1 August2010

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Bangalore Branch of SIRCof the Institute of Chartered Accountants of India

August2010

3 August2010

CPE AND OTHER PROGRAMS - August-September 2010Date/Day Topic /Speaker Venue/Time CPE Credit

DISCLAIMER : The Bangalore Branch of ICAI is not in anyway responsible for the result of any action taken on the basisof the advertisement published in the newsletter. The members, however, bear in mind the provision of the code of ethics whileresponding to the advertisements. The views and opinions expressed or implied in the Branch Newsletter are those of the authors

and do not necessarily reflect those of Bangalore Branch of ICAI.

Note : High Tea at 5.30 pm for programmes at 6.00 pm at branch premises.

Advertisement Tariff for the Branch NewsletterColour full pageOutside back ` 30,000/-Inside front ` 24,000/-Inside back ` 24,000/-

Advt. material should reach us before 22nd of previous month.

Inside Black & WhiteFull page ` 15,000/-Half page ` 8,000/-Quarter page ` 4,000/-

Editor : CA. Shambhu Sharma H.

Sub Editor : CA. Prasad S.R.

04.08.10 Foreign Direct Investment Branch Premises 2 hrsWednesday Mr. N.L. Mitra 06.00pm to 08.00pm

07.08.10 Workshop on Cyber Laws & E-filing under Branch Premises 4 hrsSaturday Income Tax, Companies Act & KVAT 09.30am to 01.30pm

Mr. Na. Vijayashankar & Mr. N. MurthyDelegate fee: ` 250/- Details Page No 17

11.08.10 New SEBI Takeover proposals Branch Premises 2 hrsWednesday CA. S. Ramanujam 06.00pm to 08.00pm

14.08.10 Workshop on Tax Audit & applicable Branch Premises 4 hrsSaturday Accounting Standards 09.30am to 01.30pm

CA. K. Gururaj AcharyaDelegate fee: ` 250/- Details Page No 17

15.08.10 Independence Day Flag Hoisting & Celebrations Branch Premises ---Sunday 09.30am onwards

18.08.10 Issues on VAT Audit Branch Premises 2 hrsWednesday CA. Sanjay M Dhariwal 06.00pm to 08.00pm

21.08.10 Workshop on Due Diligence and SAS-70 Audit Branch Premises 4 hrsSaturday CA. Arun Kumar M K & Mr. Jayachandran B 09.30am to 01.30pm

Delegate fee: ` 250/- Details Page No 17

25.08.10 Company Audit - CARO 2003 Report Branch Premises 2 hrsWednesday CA. M.G. Vinaya Simha 06.00pm to 08.00pm

27.08.10 & National Conference on International Taxation Hotel Le-Meridian 12 Hrs28.08.10 Details on Back Inner Cover Sankey Road, Bangalore

01.09.10 Important issues in Tax Audit under sec 44AB Branch Premises 2 hrsWednesday CA. Shruthi B N 06.00pm to 08.00pm

03.09.10 & MS Excel for Accountants : Branch Premises 6 hrs04.09.10 A programme for beginners 3 pm to 7.00 pmFriday & Delegate Fee : ` 600/-Saturday Details Page No. 18

08.09.10 LLP - Multi Disciplinary firms Branch Premises 2 hrsWednesday CA. Gopal Krishna Raju 06.00pm to 08.00pm

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Bangalore Branch of SIRCof the Institute of Chartered Accountants of India

August2010

TAX UPDATES JUNE 2010CA. Chythanya K.K., B.Com, FCA, LL.B, Advocate

VAT, CST, ENTRY TAX,PROFESSIONAL TAX

PARTS DIGESTED:

a) 2010-11(15) KCTJ Part 3

b) 2010 (68) KLJ Part 6

c) 30 VST – Part 5 & 6

d) 31 VST – Part 1 & 2

Reference/Description

2010 (68) Kar. L.J. 399: NotificationNo. Adcom (I&C)/AC/CR-22/10-11,dt. 24-5-2010 Section 53(2) of theKVAT Act specifies that certaindocuments shall accompany a goodsvehicle which have to be produced atthe time of checking of such vehicleand under Section 53(2)(b) theCommissioner is authorized to notifythe documents which shouldaccompany the goods carried in thegoods vehicle.

Realizing that such production andverification of the documentsconsume time and may also lead toavoidable delays at the time of checkand in the public interest to have asystem where all transactionsrecorded in such documents andproperly accounted for by the dealers,and in exercise of the power underSection 53(2-A) the Commissionervide the aforesaid notification hasnotified certain goods, the transportof which needs to be entered in thenotified website.

The said notification is insupersession of the followingnotifications and instructions issuedin this regard.

(1) No. KSA CR. 327/2005-06, dt. 5th

January 2006

(2) No. KSA CR. 57/08-09 dt. 8th

August 2008

(3) No. KSA CR. 228/08-09 dt. 19th

November 2008

(4) No. KSA CR. 228/08-09 dt. 21st

March 2009

(5) No. KSA CR. 228/08-08 dt. 7th

May 2009

(6) No. KSA CR. 142/09-10 dt. 18th

November 2009,

(7) No. KSA CR. 228/08-09 dt. 31st

December 2009

(8) No. KSA CR. 228/08-09 dt. 29th

March 2010

2010 (68) Kar. L.J. 668 (HC) (DB):Mangalore Minerals (Pvt.) Ltd,Mangalore v. State of Karnataka Inthe instant case the High Court heldthat if advance ruling is set aside bythe Commissioner in exercise of hissuo motu revisional jurisdiction, therevisional order takes effect onlyprospectively. Thus in the instant casewhere the revisional order was passedby the Commissioner on 15-1-2010holding that “resin coated sand”was an unscheduled commoditythat attracted tax at 12.5% underSection 4(1)(b), with effect from7-6-2005, by setting aside order dated29-03-2007 passed under Section60, by authority for Clarificationand Advance Rulings, clarifyingthat resin coated sand only attracts4% tax under Section 4(1)(a)(ii) ofthe Act read with Entry 83 ofThird Schedule, the said revisionalorder was effective from 15-1-2010,and not enforceable on assessee from07-06-2005.

This is a very useful ruling whichneutralises the attempt by thedepartment to negate the beneficialruling of AAR retrospectively.

INCOME TAX

PARTS DIGESTED:

a) 324 ITR – Part 1 to 4

b) 190 Taxman – Part 2 to 6

c) 2 ITR(Trib) – Part 8

d) 3 ITR(Trib) – Part 1 to 9

e) 122 ITD – Part 4

f) 124 ITD – Part 5 to 8

g) 130 TTJ – Part 4 to 6

h) 131 TTJ – Part 1

i) 42-A BCAJ – Part 3

j) 58 TCA – Part 12

k) CAPJ

Reference/Description

[2010] 324 ITR 44 (Mad) HC: P.S.Govindasamy Naidu & Sons v.Asst.CIT In the instant case theHon’ble High Court of Madras heldthat the amount received as capitationfees by an educational institution wasnot a voluntary receipt so as to beentitled to exemption under section11(1)(d) of the Act. The Court felt thatthe nature of quality of the receipt hasto be adjudged as at the time ofreceipt. The subsequent act of theassessee of crediting the amount to thecorpus funds was not thedeterminative factor so as to alter thequality of the receipt.

In the aforesaid decision, the MadrasHigh Court missed the point that theexemption was claimed under section10(22) which provided for a blanketexemption. Conditions of sec 11(1)(d)are not applicable to exemptionclaimed under sec 10(22).

[2010] 324 ITR 199 (Bom.) HC: CITv. Glenmark Pharmaceuticals Ltd.The instant case dealt with the liabilityto deduct tax under section 194C ofthe Act in a case where there existedan agreement to manufacturepharmaceuticals on principal toprincipal basis.

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The case was with reference to theexpansion of the meaning of the term“work” as inserted under Explanation(iv) under clause (e) of the saidsection, which includes within its fold“manufacture”.

At the outset the High Court notedthat the insertion of the aforesaidclause in the Explanation was with aview to bring about clarity on the issueof what constitutes work and thereforethe amendment was made to removeambiguity and is reflective of the lawas it has always stood in the past(having a retrospective effect).

It was emphasised by the Court thatrequirements or specificationsprovided by the purchaser is not thecriteria to determine whether acontract constitutes a contract of workor sale. The significance is on whetherthe material has been purchased fromthe customer, who orders the productor some other third party.

An agreement would constitute acontract for sale, if

(i) the property in the article or thingpasses to the customer upondelivery; and

(ii) the material that was required wasnot sourced from the customer/purchaser, but was independentlyobtained by the manufacturerfrom a person other than thecustomer.

The rationale being that where acustomer provides the material, whatthe manufacturer does is to convert thematerial into a product desired by thecustomer and ownership of the materialbeing with the customer, the contractessentially involves work of labour andnot a sale. In a case of sale the provisionsof section 194C are not attracted.

[2010] 324 ITR 247 (Delhi) HC:Taneja Developers andInfrastructure Ltd. v. Asst.CIT &others In the instant case the High

Court held that despite the fact thatCBDT Instruction 1914 of 1993 stoodin supersession of all earlierinstructions, in the instant case wherethe assessed income was almost 350times the returned income, CBDTInstruction 96 was not superseded.Further the Court observed that theformer instruction itself included byway of an example of what constitutesan exceptional circumstance whichincludes within its fore an assessmentorder which is unreasonably high-pitched or where there existedgenuine hardship to the assessee.Therefore, having regard to the factsof the case the Court held that thedemand must be stayed.

In other words, the Court ruled thatdespite Instruction 96 having beensuperseded, it is still applicable indetermining whether the order isunreasonably high pitched. If sodetermined as per Instruction 96, stayas per current Instruction 1914 shallfollow.

[2010] 324 ITR 254 (P&H) HC: CITv. Porrits and Spencers (Asia) Ltd.(No. 1) In the instant case the Hon’bleHigh Court in the context of section37 of the Act, based on the Tribunal’sfinding that the managing director’swife accompanied him for businessas well as personal purposes held that,50% of the expenditure incurred onforeign travel was deductible.

[2010] 324 ITR 263 (Bom) HC: CITv. Universal Medicare Private Ltd. Inthe instant case in the context ofinterpretation of the provisions ofsection 2(22)(e) the High Courtobserved that the said section was tobroaden the ambit of the expression“dividend” by including certainpayments which the company hasmade by way of loan or advance orpayments made on behalf of or for theindividual benefit of a shareholder.Therefore the definition does not alter

the legal position that dividend has tobe taxed in the hands of the shareholder and not the assessee company.

In other words, a non shareholdercannot be fastened with liability undersec 2(22)(e)

[2010] 324 ITR 278 (Ker) HC: CITv. Ponnamma Lakshmi Narayani Inthe instant case where the assesseewas a partner of firm to which he hadleased out the premises the High courtheld that in such a case the assesseewas not entitled to the exemptionunder section 2(ea)(i)(3) of the WealthTax Act, 1967, since the same was notused or occupied by him for thepurposes of any business orprofession carried on by him. TheCourt held that user for the firm’sbusiness does not tantamount to userfor ones own business.

[2010] 324 ITR 345 (Bom) HC:Dedicated Health Care ServicesTPA (India) Pvt. Ltd. & Others v.Asst.CIT & Others In the instantcase the High Court held that paymentmade by Third Party Administrator(TPA) (who provides services toholders of health insurance policiesunder cashless scheme) to hospitalsare liable to tax deduction at sourceunder section 194J of the Act sincethe payments made are forprofessional services rendered.Further the Court noted that forinvoking provisions of section 194J,there is no stipulation that theprofessional services have to benecessarily rendered to the personwho makes payment to hospital. Alsothough in the instant case thepayments are made to the institutions(which may not per se renderprofessional service; rendering ofwhich necessarily implies therequirement of a “real” person) andnot the individual doctors, theinstitution being a person renderingseveral services while carrying on

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medical profession would be regardedas a person who has renderedprofessional service.

The said judgement further made areference to CBDT Circular No. 8 of2009 dated November 24, 2009 (319ITR (St.) 22). The Court held that tothe extent that the circular interferedwith the discretionary power to imposepenalty (wherein it stated that non-deduction would necessarily attractpenalty) the circular was invalid.

While upholding liability to deduct taxon payment made by TPA, the Courtmissed the fact that TPA is an agentof Insurer and if at all any body isliable, it is the insurer. Even from thepoint of view of insurer, he is onlyindemnifying the insurer and in thecourse of which, payment is made tohospital on a measure of ease andconvenience. In a situation where apatient first pays the hospital and latergets the reimbursement from insurer,there would not have been TDS byinsurer. The answer should not bedifferent in a cash-less situation.

[2010] 324 ITR 356 (Karn) HC:Medi Assist India TPA P. Ltd. v.Dy.CIT (TDS) & Others In the instantcase the Karnataka High Courtobserved that the Third PartyAdministrator (TPA) was ultimatelyresponsible for making payments to thehospital for it having rendered medicalservices to the policy holders. Thereforethere existed an obligation on the TPAto deduct tax under section 194J onpayments made to the hospitals.

[2010] 190 Taxman 221 (MP) HC:All India Punjab National BankOfficers’ Association v. Chairman-Cum-Managing Director, PunjabNational Bank In the context ofsection 17(2) and the adjunct Rule 3,the High Court held that where a loanwas granted by an employer, being abank, at a rate of interest which wasless than the lending rate of State

Bank of India, such a loan was to beregarded as a concessional loan so asto be termed as a perquisite.

[2010] 190 Taxman 279 (Bom.) HC:Arthur Anderson & Co. v. Asst. CITIn the instant case, the High Court heldthat interest paid under section 220(2)would not be considered as tax paidfor the purpose of making businessdisallowance under section 40(a)(ii).

A just interpretation of section40(a)(ii), which otherwise issusceptible to being considered as asection wherein any payment made tothe department is regarded as an itemfor the purpose of disallowance. Onlya fine reading of the section importsthe true intent wherein only those ofthe rates or tax which have a directrelation to the profits and gains of thebusiness or profession need to beconsidered for the purpose ofdisallowance.

However, the above decision runscontrary to Bharat Commerce &Industries Ltd (1998) 230 ITR 733SC.

[2010] 190 Taxman 330 (Bom.) HC:CIT, Mumbai v. Anuj A. Seth, HUFIn the instant case the assessee hadentered into eight sale transactions ofshares. One of the transactionsinvolved bonus shares and thereforetheir cost of acquisition was taken asnil and consequently the entire saleconsideration was considered as long-term capital gain. From out of theremaining seven transactions, one saleresulted in long-term capital gain withindexation whereas in the remainingtransactions the assessee reported aloss with indexation. The assesseetherefore set off the long-term capitalloss against the said long-term capitalgain and paid a tax of 10% on the netlong-term capital gain. The HighCourt held that such a computationwas in consonance with proviso tosection 112(1).

[2010] 190 Taxman (BN-i) Part 5(Chennai-ITAT): Asst.CIT v.Mahindra Holidays & Resorts(India) Ltd. In the instant case theTribunal observed that it was notcorrect to tax the entire income frommembership fees of time-shareproperty in a single year. The Tribunalnoted that the entire amount of time-share membership fee receivable bythe assessee upfront at the time ofenrolment of a member is not theincome chargeable to tax in the initialyear on account of the contractualobligation that is fastened to therecipient to provide services in thefuture over the term of the contract.

The same is in line with the matchingconcept of accounting and also thefundamental accounting assumptionof accrual.

[2010] 190 Taxman (BN-ii) Part 5(Hyd-ITAT): Teja Constructions v.Asst.CIT In the instant case theTribunal held that once the income ofthe assessee has been determined byresorting to estimation, there was noscope for further disallowance eitherin terms of section 40(a)(ia) or section40A(3) or otherwise.

[2010] 3 ITR (Trib) 246 (Delhi):DCIT v. Orient Ceramics andIndustries Ltd. In the instant case theplant and machinery had beenimported without payment of customsduty under exemption certificate inearlier year. Subsequently theCustoms Department raised a demandand the assessee paid the same. Thesaid customs duty paid wasconsidered for the purpose ofdepreciation in accordance withsection 32. The Tribunal held thatsuch depreciation was to be alloweddespite the fact that the assessee hadshown the same as an advancepayment and disclosed the same byway of notes to account as acontingent liability. The Tribunal

7 August2010

observed that mere book entries werenot decisive of any income.

Further the Tribunal in the instant caseheld that UPS was an integral part ofa computer and consequently wasentitled to depreciation at 60 per cent.

[2010] 3 ITR (Trib) 491 (Delhi):Vidya Institute v. CIT In the instantcase the Tribunal discussed theamended provisions of section 80G(5)wherein proviso appended to clause (vi)has been omitted by the Finance (No.2) Act, 2009, and clause (vii) has beeninserted to the said section, consequentto the amendment of the definition ofcharitable purpose in section 2(15).

The Tribunal noted that consequentto the amendment of section 2(15),the same excludes from its ambit allthose other objects of general publicutility which involve, carrying on theactivity in the nature of trade,commerce or business for any activityof rendering any service in relationto trade, commerce or business forfee, cess or any other consideration.The Tribunal observed due to such anamendment many institutions wouldcease to be charitable institutions. Insuch a scenario the donations made tothem would not have been eligible fordeduction under section 80G in theassessment year 2009-2010. TheTribunal noted that in order tosafeguard the interest of bona fidedonors clause (vii) had been insertedin section 80G so that if any institutionhas been allowed exemption undersection 80G(5)(vi) upto March 31,2008 then the same will be deemed tobe renewed for the financial year 2008-09, i.e., assessment year 2009-10 andconsequently any donation made tosuch institution by donors in thefinancial year 2008-09 would beeligible for deduction from totalincome.

The Tribunal therefore held that theamendment to the said section did not

canvass that deemed approval wouldflow automatically to the charitableinstitution. The renewal for grant ofapproval for exemption had to bedecided independently. The deemedrenewal was only for the purpose ofexemption to the donors and not forthe purpose of treating the institutionas existing for charitable purpose.

[2010] 3 ITR (Trib) 497 (Delhi):Dy.CIT v. Umang Dairies Ltd. In theinstant case the Tribunal discussed thedeductibility of the expenditure in thecontext of section 40(a)(ia) vis-à-visthe general provisions wherein if aliability is ascertained, quantified andit has accrued, then, according to themercantile system of accounting, thesame has to be allowed as anexpenditure irrespective of the factwhether any such expenditure hasbeen debited to the profit and lossaccount (since allowability of anexpenditure would not depend uponaccounting treatment given by theassessee to a particular expense).

The Tribunal thus held that even suchexpenses are prone to disallowanceunder section 40(a)(ia).

[2010] 3 ITR (Trib) 569 (Bangalore):SJR Builders v. Asst.CIT In a casewhere an assessee constructedresidential units some of which wereabove specified limit and some belowsuch limit, the Tribunal held that theassessee was entitled to specialdeduction under section 80-IB(10) inrespect of residential units below thespecified area. The Tribunal noted thatthe mezzanine floor and common areaswere to be excluded for ascertainingthe prescribed upper limit of area of1500sq.ft. Further the Tribunalobserved that merely because someflats were larger than the set limit theassessee would not lose the benefit ofthe said section in its entirety.

[2010] 122 ITD (BN-v) Part 4 (Ahd):Arvind Fashions Ltd. ACIT The

Tribunal held that bank interest wasnot eligible to be considered for thepurpose of deduction under sections80-IB and 80HHC.

[2010] 122 ITD 325 (Indore):Asst.CIT, ITDs Bhopal v. FrontlineSoftware Services (P) Ltd. Theinstant case dealt with determining ifan income could be classified undersection 9(1)(vii) as fees for technicalservices. The Tribunal observed thatas per Explanation 2 to section9(1)(vii) fee for technical servicesmeans any consideration forrendering of any managerial,technical or consultancy services andtherefore it would not includepurchase of materials by the assesseefor the purpose of imparting computereducation. Therefore the paymentsmade towards technical aids andcourseware consumption were not tobe regarded as falling within section9(1)(vii).

Further in the instant case the licensorhad agreed with the assessee to grantlicense to use tradename NIIT,copyright and technical know-how inconnection with setting up ofcomputer centre. The Tribunal heldthat payments made for aforesaidpurposes would clearly fall within theaforesaid explanation of the saidsection and hence the provisions ofsection 194J would be attracted tosuch payments.

[2010] 130 TTJ (Del) 377: NationalAssociation of Software & ServicesCompanies (NASSCOM) v. DDIT(Exemptions) The instant case dealtwith the provisions of section 11.

In a case where the AO and CIT(A)did not treat the taxes paid asapplication of income on the groundthat such payment related to theearlier years when the assessee trustwas not having registration under s.12A, the Tribunal held that the samewas not justified. The Tribunal

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Bangalore Branch of SIRCof the Institute of Chartered Accountants of India

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observed that the expenditureincurred by way of payment of taxesout of the current year’s income hasto be considered as application forcharitable purposes because thepayment was made to protect theexistence of trust which it wasabsolutely necessary for thecontinuance of the trust. The Tribunalfurther noted that even if it wasassumed that the taxes paid were notliable to be treated as application, thesame would have reduced from thecorpus capital and the corpus wouldbe reduced by the amount of the taxespaid and position of the assesseewould remain the same.

In the context of the provisions ofsection 11(1)(a) and expenditure onearning income outside India, theTribunal observed that the said sectionuses the words “is applied to suchpurposes in India” and not “is appliedin India”. Therefore the applicationshould result and should be for thepurpose of charitable purposes inIndia and application need not be inIndia. The Tribunal therefore held thatthe expenditure incurred by theassessee in Hanover, Germany for thepurpose of attaining the objects of theassessee in India was to be treated asapplication under s. 11.

In the context of section 11(1)(d),where the assessee had receivedcontribution towards corpus of trust,the said receipts being subscription bythe charitable trust in the form of aone-time non-refundable admissionfees which was in line with thememorandum of association, andwhere the same was to be utilized onlyfor the purpose of capital assets, theTribunal held that the said receipt wasin the nature of donation towardscorpus and hence not includible in thetotal income in view of the provisionsof s. 11 (1) (d).

[2010] 130 TTJ (Mumbai) 570:Addl.CIT v. Tej Diam In the contextof TP and determination of ALP underTNMM, the Tribunal held thatTNMM requires comparison of netprofit margins realized by anenterprise from an internationaltransaction or an aggregate ofinternational transactions and not acomparison of operating margins ofenterprises.

[2010] 130 TTJ (Del) 685: PerotSystems TSI (India) Ltd. v. Dy.CITThe instant case dealt with theapplicability of determination of ALPin a case where an interest-free loanwas given to an AE.

The Tribunal observed that the aimof TP regulations was to examinewhether there arose any anomaly in acase where transactions wereconducted between parties havingspecial relationship. The Tribunalstated that it was not relevant that theassessee contented that it had actuallynot earned any income and thereforeno adjustment in respect of suchinterest-free loan was warranted. Ifsuch a contention were to be acceptedthen that would tantamount to takingsuch a transaction out of the realm ofss. 92(1) & 92B, however lending orborrowing money between two AEswas within the ambit of internationaltransaction and interest an integralpart of such a transaction whichnecessarily had to be as per ALP.

The assessee’s contention that no onewould have given loans to the AEs atthat point in time as they were in thestart-up stage even if accepted thesame did not justify the non-chargingof interest. In the instant case theTribunal noted that one of the AEswas situated in a tax haven countryand non-charging of interest by theassessee would result in higherincome in the hands of the AE whilethe assessee’s income in India would

be less to that extent. This was aclassic case of violation of transferpricing norms where profits wereshifted to tax havens to bring downthe aggregate tax incidence of multi-national group.

[2010] 130 TTJ (Bang) 719:Asst.CIT v. K. Mohan & Co.(Exports) (P) Ltd. The assesseeentered into forward contracts, inrespect of foreign exchange to bereceived as a result of export, in orderto avoid the risk of loss due tofluctuation in foreign exchange rate.The profits of such transactions werecredited in the books of account; therewas no actual delivery of goods. Thecontract therefore was in respect offoreign exchange which was neitherthe goods manufactured by theassessee nor the merchandise sold bythe assessee and therefore the samecould not come within the purview ofthe proviso under section 43(5) i.e. anon-speculative transaction.

Further the Tribunal observed thatsince the forward contracts had beentaken in respect of 46% of the exportturnover, the same was not an isolatedtransaction and consequently in viewof Expln. 2 to s. 28, the said profitshave to be assessed as profits fromspeculation business and sincespeculation business was not thebusiness of the assessee, the samecould not be included to determine thededuction under section 10B.

[2010] 130 TTJ (Mumbai)(UO) 108:Ishar Singh Chawla v. Dy.CIT Inthe instant case the assessee sold self-occupied flat and purchased a newresidential house partly by taking abank loan and partly from own funds.The assessee also partly repaid thebank loan in the relevant year fromout of the sale proceeds of the originalflat. The Tribunal held that theassessee was entitled to exemptionunder section 54.

9 August2010

RECENT JUDICIALPRONOUNCEMENTSIN INDIRECT TAXESCA. N.R. Badrinath, Grad C.W.A., F.C.A.,CA. Madhur Harlalka, B. Com., F.C.A.

SERVICE TAX

Refund

The issue in the present case waswhether renting of immovableproperty is liable to service tax. Itwas held that renting itself is notliable to service tax vide order in2009 (14) STR 433 (Del.) based onthe view that service tax is a tax onthe value addition provided by theservice provider and there must bea connection with the service andthe said value addition, in theabsence of which there is noservice. Finance Act, 2010amended section 65(105(zzzz) ofFinance Act, 1994 thereby bringingany other service in relation torenting of immovable property tothe purview of service tax withretrospective effect from 1st June2007. Notice for recovery of servicetax on renting of immovableproperty was served and theassessee filed writ petition. Therecovery of service tax frompetitioner in respect of renting ofimmovable property was stayed andin the event of dismissal of thepetition, the liability to pay servicetax along with any other liability asa result of the demand would besolely of the petitioner. Since theliability to pay service tax on anyother service in relation to rentingwas not disputed in the petition, thepetitioner would be liable to payservice tax on such service and inrespect of such portion of servicethere is no stay. [Home Solutions

Retail Ltd. Vs. Union of India. 2010(19) S.T.R 3 (Del.)]

The issue in the present case relatesto the refund of excess cenvat creditlying in the cenvat account. Therefund application filed under Rule5 of the Cenvat Credit Rules, 2004was rejected on the grounds that therelevant services were not fallingunder the purview of input service,non-utilization of credit anddifference in ST-3 return. Theadjudicating authority held that theappellants were having the aforesaidamount to adjust against the refundclaim and hence the same wasrejected, which was also confirmedby the appellate authority. Theappellants contended that whenrefund claim was not the subjectmatter of the show cause notice, theadjudicating authority has no powerto decide upon the issue relying onBhagwati Silk Mills VsCommissioner of Central Excise,Surat. 2006 (205) ELT 182 (Tri-Mum). On careful examination itwas held that the adjudicatingauthority has gone beyond the scopeof show cause notice in denying therefund claim on the ground of non-utilization of cenvat credit anddifference in ST-3 return. Theadjudicating authority cannot gobeyond the allegation made in theshow cause notice and hence thedenial of credit not utilised and thedifference in ST-3 are not sustainableand the refund was allowed. Furtherthe lower authorities did not give aclear finding as to why the appellants

are not entitled to take credit onRent-a-Cab and Air Travel serviceand the order was not a speakingorder. Hence the appellants wereentitled to take credit on theseservices and the appeal was allowed.[Caliber Point Business SolutionsLtd. Vs Commissioner of ServiceTax, Mumbai. 2010 (18) S.T.R 737(Tri-Mumbai)]

Stay/ Dispensation of Pre-Deposit

The issue in the present case waswhether Rule 6 of Cenvat CreditRules, 2004 is applicable forcommonly used input services. Theappellants, who were engaged inthe manufacture of ARCS panels,energy meters, semi-conductordevices, etc., had availed credit ofinput services and had notmaintained separate accounts as thesame input services were used tomanufacture both dutiable andexempted goods. Show causenotice was issued to the appellantproposing to demand the amount ofsuch credit taken. The adjudicatingauthority confirmed the same, butreduced the demand. The appellantcontended that the Rule 6 isapplicable only for the commoninputs used in the manufacture ofgoods and not does not apply to theinput services which are not directlyused in the manufacture ofexempted goods or used inexempted output services. On staypetition being filed, it was held thatunder Rule 6 the restriction ofmaintaining separate accounts maybe applicable only in respect ofinputs and not input services.However, since the issue wasarguable one, only a partial waiverof the amount confirmed by thelower authorities was granted andthe appellants were directed to payRs.10 lacs as pre-deposit. Therecovery of the balance amount

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waived was stayed till the disposalof the appeal. [Bharat HeavyElectricals Ltd. Vs Commissionerof Central Excise, Bangalore. 2010(19) S.T.R 58 (Tri-Bang.)]

The issue for discussion in thepresent case is whether credit isavailable for the service tax paid ongeneral insurance and healthinsurance service used foremployees. The appellants hadreceived the above-mentionedservices for insuring its employeesand also their health and accordinglyavailed the credit of the service paidthereon. Relying the decision in thecase of Ellora Times ltd. Vs CCE2009 (13) STR 168 (Tribunal) (2009)(235), the revenue contended that theinsurance services are not connectedwith the activity of manufacture ofgoods and hence disallowed thecredit and demanded pre-deposit.However, the pre-deposit waswaived and stay was granted for therealisation of the demand during thependency of appeal. [KrishnaMaruti Ltd. Vs. Commissioner ofCentral Excise, Delhi. 2010 (19)S.T.R 57 (Tri-Del.)]

The issue in the present case iswhether abatement on the value ofmaterials sold during the course ofproviding service is admissible. Theassessee was providingmaintenance and repair service andhad availed the benefit of abatementon the value of materials soldduring the course of providing suchservice in terms of Notification No.12/03-ST dated 20/06/2003. Therevenue denied the abatement onthe ground that materials such asiron bents, screws, plates etc., wereonly used for performing repairwork and not sold. Also the assesseehad not paid any sales tax upon thevalue of the materials claimed bythem to be used during the course

of providing the service of repairingcontainers. Accordingly, showcause notice was issued forsuppression of facts and demandingthe tax together with interest andpenalty. However, on appeal it washeld that since the applicants did notraise the plea against the charge forsuppression of facts neither beforethe adjudicating authority norbefore the lower appellate authority,the applicants were directed to pre-deposit the tax amount. However,the pre-deposit of penalty waswaived and the recovery thereofwas stayed pending the appeal.[Admec Logistics Ltd. VsCommissioner of Central Excise,Tirunelveli. 2010 (19) S.T.R 116(Tri-Chennai)]

The matter discussed in the presentrelated to the taxability of servicesunder the head banking and otherfinancial services and businessauxiliary services. The appellantwas providing the said services andhad not discharged service taxliability on the amounts collectedfrom the recipient of loans towardpostage, telephone charges, etc.Accordingly, the revenue issuednotice demanding the pre-deposit ofservice tax, interest and penalty. Theappellant contended that thecollection of postage and telephonecharges from defaulting customersis not against any services and arenot included in the course ofproviding any taxable services.However, it was held that theappellant had not made out a primafacie case for complete waiver ofpre-deposit of the amounts adjudgedby the adjudicating authority and theprovisions of Rule 5(1) of Servicetax (Determination of Value) Rules,2006 needs to be gone into detail.Hence the appellants were directedto pre-deposit Rs.18 lacs and the pre-

deposit of balance of service tax,interest and penalty was waived andthe recovery thereof was stayed tillthe disposal of the appeal. [MuthootFinanciers Pvt Ltd. VsCommissioner of Central Excise,Cochin. 2010 (19) S.T.R 24 (Tri-Bang.)]

Valuation

The issue involved in the under-mentioned case is whether SIMcard supplied to the mobilesubscribers is to be included in thetaxable value of service or shouldbe considered as sale of goods. Therespondents considered the supplyof SIM cards as sale and paid salestax on the sale price of SIM cardsand remitted service tax only onactivation charges. Based on thestand taken in the case of BSNL andBPL Mobile Services, the revenuedemanded service tax on the valueof SIM cards supplied by therespondent. It was held that serviceconnection cannot be given withoutactivation of SIM card, withoutwhich the subscriber cannot getservice. SIM card is an essentialpart of service and has no intrinsicpurpose other than use in mobilephones. The value of SIM cardssupplied by the respondent isincludible in the taxable value forservice tax and cannot beconsidered as sale for the levy ofsales tax. The demand of service taxon value of SIM cards and interestthereon was upheld and the penaltypayable was waived.[Commissioner of Central Excise,Cochin Vs Idea MobileCommunication ltd. 2010 (19)S.T.R 18 (Ker.)]

The issue in the present case waswhether the value of materials canbe included in the taxable value ofCommercial or IndustrialConstruction service. The

11 August2010

appellants were engaged in theprovision of commercial orindustrial construction services andconstruction of residential complex.The appellants had availed thebenefit of exemption notificationfor towards value of materialsinvolved. The revenue contendedthat the benefit was wrongly availedand accordingly demanded thedifferential duty along with interestand penalty. However, it was heldthat the mutual exclusivity ofservice tax and sales tax, the powerto tax assigned by the Constitutionto the States and the Centrerespectively on sales and serviceswas highlighted in Gujarat AmbujaCements Ltd. The decision of theCommissioner to collect service taxon the value on which the appellantshad already paid VAT is contrary tothe principles of fiscal federalismadopted in the Constitution. Hencethe demand of differential duty,interest and penalty is notsustainable and accordingly theimpugned order was vacated andthe appeal was allowed. [SobhaDevelopers Ltd. Vs Commissionerof Central Excise & Service Tax,Bangalore. 2010 (19) S.T.R 75 (Tri-Bang.)]

Cenvat Credit of Service Tax

The issue discussed in the presentcase was the availability of cenvatcredit on capital goods. Theassessee had availed credit oncapital goods viz. washingmachines which were used to washthe employee uniforms. Therevenue contended that the activityof washing employee uniforms isnot related to the process ofmanufacture of the final productand the credit availed by theassessee is irregular. As a resultshow cause notices were issued to

the assessee proposing to deny thecredit. Aggrieved by the order of theDeputy Commissioner in allowingthe credit, the revenue preferred anappeal against such order. However,it was held that the impugned goodswere classified under Chapter 84 ofCentral Excise Tariff and were alsocovered under the definition ofcapital goods. The assessee hassatisfied the conditions required toavail the credit of the excise dutypaid on the capital goods and thesaid washing machines are requiredto comply with the mandatoryrequirement of providing cleanuniforms to employees under theDrugs and Cosmetics Act and Rulesmade there under. Consequently,the credit availed by the assesseewas allowed and the appeal filed bythe revenue was rejected.[Commissioner of Central Exciseand Service Tax, LTU, BangaloreVs Micro Labs Ltd. 2010 (18) S.T.R771 (Tri-Bang.)]

The subject matter of the presentcase related to the documents foravailing credit. The appellant wasengaged in providing services ofbanking and other financial servicesand business auxiliary services andwas discharging the service taxliability irregularly. On scrutiny ofthe service tax returns filed, it wasfound that the appellant had availedcredit in respect of the service taxpaid on the said services whereinthe invoices were in the name of theregional branches and thedocuments evidencing the paymentof service tax was not produced forverification. As a result show causenotices were served on theappellants for the payment ofinterest for delay in payment ofservice tax and penalty which wasupheld by the adjudicatingauthority. However, based on the

fact that the appellant produced acertified copy of the statutoryauditors indicating that the servicetax liability has been paid to theservice provider, it was held thatsuch a certificate should beconsidered as evidence tosubstantiate the eligibility to availcenvat credit. The demand ofreversal of cenvat credit was setaside and the matter was remandedback to the adjudicating authorityto reconsider the issue afresh basedon the certificates produced afterfollowing the principles of naturaljustice and the penalty imposed wasset aside. [Syndicate Bank VsCommissioner of Central Excise,Mangalore. 2010 (18) S.T.R 748(Tri-Bang.)]

The disputed resolved in the presentcase was whether credit for theservice tax paid on the constructionof compound wall can be availed.The respondents were engaged inthe manufacture of cotton fabricsand were availing credit of dutypaid on input service and capitalgoods. The respondent availedcredit of service tax paid on theconstruction of compound wall. Itwas alleged by the revenue thatsuch construction was not fallingunder the definition of input serviceas it was not used for providing anyoutput service and also was not usedin or in relation to the manufactureof final products and theirclearances. As a result show causenotice was issued and the demandwas confirmed. The appeal filed bythe respondent was allowed and theaggrieved revenue preferred anappeal against such order settingaside the demand. The respondentcontended that such constructionwas necessary as any goods lyingoutside the factory beyond thecompound wall will be deemed as

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Bangalore Branch of SIRCof the Institute of Chartered Accountants of India

August2010

removed without paying exciseduty. However, it was held that thecompound wall constructed as persite plan for registration withdepartment was an integral part andnecessary to run the factory as anygoods lying within that wall areconsidered as lying within thefactory. Hence the respondent wasentitled to take credit of service taxpaid on construction of compoundwall and the demand along withinterest and penalty was set aside.[Commissioner of Central Excise,Pune-II Vs Raymond Zambaiti PvtLtd. 2010 (18) S.T.R 734 (Tri-Mumbai)]

VALUE ADDED TAX The issue in the present case was

whether there was a transfer of rightto use goods which is exigible tosales tax under the Assam GeneralSales Tax Act, 1993 and The AssamValue Added Tax, 2003. Theappellants had made availablemotor vehicles such as trucks,tankers and cranes to Oil andNatural Gas Corporation Ltd(‘ONGC’). An analysis of therelevant provisions of theagreement between the partiesindicated the clear dominion andcontrol of ONGC over the cranesduring the entire period of contract.Though the cranes were operated bythe crew provided by the contractor,the crew were under the control ofONGC while operating the cranes.ONGC was vested with theauthority to requisition the crane foroperational purposed at any timeand the mere fact that the operationof the crane was over on any givenday the crane might come back tothe contractor was not material todecide as to who had the dominionover the crane. Such temporarypossession of the crane by the

contractor did not militate againstthe transfer of the right to use thecrane which event constituted ataxable event under theConstitution. The terms of othercontracts pertaining to watertankers and trucks also visualizedplacing the required vehicles at thedisposal of ONGC and the non-availability of the tankers or trucksan any given day for deploymentin accordance with the operationalrequirements of ONGC entailedpayment of penalty and liability fordamages on the contractor.Therefore it was held that thetransaction between the parties wasa transfer of right to use goods liableto tax under the Assam GeneralSales Tax Act and the Assam ValueAdded Tax Act. [Dipak Nath Vs Oiland Natural Gas Corporation Ltdand others. 2010 (31) V.S.T 337(Gauhati)]

The issue in the present case waswhether the option to be governedby composition of tax onceexercised can be reversed. Theappellant dealer opted for thebenefit of composition of tax underthe Karnataka Sales Tax Act for theassessment year 1997-98 in respectof the civil works undertaken byhim and the assessing officer passedassessment order after rejecting theclaim of the dealer for exemptionof receipts relating to labour. TheJoint Commissioner (Appeals)directed the receipt in question tobe reduced from the gross workscontract receipts on the ground thatthe receipt in question was purelylabour oriented and did not involveany transfer of property. TheAdditional Commissioner initiatedrevision proceedings by issuingnotice to which the appellant repliedthat his majority receipts werelabour oriented and only five

percent involved transfer ofproperty and hence sought forwithdrawal of composition. TheAdditional Commissioner allowedthe dealer to withdraw and therebyreduced the tax liability by a sumlower than that fixed by theappellate authority. However, theCommissioner restored the order ofassessment passed by the DeputyCommissioner holding that thedealer had not made any requestbefore the assessing officer forpermission to opt out ofcomposition either during theassessment year or at the time ofassessment. However, on appeal itwas held that the dealer once optedfor composition he could not optout. The amended Rule 8B(1) of theKarnataka Sales Tax Rules, 1957was not in existence as on theassessment date, but was present onthe date of opting out. Whilecharging provisions are construedstrictly, machinery provisions arenot generally subject to a rigorousconstruction. An amendment whichis by way of a clarification wouldbe a useful aid in construing theexisting earlier provision eventhough such amendment is notgiven retrospective effect. Asubsequent legislation on the samesubject can be looked into by thecourt in order to see what is theproper construction to be put up onan earlier Act where either it issilent or ambiguous. If there is anyambiguity in the earlier legislationthen the subsequent legislationwould guide the properinterpretation which is to be putupon the earlier one. The appealfiled by the assessee was dismissed.[T. Shivakumar Vs Commissionerof Commercial Taxes,Gandhinagar, Bangalore. 2010(31) V.S.T 261 (Karn)]

13 August2010

1. Normally when does theprovisions of Finance billenacted?Ans - The Finance bill is presentedbefore both the houses of theparliament i.e the Lokha Sabhaand the Rajya Sabha. The Financebill is enacted into an Act on theday when the bill gets PresidentialAssent.

2. Whether all the provisionsenacted in the Budget 2010, willhave effect on the date ofPresidential Assent?Ans – In the budget there were 3types of amendments involved-

a. There were few amendments withimmediate effect from the 28th ofFeb 2010. By virtue of theprovisions governed by ProvisionalCollection of Taxes Act, 1931.These provisions law provides forimmediate effect for a limitedperiod of provision in Bills relatingto the imposition or increase ofduties of customs or excise.

b. One set of amendments wereintroduced to be affective from thedate of Presidential Assent.

c. The new services were introducedwith effect from 1-7-2010.

3. When was the Presidentialassent got for Finance Bill,2010(FB)?Ans – The Presidential assent wasgiven on 8th May 2010 (Asreported in Tax India Online)

4. How are the changes intimatedto the assessee’s?Ans – Normally the clarificationare issued to the public in the form

SERVICE TAX –FINANCE ACT, 2010 – FAQ’SCA. Rajesh Kumar T R, B Com, LL B, FCA, DISACA. Chandra Shekar B D, B Com, LL B, FCA, DISA

of notifications, circulars andclarification in the form of TRUletters.

5. What are the notifications/clarification of importancewhich are issued in respectService tax in Finance Act,2010?Ans –

a. Notification 24/2010 – States that8 new taxable services and allamendments to Section 65 ofFinance Act, 1994 whereinchanges were made to scope ofexisting services shall come intoeffect from 1-7-2010 except forcases (‘Renting of immovableproperty services’ and‘Commercial Training andCoaching Services’) whereFinance act, 2010 itself givesretrospective effect..

b. Notification 25/2010 – Travel byAir - Exemption for service taxon travel of passengers by air.

i. A person who has arrived at aairport and is in transit throughIndia, provided that he doesnotpass/go through immigrationprocedures, doesn’t leave theairport and continues his journeyto a place outside India;

ii. A person who is employed orengaged by the aircraft operator inany capacity on board the aircraft.

c. Notification 26/2010 – AirTravel Services – Exemptionshave been provided

i. to all domestic passengers andinternational passengersembarking in India wherein thetax would be confined to :

1. Lower of 10% of gross value ofthe ticket or Rs. 100/- per journey,for any class of passengerstravelling within India;

2. Lower of 10% of gross value ofthe ticket or Rs. 500/- per journey,for international journey ineconomy class.

3. Conditions – No cenvat creditavailable.

4. Gross value of ticket for purposeof this levy is ‘All charges exceptstatutory levies’

d. Notification 27/2010 – AirTravel Services – Exemption

i. Exemption is been given tojourneys to and from North-eastern States i.e ArunachalPradesh, Assam, Manipur,Mizoram, Meghalaya, Nagaland,Sikkim and Tripura.

e. Notification 28/2010 –Construction Industry –Exemption

i. Exemption to services rendered toJawaharlal Nehru National UrbanRenewal Mission and RajivAwaas Yojana.

f. Notification 29/2010 –Construction Industry –Abatement increased if value isinclusive of land.With the amendment in the scopeof Commercial or IndustrialConstruction and Construction ofComplex Service to deem theconstruction activity as servicesprovided by the builder to buyer,additional entry in the NotificationNo. 1/2006-ST was added wherebyabatement is given as 75% if thevalue is inclusive of land and landvalue is not separately collected.But, this amendment would notaffect the existing abatement of67% for others.This abatement has become asubject matter of discussion as itwas all along the understanding

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Bangalore Branch of SIRCof the Institute of Chartered Accountants of India

August2010

that the value of land cannot formpart of the taxable value. Thatbeing a case, the question ofproviding abatement for value ofland was not required.

g. Notification 31/2010 – PortServices – Exemption

i. There is an exemption for thebelow mentioned services withina port or airport in order to giverelief to certain activities whichwas not taxable prior to thisamendment made in the scope ofport services and airport servicesbut would get into the mischief ofthe same. However some of theaspects are still affected whereinexemptions are not given whichwould come to light in due courseof time:

1. Repair of ships, boats or vesselsbelonging to Government of Indiaincluding Navy or Coast Guard orCustoms but doesnot includedPublic sector undertakings.

2. Repair of ships, boats or vesselswhere such process of repairamounts to manufacture and hasthe meaning assigned to it inclause f of the Sec 2 of CentralExcise Act, 1944.

3. Supply of water4. Supply of electricity5. Treatment of persons by a

dispensary, hospital, nursinghome or multi speciality clinic

6. Services provided by a school orcentre to provide formal educationother than those services providedby commercial training andcoaching centre

7. Services provided by fire serviceagencies

8. Pollution control servicesh. Notification 37/2010 –

Amendment to Notification 17/2009 – Refund pertaining toExport of Goods

i. Serial Number 18 has been added

to say ‘Service provided byairports authority or any otherperson in any airport in respect ofthe export of said goods’

i. Notification 38/2010-Commercial & IndustrialService

i. Taxable service of commercial orindustrial service when whollyprovided within the port forconstruction, repair, alteration andrenovation of quays, docks,stages, jetties, piers and railwaysare exempted from the whole ofservice tax leviable thereon underSec 66 of the Finance Act.

j. Notification 39/2010-Amendment to Notification 1/2006

i. Services in relation to Renting ofa cab, ‘erection, commissioning &installation service, goodstransport agency service andconstruction service could claiman abatement under Notification1/2006. As there has been anamendment in the port serviceshence this notification extends theabatement to port as wells asairport services.

k. Notification 41, 42 & 43/2010 –Construction/Airport –Exemption

i. Back ground – With theexemption, the scope of portservices and airport services wasto cover any services providedwithin the port by any person toany other person, and that toowithout being covered by theclassification rules. Therefore, theconstruction service was alsounderstood to be covered underthe scope of taxable services.Similar, was the case in someother category of services also. Inorder to give exemption for thesame these exemptions wereissued.

ii. Exemption – The taxable serviceof commercial or industrialconstruction has been exemptedfrom the whole of service taxwhich is leviable under service taxwith regard to commercial orindustrial construction at a port.The definition of Airport Servicehas been amended to includeconstruction service.

iii. Exemption is given to thefollowing services when providedwithin the port-

1. Cargo handling agency providingservices in relation to, agriculturalproduce or goods intended to bestored in a cold storage

2. Warehouse keeper providingservices in relation to agriculturalproduce or any storage of or anyservice provided by a cold storage.

3. Taxable service in relation totransportation of export goods inan aircraft by an air craft operator.

4. Taxable service of site formationand clearance, excavation andearthmoving and demolition andsuch other similar activities.Notification 24 to 35 were issueddated 22-06-2010 and 36 to 42were issued dated 28-06-2010.Notification 43/2010 – 30-06-2010- ExemptionTransportation of Goods by Roadprovided within an Airport or Portwill also get the abatement to theextent of 75%. Thus theexemption extended due to thechange in the definition of portservices/airport services.‘Looking at the spate ofnotifications/amendments issuedit appears that the only thing thatis Contant is Change.’ Anilliterate in the 21st Century willnot be those who cannot read &write but those who CannotChange themselves.

15 August2010

SAS 70 is an acronym for Statement onAuditing Standard (SAS) 70, titled“Reports on the Processing ofTransactions by Service Organizations”It was issued by the American Instituteof Certified Public Accountants(AICPA) in 1993 and addressed throughan amended AICPA Audit Guide in2002. It defines the professionalstandards used by a service auditor toassess the internal controls of a serviceorganization and issue a serviceauditor’s report. SAS 70 reports can beused by your management as theyevaluate internal controls, and yourexternal auditors are allowed to useSAS 70 reports as input to theirSarbanes-Oxley audits.Who Needs to Issue SAS 70s

How do you personally placecontrols over work that you don’t do?It’s tough. It’s hard, because yourcompany will not personally design,oversee, and test controls overoutsourced processes. At least, youwon’t be enough involved that yourCEO and CFO will feel confidentattesting to them. So what do you do?You ask the service provider that doeswork for your company to have a SAS70 audit conducted and then to issueyou a SAS 70 report.

SAS 70s are issued by serviceorganizations that provide outsourcingservices which impact the controlenvironment of their customers.Examples of service organizations arehosted data centers, application serviceproviders (ASPs), managed securityproviders, insurance and medicalclaims processors, trust companies,credit processing organizations, andclearinghouses.

A SAS 70 examination signifiesthat an independent accounting andauditing firm has examined the serviceorganization’s control objectives and

SAS 70 AuditJayachandran. B, CISA, CISM, ITIL

control activities, especially those inplace as they host or process databelonging to their customers. A formalreport including the auditor’s opinion(“Service Auditor’s Report”) is issuedto the service organization at theconclusion of a SAS 70 examination.Who Performs a SAS 70Examination

SAS 70 reports are prepared byauditors. You need a CPA to performthe audit. AICPA and PCAOBrequirements say that the audit firmmust be reputable, possess thecompetence to perform a SAS 70 audit,and meet standard independencerequirements for independent externalauditors.

Other Auditors and Consultantscan help a service provider prepare fora SAS 70 audit, but they cannot performthe audit itself. CPAs may not use areport provided by an unlicensedindividual or entity. User auditorsshould be alert to the possibility that aservice auditor’s report may not havebeen prepared by a licensed CPA andshould consider contacting arepresentative of an unfamiliarorganization to verify that theorganization is properly licensed, peerreviewed, and able to provide its peerreview report and letter of commentsand response. If the organization isunlicensed, CPAs are advised to conveythat finding to the state board ofaccountancy in the state in which theengagement was performed or to theirown state board.

Work involved in a SAS 70 auditcan be performed outside of the UnitedStates in the country where the serviceprovider is located. However, the auditengagement itself must be performedby a firm based in the United States thatsubscribes to the professional standardsset forth by the AICPA

Roles and Responsibilities for SAS70sWho is responsible for a SAS 70 report?A SAS 70 engagement? Follow theguidelines below.• The Audit Committee of a company’s

Board of Directors or another area ofthe company (the legal department,contracts department, or other)negotiates with a service provider forthe terms of the SAS 70 examinationand report. After the audit is completeand the report is delivered, the AuditCommittee shares the results with theCEO and CFO and also with thecompany’s external auditors.

• The company’s CEO and CFO mustachieve a confidence level that theSAS 70 report they will be deliveredwill be adequate to meet their needsas they attest to the adequacy ofcontrols in their company.

• The service provider arranges for aSAS 70 audit of their operations asthey pertain to the hosting,processing, or management ofcustomer’s data. After the audit iscomplete and the report is delivered,the service provider shares the reportwith those client companies who haverequested it.

• A service auditor performs the SAS70 examination for the serviceprovider and delivers a report to theservice provider.

Some of the seven control pointsdiscussed above could result in extraeffort on the part of your serviceproviders.Further Reference: AAS 24 & SA 402audit considerations relating to Entitiesusing service organizations in IndianContext.Role of Indian CA's1. Conduct the audit if registered with

PCAOB2. Documentation & Preparation for

the audit.3. Ensuring internal control & SOP's

(Standard Operating Procedures) arefollowed.

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Bangalore Branch of SIRCof the Institute of Chartered Accountants of India

August2010

Important Announcement for students of erstwhile CA Intermediate/Professional Education – II Course

BoS/Announcement/227/10 July 29, 2010Sub: Discontinuance of Professional Education (Examination – II)

Students registered for the Professional Education – II Course (PE-II) are hereby informed that the said course has been discontinuedby the Institute of Chartered Accountants of India with the culmination of the May, 2010 examination.Those students of erstwhile CA Intermediate/ PE-II course, who have not yet passed /are not able to clear the PE-II examinationheld in May, 2010 are advised to register themselves for the Integrated Professional Competence Course (IPCC) by following theprescribed procedure as given below for switchover from CA Intermediate/ PE-II course to IPCC. Detailed procedure to becompleted in this regard can also be obtained from the respective Decentralized Offices where the CA Intermediate/ PE-II Coursestudents are registered.Students who have appeared in the Professional Education (Examination-II) held in May, 2010 are advised to wait for the declarationof the result before switching over to IPCC. Students, who pass PE-II examination held in May, 2010 are eligible for registrationof three years of articled training immediately provided they have successfully completed the course on Compulsory ComputerTraining (CCT) or Information Technology Training (ITT). Such students shall be eligible to appear in the Final Examinationduring the last 12 months of their articled training. Students who have not appeared in Professional Education (Examination-II)held in May, 2010 may switch over to IPCC at any time.This announcement will be effective from July 29, 2010 and onwards. Director, Board of Studies

Campus Placement Programme forNewly Qualified Chartered Accountants

August-September, 2010The CMII provides opportunity to the employers to

interact with newly qualified Chartered Accountants therebyproviding a cost effective mode of recruiting newly qualifiedChartered Accountants. An organisation and firms ofChartered Accountants can participate in one or more centres.

Campus Interview Dates

Centre Dates*

Ernakulam, Kanpur, Ludhiana Sept. 06 & 07, 2010and Bhubaneswar

Coimbatore, Indore and Nagpur Sept. 07 & 08, 2010

Ahmedabad, Jaipur and Pune Sept. 08, 09 & 10, 2010

Bangalore, Hyderabad and Sept. 15, 16, 17 & 18,Kolkata 2010

Mumbai, New Delhi and Sept. 21, 22, 23,Chennai 24 & 25, 2010

Candidates should login to the website and register for theplacement programme.

Organisations intending to recruit Newly Qualified CharteredAccountants through the scheme given below are requestedto get in touch with Sri S Suneja, Secretary, Committee forMembers in Industry, Indraprastha Marg, New Delhi -110002, Tel. No. (011) 30110450/491 E-mail:placements@icai.org, mii@icai.org; Fax- +91(11) 30110583(or) Mr. Ajeet Nath Tiwari, Placement Coordinator, at Tel+91(11) 30110450.

For full details, please log on to www.cmii.icai.org

Chairman, CMII

AnnouncementCertificate Course on International Financial

Reporting Standards (IFRS)

We are pleased to announce that 6th Batch at Bangalore Centreof Certificate Course on IFRS is scheduled to take place in thefirst week of September 2010 subject to the minimum registrationof 50 candidates. The other details are mentioned below:

Days of Class RoomFour Weekends (Saturdays and Sundays)

Duration of the course100 Hours consisting ofa) 60 Hours of E-Learningb) 40 Hours of Class Room Teaching

CPE Hours : The CPE credit of 90 Hours (30 Structured + 60 Unstructured)

Venue of the Course : Would intimated shortly

Fee Structure : ICAI Member - `̀̀̀̀ 30,000/- Non Members – `̀̀̀̀ 50,000/-

The Demand draft may be drawn in favour of“The Secretary, The Institute of Chartered Accountants ofIndia”, payable at New Delhi.

Course Coordinator for Bangalore Centre:CA. K. Raghu, Central Council Member, ICAIEmail: kraghu9999@gmail.com, kraghu@kraghu.com

CA. Shambhu Sharma H.Chairman, Bangalore Branch of SIRC of ICAIbangalore@icai.org

Candidates may kindly send the Registration Form dulyfilled in all respect (available at the website of the Institute at:http://www.icai.org/addupdate/regform.php) duly filled inalong with the fee to:

The Nodal Officer, Certificate Course on IFRS, TechnicalDirectorate, The Institute of Chartered Accountants of India,ICAI Bhawan, Indraprastha Marg, PB No. 7100,New Delhi - 110 002, Email: ifrs@icai.org

17 August2010

PCC/IPCC - 1st September to 9th September 2010

Business & Corporate Laws CA. S. Srikanth

Advanced Accounting CA. K. Shanmughanathan

Income Tax CA. K. Sudarshan

Costing & FM CA. Gopala Krishna Raju

PCC / IPCC AND FINAL PRE-EXAM CRASH COURSE FOR NOVEMBER 2010 EXAMFINAL - 14th September to 29th September 2010

Advanced Accounting Yet to be confirmed

Corporate Law CA. S. Srikanth

MAFA Dr. Deenadyalan

Income Tax CA. Suresh T. G.

Cost Management CA. K. Hariharan

Indirect Taxes CA. A.S. Harihara Kumar

Mgmt Info & Control Sys Mr. B.V.N. Rajeshwar

Quantitative Techniques Mrs. Malathy Sundararajan

The Fee for the Pre Exam Crash Course is as follows &

can be paid through cash:

Final: IPCC and PCC :

Both Groups ` 1500/-, All the Subjects ` 1000/-,

I Group only ` 750/-, Single Subject : ` 300/-

II Group only ` 1000/-,

Single Subject ` 500/-

To register please contact: Mrs. Roopashree

(080-30563513 / blrregistrations@icai.org)

Workshop on Cyber Laws & E-filing underIncome Tax, Companies Act & KVAT

on Saturday, 7th August, 2010,Time: 9.15 am to 01.30 pm

Time Topic Speakers

09.15 am Cyber Laws Mr. Na. Vijayashankar, to Cyber Law Consultant

01.30pm E-filing under Mr. N. MurthyIncome Tax, Vice President,Companies Act & 3i Infotech ConsumerKVAT Services Ltd

Fee: `̀̀̀̀ 250/-CPE: 4 hrs

Restricted to250 delegates

Workshop on Tax Audit &applicable Accounting Standards

on Saturday, 14th August, 2010,Time: 9.15 am to 01.30 pm

Time Topic Speakers

09.15 am to Tax Audit & CA. K. Gururaj01.30pm applicable Acharya

AccountingStandards

Fee: `̀̀̀̀ 250/-CPE: 4 hrs

Restricted to250 delegates

Workshop on Due Diligence and SAS-70 Audit

on Saturday, 21st August, 2010,Time: 9.15 am to 01.30 pm

Time Topic Speakers

Due Diligence Mr. Arun Kumar09.15 am (for Private Equity/ Client Services Director –

Venture Capital Transaction Advisorytransactions and Services,

to Mergers & Grant ThorntonAcquisitions)

01.30pm SAS 70 Audit Mr. JayachandranConcepts Director – Technical,and Benefits e-Security Audit (P) Ltd

Fee: `̀̀̀̀ 250/-CPE: 4 hrs

Restricted to250 delegates

SICASA of Bangalore BranchProgrammes - August 2010

1. Quiz & Elocution Competition for Students

Date : 3rd August 2010 Time : 5 pm to 8 pm

Venue : Bangalore Branch Premises

For further details contact :

Mr. Satish Rajan, Mobile : 98868 10481

2. “How to perform better in CA Exams”- An interactive meeting with CA. Madhukar Hiregange Central Council Member

Member Examination Committee of ICAI

Date : 9th August, 2010 Time: 6.00 pm to 8.00 pm

Venue : Bangalore Branch Premises

18

Bangalore Branch of SIRCof the Institute of Chartered Accountants of India

August2010

5-Aug-10 - Payment of Central Excise Duty for the monthof July 2010.

- Payment of Service Tax for the month of July2010. (in case of persons other thanindividual, proprietor & partnership firms)

6-Aug-10 - Payment of Service Tax & Central Excise forthe month of July 2010.(In case of e-payment)

7-Aug-10 - Due date for Payment of TDS deducted &TCS Collected, in the month of July 2010.

10-Aug-10- Filing of monthy returns of Central Excise forthe month of July 2010.

15-Aug-10- Due date for filing of VAT 120 under KVATLaws for the month of july 2010.

- Payment of Provident Fund for the month ofJuly 2010.

20-Aug-10- Due date for filing of VAT 100 under KVATLaws.

- Payment of Professional Tax for the monthof July, 2010.

21-Aug-10- Payment of Employee State Insurance for themonth of July 2010.

25-Aug-10 Filing of Monthly returns of Provident Fundfor the month of July 2010.

31-Aug-10- Filing of Annual Information Return in FormNo. 61A.

Important Dates to rememberduring the month of August 2010

Required Chartered Accountants /experienced semi-qualified candidates /Article clerks looking for challenging careersWe require smart, brilliant and hard-working CharteredAccountants / experienced semi-qualified candidates / Articleclerks who are interested in working in areas such as corporateaccounting, statutory audits, internal audits, SoX audits,income-tax, international tax, transfer pricing, service tax,VAT and other indirect taxes. The candidate should be ableto offer a long-term commitment. For further details aboutour firm, please visit our web site www.rishimadhur.com.

Our firm offers the advantages of an attractive remunerationpackage commensurate with profile and experience and fast-track career advancement opportunities for committedcandidates.

Interested Candidates may please send their detailedresumes / bio-data to:

Rishi Madhur & Co.Chartered Accountants“HVM House”, Ist Floor, # 106,Amarjoti Layout, Off Intermediate Ring Road,Domlur, Bangalore -560 071.

www.rishimadhur.comPh: 4114 5757 / 4114 5858 / 25352222Email: sheela@rishimadhur.com

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CONGRATULATIONS TOKSCAA EXECUTIVE COMMITTEE

2010- 2011CA. Allama Prabhu M.S. PresidentCA. Anant Mutalik Vice PresidentCA. Maddanaswamy B.V. SecretaryCA. Basavaraja H.M. Joint SecretaryCA. Ravindra S. Kore TreasurerCA. Gururaj S MemberCA. Dhavalgi C.R. MemberCA. Geetha A.B. MemberCA. Ramkumar K.S. MemberCA. Siddarameshwara Gowda A MemberCA. Siddharth Kiron T MemberCA. Srinivasa Rao G MemberCA. Virupakshappa Tuppad MemberCA. Marulasiddaiah M Member

How to type newRupee symbol on keyboard

1. Downloan the “rupee font” from

http://blog.foradian.com/rupee-font-version-2

2. Install to “Fonts” folder of your PC

3. Open your word processor and select the Rupee font

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MS Excel for Accountants :A programme for beginners

Bangalore Branch of SIRC of ICAI is conducting aprogramme on MS Excel useful for accountingapplications. This programme is focused on trainingsenior chartered accountants and their staff who arebeginners in the use of MS Excel. Interested membersand their staff may contact Institute office

Date : Friday 3rd and Saturday 4th September 2010

Time : 3 pm to 7 pm

Fees : ` ` ` ` ` 600(restricted to 30 persons on first come first serve basis)

Faculty : ITT staff of C.A Institute

Contact Ms. Roopashree Tel : 30563500/3513email : blrregistrations@icai.org

CPE credit :6 hours

19 August2010

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Bangalore Branch of SIRCof the Institute of Chartered Accountants of India

August2010