, a branded 1.5 tonne window
air-conditioner cost about Rs.30,000; today, you can get a split AC unit for
that price. Then, Videocon was offering large refrigerators for more than
Rs.30,000; you can get better units today for much less. TV prices have crashed
too, and one can go on with this list. In a period when salaries in the
corporate sector have gone up by about 15% annually, and inflation-adjusted per
capita income has roughly trebled, consumer durables of virtually every hue have
become infinitely more affordable.

Why has that not happened
with onions ? In 1980, Indira Gandhi swept back to power on the back of an
election campaign that talked of onions costing the then stratospheric sum of
Rs.5 per kg. Now it is Rs.70. Home-grown apples (not the ones from Down Under)
cost over Rs.100 in Delhi, and lentils of various sorts have also hit
triple-digits. These price increases far outdo income increases, rapid though
they have been for most people, and it is simply not enough to seek palliatives
in short-term measures like raising interest rates. Nor is it enough to say that
there has been demand growth for proteins because of higher incomes. There has
been comparable demand growth for eggs, but they have not seen similar price
inflation. Nor is it good enough to argue that there are global shortages in
commodities — both cyclical (as in sugar) and structural (lentils).

The truth is that we face
inflation in agricultural products, on a scale that we don’t see in manufactured
products, because agriculture has not been reformed, whereas industry has. There
is talk of collusion in onion prices — which raises the question of reforming
trade. Everyone knows that the difference between farmgate and retail prices is
unusually high in India, in part because of multiple intermediaries. But the
country has not been able to benefit from supply chain efficiencies because
organised retail has not been allowed to grow, and to link producer and consumer
prices more closely by squeezing out middlemen. Politicians who for two decades
have opposed reforms in both agriculture and trade will be loath to own up
responsibility for today’s food price inflation; they should know that the
situation will get worse if reforms are not introduced even at this late stage.

The prime minister should do
for agriculture and domestic trade what he did for industry and export trade 20
years ago.

(Source : Business Standard, dated 8-1-2011)

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Visa, MasterCard business model threatened

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48 Visa, MasterCard business
model threatened


Visa Inc and MasterCard Inc
may face permanent damage to the fastest-growing part of their business after
the US Federal Reserve proposed rules that could cut debit-card transaction fees
by 90%.

The Fed proposed capping
so-called interchange fees at 12% each. Currently, the networks charge merchants
an average of 1% of the purchase price, regardless of cost, and pass that money
along to card-issuing banks.

The change, if approved by
the Fed after a public comment period, would wipe out most of an estimated $ 15
billion in annual revenue for US lenders that issue Visa and MasterCard debit
cards, including Bank of America, JPMorgan Chase & Co and Wells Fargo & Co.

(Source : Business Standard, dated 18-12-2010)

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Other banks in firing line

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47 Other banks in firing line :


The Deutsche Bank settlement
is part of a wider US drive to crack down on banks that help wealthy Americans
evade taxes and could herald similar settlements with other banks.

(Source : Business
Standard, dated 23-12-2010)

(Comment : What are
the authorities in India doing ? What is the outcome ?)

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Deutsche Bank settles US Tax case for $ 553 million

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46 Deutsche Bank settles US
Tax case for $ 553 million


Deutsche Bank admitted
criminal wrongdoing for taking part in fraudulent tax shelters that let clients
hide billions of dollars, and agreed to pay $ 553.6 million to settle the case,
US prosecutors said on Tuesday.

The settlement is part of a
larger US government effort to crack down on banks that help wealthy Americans
evade taxes. Prosecutors last year settled with Swiss bank UBS, which paid $780
million in fines for helping clients with roughly $20 billion in assets hide
their accounts from the US Internal Revenue Service.

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Binayak Sen — Political dissent isn’t sedition, that’s the law

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45 Binayak Sen — Political
dissent isn’t sedition, that’s the law


The judgment of the
Chhattisgarh trial court, sentencing Binayak Sen to life imprisonment on charges
of sedition and conspiracy, isn’t just shocking due to the concerned judge’s
apparent waiver of the gaps in the prosecution’s case. In a wider context, it
posits the spectre of intolerance against critics of state policy. The intent
behind the law on sedition in the Indian Penal Code, as introduced by the
British, was to enable the colonial state to deal with the fundamental
contradiction between the illegitimacy of its rule and its attempt to try and
legitimise that rule by criminalising those who sought to underline that
contradiction. That rupture between the state and the people it governs
disappeared, in principle, with Independence. And so the Supreme Court in 1962
defined S. 124A (on sedition) as being applicable only when there was a clear
incitement to violence or armed rebellion. Implicit in that definition is the
recognition of the Constitutional right to free speech, and political activity,
as long as it does not violate that red line of violent disaffection against the
state.

(Source : Economic
Times, dated 28-12-2010)

(Comment : Should not
we jettison the British legacy of law in such matters ?)

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Nitish’s move to scrap LAD fund may find more takers

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44 Nitish’s move to scrap
LAD fund may find more takers


As expected, the Cabinet
formally approved the proposal to abolish the Local Area Development (LAD) fund
meant for the legislators, a decision which other states may emulate. “Some
alternative arrangement will we worked out which will enable the legislators to
have a say in the approval of the schemes,” the Principal Secretary, Cabinet
Coordination department Afzal Amanullah said.

All along the Nitish
government in its previous tenure harped on the credo of good governance and in
keeping with what it promised earlier, the Cabinet formally approved a detailed
agenda for good governance. “The core issues of good governance and what the
government proposed to do in this connection have now been spelt out in the
17-page document which was placed before the Cabinet meeting,” the principal
secretary said, adding there will be zero tolerance on corruption “Already armed
with stringent laws, the government will now bring a legislation — Right to
Service Bill — to weed out corruption in the delivery of the public utility
service,” he said.

(Source : Economic Times, dated 15-12-2010)

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E&Y sued for hiding Lehman fraud for 7 years

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43 E&Y
sued for hiding Lehman fraud for 7 years

New York attorney general
Andrew Cuomo sued Ernst & Young, accusing the firm of facilitating a ‘major
accounting fraud’ by helping Lehman Brothers deceive the public about its
financial condition.

For more than seven years
before Lehman declared bankruptcy in 2008, the investment bank engaged in
transactions approved by E&Y whose purpose was to move debt off its balance
sheet and make it appear less leveraged, Cuomo said. This was done through what
are known as ‘Repo 105’ transactions. “This practice was a house-of-cards
business model designed to hide billions in liabilities in the years before
Lehman collapsed,” Cuomo said on Wednesday in one of his last cases as attorney
general. “Just as troubling, a global accounting firm, tasked with auditing
Lehman’s financial statements, helped hide this crucial information from the
investing public.” The state seeks to recover more than $ 150 million in fees
collected by E&Y for performing Lehman’s work between 2001 and 2008, plus
investor damages and equitable relief, Cuomo said.

(Source : Times of India, dated 23-12-2010)

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The currency wars — Policy intervention cannot go against market logic

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


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

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

 

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

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Government of India signs revised Double Taxation Avoidance Agreement with Finland

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


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

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

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Finance Ministry probes overseas deals for tax evasion

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42 Finance
Ministry probes overseas deals for tax evasion


The finance
ministry has begun its maiden investigation into over 100 offshore ‘financial
structuring deals’, undertaken by Indian business entities in foreign tax havens
to allegedly evade the taxman’s net.

The multi-pronged
probe has been undertaken by the international taxation wing of the Income Tax
department and the foreign taxation unit in the Central Board of Direct Taxes
(CBDT).

A number of
investments and deals to the tune of hundreds of crores of rupees have already
been executed in tax havens like the Mauritius, Isle of Man, Cyprus, British
Virgin Islands and Bermuda, among others.

The finance
ministry is already working to finalise Tax Information Exchange Agreements
(TIEAs) with countries like the UAE, Kuwait, Oman, Saudi Arabia, Qatar, Jordan,
Syria, China, Indonesia, Israel, Japan, Malaysia, Mongolia, South Korea and
Vietnam.

Furthermore,
Double Taxation Avoidance Agreements (DTAAs) with more than 70 countries are
being finetuned.

The I-T department
is also looking into evasion of Tax Deducted at Source (TDS) by some companies
while making payments to purchase overseas shares, but sources declined to name
the entities involved.

(Source :
Business Standard, dated 13-12-2010)

(Comment : People
shall eagerly await the tangible outcome of the probes !)

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Switching off mains can reduce power bills by 30%

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78 Switching off mains
can reduce power bills by 30%

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

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

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

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

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

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


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

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

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

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Wealth distribution — Equality or fairness ?

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21. Wealth distribution — Equality or fairness ?


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

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

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

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

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

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Euro is in a mess — A new George Soros missive

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

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

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

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

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Koda probe I-T Officer shunted

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

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

Koda’s crores :

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

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

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Not with parents, say youngsters

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

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

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

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

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

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India giving us stiff competition : Obama

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

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

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

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

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Currency futures in 3 more currencies

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


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

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Consolidated FDI Rules

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


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

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FDI — Reinvestment of internal accruals in down stream sectors

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



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

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CBDT’s Committee on Safe Harbour Rules

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


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

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Tax assessments without meeting tax officers

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



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

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Now ITAT cases can be tracked online

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

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

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Defending idea of India & Democracy v. Organised violence

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

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

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

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

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

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

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

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U.S. Economy : From Goldilocks to Cinderella

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

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

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

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

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

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

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Outsourcers are tax-evaders : Obama

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

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

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

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

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I-T officers abandon ship as tide turns

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Recovery sees senior tax
personnel switch to lucrative private sector

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

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

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

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

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

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

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

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