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(For Members only) 1st November, 2014Vol. : 37 No. : 11/11

Respected Members,

In yet another endorsement of the new government's policies aimed at reviving the economy, the Organisation for Economic Co-operation and Development (OECD) has bumped up India's growth forecast for next year citing a pickup in investment because of the improved political situation that stems from the New Government having come to power with a substantial majority that will enable it to undertake reforms.

The country could be within striking distance of China by 2016 in terms of the pace of growth, with that country forecast to slow in the years ahead, according to the OECD. But that doesn't mean the central bank can relent in the fight against inflation, it said. This runs counter to the demand for interest rate cuts from companies and some government quarters. OECD expects the Indian economy to expand 6.4% next year compared with 5.9% estimated less than two months back in its September '14 interim outlook.

The government is giving final touches to one of the most important aspect of the proposed Goods and Services Tax (GST) — the revenue-neutral rate (RNR) — as it

prepares to table the Constitution Amendment Bill for GST in the upcoming Winter Session of Parliament. With the government looking at a 2016 deadline for rolling out GST, which has been touted as one of the most ambitious reform.

In another development the Banks will now start sending SMS alerts to both payer and drawer in cheque transactions as soon as the instruments are received for clearing. Expressing concern over the rise in cheque-related fraud cases, the Reserve Bank of India (RBI) has made SMS alerts mandatory for such transactions.

The 35th Regional Conference at Jaipur on 28th & 29th October 2014 witnessed a great success and was attended by a large number of Members. I wish to thank all Members of CIRC for making the conference a big success. The glimpses of the conference can be seen in this newsletter.

CA. Nitish AgarwalChairman CIRCMobile: +91-9414153796Email :canitishagarwal@yahoo.com

Warm Regards

CA. Nitish AgarwalChairman CIRC

CA. Nitish Agarwal – Chairman CIRC with HH Maharao R S Bahadur – Maharaja Sirohi,L-R CA. Sachin Kumar Jain – Executive Member Jaipur Branch, CA. Gautam Sharma – Chairman Jaipur Branch, CA. S.C. Jain Session Chairman, CA. R K Guruwalla – Past Chairman CIRC, CA. Vinay Mittal – Regional Council Member, CA. Avichal SN Kapur – Secretary CIRC, CA. I M Sethia, CA. Umesh Garg – Regional Council Member and CA. Manish Borad – Regional Council Member during 35th Regional Conference of CIRC Held on 28th -29th October 2014 at Birla Auditorium, Jaipur

Presentation of Memento to CA. Manoj Fadnis – Vice President ICAI. on the dais CA. K. Raghu – President ICAI, CA. Nitish Agarwal – Chairman CIRC, CA. Anuj Goyal – Council Member, CA. Gautam Sharma – Chairman Jaipur Branch and CA. Shailendra Agarwal – Secretary Jaipur Branch during 35th Regional Conference of CIRC Held on 28th -29th October 2014 at Birla Auditorium, Jaipur

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CA. Nitish Agarwal – Chairman CIRC with CA. Uttam Prakash Agarwal – Past President ICAI with L-R CA. Gautam Sharma – Chairman Jaipur Branch, CA. Manish Borad – Regional Council Member, CA.(Dr) Girish Ahuja, CA. Vinay Mittal – Regional Council Member during 35th Regional Conference of CIRC Held on 28th -29th October 2014 at Birla Auditorium, Jaipur

Hon'ble Minister of State, Shri Ota Ram Dewasi Ji with CA. K. Raghu – President ICAI, CA. Nitish Agarwal – Chairman CIRC, CA. Uttam Prakash Agarwal – Past President ICAI. L-R CA. Piyush Agarwal – Treasurer CIRC, CA. Anuj Goyal – Council Member, CA. Vinay Mittal – Regional Council Member during 35th Regional Conference of CIRC Held on 28th -29th October 2014 at Birla Auditorium, Jaipur

CA. Shailendra Agarwal – Secretary Jaipur Branch, CA. Anuj Goyal – Council Member, CA. Gautam Sharma – Chairman Jaipur Branch, CA. Manoj Fadnis – Vice President ICAI, CA. K. Raghu – President ICAI, Hon'ble Minister of State, Shri Ota Ram Dewasi Ji,CA. Nitish Agarwal – Chairman CIRC, CA. Uttam Prakash Agarwal – Past President ICAI, CA. Avichal SN. Kapur – Secretary CIRC during 35th Regional Conference of CIRC Held on 28th -29th October 2014 at Birla Auditorium, Jaipur

Inauguration of 35th Regional Conference of CIRC Held on 28th -29th October 2014 at Birla Auditorium, Jaipur by CA. K. Raghu – President ICAI,CA. Manoj Fadnis – Vice President ICAI, Hon'ble Minister of State, Shri Ota Ram Dewasi Ji, CA. Nitish Agarwal – Chairman CIRC, CA. Uttam Prakash Agarwal – Past President ICAI with L-R CA. I M Sethia, CA. Avichal SN. Kapur – Secretary CIRC, CA. Gautam Sharma – Chairman Jaipur Branch, CA. Shailendra Agarwal – Secretary Jaipur Branch ,CA. Anuj Goyal – Council Member ICAI.

Inauguration of 35th Regional Conference of CIRC Held on 28th -29th October 2014 at Birla Auditorium, Jaipur. L-R CA. Avichal SN. Kapur – Secretary CIRC, CA. Uttam Prakash Agarwal – Past President ICAI,CA. Manoj Fadnis – Vice President ICAI, CA. K. Raghu – President ICAI, CA. Gautam Sharma – Chairman Jaipur Branch, CA. Shailendra Agarwal – Secretary Jaipur Branch, Hon'ble Minister of State, Shri Ota Ram Dewasi Ji, CA. Nitish Agarwal – Chairman CIRC and CA. C L Yadav – Regional Council Member

CA. Swati Bhardwaj (Female Member from ABU-ROAD) and other's participated in Marathon.

Respected Members,As Chartered Accountants we ensure that stakeholders can trust a company's numbers, and that's no small thing. Our capital markets system couldn't function without trusted, skilled

accountants and auditors. Accounting has unfairly earned a reputation as a staid profession focused on scrutinizing invoices and tallying balance sheets. But it's so much more. Our profession means understanding complex businesses—their strategies and operations—and their role in society. In practical terms this means companies and everyday people make strategic and financial decisions that affect their lives and their futures. UK's Deputy Prime Minister Nick Clegg has attributed South Asia's projected growth momentum this year to the New Government formed in India, citing the Indian Prime Minister's initiatives for boosting investment and jobs. "A huge amount of this momentum is being driven by these initiatives. He was addressing at the annual dinner event organised by the London Chamber of Commerce and Industry's Asian Business Association (ABA).The Reserve Bank of India (RBI) released final regulations related to NBFCs on requirement for capital adequacy, NPA recognition and provisioning. Big companies will now have to face higher capital norms and tighter provisions. NBFC accepting funds from the public will have to get themselves rated by March 31, 2016.The most impactful change was the much anticipated transition to 90-day NPA recognition from 180 days currently, say experts. The RBI has given a 3.5-year transition period, which is higher than expected, thus making the transition less disruptive. The regulator has also released guidelines pertaining to corporate governance, fit and proper criteria for directors, and financial disclosures norms. The Regional Conference at Jaipur on 28th and 29th

October was a great success and as you know beside every great success are the seeds of enormous efforts .You shall feel good to know that CIRC is sending Physical newsletter, e- Newsletter to Members and also the e-Newsletters to students and thus has become most communicative informative, expressive, unreserved, uninhibited, vocal, outgoing, frank, open, candid to all our Members and students amongst all other Regions of ICAI. All was possible with your support and cooperation.Firstly, I wish to congratulate CA. Nitsh Agarwal-

Chairman CIRC for his initiatives taken towards

Namami Gange project and Swachh Bharat Mission. I

appeal the Chairman & all committee members of

branches and also the Ex-Officio members to kindly

make the two missions a great success and make this

noble and pious work, a common goal for all of us. I

congratulate CA. Avichal SN Kapur-Secretray CIRC,

CA. Piyush Agrawal - Treasurer CIRC, CA. C.L. Yadav -

RCM & CA. Manish Borad - RCM for their special

contribution to the 35th Regional conference of CIRC

held at Jaipur. I wish good luck to the management

committee of Ranchi branch & Bilaspur branch for

upcoming National convention for CA students. I also

wish CA. Students good luck for their ongoing

Examinations. I request members to contribute article to CIRC

NEWSLETTER/CIRC E-NEWSLETTER & CIRC STUDENTS

E- NEWLETTER, which is a regular exercise to

accomplish the task of achieving complete

communication between CIRC & CIRC members and

the latest information in various fields of interest to

the CA Profession in general.Warm regards.

Form Editors - Desk

CA. Vinay Mittal, Regional Council Member &

Editor CIRC NewsletterMobile : +91-9910691575/ 9310556351

Email: vncgzb@gmail.com

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Recently, Delhi High Court in a writ petition in the matter of “Zaheer Mauritius V/s DIT (International Taxation” W.P. (C) 1648/2013 & CM NO. 3105/2013 set-aside the order

of Authority of Advance Ruling (AAR) in which, AAR held that profit and gain arising from transfer of Compulsory Convertible Debentures (CCDs) is Interest within the meaning of section 2(28A) of the Income Tax Act, 1961 and therefore can’t be taxed as Capital Gain income, the same is liable to tax in India as interest income under Article 11 of the India Mauritius Tax Treaty (DTAA). In this regard, Hon’ble Delhi High Court ruled that gain arising from transfer of CCDs is purely a capital in nature subject to that transferred assets was kept as Capital Asset, therefore same will be exempt from tax under Article 13 of India Mauritius DTAA.

Facts of the Case:

In the present case, Zaheer Mauritius Limited i.e. Appellant Company is Mauritian Company and engaged in the business of investment into other companies whose core business activities were construction and development of real estate projects. Vatika Limited, which is an Indian Company having land which has been reserved for being developed as Cyber Park to be used as IT enabled services and software development activities as per the provision of Notification No. CCP (NCR)/GDP-III/2001/155 dated 30.07.2011 and for the purpose of development of said land as Cyber Park, Vatika Limited formed a company namely SH Tech Park Developers Private Limited as a JV Company, which was 100% subsidiary company of Vatika Limited.

Appellant company entered into a Securities Subscription Agreement (SSA) and Shareholder Agreement (SHA) with Indian Company i.e. Vatika Limited and JV Company i.e. 100% subsidiary company

NO TAX ON EXIT OPTION- IS THIS END OF CONTROVERSIES??

CA. Nipun Singhvinipunsinghvi@yahoo.com

of Vatika Limited SH Tech Park Developers Private Limited and acquired 35% ownership interest in JV Company, and for this purpose Vatika Limited subscribed aggregate of Rs. 100 Crore in CCDs and Equity shares of JV company, out of the total investment more than 90% was invested in CCDs.

The SHA recorded the terms of the relationship between the Appellant, Vatika and JV Company inter se rights and obligations including matters relating to transfer of equity shares, management and operations of JV Company. The said agreement also provided a CALL Option to Vatika Limited to acquire the securities during call period and if such option is exercised during call option period, Appellant Company would be entitled for value of its investment along with fixed return. Similarly a PUT Option was also given to Appellant Company to sell its investment to Vatika during put option period.

Shareholder’s Agreement (SHA) provided that if Vatika Limited exercise its call option then Appellant company would be eligible to get its value of investment plus fixed return to be calculated as per the provisions contained in SHA. Whereas, if option would be exercised after 3 years than amount payable to Appellant company would also include “Equity Component” which include amount equal to 10% of the project value. However, Put option could be exercised by Appellant Company only after 5 years of investment and in this case amount payable to Appellant company include amount equal to 10% of project value. Further, CCD will be compulsory converted into equity shares of JV Company after 6 year if no party would exercise option.

Vatika Limited exercised its call options and acquired aforesaid securities i.e. Equity as well as CCDs from Appellant Company on the price which was duly determined as per the provisions of SHA. Appellant company filed application under section 197 of the Income Tax Act, 1961 before the Income tax Officer

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requesting for “NIL” withholding tax certificate to receive consideration from Vatika, which was arise pursuant to transfer of Equity Shares and CCDs on the reasoning that said gain is capital is in nature and same is exempt under India-Maturities DTAA. However, Income Tax Officer denied the contention of Appellant and held that entire gain consist mainly appreciation in the value of CCDs and same is an interest in nature as defined in section 2(28A) of the Income Tax Act, 1961 and therefore it will be taxable as Interest Income read with Article 11 of the India-Maturities DTAA under Income tax Act by tax rate of 20% (plus surcharge and cess).

Subsequently, Appellant Company sought for Advance Ruling from the Authority of Advance Ruling (AAR) on whether gain arising on sale of CCDs and Equity Shares would be in nature of Capital Gain and hence, exempt from tax in India as per India-Mauritius DTAA.

Ruling by AUTHORITY OF ADVANCE RULING:

AAR held that, gain arising from sale of CCDs being interest in nature in within the meaning of section 2(28A) of the Income Tax Act, 1961 read with Article 11 of the India- Manutius DTAA.

AAR held that, the SHA specified a minimum fixed rate of return on the investment made by Appellant. Further, AAR viewed that the corporate veil ought to be lifted in the present case and it appeared that Vatika and JV Company were nothing where as a single entity. In such case debt owned by the JV Company was in reality Vatika’s debt and the amount received by the Appellant in excess of the investment which is fixed return as specified in the SHA nothing but “interest” as paid by Vatika for borrowed funds from Appellant Company. Thus, it may be concluded that, entire transaction was structured in manner as investment into equity and CCDs to avoid the incidence of tax.

Contention of Appellant Company before Hon’ble Delhi High Court:

Appellant Company challenged impugned order of AAR under Article 226 of Constitution of India. Appellant Company contented before Hon’ble Delhi High Court that AAR failed to interpret the law. There is no debtor and borrower relationship between

Appellant Company and Vatika Limited. Further, there is investment by Appellant Company through various agreements and arrangements, so same cannot be treated as loan transaction.

Contention of Revenue before Hon’ble Delhi High Court:

Revenue contented that transaction entered into between Vatika and Appellant Company was essentially in the nature of an External Commercial Borrowing (ECB) and that was clear from structure of SHA and SSA. Further, revenue contented that in the Appellant was entitled to receive a fixed rate of return and the duration of the investment would determine the return receivable by the petitioner and thus same transaction in question must be viewed as loan transaction.

Verdict of Hon’ble Delhi Court:

a) Nature of Investment:

i) Hon’ble Court noted that, SHA and SSA provided, a call option to Vatika Limited to call upon the Appellant Company to sell its investment in JV whereas a Put option to Appellant Company to sell its investment on suo-moto at the price which would be determined as per provisions contained in SHA.

ii) Court noted that, call and put options merely options available to the contracting parties. In the present case there may be possibility that, neither of contracting party exercise the option as available to them than in such case, CCD held by Appellant Company would mandatorily be convertible into Equity Shares of JV Company.

iii) Court held that, merely because an investment agreement provides for exit options to an investor, would not change the nature of investment made. Although, the SHA enables the petitioner to exit the investment by receiving reasonable return and in that sense it is assured of a minimum return, the same cannot be read to mean that CCDs were fixed return of investment, since the petitioner also had the option to continue with its investment as an equity shareholder of the JV Company.

b) Whether single entity owing to separate control and management:

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i) AAR in its order held that, JV Company and Vatika Limited nothing but a single company and therefore Appellant Company, indirectly gave loan to Vatika Limited by subscribing CCDs of JV Company.

ii) In this regard, Hon’ble Delhi High Court after perusing of provisions contained in SHA related to board meetings, quorum, voting right, related party transaction, auditor’s appointments etc. rejected the finding of AAR. Hon’ble High Court of Delhi noted that SHA provided that Appellant was entitled to nominate 2 directors whereas Vatika Limited was entitled to nominate three directors on the board of JV Company. Further, SHA provided that at least one director nominated by the Appellant Company and one director nominated by Vatika Limited be present for constituting a valid quorum. Therefore, all decisions that were considered important required the consent of both i.e. Appellant as well as Vatika Limited.

Further, Court noted that SHA also provided detailed guidelines of voting where there is conflict of interest of any of the contracting party. Along with this article 8 of SHA also recorded that all the transactions with the related parties would be conducted on at Arm’s Length Price.

iii) Therefore, Hon’ble High Court concluded that All the clauses clearly indicates that the affairs of the JV Company were to be managed independent of Vatika Limited and therefore in no case it can be conclude that both the companies were working as single entity.

c) Whether there is tax evasion or not:

i) AAR in the present case held that, entire transaction was structured as a investment into equity and CCDs of JV Company in order to avoid the incidence of tax. In this regard, Hon’ble High Court of Delhi looked out Foreign Direct Investment (FDI) norms in this regard.

ii) Court noted that FDI is permitted in the real estate sector, provided that certain mandatory conditions are met. In this regard, court relied on Press Note 2 of 2005 issued by the Department of Industrial Policy and Promotion which provides 100% FDI under the automatic route has allowed for investment in township, housing, built up infrastructure and

construction development projects subject to the as specified in said Press Note. Further court also relied on Circular no. 74 dated 08.06.2007 issued by Reserve Bank of India (RBI) which provided that an instrument which is fully and mandatorily convertible into equity share within specified time would be reckoned as part of equity under the FDI Policy.

iii) In consideration of the above court ruled that, in terms of the policy of the Government, the petitioner could invest in a project of requisite size and therefore investment in CCD would be reckoned as equity. The policy with regard to external commercial borrowings had other conditions and it is apparent that the petitioner found the investment in CCDs as the most appropriate route for making its investment in real estate, in accordance with policy of Government of India. In these circumstances, it ought not to be readily inferred that the entire structure of the transaction was designed solely for the purpose of tax avoidance.

iv) Further, court also considered that if whole transaction is treated as sham transaction and gain will consider as payment of interest by Vatika Limited than same will be a deductible expenditure in the hands of Vatika. Therefore from this perspective also, it would not conclude that whole transaction had been structured to avoidance of tax on Income.

d) Whether the resultant gain is interest or Capital Gain:

i) Court noted that, in the present case there is no dispute on nature of Compulsorily Convertible Debentures. A debenture usually indisputably creates and recognizes the existence of a debt and till it is discharged either by payment or by conversion, the debenture would essentially represent a debt. Generally any amount payable by the issuer of debenture to the holder would usually be interest in the hands of the holder.

ii) Hon’ble high court explained that, the expression “interest” as defined under section 2(28A) if the Act cannot apply to all gains that are received by a debenture holder irrespective of transaction resulting in such gain. Hon’ble High Court explained the same by example, high court mentioned that if a

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lender assign its debt to a third party and if such debt is held as capital asset, the gain or loss arising from the transaction would be capital gain in the hands of lender and not would not be treat as interest. Further, high court mentioned, it is immaterial that whether a CCDs is a loan simplicitor or in nature of equity in order to determine capital gain or not, whole depends on whether the debentures are held as capital assets or not. Where debentures are held as capital assets any gain i.e. Sale consideration minus cost of purchase, arising from transfer shall be taxable as capital gain.

iii) Further, Hon’ble High Court relied on the “look at” principle as laid down by Hon’ble Supreme Court of India in the case of Vodafone International Holdings BV v. Union of India and Anr. (2012) 6 SCC 613, where it was held that Court must look at the entire transaction as a whole and not adopt a dissecting approach.

iv) Hon’ble High Court held that that, there is sufficient commercial reason with Appellant company to route its investment in real estate project through equity and CCDs. The premature exit option, minimum return on investment as assured by SHA are clearly commercial agreements between the parties, thus this will not change the legal nature of transaction. Therefore, Court ruled that gain arising to Appellant Company on transfer of CCDs is basically a gain from Capital Assets and therefore same is capital gain and exempt from tax accordance with the provision of DTAA between India and Mauritius.

Concluding Remarks:

This land mark decision gives much clarity regarding when the ration of lifting of corporate veil can be lifted/applied and also when two entities can be consider as single entity which may be said as a principal of separation. Like the in the present case to decide whether two entities are same or not court consider shareholder agreement, securities subscription agreements, structure of board, quorum requirement, appointment of auditors, affirmatives rights on vital matters, related party transactions, arm’s length price of transactions etc.

This decision gives much clarity regarding, when debentures are held as capital assets than any

gain/loss arising from transfer of such debentures will be consider as capital gain/capital loss and not as interest income/loss. Further, this judgment of Hon’ble High Court gives a clarification on taxation of financial instrument which contain call/put option. As Hon’ble Delhi High Court laid down a principal that, mere existence of exit option (Call/Put Option) will not change the nature of investment. Further, courts also upheld that, the commercial arrangements/ agreements will be consider for taxation purpose, as in the case court laid down that, where if assessee have options to invest money by way ECB or by way of Equity and assessee opts options which is more tax friendly for him, than it can-not be said that, structure was designed to avoid tax.

As this ruling came before the introduction of General Anti Avoidance Rules (GAAR). Chapter X-A of Income Tax Act, 1961 which will deal with GAAR provisions, which will schedule to be implemented from April, 2015. As section 98(2) of the Income Tax Act, 1961empowers the Revenue Authorities to treat equity as debt or vice versa, if an arrangement is declared to be an “impermissible avoidance arrangement”. Thus this ruling reiterates the importance of structuring transactions with commercial substance and purpose, as the courts will likely to uphold agreements or arrangements only after examining of substance test.

However, to put at rest the stir created by such ruling, concrete clarification from the Legislature or the final word from the Apex Court in the near future is need of the hour.

About the Author:

Author is Chartered Accountant, Company Secretary and LLB qualified person. Presently, practicing as a Chartered Accountant as Associate with Chir Amrit Legal LLP. Author’s core area of working is Direct Taxation including International Taxation. He regularly appears before various judicial and quasi judicial authorities which includes ITSC, ITAT, CESTAT etc.

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CA. Megha Aroracameghaarora26@gmail.com

VAT PROBLEMS IN E COMMERCE TRANSACTION

VAT Problems In E – commerce transaction – Amazon's

Karnataka Case Study (A Potential Noscitur principle

issue)

E – commerce transactions in India are gaining

popularity at the very fast pace majorly due to its

Attributes of ease of shopping ,good discounts social

media integration , cash on delivery mode of payment

etc. the industry is all set to grow and beat the records

considering the recent show of strength of several E –

Commerce companies of India Inc in there capability

to raise funds as well.

The fact that the domain of E – commerce is so new

and upbeat there may be several laws that were

essentially made to govern the conventional sales and

purchase system which are required to made upbeat

or atleast clarified by revenue authorities /judiciary to

ensure that this richly growing industry is certain in

terms of taxation .

One such case of tax hurdle has recently cropped in

case of Amazon in Karnataka .before we proceed with

the legal discussion the fact are important .

E – commerce transaction – Types

E- commerce transactions in India can be of several

natures . two well know are as under.

A. It may be a case where an E – com company may

buy the products in bulk in discount and then sell

the same at cheaper price by the help of its online

E-commerce platforms.

Though this is not a general model considering

the cost and working capital pressure that may be

involved.

B. The other method which is more popular and

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frequently adopted method is to act as platform

facilitator between the sellers and the buyers in

this model. E –com company does not customers

who log on the e – com company's platform.

Importantly, the e – com company charges

commission /delivery charges and undertakes to

perform packing and marketing /delivery of the

goods to the customer obviously, the invoices are

made at the end of independent sellers directly to

the customers.

KEY NOTE :- crucially in order to ensure quick

availability of product with E-commerce company

these sellers are required to amend their registration

to include the space/premise with E-com company as

Additional place of business (if already registered with

main office ') based on rent /lease /service agreement

entered into between the sellers E-commerce

company in Delhi it is undertaken by amendment filed

with DVAT department in DVAT -07

From this premise of E-com company then all the

goods are gathered processed /packed and sent for

delivery to the customers either independently or vide

dedicated courier agencies.

Issue

As reported by several leading business times it is

learnt that the issue mainly arisen in case of e-

commerce companies that undertake storage of goods

procured from various sellers in their warehouse

before dispatching them to the respective buyers. It

appears that Karnataka VAT authorities are the view

that in such cases the e-commerce companies are

involved in supplying and distribution of goods and.

There fore would quality as dealers . the authorities

are also of the view that these companies act as

commission agents or consignment agents of sellers

therefore . these companies are covered under the

definition of dealers and therefore are liable to

discharge VAT.

The terms dealer is defined under section 2(12) of the

Karnataka value Added tax Act, 2005 as under

(relevant portions only)

'Dealer' means any persons who carries on the

business of buying , selling, supplying or distributing

goods. Directly or otherwise whether for case or for

deferred payment or for commission remuneration or

other valuable consideration .and includes –

(C) a commission agent , a broker or del credere

agent or an auctioneer or any other mercantile

agent by whatever name called .who carries on

the business of buying ,selling supplying or

distributing goods on behalf of any principal;

KEY NOTE :- similar provisions may exist in most of the

states in regard to the definition of dealer and this fact

can raise serious concerns in regards taxability in all

states on e-commerce industry if the matter is not

expeditiously addressed by the revenue authorities in

Delhi (unlike Haryana) incidentally ,section 2 (1) (i). do

not refer to supplying or distributing in the main part

of the definition though portion relating to

commissions agent is similar even in Delhi.

Further, the authorities in Karnataka are insisting that

e –commerce companies register their premises

/warehouse and undertake other compliances like

maintenance of statutory records and filling of returns

“the tax authorities do have a point when they

question how so many vendors have registered the

Amazon warehouse as an additional place of business

even if there is no rule capping the number of vendors

that can declare a particular place as an additional

place of business ,the spirit of the law would suggest

that such a registration be backed by some staff

infrastructure and so on “-financial express

Legal Discussion

Four key points:

a. It is learnt that in the current matter ,advance

dated august 24 2012in case of Amazon seller

services was obtained where in the authority held

that Amazon is providing an online retail

distribution channel and that associated logistical

services ,thus , it was held that Amazon is clearly a

services provider .

b. Karnataka VAT authorities may need to consider

that without even first going in the aspect of who is

dealer and who is not, it is essential that the

incidence and taxable event must exist to tax such

a transaction taxable event is sale/purchase

c. Thirdly, the whole issue gains force on the

assumption /hypothesis that e-commerce

company act as 'agent' the e-commerce

companies provide service on principle to

principle basis to the seller and not as agent of the

sellers as per section 182of the Indian contract act

an agent means “a person employed to do any act

for another or to represent another or to represent

another in dealing with third persons “. Clearly .in

the present case e-commerce companies are not

engaged in sale of goods behalf of the principle

they only provide a portal which enables the buyer

to meet the sellers thereafter provide logistic

services to the sellers to ensure that the goods are

delivered to the buyer

d. Noscitur principle despite this it is crucial to

understand that the Karnataka VAT authorities

may push to consider the e-commerce companies

there in as dealers without the definition of agent

since the dealer itself covers the activity of

supplying /distributing the goods for any valuable

consideration.

But the Karnataka VAT authorities may have

overlooked is the noscitur principle which has used

in catena of judgments to identify the harmonious

law applicable to the transaction

In above the case ,the word 'supply' and

distributing should be interpreted in light of

noscitur a socil several case law might be resorted

by the e-commerce companies .

a. CIT Bangalore v BC Srinivasa Shetty 1981 (2)

SCC 460

b. M/s Bhayana builders (P) Ltd. &Other versus

CST Delhi &other 2013 (32) S.T.R.49(triLB) etc

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Guidelines for authors The Institute of Chartered Accountants of India is a statutory body established under the Chartered Accountants Act, 1949 for regulation, monitoring and uplift of Accountancy profession in India. During its more than 64 years of existence, the Institute has achieved recognition as a premier accounting body in the country for its contribution in the fields of education, professional development, maintenance of high accounting, auditing and ethical standards. As part of a range of services to more than 37,000 members of CIRC, the Institute publishes a prestigious monthly Physical and e-Newsletter for Members.The focus of the Newsletter is to enhance the knowledge base of its readers and to keep them updated of the latest developments in all the spheres of Accountancy profession, allied professions, banking, technology, industry, commerce and overall economy, primarily in Indian context. Theme and features: Every issue of the journal focuses on a different but topical ‘theme issue’ in addition to other regular sections/features including ‘Accounting’, ‘Auditing’, ‘Taxation’, ‘Corporate and Allied Laws’, ‘Corporate Governance’ ‘Banking & Finance’, ‘Career’, ‘Economy’, ‘Information Technology’, ‘Legal Update’, ‘Health’, ‘Back Page’, etcSELECTION OF ARTICLESThe articles received from the authors are generally sent for vetting and review to the experts, mostly from among the Editorial Board members, or as per the decision of the Editorial Board to assess the technical aspect and areas of improvements/changes, if any, in the article. However, the final decision about publication of the article is taken by Editorial Board, which is headed by

Invitation to Contribute Articles in CIRC Newsletter & e- Newsletter for Members & e-Newsletter for the CA Students.

CA. Vinay Mittal, Regional Council Member &

Editor CIRC NewsletterMobile : +91-9910691575/ 9310556351

Email: vncgzb@gmail.com

CA. Nitish Agarwal, Chairman CIRC &

Chief Editor Circ NewsletterMobile : +91-9414153796

Email:canitishagarwal@yahoo.com

WHERE TO SENDThe article can be sent to by e-mail at

shailendra.saxena@icai.in or circ@icai.in

The articles sent for publication in the Newsletter should confirm to the following parameters, which are crucial in selection of the article for publication:Originality:The article should be original, Relevance/Usefulness: The article should be:-Relevant to a significant number of CAs and allied professionalsContribute towards development of practice of professionals. Practicality:The article should be of practical value to the CAs Topicality:The article should be topical and should discuss a matter of current interest to the professionals/readers. Interest: The article should have the potential to stimulate a healthy debate among professionals.Technical Soundness:The article should be technically correct and sound.Word limit: The length of the article should be 1500-3000 words in WORD FORMAT ONLY.

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CA. Shweta Agarwald15_shweta@yahoo.co.in

New Companies Act, 2013 : Requirnment to undertake Corporate Social Responsibility introduced as per companies act,2013 and MCA has also notified the Companies (Corporate Social Responsibility Policy) Rules, 2014 to be effective from 1st April 2014

APPOINMENT OF CSR Committee :

Composition of CSR Committee :

Functions of CSR Committee :

CSR Policy :

Ÿ Following Company(Public companies and private companies) should required to constitute CSR committee

if beyond the thresholds limit :

Ÿ Net worth of Rs.500 crore or more; or

Ÿ Turnover of Rs.1000 crore or more; or

Ÿ Net profit of Rs. 5 crore or more during any financial year.

The Board of every company referred above shall ensure that the company spends, in every financial year, at

least two per cent of the net profits of the company made during the three immediately preceding financial

years in pursuance of its CSR policy (preference to local areas for spending the amount),and if company fails

to spend such amount, the Board have to mention it in their report with reasons u/s 134(3).

Ÿ The CSR committee shall consist of three or more directors, out which one director shall be an independent

director

Ÿ The composition of such Corporate Social Responsibility Committee shall have to be disclosed in the Board's

Report as required under Section 134(4).

Ÿ An unlisted public company or a private company which is not required to appoint an independent director shall have its CSR Committee without independent director.

Ÿ A private company having only two directors on its Board shall constitute its CSR Committee with two such directors.

Ÿ With respect of foreign company, the CSR Committee shall comprise of at least two persons of which one person resident in India and another person shall be nominated by the foreign company.

Ÿ Formulate and recommend to the Board, a Corporate Social Responsibility Policy which indicate the activities to be undertaken by the company as specified in Schedule VII of the Act.

Ÿ Initiate a CSR Policy, which shall stipulate how, where, and when they want to invest their funds with respect to this requirement

Ÿ Recommend the amount of expenditure to be incurred on the activities . Ÿ Monitor the implementation of the CSR policy from time to time.

CSR policy includes the following :Ÿ A list of CSR projects or programs which a company plans to undertake falling within the purview of the

Schedule VII of the Act, specifying execution and implementation schedule for the same; Ÿ Monitoring process of such projects or programs.Ÿ The CSR Policy of the company shall specify that the surplus arising out of the CSR projects or programs or

activities shall not form part of business profit of a company. ANIES

REQUIRNMENT OF CSR :

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CSR Activity by following companies

NESTLE - Moga Milk FactoryThe Company started milk collection in Moga in 1961 with a collection of 511 Kgs of milk from 180 farmers. Nestlé Agricultural Services has used the experience gained by Nestlé across the world to set up a system of direct and efficient contact with the farmers. Company veterinarians and agronomists supervise the milk routes and advise farmers on various issues including proper feed for the herds. Milk storage facilities have been set up close to the farmers. Veterinary services are provided free, and medicines provided at wholesale cost. The company assists farmers in artificial insemination programs for their cattle, provides subsidy and helps them in procuring loans. By working very closely with the farmers of the Moga Milk District and local administrators, Nestlé has helped to raise the quality and hygiene of the milk produced there and improve the health and life style of the farmers and other residents. Its contribution to the creation of prosperity on an on-going and sustainable basis has not only transformed Moga into a prosperous and vibrant milk district today, but also a thriving hub of industrial activity.

CSR Expenditure :

CSR Reporting :

CSR expenditure shall include all expenditure including contribution to corpus for projects or programs relating to CSR activities approved by the Board on the recommendation of its CSR Committee, but does not include any expenditure on an item not in conformity or not in line with activities which falls within the purview of Schedule VII of the Act.

Ÿ The Board's Report of a company covered under these companies rules 2014 pertaining to a financial year commencing on or after the 1st day of April, 2014 shall include an annual report on CSR containing particulars specified inAnnexure.

Ÿ In case of a foreign company, the balance sheet filed under sub-clause (1) of sub-section 1 of section 381 shall contain an Annexure regarding report on CSR

Members are modestly requested to Voluntarily participate in the NAMAMI GANGA PROJECT

( INTEGRATED GANGA CONSERVATION MISSION).

Specially Members who are close to the CITIES LIKE ALLAHABAD, PATNA, VARANASI & HARDWAR. We have already initiated for the cleaning of one of the biggest Ghat namely SARSAIYA GHAT at Kanpur.Although huge progress is being made, the need of the hour is to widen our focus. This task in itself is of mammoth proportions. However, by taking small steps, we can still reduce the pollution load and restore the river to the people.Even though the task of cleaning the Ganga is a daunting one, significant strides can be made toward achieving this.

CA. Nitish Agarwal,Chairman CIRC & Chief Editor Circ NewsletterMobile : +91-9414153796Email:canitishagarwal@yahoo.com

APPEAL

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Members are modestly requested to Voluntarily participate in their respective areas with Involving Socio Commercial enterprises to make TOILETS for common public .An Ideal toilet should require the following things ( As can be seen in SULABH TOILET COMPLEXES):1. One Bore Hole. 2.Two commodes. 3.Two Bathrooms. 4.Regular maintenance and cleaning schedule.

Key advantages of flush composting toilets are :-Ÿ Hygienically and technically appropriate, and socio-culturally acceptable.Ÿ Affordable and easy to construct with locally available materials.Ÿ Design and specifications can be modified to suit the needs and affordability.Ÿ Eliminates mosquito, insect and fly breeding.Ÿ Can be constructed in different physical, geological and hydrogeological conditions.Ÿ Free from health hazards and does not pollute surface or ground water, if proper precautions and

safeguards are taken during construction.Ÿ Can be located within the premises as it is free from foul smell and fly/mosquito nuisance etc.Ÿ Maintenance is easy, simple and costs very little.Ÿ Can be easily connected to sewers when introduced in the area.Ÿ A low volume flushing cistern could be attached to avoid pour flushing.

CA. Nitish Agarwal,Chairman CIRC & Chief Editor Circ NewsletterMobile : +91-9414153796Email:canitishagarwal@yahoo.com

APPEAL

ANNOUNCEMENT

Regional Level Elocution and Quiz Contest 2014of Central India Region will be held on 11th & 12th December 2014 (Thursday & Friday) at Hotel Clark Shiraz, Mall Road, Agra Cant, Agra

Regional Level Elocution Contest

Regional Level Quiz Contest

Date: 11th December 2014 (Thursday) Date: 12

th December 2014 (Friday)

Timings: 11 AM Timings: 10 AM

Topics 1.

Consolidation of Financial Statements : ASs vs. Companies Act, 2013.

2.

Reducing Litigations in Transfer Pricing : Recent Measures. 3.

Recent Rationalization of Service Tax Exemptions.

4.

Related Party Transactions under the Companies Act, 2013 : A Step Forward.

5.

Importance of Cost Control in Competitive Business Environment.

6.

Unleashing Economic Reforms : Rise of Indian Economy.

Topics 1.

Auditing

2.

Cost Accounting,FM,AMA

3.

Economics

4.

Law

5.

Accounting

6.

Direct Taxes

7.

Indirect Taxes

8.

Information Technology

Eligibility

for Regional Elocution and Quiz Contest

2014: Winners of Branch Level Elocution and Quiz Contest 2014

(as per guidelines of Board of Studies, ICAI

-

BOS/Elo.Cnts/2014

)

For Further details

please contact

Branch Coordinator for Regional Level Elocution and Quiz Contest 2014 at Agra

CA. Alok Agarwal

Executive Member, Agra Branch of CIRC of ICAI

Mobile No. : 9997165253; Email id: alokca2004@gmail.com

Agra Branch of CIRC of ICAI,Block No. 77/8, First Floor, M. K. Tower, Sanjay Place , AGRA-

282002Phone : 0562- 4040598, 2856598, 9258338586

E-Mail : icaiagra@gmail.com

CIRC of ICAI16/77 B Civil Lines, Kanpur – 208001

Phone : 0512 3011181, 3011156Email : circ@icai.in

CA. Nitish Agarwal

Chairman CIRC Mob: 9414153796

CA. Umesh Garg

Regional Council Member (M) 9837020285

CA S. K. BajpaiChairman, Agra Branch of CIRC

(M) 09319104191

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14

ANNOUNCEMENT

Notice regarding Re-Registration of Master in Business Finance Certificate Course. - (02-11-2014)Re-registration for MBF CourseThe Committee on Management Accounting has decided for re-registration of Master in Business Finance Certificate Course for the members who registered themselves for the course before three years i.e before September 2011 but did not complete the same. This is for the purpose of bringing the members in the fold of updated curriculum of the course, making them live with various related activities of the Committee and streamlining the regular flow of information to them. For this, the concerned members are requested to apply through Re-registration form within 31st December 2014. The member who did make only part payment through installments are required to pay the differential amount of registration fees i.e difference between current registration fees of Rs 30,000 and fees already paid by the member on this account. The fees is to be paid by DD or cheque in favour of “The Secretary, ICAI” payable at Delhi. If a member does not respond to this option within the specified date as indicated above, it will be construed that he/she is not interested to continue the course and his/her registration will be cancelled.Re-registration form is downloadable from the website: www.icai.org. or Please use the following link:http://220.227.161.86/35308reregformmbfcc.pdf Re-registration form with fees, if any, may be sent to:

The Secretary,Committee on Management Accounting,ICAI Bhawan,3rd floor, Administration Block,A-29, Sector 62,Noida-201309

Re-Registration of Master in Business Finance Certificate Course.

CIRC CRICKET TOURNAMENT 2014, BHOPAL

Bhopal the capital city of the State of Madhya Pradesh, popularly known as the City of Lakes, is the fascinating amalgam of scenic beauty, old historic city and modern urban planning. Bhopal is playing host for the prestigious annual cricket event of the Central Region namely the Bhopal being easily accessible from all the corners of the country and the hospitality of the organisers has ensured tremendous response for all the events organised by the Bhopal Branch of the ICAI. The Tournament shall be played over a period of 4 days, at various lush green grounds spread across the city, from 18th December to 21st December,2014. Seven Thrilling teams from various States of the Central Region, apart from the host Branch, shall be participating in Four Fascinating Days of Cricket and Entertainment. Bhopal Branch of the Institute takes this opportunity to welcome you all to be witness to the grand sporting event of the year and also feel the hospitality of the organisers from the city of lakes. Venue and Place of stay are as under :

For any enquiries and further information in respect of this grand sporting event, contact the Bhopal Branch of ICAI (CIRC), 148, Zone II, MP Nagar, Bhopal, Phone No. 0755-2558066.

CIRC Cricket Tournament, 2014.

Venue: BHEL Sports Club Ground and old Campion Ground.Place of Stay: Vrindavan Garden, NH12, hoshangabad road, Bhopal – 462039

CA Nitish AgarwalChairman (CIRC)

09414153796

CA Abhay ChhajedVice-Chairman (CIRC)

09009044477

CA Nitin ParakhChairman,Bhopal Branch

09826580997

CA S. KrishnanChief Co-ordinator

09425010428

CA. Abhay Chhhajed – Vice Chairman CIRC, CA. Anuj Goyal – Council Member, CA.(Dr) Girish Ahuja – Speaker, CA. S C Jain, CA. Aseem Trivedi, CA. Manish Borad – Regional Council Member and CA. Piyush Agarwal – Treasurer during 35th Regional Conference of CIRC Held on 28th -29th October 2014 at Birla Auditorium, Jaipur

CA. Umesh Garg – Regional Council Member, CA. Vinay Mittal – Regional Council Member, CA. Ashok Batra – Speaker, CA. R K Guruwalla – Session Chairman, HH Maharao R S Bahadur – Speaker, CA. Vikas Jain – Regional Council Member during 35th Regional Conference of CIRC Held on 28th -29th October 2014 at Birla Auditorium, Jaipur

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CA. Umesh Garg- Regional Council Member, CA. Piyush Agarwal – Treasurer CIRC, CA. Vinay Mittal – Regional Council Member with audience of 35th Regional Conference of CIRC Held on 28th -29th October 2014 at Birla Auditorium, Jaipur.

Welcoming of CA. Nitish Agarwal – Chairman CIRC during 35th Regional Conference of CIRC Held on 28th -29th October 2014 at Birla Auditorium, Jaipur, in the Picture CA. Shailendra Agarwal – Secretary Jaipur Branch, CA. Anuj Goyal – Council Member CA. Gautam Sharma – Chairman Jaipur Branch, CA. Manoj Fadnis – Vice President ICAI, CA. K. Raghu – President ICAI

Welcoming of Shri Shabbir Kumar – Playback Singer by CA. Nitish Agarwal – Chairman CIRC with L-R CA. Manish Borad – Regional Council Member, CA. Vikas Jain – Regional Council Member, CA. C L Yadav – Regional Council Member, CA. Vinay Mittal – Regional Council Member, CA. Abhay Chhajed – Vice Chairman CIRC, CA. Piyush Agarwal – Treasurer CIRC, CA. Umesh Garg – Regional Council Member, CA. Mukesh Singh Kushwah – Council Member, CA. Shailendra Agarwal – Secretary Jaipur Branch, CA. Avichal SN. Kapur – Secretary CIRC with other members of profession during 35th Regional Conference of CIRC Held on 28th -29th October 2014 at Birla Auditorium, Jaipur

Inauguration of Indore Branch Member Directory by CA. K. Raghu, Hon'ble President, ICAI, CA. Manoj Fadnis, Vice President, ICAI, CA. Suresh Prabhu, Former Union Minister, CA. Anuj Goyal, Council Member, CA. Narendra Bhandari, Chairman with all Managing Committee Member of Indore Branch.

CA. Nitish Agarwal – Chairman CIRC during visit to Kishangarh Branch. In t he Pic with (L-R )CA. Abhishek Godha , CA. Harsh Jain – Treasurer Kishangarh Branch, CA. Mukul Garg – Branch CICASA Chairman, CA. Rajiv kr Inani – Branch Secretary, CA. Dharmendra Kumar Maheshwari – Chairman Kishangarh Branch, CA. C M Agarwal, CA. Jugal Kishore Rathi – Vice Chairman Kishangarh Branch, CA. Sushil Bansal – Past Chairman Kishangarh Branch, CA. Anupam agarwal, CA. Amit Agarwal

CA. Rakesh Gupta, CA. Rakesh Agarwal, CA. K K Gupta – Bharatpur Branch Chairman , CA. Nitish Agarwal – Chairman CIRC, CA. Avichal SN Kapur – Secretary CIRC, CA. Naresh Goyal, CA. Sunil Mittal – Vice Chairman kishangarh Branch, CA. Rajendra Agarwal

L-R CA. Abhay Chhajed – Vice Chairman CIRC, CA. Vinay Mittal – Regional Council Member, CA. Vikas Jain – Regional Council Member, CA. Mukesh Singh Kushwah – Council Member, CA. Shailendra Agarwal – Secretary Jaipur Branch, CA. Anuj Goyal – Council Member, CA. Gautam Sharma – Chairman Jaipur Branch, CA. Manoj Fadnis – Vice President ICAI, CA. K. Raghu – President ICAI, Hon'ble Minister of State, Shri Ota Ram Dewasi Ji, CA. Nitish Agarwal – Chairman CIRC, CA. Uttam Prakash Agarwal – Past President ICAI, CA. Avichal SN. Kapur – Secretary CIRC, CA. Umesh Garg – Regional Council Member, CA. C L Yadav – Regional Council Member during launching of CIRC Directory 2014 at 35th Regional Conference of CIRC Held on 28th -29th October 2014 at Birla Auditorium, Jaipur

PUBLISHER & PRINTER : Mr. E.P. James, Dy. Secretary on behalf of Central India Regional Council of The Institute of Chartered Accountants of India, ICAI BHAWAN, 16/77 B, Civil Lines, Kanpur - 208001 Phones : (0512) 3989398, 3011151, 3011181, 3011156; Fax No. : 0512 - 3011193 • Gram : CIRCA, Kanpur; E-mail : cro@icai.in; circ@icai.in; •Website : circ-icai.orgPrinted at M/s. SOLAR PRESS, 96/2, Chunniganj, Kanpur Phones : 3243038, 2534799; E-mail : solarknp@gmail.com

Disclaimer : The views and opinions expres or implied in this Newsletter are those of the authors and do not necessarily reflect those of CIRC of ICAI.

sed

Address : CIRC of ICAI, ICAI BHAWAN, 16/77 B, Civil Lines, Kanpur-208 001 • Phones : Chairman : 3011151 • Mr. E.P. James, Dy. Secretary : 3011153 • EPABX : (Reliance No.) 3989398 Fax : 3011193 • e-mail : circ@icai.in • Website : www.circ-icai.org

EDITORIAL BOARD :CA Nitish Agarwal Editor in ChiefCA Vinay Mittal EditorCA Anuj Goyal Council MemberCA Abhay Kumar Chhajed MemberCA Avichal Somnath Kapur MemberCA Piyush Agrawal MemberCA Vikas Jain MemberCA Rajesh Kumar Mangal Co-opted MemberCA Pawan Mittal Co-opted MemberCA Dilip Goyal Co-opted Member

R. No. 33039/Registered Misc-2/CPM/19/KPHO/18-04-2012 Valid for 2012-2014 Date of Posting 18th, 19th & 20th of This Month

If undelivered please return to :Central India Regional Council ofThe Institute of Chartered Accountants of IndiaICAI BHAWAN, Post Box No. 31416/77 B, Civil Lines, Kanpur - 208 001

L-R: CA. Avichal SN Kapur Secretary CIRC, Shri Dinesh Sharma- Mayor of Lucknow & CA. Nitish Agarwal- Chairman CIRC during Courtesy visit to The Mayor of Lucknow.

CA. Arun shrivastava – Speaker, CA. Sunil Goyal – Past President ICAI, Shri Ram Charan Bohra – Member of Parliament, CA. Nitish Agarwal – Chairman CIRC during 35th Regional Conference of CIRC Held on 28th -29th October 2014 at Birla Auditorium, Jaipur

Inauguration of 2nd day of 35th Regional Conference of CIRC, L- R CA. C L Yadav – Regional Council Member, CA Shailendra Agarwal – Secretary Jaipur Branch, CA. Abhay Chhajed – Vice Chairman CIRC, CA. Vinay Mittal – Regional Council Member, Shri Ram Charan Bohra – Member of Parliament, CA. Nitish Agarwal – Chairman CIRC, CA. Avichal SN Kapur – Secretary CIRC during 35th Regional Conference of CIRC Held on 28th -29th October 2014 at Birla Auditorium, Jaipur

Presentation of memento to Shri Ram Charan Bohra – Member of Parliament by CA. Nitish Agarwal – Chairman CIRC, CA. Gautam Sharma – Chairman Jaipur Branch, CA. Vinay Mittal –Regional Council Member, CA. Shailendra Agarwal – Secretary Jaipur Branch. On the dais CA. Akshay Gupta – Speaker, CA. Arun Srivastava – Speaker, CA. Sunil Goyal - Past President ICAI,CA. Avichal SN Kapur – Secretary CIRC and CA. Keshav Maloo – Speaker during 35th Regional Conference of CIRC Held on 28th -29th October 2014 at Birla Auditorium, Jaipur