in this issue · subscription for the financial year 2013-14 is ` 400/-. single copy (if available)...

Ahmedabad Chartered Accountants Journal November, 2013 433

Journal CommitteeCA. Rajni M. Shah CA. Ashok C. Kataria

Chairman ConvenorMembers

CA. Bharat C. Mehta CA. Hemant N. Shah CA. Jayesh C. SharedalalCA. Shailesh C. Shah CA. Yogi K. Upadhyaya

CA. Prakash B. Sheth [President (Ex-Officio)] CA. Chintan M. Doshi [Hon. Secretary (Ex-Officio)]

Volume : 37 Part : 08 November, 2013

In this issue

E-mail : [email protected] Website : www.caa-ahm.org

Contents Author's Name Page No.Editor's Views CA. Rajni M. Shah 435

President's Message CA. Prakash B. Sheth 437

Art ic les :New Companies Act, 2013 : Part - III CA. Naveen Mandovara 438

Making Sense of the Senseless Shutdown Mr. Rustom Hafez Dalal 444

A Study on Section 35 (2AB) of the CA. Jainand Vyas 447Income Tax Act, 1961

Columns :

Glimpses of Supreme Court Rulings Advocate Samir N. Divatia 451

From the Courts CA. C. R. Sharedalal & 452CA. J. C. Sharedalal

Tribunal News CA. Yogesh G. Shah & 454CA. Aparna Parelkar

Unreported Judgements CA. Sanjay R. Shah 458

Controversies CA. Kaushik D. Shah 460

Judicial Analysis Advocate Tushar P. Hemani 463

Sta t u te Up date

(a) Service Tax Judgements CA. Ashwin H. Shah 465

(b) Fema Update CA. Savan A. Godiawala 466

(c) Value Added Tax CA. Bihari B. Shah 468

(d) Corporate Laws CA. Naveen Mandovara 471

(e) Circulars & Notifications CA. Kunal A. Shah 474

From Published Accounts CA. Pamil H. Shah 475

News Lounge Mr. Manthan Khokhani 478

Association News CA. Chintan M. Doshi & 480CA. Abhishek J. Jain

Updates from ICAI CA. Uday I. Shah 449

Ahmedabad Chartered Accountants Journal

Ahmedabad Chartered Accountants Journal November, 2013434

AttentionMembers / Subscribers / Authors / Contributors

1. Journals are carefully posted. If not received, you are requested to write to the Association's Office withinone month. A copy of the Journal would be sent, if extra copies are available.

2. You are requested to intimate change of address to the Association's Office.

3. Subscription for the Financial Year 2013-14 is ` 400/-. Single Copy (if available) ` 40/-.

4. Please mention your membership number / journal subscription number in all your correspondence.

5. While sending Articles for this Journal, please confirm that the same are not published / not even meantfor publishing elsewhere. No correspondence will be made in respect of Articles not accepted forpublication, nor will they be sent back.

6. The opinions, views, statements, results published in this Journal are of the respective authors / contributorsand Chartered Accountants Association, Ahmedabad is neither responsible for the same nor does itnecessarily concur with the authors / contributors.

7. Membership Fees (For ICAI Members)

Life Membership ` 7500/-

Entrance Fees ` 500/-

Ordinary Membership Fees for the year 2013-14 ` 600/- / ` 750/-

Financial Year : April to March

Published ByCA. Rajni M. Shah,on behalf of Chartered Accountants Association, Ahmedabad, 1st Floor, C. U. Shah Chambers, Near GujaratVidhyapith, Ashram Road, Ahmedabad - 380 014.Phone : 91 79 27544232Fax : 91 79 27545442

No part of this Publication shall be reproduced or transmitted in any form or by any means without thepermission in writing from the Chartered Accountants Association, Ahmedabad.

While every effort has been made to ensure accuracy of information contained in this Journal, the Publisheris not responsible for any error that may have arisen.

Professional AwardsThe best articles published in this Journal in the categories of 'Direct Taxes', 'Company Law and Auditing' and'Allied Laws and Others' will be awarded the Trophies/ Certificates of Appreciation after being vetted byexperts in the profession.

Articles and reading literatures are invited from members as well as from other professional colleagues.

Printed : Pratiksha PrinterM-2 Hasubhai Chambers, Near Town Hall, Ellisbridge, Ahmedabad - 380 006.

Mobile : 98252 62512 E-mail : [email protected]


ALL IS NOT BAD, IF NOT WELL

‘Sensex rises to all-time high, beating 2008 record’ .Just while this editorial is being drafted, the newsscreens flashed the above and a sense of animation lighted up. People all over the map have experienced afeeling of rejoice far away from the hurly burly of politics, incessant blame games, the careening economy andthe electoral pass off.

We all have been surrounded by the crunch of inflation, corruption and what not. The markets crashing day inand day out and the currency falling to new lows is what we have had for the breakfast each day. Withelections around, we keep on watching old faces throwing new terminologies for media’s consumption ornew faces who keep on using the old time tested formulas leaving us amused to watch the new equations,new alliances, new divorces, new theories and ploys all for the age old game of ‘Vote Snatching’.

Undoubtedly, it is simply undeniable and unquestionable that though India is passing through one of its bumpyand shaggy chapters, yet this is not an end. As the caption suggests All is not bad if not well.

Adoption of a positive attitude would aid in understanding that every situation is not a headache or dilemma.All it requires is a better headset and a frame of mind. The intention is to bethink on all the positive events thatare round the corner which would rejuvenate and revitalize our animated lives, this festive season.

The winter has started to come across with its chill and frost. The winter GOD which arrives with the festival ofDiwali provide a feeling of comfort to the populace. By the time this piece would be out, the New Year wouldhave commenced replenishing the vigor and cheerfulness in our lives, filling it with liveliness and zest.

To add to the elation, the Indian Rupee has once and for all started to gain its momentum. In one of theprevious issues, Your Editor had remarked that the Rupee has started to compete with the age of its Master.However, the present circumstances are gladly proving the statement wrong and Rupee has finally received anew Master, Mr. Rajan who has proved to be quite a better fortune for the Nation. Let’s hope this continues inthe future, thereby helping India to gain its lost position in the International Arena.

Suddenly, there is visible buoyancy in the economy. Sensex is up, Nifty is upward, Real estate prices have startedreversing trend going north. This is a crucial time in history when the world is melting down, super powershaving super struggles and amidst all of that India has an opportunity to emerge as an economic power.

It has also been remarked by many, that the interest of the common men in active politics has been augmenting.With the General Elections round the corner, people have started to become aware of the general politicalenvironment of the Nation, thanks to the active campaigning by the political leaders and the birth of a newpolitical movement. The elections have brought the government to face the present situations that have evolveddue to bad governance. AT the same time , the general elections have forced the government to adopt peoplefriendly measures (Look at the Food Security Bill or the reforms relating to land). No matter how these reformstake place and with what motive in mind, it is for the benefit of the Nation.

Further, almost everyone would be enjoying a rest and time off free from work pressure and stress of theprofessional life. No deadlines, no meetings and no work.

The tourism industry would be experiencing new highs as people are traveling the unexplored places andtaking some time out to breathe some fresh air free from hustle and bustle of the hectic city and enjoy theNature’s beauty. Spending a quality time with the family will help to add a new sense of energy, preparingourselves for the post-rest hectic life.

Also, the Indian Cricket team has been back on the winning ways, a team jam packed with young talent(Perhaps what we need in our political system). The yesteryear’s champions would be on their toes for the

Editor's Views


Editor's Views

forthcoming T 20 World Cup which is on anvil in 2014. The country is on a grand move to say a GOOD BYE toGOD OF CRICKET, Sachin. An era of sport is over and people will cherish the memories of last 24 years of thislittle master.

Taking a slight break from this festive and jolly reading, Your Editor wants to bring it to notice the graveworriment of corruption. Not only CWG or 2G or coal scam even paying Rs. 50 for reservation of railwaytickets, the worm remains the same. If there are no graft givers, then how can the bribe takers exist? The ballis in our court right now. This New Year let us all resolve to refrain ourselves from offering bribes, no matterhow it damages our interest. If we do this, we would have won half the battle and we can all proudly done theAnna Cap (Virtually) and any failure in doing so, we don’t have the moral right to even touch the same.

Wishing you all peacefully bright future a head

CA. Rajni M. [email protected]

❉ ❉ ❉

To the Editor

To,Editor,Ahmedabad Chartered Accountants Journal,Chartered Accountants Association,Ahmedabad.

Dear Rajni Shah,

Kindly accept my hearty Congratulations for giving new shape to our Journal by all means i.e.simple and sober title, write up, font of letters, articles and columns with index. My personalcompliments to you for your Editor’s View which is effective and meaningful. Of course I am latefor compliment but better late than never.

I have also observed that every month the journal is received regularly i.e. in the month itself.

Please keep it up. Sky is the limit.

CA. Ajit C. Shah

Past President - CAA

From CA. Hemant N. Shah (Via Text Messege)

Dear Rajni Shah and your team

I found your views in Editorial of our Journal of September 2013 issue very bold for which youdeserve to be complimented by every Chartered Accountant. All CA professionals must demonstrateunity towards matters concerning the profession.

BRAVO AND KUDOS

CA. Hemant N. Shah


Dear Professional Colleague,

Happy Diwali!

Wish you all a very happy Diwali and a prosperous newyear. May this festival of lights bring all the happinessand great joy in your life. Most of the members wouldhave enjoyed the small Diwali vacation and got alongwith the professional practice. At last CBDT has givenrelief by extending due date from 30th September to 31st

October in case of tax audit assessees. After the tax auditreturns, it is the time gear up for the returns and reportsof the assessees covered by the transfer pricing provisionsand newly introduced Specified Domestic Transfer Pricingprovisions are also to be complied with from this year.More over this is the time of the year where many of ourprofessional friends are busy at the Income Tax officeswith the assessing officers attending scrutiny assessments.The Association recently organized a program onDomestic Transfer Pricing considering the importance ofthe topic at this point of time and also a study circlemeeting on the topic of Service Tax.

Representations made by the Association beforevarious Authorities

In the month of October the office bearers of theAssociation along with the Chairman of Legal andRepresentation Committee, State Government, had ameeting with Registrar of Co-op. Societies and maderepresentation on various problems and issues of themembers including that of the empanelment andallotment of the audit of co-operative societies. Registrarhas assured the Association that all necessary actionsrequired to be taken to address the concerns of themembers would be initiated.

Of late numerous orders u/s 201(1)/201(1A) of theIncome Tax Act are being received indicating demandsincluding the demands of earlier years where revisedreturns cannot be filed. Most of the demands reflectedin the said orders are on account of mismatch of challan.Office bearers of the Association have made therepresentation in the regard before DCIT TDS,Ahmedabad for the recourse available to members andthe taxpaying public at large.

As the President of the Association I had an opportunityalong with the presidents of other professional institutionto meet the Chief Commissioner of Income Tax I,Ahmedabad, to represent the issues being faced in dayto day practice such as notices u/s 142(1) requiring details

President's Message CA. Prakash B. [email protected]

not relevant to assessees, pressure on assessees forpayment of outstanding demands, no adjournment beinggranted even in the cases of assessment year 12-13 andvarious other issues. The Hon’ble CCIT has assured toresolve all the issues after gathering the information onreported instances.

Unnao Gold Hunt

Recently an interesting story emerged when theArcheological Survey of India (ASI) started excavationfor a treasure hunt at Unnao, Uttar Pradesh. Theastonishing part of the story is that the entire processwas undertaken by the ASI after a religious guru ShobhanSarkar dreamt of the gold reserves lying under the soil atUnnao. The excavation continued for almost a fortnightwithout any gold treasure being found. The questionarises is this the way the government agencies work?The way this UPA government has being failing on allfronts be it inflation, economic policies, combating issueslike employment, corruption, terrorism, we can only hopethat the actions of the government are not dependent ofsomeone’s dreams.

At the Association

On 12th November a Diwali get together is arranged toexchange greetings amongst the members and theirfamily members at Angan Party Plot, Satellite,Ahmedabad. For the function, a small AV has beenprepared that would showcase the “Journey of theAssociation” from its inception till today. I invite allmembers to participate in the Diwali get together andmake the event successful and a memorable one.

The redesigning of website of the Association with onlinepayment facility is almost complete and is on the stage ofimplementation. Very soon members will be able to enjoythe facility of online payment on the website and wouldbe able to save on the time and cost on coming down tothe office of the Association for various payments.

The Association is planning to organize a one dayconference on new Companies Act in the first week ofJanuary’2014 expecting that all the rules will be finalizedby the Ministry of Corporate Affairs. The details of theprogram will be made available soon.

With best regards,CA. Prakash B. ShethPresident02.11.2013

❉ ❉ ❉


Continued from last issue of the Journal for themonth of October 2013

Chapter VIII to XVI were published in last month’s issue.This issue covers Chapter XVII to Chapter XXIX.

Chapter No. Particulars

Chapter I Preliminary

Chapter II Incorporation of company and mattersincidental thereto

Chapter III Prospectus and allotment of securitiesPart-I: Public offer and; Part-II: Privateplacement

Chapter IV Share capital and debentures

Chapter V Acceptance of deposits by companies

Chapter VI Registration of charges

Chapter VII Management and administration

Chapter VIII Declaration and payment of dividend

Chapter IX Accounts of companies

Chapter X Audit and auditors

Chapter XI Appointment and qualifications ofdirectors

Chapter XII Meetings of board and its powers

Chapter XIII Appointment and remuneration ofmanagerial personnel

Chapter XIV Inspection, inquiry and investigation

Chapter XV Compromises, arrangements andamalgamations

Chapter XVI Prevention of oppression andmismanagement

Chapter XVII Registered valuers

Chapter XVIII Removal of names of companies fromthe register of companies

Chapter XIX Revival and rehabilitation of sickcompanies

Chapter XX Winding up Part-1: Winding up by theTribunal Part-2: Voluntary winding upPart-3: Provisions applicable to everymode of winding up and; Part-4:Official liquidators

Chapter XXI Part-1: Companies authorised toregister under this act and;Part-2:Winding up of unregistered companies

New Companies Act, 2013.Part - III

Chapter XXII Companies incorporated outside India

Chapter XXIII Government companies

Chapter XXIV Registration offices and fees

Chapter XXV Companies to furnish information orstatistics

Chapter XXVI Nidhis

Chapter XXVII National company law tribunal andappellate tribunal

Chapter XXVIII Special courts

Chapter XXIX Miscellaneous

CHAPTER XVII:

Valuation by registered valuers:

Where a valuation is required to be made in respect ofany property, stocks, shares, debentures, securities orgoodwill or any other assets or net worth of a companyor its liabilities under the provision of this Act, it shall bevalued by a person having such qualifications andexperience and registered as a valuer in such manner,on such terms and conditions as may be prescribed andappointed by the audit committee or in its absence bythe Board of Directors of that company.

CHAPTER XVIII:

Power of Registrar to remove name of companyfrom register of companies:

Where the Registrar has reasonable cause to believe that:

(a) a company has failed to commence its businesswithin one year of its incorporation;

(b) the subscribers to the memorandum have not paidthe subscription which they had undertaken to paywithin a period of one hundred and eighty days fromthe date of incorporation of a company and adeclaration under sub-section (1) of section 11 tothis effect has not been filed within one hundredand eighty days of its incorporation; or

(c) a company is not carrying on any business oroperation for a period of two immediately precedingfinancial years and has not made any applicationwithin such period for obtaining the status of adormant company under section 455, he shall senda notice to the company and all the directors of thecompany, of his intention to remove the name ofthe company from the register of companies and

CA. Naveen [email protected]


New Companies Act, 2013 : Part - III

requesting them to send their representations alongwith copies of the relevant documents, if any, withina period of thirty days from the date of the notice.

A company may, after extinguishing all its liabilities, bya special resolution or consent of seventy-five per centmembers in terms of paid-up share capital, file anapplication in the prescribed manner to the Registrar forremoving the name of the company from the register ofcompanies.

Any person aggrieved by an order of the Registrar,notifying a company as dissolved under section 248, mayfile an appeal to the Tribunal within a period of threeyears from the date of the order of the Registrar and ifthe Tribunal is of the opinion that the removal of thename of the company from the register of companies isnot justified in view of the absence of any of the groundson which the order was passed by the Registrar, it mayorder restoration of the name of the company in theregister of companies.

CHAPTER XIX:

Determination of sickness & revival schemes:

Where on a demand by the secured creditors of acompany representing fifty per cent or more of itsoutstanding amount of debt, the company has failed topay the debt within a period of thirty days of the serviceof the notice of demand or to secure or compound it tothe reasonable satisfaction of the creditors, any securedcreditor may file an application to the Tribunal in theprescribed manner along with the relevant evidence forsuch default, non-repayment or failure to offer securityor compound it, for a determination that the companybe declared as a sick company.

The company itself may also file an application to theTribunal.

The Tribunal shall, within a period of sixty days of thereceipt of an application, determine whether the companyis a sick company or not.

On the determination of a company as a sick companyby the Tribunal under section 253, any secured creditorof that company or the company may make anapplication to the Tribunal for the determination of themeasures that may be adopted with respect to the revivaland rehabilitation of such company;

If any reference had been made before the Tribunal anda scheme for revival and rehabilitation submitted, suchreference shall abate if the secured creditors representingthree-fourths in value of the amount outstanding againstfinancial assistance disbursed to the borrower have takenmeasures to recover their secured debt under sub-section

(4) of section 13 of the Securitisation and Reconstructionof Financial Assets and Enforcement of Security InterestAct, 2002.

On the receipt of an application under section 254, theTribunal shall, not later than seven days from such receipt:

(a) fix a date for hearing not later than ninety days fromdate of its receipt;

(b) appoint an interim administrator to convene ameeting of creditors of the company in accordancewith the provisions of section 257 to be held notlater than forty-five days from receipt of the orderof the Tribunal.

On the date of hearing fixed by the Tribunal and onconsideration of the report of the interim administratorfiled under sub-section (1) of section 256, if the Tribunalis satisfied that the creditors representing three-fourthsin value of the amount outstanding against the sickcompany present and voting have resolved that:

(a) it is not possible to revive and rehabilitate suchcompany, the Tribunal shall record such opinion andorder that the proceedings for the winding up of thecompany be initiated; or

(b) by adopting certain measures the sick company maybe revived and rehabilitated,

the Tribunal shall appoint a company administrator forthe company and cause such administrator to prepare ascheme of revival and rehabilitation of the sick company.

The interim administrator or the company administrator,as the case may be, shall be appointed by the Tribunalfrom a databank maintained by the Central Governmentor any institute or agency authorised by the CentralGovernment in a manner as may be prescribed consistingof the names of company secretaries, charteredaccountants, cost accountants and such otherprofessionals as may, by notification, be specified by theCentral Government.

The company administrator shall prepare or cause to beprepared a scheme of revival and rehabilitation of thesick company after considering the draft scheme filedalong with the application under section 254.

The scheme prepared by the company administrator undersection 261 shall be placed before the creditors of the sickcompany in a meeting convened for their approval by thecompany administrator within the period of sixty days fromhis appointment, which may be extended by the Tribunalup to a period not exceeding one hundred twenty days.

On the receipt of the scheme under sub-section (3), theTribunal shall within sixty days therefrom, after satisfying


that the scheme had been validly approved in accordancewith this section, pass an order sanctioning such scheme.

On and from the date of the coming into operation of thesanctioned scheme or any provision thereof, the schemeor such provision shall be binding on the sick companyand the transferee company or, as the case may be, theother company and also on the employees, shareholders,creditors and guarantors of the said companies.

Where it is difficult to implement the scheme for anyreason or the scheme fails due to non-implementationof obligations under the scheme by the parties concerned,the company administrator authorised to implement thescheme and where there is no such administrator, thecompany, the secured creditors, or the transfereecompany in a case of amalgamation, may make anapplication before the Tribunal for modification of thescheme or to declare the scheme as failed and that thecompany may be wound up.

Rehabilitation and Insolvency Fund:

There shall be formed a Fund to be called theRehabilitation and Insolvency Fund for the purposes ofrehabilitation, revival and liquidation of the sickcompanies.

A company which has contributed any amount to theFund shall, in the event of proceedings initiated in respectof such company under this Chapter or Chapter XX, maymake an application to the Tribunal for withdrawal offunds not exceeding the amount contributed by it, formaking payments to workmen, protecting the assets ofthe company or meeting the incidental costs duringproceedings.

CHAPTER XX:

Winding up by Tribunal:

A company may, on a petition under section 272, bewound up by the Tribunal:

(a) if the company is unable to pay its debts;

(b) if the company has, by special resolution, resolvedthat the company be wound up by the Tribunal;

(c) if the company has acted against the interests ofthe sovereignty and integrity of India, the securityof the State, friendly relations with foreign States,public order, decency or morality;

(d) if the Tribunal has ordered the winding up of thecompany under Chapter XIX;

(e) if on an application made by the Registrar or anyother person authorized by the Central Governmentby notification under this Act, the Tribunal is of the

opinion that the affairs of the company have beenconducted in a fraudulent manner or the companywas formed for fraudulent and unlawful purpose orthe persons concerned in the formation ormanagement of its affairs have been guilty of fraud,misfeasance or misconduct in connection therewithand that it is proper that the company be wound up;

(f) if the company has made a default in filing with theRegistrar its financial statements or annual returnsfor immediately preceding five consecutive financialyears; or

(g) if the Tribunal is of the opinion that it is just andequitable that the company should be wound up.

For the purposes of winding up of a company by theTribunal, the Tribunal at the time of the passing of theorder of winding up, shall appoint an Official Liquidatoror a liquidator from the panel maintained as the CompanyLiquidator and such panel shall be consisting of the namesof chartered accountants, advocates, companysecretaries, cost accountants or firms or bodies corporatehaving such chartered accountants, advocates, companysecretaries, cost accountants and such other professionalsas may be notified by the Central Government or from afirm or a body corporate of persons having a combinationof such professionals as may be prescribed and havingat least ten years’ experience in company matters.

Where the Tribunal makes an order for appointment ofprovisional liquidator or for the winding up of a company,it shall, within a period not exceeding seven days fromthe date of passing of the order, cause intimation thereofto be sent to the Company Liquidator or provisionalliquidator, as the case may be, and the Registrar.

Within three weeks from the date of passing of windingup order, the Company Liquidator shall make an applicationto the Tribunal for constitution of a winding up committeeto assist and monitor the progress of liquidation proceedingsby the Company Liquidator in carrying out the specifiedfunctions and such winding up committee shall compriseof the following persons, namely:

(i) Official Liquidator attached to the Tribunal;

(ii) nominee of secured creditors; and

(iii) a professional nominated by the Tribunal

The final report approved by the winding up committeeshall be submitted by the Company Liquidator beforethe Tribunal for passing of a dissolution order in respectof the company.

The Tribunal shall, on consideration of the report of theCompany Liquidator, fix a time limit within which the




entire proceedings shall be completed and the companybe dissolved.

The Tribunal may, while passing an order of winding upof a company, direct that there shall be, an advisorycommittee which shall consist of not more than twelvemembers, being creditors and contributories of thecompany or such other persons in such proportion as theTribunal may direct, to advise the Company Liquidatorand to report to the Tribunal on such matters as theTribunal may direct.

The Company Liquidator may, with the sanction of theTribunal, appoint one or more chartered accountants orcompany secretaries or cost accountants or legalpractitioners or such other professionals on such termsand conditions, as may be necessary, to assist him in theperformance of his duties and functions under this Act.

The Tribunal shall cause the accounts to be audited insuch manner as it thinks fit, and for the purpose of theaudit, the Company Liquidator shall furnish to the Tribunalwith such vouchers and information as the Tribunal mayrequire, and the Tribunal may, at any time, require theproduction of, and inspect, any books of account keptby the Company Liquidator.

Voluntary Winding Up:

A company may be wound up voluntarily:

(a) if the company in general meeting passes a resolutionrequiring the company to be wound up voluntarily asa result of the expiry of the period for its duration, ifany, fixed by its articles or on the occurrence of anyevent in respect of which the articles provide that thecompany should be dissolved; or

(b) if the company passes a special resolution that thecompany be wound up voluntarily.

The company in its general meeting, where a resolutionof voluntary winding up is passed, shall appoint a CompanyLiquidator from the panel prepared by the CentralGovernment for the purpose of winding up its affairs anddistributing the assets of the company and recommendthe fee to be paid to the Company Liquidator and;

If the creditors have passed the resolution for winding up,such appointment shall be effective only after it is approvedby the majority of creditors in value of the company.

Any arrangement other than the arrangement referredto in section 319 entered into between the companywhich is about to be, or is in the course of being woundup and its creditors shall be binding on the company andon the creditors if it is sanctioned by a special resolutionof the company and acceded to by the creditors who

hold three-fourths in value of the total amount due to allthe creditors of the company.

In the winding up of an insolvent company, the samerules shall prevail and be observed with regard to:

(a) debts provable;

(b) the valuation of annuities and future and contingentliabilities; and

(c) the respective rights of secured and unsecuredcreditors, as are in force for the time being underthe law of insolvency with respect to the estates ofpersons adjudged insolvent.

CHAPTER XXI:

Entities eligible for registration:

“Company” includes any partnership firm, limited liabilitypartnership, cooperative society, society or any otherbusiness entity formed under any other law for the timebeing in force which applies for registration under this Part.

With the exceptions and subject to the provisions containedin this section, any company formed, whether before orafter the commencement of this Act, in pursuance of anyAct of Parliament other than this Act or of any other lawfor the time being in force or being otherwise dulyconstituted according to law, and consisting of seven ormore members, may at any time register under this Actas an unlimited company, or as a company limited byshares, or as a company limited by guarantee, in suchmanner as may be prescribed and the registration shallnot be invalid by reason only that it has taken place witha view to the company’s being wound up.

Every company which is seeking registration under thisPart shall:

(a) ensure that secured creditors of the company, priorto its registration under this Part, have eitherconsented to or have given their no objection tocompany’s registration under this Part;

(b) publish in a newspaper, advertisement one in Englishand one in vernacular language in such form as maybe prescribed giving notice about registration underthis Part, seeking objections and address them suitably;

(c) file an affidavit, duly notarised, from all the membersor partners to provide that in the event of registrationunder this Part, necessary documents or papers shallbe submitted to the registering or other authoritywith which the company was earlier registered, forits dissolution as partnership firm, limited liabilitypartnership, cooperative society, society or any otherbusiness entity, as the case may be.


Winding up of unregistered companies:

No unregistered company shall be wound up under thisAct voluntarily and it may be wound up under thefollowing circumstances, namely:

(a) if the company is dissolved, or has ceased to carryon business, or is carrying on business only for thepurpose of winding up its affairs;

(b) if the company is unable to pay its debts;

(c) if the Tribunal is of opinion that it is just and equitablethat the company should be wound up.

Where a body corporate incorporated outside India whichhas been carrying on business in India, ceases to carryon business in India, it may be wound up as anunregistered company under this Part, notwithstandingthat the body corporate has been dissolved or otherwiseceased to exist as such under or by virtue of the laws ofthe country under which it was incorporated.

CHAPTER XXII:

Application of Act to foreign companies:

Where not less than fifty per cent of the paid-up sharecapital, whether equity or preference or partly equity andpartly preference, of a foreign company is held by one ormore citizens of India or by one or more companies orbodies corporate incorporated in India, or by one or morecitizens of India and one or more companies or bodiescorporate incorporated in India, whether singly or in theaggregate, such company shall comply with the provisionsof this Chapter and such other provisions of this Act asmay be prescribed with regard to the business carried onby it in India as if it were a company incorporated in India.

CHAPTER XXIII:

Annual reports on Government companies:

Where the Central Government is a member of aGovernment company, the Central Government shallcause an annual report on the working and affairs ofthat company to be:

(a) prepared within three months of its annual generalmeeting before which the comments given by theComptroller and Auditor-General of India and theaudit report is placed under the proviso to sub-section(6) of section 143; and

(b) as soon as may be after such preparation, laid beforeboth Houses of Parliament together with a copy ofthe audit report and comments upon or supplementto the audit report, made by the Comptroller andAuditor-General of India.

CHAPTER XXIV:

Power of Cent ra l Government to p rescr ibeelectronic forms:

The Central Government may provide in the rules madeunder section 398 and section 399 that the electronicform for the purposes specified in these sections shall beexclusive, or in the alternative or in addition to the physicalform, therefore.

Appl icabi l ity of Information Technology Act ,2000:

All the provisions of the Information Technology Act, 2000relating to the electronic records, including the mannerand format in which the electronic records shall be filed,in so far as they are not inconsistent with this Act, shallapply in relation to the records in electronic form specifiedunder section 398.

CHAPTER XXV:

Power to call for information from Companies:

The Central Government may, by order, requirecompanies generally, or any class of companies, or anycompany, to furnish such information or statistics withregard to their or its constitution or working, and withinsuch time, as may be specified in the order.

CHAPTER XXVI:

Nidhi Companies:

“Nidhi” means a company which has been incorporatedas a Nidhi with the object of cultivating the habit of thriftand savings amongst its members, receiving depositsfrom, and lending to, its members only, for their mutualbenefit, and which complies with such rules as areprescribed by the Central Government for regulation ofsuch class of companies.

CHAPTER XXVII:

Constitution of National Company Law Tribunal:

The Central Government shall, by notification, constitute,with effect from such date as may be specified therein, aTribunal to be known as the National Company LawTribunal consisting of a President and such number ofJudicial and Technical members, as the CentralGovernment may deem necessary, to be appointed by itby notification, to exercise and discharge such powers andfunctions as are, or may be, conferred on it by or underthis Act or any other law for the time being in force.

Constitution of Appellate Tribunal:

The Central Government shall, by notification, constitute,with effect from such date as may be specified therein,an Appellate Tribunal to be known as the National



Company Law Appellate Tribunal consisting of achairperson and such number of Judicial and TechnicalMembers, not exceeding eleven, as the CentralGovernment may deem fit, to be appointed by it bynotification, for hearing appeals against the orders ofthe Tribunal.

CHAPTER XXVIII:

Establishment of Special Courts:

The Central Government may, for the purpose ofproviding speedy trial of offences under this Act, bynotification, establish or designate as many Special Courtsas may be necessary.

Offences triable by Special Courts:

Notwithstanding anything contained in the Code ofCriminal Procedure, 1973:

(a) all offences under this Act shall be triable only bythe Special Court established for the area in whichthe registered office of the company in relation towhich the offence is committed or where there aremore Special Courts than one for such area, by suchone of them as may be specified in this behalf bythe High Court concerned;

(b) where a person accused of, or suspected of thecommission of, an offence under this Act is forwardedto a Magistrate under sub-section (2) or sub-section(2A) of section 167 of the Code of CriminalProcedure, 1973, such Magistrate may authorize thedetention of such person in such custody as he thinksfit for a period not exceeding fifteen days in thewhole where such Magistrate is a Judicial Magistrateand seven days in the whole where such Magistrateis an Executive Magistrate;

Provided that where such Magistrate considers thatthe detention of such person upon or before theexpiry of the period of detention is unnecessary, heshall order such person to be forwarded to the SpecialCourt having jurisdiction;

(c) the Special Court may exercise, in relation to theperson forwarded to it under clause (b), the samepower which a Magistrate having jurisdiction to trya case may exercise under section 167 of the Codeof Criminal Procedure, 1973 in relation to anaccused person who has been forwarded to himunder that section; and

(d) a Special Court may, upon perusal of the policereport of the facts constituting an offence under thisAct or upon a complaint in that behalf, takecognizance of that offence without the accused beingcommitted to it for trial.

Mediation and Conciliation Panel:

The Central Government shall maintain a panel of expertsto be called as the Mediation and Conciliation Panelconsisting of such number of experts having suchqualifications as may be prescribed for mediationbetween the parties during the pendency of anyproceedings before the Central Government or theTribunal or the Appellate Tribunal under this Act.

CHAPTER XXIX:

Misc. Provisions:

(i) “fraud” in relation to affairs of a company or anybody corporate, includes any act, omission,concealment of any fact or abuse of positioncommitted by any person or any other person withthe connivance in any manner, with intent todeceive, to gain undue advantage from, or to injurethe interests of, the company or its shareholders orits creditors or any other person, whether or not thereis any wrongful gain or wrongful loss;

(ii) “wrongful gain” means the gain by unlawfulmeans of property to which the person gaining isnot legally entitled;

(iii) “wrongful loss” means the loss by unlawful meansof property to which the person losing is legallyentitled.

Dormant company:

Where a company is formed and registered under thisAct for a future project or to hold an asset or intellectualproperty and has no significant accounting transaction,such a company or an inactive company may make anapplication to the Registrar in such manner as may beprescribed for obtaining the status of a dormant company.

“inactive company” means a company which has notbeen carrying on any business or operation, or has notmade any significant accounting transaction during thelast two financial years, or has not filed financialstatements and annual returns during the last twofinancial years;

“significant accounting transaction” means anytransaction other than:

(a) payment of fees by a company to the Registrar;

(b) payments made by it to fulfil the requirements ofthis Act or any other law;

(c) allotment of shares to fulfil the requirements of thisAct; and

(d) payments for maintenance of its office and records.

❉ ❉ ❉



“Our society is a complex web, and government is the

glue that holds it all together. You cannot just chop off

this and that or shut off parts suddenly without causingserious damage. You can’t take two tyres of a car and

drive it.” While Prof.Schmitdfrom the Iowa State

University is obviously critical of the U.S. shutdown, news

of which have taken the world by storm, his peers, residing

in the world’s fastest growing economy have writtenextensively, daresay, almost enviously, of how China’s

one-party system could never permit such radical

disagreement and open debate as is seen between the

Republicans and the Democrats.

But before we jump into the technicalities and the

consequences of the shutdown, leave alone the

probabilities of a U.S. default; let’s understand why the

story is hogging the limelight across the globe. What is a

shutdown; why has the U.S. Government, after a periodof almost 18 years,entered now the 15th day of the

shutdown; what is the A.C.A and is the tea-party really

a tea party – are all questions that need to be answered

in order to understand the gravity of the novel situation

on hand.

The U.S. political structure is in many ways like that of

India. The oldest democracy in the world - it consists of

two houses of parliament – the Senate and the House ofRepresentatives. What is however interesting to note is

that one of the principal reasons why President Obama

in his second and last term has had to deal with several

lags in the passing of bills is that the House of

Representatives, the Lower House has a majority of

Republicans-the conservatives or Tories, while theDemocrats – the liberals hold a majority in the Senate,

the Upper House.

At the heart of the entire issue is the A.C.A – AffordableCare Act, or fondly called “Obamacare” - a pejorative

term coined by Mitt Romney in 2007, signed into law

by President Barack Obama on March 23, 2010. While

the Democrats view the Act as a machinery to increase

the quality and affordability of health insurance, lowerthe uninsured rate by expanding public and private

Making Sense of theSenseless Shutdown

insurance coverage, and reduce the costs of healthcare

for individuals and the government, the Republicans have

been strongly opposing the law, believing that the law

will lead to disruption of existing health plans, increased

costs from new insurance standards, and that it will

increase the U.S. deficit. In fact, so fierce has theresistance of the Republicans to ‘Obamacare’ been, that

several of them who were voted into power in the last

elections, had campaigned on the agenda of defunding

the Act.

With the fiscal year from October to September, the U.S.

Congress needed to pass what in Indian terms would be

the Union Budget by the end of September 2013, failing

which government functions would cease immediatelyas required by the Anti-deficiency Act (except the

“essential functions” as excepted by the Act), causing

the Government to partially shut down.The Republicans

in the House, having voted over 40 times in the past to

end ‘Obamacare’ and having seen each time that the

vote had gone nowhere, sensed an opportunity at thisjuncture and hence decided, instead, to try to force the

program out of existence by attaching that as a condition

for re-funding the government.

While Marc Meadows, a freshman Republican from the

state of North Carolina, has been recognized as the

“architect” of the shutdown after orchestrating a petition

among House Republican members to force the leadership

to use the federal budget as leverage to undermine

‘Obamacare’, it is also interesting to note that he alongwith his fellow Republicans, is adequately backed by the

“Tea Party” - the “partly conservative, partly liberal,

partly populist” American decentralized political

movement that is primarily known for advocating a

reduction in the U.S. national debt and federal budgetdeficit by reducing U.S. government spending and taxes.

In fact, it is hardly a secret that the tax-exempt

organization ”Freedom Partners”, linked to the

conservative billionaires - theKoch brothers, distributed

over $200 million in 2012 to non-profit organizations

opposing the Affordable Care Act. While a few analysts,

Mr. Rustom Hafez [email protected]


Making Sense of the Sunseless Shutdown

along with President Obama,view the recent decision bythe Republicans as blackmail, equivalent to holding the

Government to ransom, the Republicans feel this is the

preferred route rather than funding ‘Obamacare’. In fact,

Republican Sen. John Cornyn of Texas has gone on to

say, “It may be necessary to partially shut down thegovernment in order to secure the long-term fiscal well-

being of our country, rather than plod along the path of

Greece, Italy and Spain”.

What this has meant is that while essential services, such

as social security, medicare payments and the US military

service will keep operating, hundreds of thousands of

workers at non-essential services, from Pentagon

employees to rangers in national parks, will be told to

take an unpaid holiday. Tourists from around the world,who have booked their itineraries months in advance,

are forced to go back disappointed, as most monuments

and National Parks have remained closed since the past

two weeks now, owing to the shutdown. This, by the

way, has also cost the U.S. Government millions by wayof the opportunity cost. October alone brings tourists,

willing to shell out about $2.7 million a day at the Grand

Canyon National Park and other National Parks

in Arizona.New York has been the only state to be able

to put a smile back on the tourists’ faces, by allowing

them to see the Statue of Liberty, however at the cost ofthe state of New York bearing the intermediary

expenditures.

Moody’s Analytics have estimated that a shutdown ofthree to four weeks would cost the economy about $55

billion. Let’s get some perspective! Our Indian economy,

the 10th largest economy in the world (Nominal) recorded

a GDP of only $1.824 trillion, or $1824 billion, in 2012!

Goldman Sachs has estimated that a three-weekshutdown would reduce the Gross Domestic Product of

the United States by 0.9%; and the Los Angeles Times

believes that a two-week shutdown, as the world has

already witnessed,will have reduced GDP growth in the

fourth quarter by 0.3 to 0.4 percentage points;while a

month-long outage would knock a whole 1.4% offgrowth.

But the irony of it all is that the problems for our dear

Western super-power don’t end here! In fact, they’vejust begun!

America has a legal limit on its borrowing of $16.7 trilliondollars, and the US Treasury has confirmed that it shall

hit that point in mid-October, more precisely the 17th

October, Thursday. Thus it is imperative for the Congress

to find common ground in the coming two days, thereby

giving them room to raise the borrowing limit to ensurethat the country does not start missing payments on bond

payments, a scenario which is likely to take place

sometime between Oct. 22 and Oct. 31, according to

the Congressional Budget Office.

This means that effectively, a Catch-22 situation has been

created for the US Congress to deal with; whereby they

shall risk the country defaulting for the first time after

the Liberty Bond Default in 1934 (considering that the

momentary default in 1979 – Claire G. Barton vs UnitedStates – was accidental, and consequently made good,

with interest) or they shall be forced to accede to the

other party’s positions. In fact, going by reports, some

Republicans have become increasingly concerned that

they are being blamed for the crisis. They had initiallyhoped that by focusing on the unpopularity of Obamacare

and characterising the President’s stance as a refusal to

negotiate, the White House would be seen as responsible

for the first shutdown since 1996. But an NBC News/

Wall Street Journal poll this week showed the public

largely blaming Republicans, with the party suffering itsall-time worst rating since the survey began. Support for

Obama’s health reforms, which were introduced on the

day the shutdown began, i.e. the 1st October, 2013, has

ironically increased, despite early problems with

enrolment websites.

What is alarming and therefore comforting to observe is

that the $12 trillion of outstanding U.S. government

debt is 23 times the $517 billion Lehman owed when itfiled for bankruptcy on Sept. 15, 2008; and the U.S.

Federal Reserve is the biggest single holder of Treasuries,

with $2.1 trillion worth as of Oct. 2. While this is

comforting because of the assumed assurance that the

United States of America, with its dollar being globally

accepted as the reserve currency, will not in its rightmind, allow the default to happen, as reiterated by

European Central Bank President Mario Draghi who said

in New York that world still does not believe that the

United States will not find a way out, it is equally disturbing


Making Sense of the Sunseless Shutdown

to think of the consequences that would follow, if thiswere to happen.

We already have Christine Lagarde, the I.M.F. chief tellingus, “We would be at risk of tipping, yet again, into

recession”, warning that the political impasse could sap

the safe-haven status of U.S. assets.

China, the biggest foreign holder of US Treasury bonds,

worth a total of $1.28 trillion according to US government

data is reportedly already calling for the creation of an

international reserve currency to replace the dollar and

coordinate a new order which would be less dollar based,

by importing more and more of its oil and natural gasdirectly from Russia, thereby pushing for bilateral trade

agreements that would bypass the dollar

altogether. While some intellectuals, realizing the

dangers of being so dependent on the U.S. policies, have

also gone on to start considering building a de-Americanised world, the others have also used America

as a foil, to reflect on their own country’s strengths and

weaknesses. By pointing to the shutdown, they have

criticized China’s lack of an independent civil society

and balanced distribution of power – a scenario very

common in the U.S. too, where people like ThomasFriedman point to the unity and authority of China’s

single-party state to criticize America’s political friction.

However, it is extremely unlikely that China or for that

matter Japan, who is the 2nd biggest foreign holder of

US Treasury bonds after China, would sell significant

amounts of the U.S. Treasury holdings as such actionwould only lead to panic selling by other investors and

generate larger losses for China and Japan, thus rendering

the exercise counter-productive.

India, on the other hand, may just find itself gaining from

the turmoil in the West. This is because, the longer the

U.S. federal government remains shut, the bigger will

be the negative impact on U.S. economic growth;

making it that much tougher for the U.S. Federal Reserveto end its bond-buying program that has flooded global

markets with cash in recent years. When the U.S.

government tapers its bond buying program - is important

to India and other emerging markets which have become

addicted to the easy money. It is important to recall how

fears of a Fed taper earlier this year sent the rupee crashing

to record low against the dollar (Rs. 68.84 on the 28thAugust, 2013).

On the flip side, it should be noted that commercial portsdo not come under the emergency service category,

causing a delay in port services like clearing of goods

from ports due to staff shortage. This was made evident

when EEPC India Chairman Anupam Shah expressed his

worries saying, “The US Shutdown may result in huge

demurrage for exporters”. However, the shutdown isunlikely to affect sectors like pharmaceutical and IT,

atleast in the immediate term.

And thus, we come back to the nucleus of it all –‘Obamacare’. If the Democrats and President Obama

were to agree to eliminate Obamacare or deeply modify

or postpone it, precedent would be set that utterly

undermines the Constitution by eliminating the ‘majority

rule’, one of the bedrock tenets of American law. It wouldmean that whoever has a small but determined minority

in either house of Congress could now paralyze the

United States. That is precisely what the founders of the

republic wanted to avoid.

Last minute interventions aren’t uncommon, least of all

in the Indian scenario where the Vice President of the

Indian National Congress proclaims an ordinance to be

“nonsense” and “worthy of being torn and thrown

away”, hours before the President of the country woulddebatably have signed the ordinance, making it a

provisional Act. And here too, it is expected (and hoped)

that a consensus will be found in the next two days. The

focal point, however remains to see which of the parties

shall give way. Regardless of the outcome, Julie Fox, a

cafe owner in Moab, Utah (outside Arches National Park)is bang-on when she says, “One faction, of one party, in

one house of Congress, in one branch of government,

shut down major parts of the government – all because

they didn’t like one law.”

❉ ❉ ❉


Section 35 (2AB) (1)

Where a company engaged in the business of [ bio-technology or in ( any business of manufacture orproduction of any article or thing, not being an article orthing specified in the list of the Eleventh Schedule )]incurs any expenditure on scientific research (not beingexpenditure in the nature of cost of any land or building)on in-house research and development facility asapproved by the Prescribed Authority, then, there shallbe allowed a deduction of ( a sum equal to two times ofthe expenditure ) so incurred.

A study………

Explanation : For the purpose of benefit of this sectionexpenditure on Scientific Research, in relation to drugsand pharmaceuticals, shall include expenditure incurredon Clinical Drug Trial, obtaining approval from anyregulatory authority under any Central, State or ProvincialAct and filing an application for a patent under thePatents Act, 1970 (39 of 1970).

1. In order to encourage Research and Development(R&D) initiatives by Industries and to make R&D anattractive proposition, the finance bill 1997introduced a subsection (2AB) in Section 35 of TheIncome Tax Act. 1961. When a Company incursany expenditure on Scientific Research, there shallbe allowed a deduction equal to two times of theexpenditure incurred, subject to certain terms andconditions.

2. The Company shall comply with following rules toavail this benefit.

(i) The R&D Centers situated in-house theCompany, should have valid recognition byDepartment of Scientific & Industrial Research(DSIR).

(ii) The in-house R&D Centers should be locatedin a separate earmarked area/building and hasexclusive R&D manpower of its own.

(iii) The R&D Centers should be engaged in researchand development for production of any articleor a thing, but not those products which havespecified in the list of the Eleventh Schedule ofThe Income Tax Act.

(iv) When the Company has more than One R&DCenters, then all such R&D Centers should havevalid recognition by DSIR.

A Study on Section 35 (2AB)of the Income Tax Act, 1961

(v) The Company must maintain separate booksof Accounts for each R&D Centers.

(vi) The Statutory Auditors of the Company shouldaudit separate books of Accounts for each R&DCenter.

(vii) The Company should enter into an agreementwith the Secretary, DSIR for cooperation in suchresearch and development facility.

(viii) The audited accounts for each year maintainedseparately for each approvedCenters, shall befurnished to the Secretary, DSIR before 31st

October – for last completed financial year.

(ix) To avail above weighted deduction, theCompany shall apply in Form 3CK (Asprescribed in The Income Tax Rules) (applicationForm for entering into an agreement with theDSIR for cooperation in in-house research anddevelopment facility and for audit of theaccounts maintained for that facility for eachR&D Centers separately.)

(x) The Company can apply for only those R&DCenters who are having valid recognition byDSIR.

(xi) The Company will get weighted deduction onall approved expenses except capitalexpenditure on land and building,

(xii) Once the Company is having registrationnumbers, date and validity of recognitiongranted by DSIR to the in-house R&D Centersof the Company.

Then the Company should have applied in Form3CK with all the details to DSIR.

On verification of above details the DSIR mayask for further information to approve the claimssubmitted by the Company.

Once satisfied then the Secretary, DSIR inForm3CL (As prescribed in The Income TaxRules) submits a Report to The Director General(Income Tax Exemptions) under section 35(2AB) of The Income Tax Act 1961.

(xiii) The Company in its Return of Income will claimweighted deduction and attaches Auditors’Report Received for each R&D Center for thataccounting year.

CA. Jainand [email protected]


A Study on Section 35 (2AB) of the Income Tax Act, 1961

(xiv) The Secretary, DSIR prepares an Order ofApproval in Form 3CM (Under The Income TaxRules) for in-house R&D facility Under Section35 (2AB) of The Income Tax Act 1961. He sendsone copy to the Company and gives anothercopy to The Director General (Income TaxExemption).

(xv) The Company should take care that itsrecognition given by DSIR once over shall berenewed with DSIR and with a fresh applicationin Form 3CK as prescribed.

(xvi) The Company will not get the benefits UnderSection 35 (2AB) if it is engaged in the businessof any article or thing specified in the EleventhScheduled (As per The Income Tax Act. 1961).The list is as under.

1. Beer, wine and other alcoholic spirits.

2. Tobacco and tobacco preparations.

3. Cosmetics and toilet preparations.

4. Toothpaste, dental cream, tooth powderand soap.

5. Aerated waters, blended with flavoringconcentrates.

6. Confectionery and chocolates.

7. Gramophones, including record-playersand gramophone records.

8. Cinematograph films and projectors.

9. Office machines including typewriters,calculating machine, cash registeringmachine, cheque writing machine, etc.

10. Steel furniture.

11. Safes, strong boxes and strong room doors.

12. Latex foam sponge and polyurethane foam.

13. Crown corks and Pilfer-proof caps forpackaging.

Conclusion :-

(i) As a Company when we claim business expenses,we take utmost care in maintaining books ofaccounts, audit of the same and carefully arrangingvouchers and supporting documents.

(ii) In the same line when a Company wants to claim aweighted deduction Under Section 35 (2AB) utmostcare is necessary.

(iii) Further this section requires many details regardingR&D Centers, complete list of plant andmachineries,planning for making R&D. Senior people involved inR&D activities, Company’s present and futureresearch activities and their results.

(iv) The Company has to prepare up to date databaseand comply with the documents as asked by DSIR.Company has to face inspections and has to complystringent norms as per The Act and Rules of TheIncome Tax Act.

(v) To conclude this study we can say that this is an ageof R&D activities and when a Company wants toget these benefits, it has to transparently submitcomplete details and get the tax benefit.

Case Law :-

I.T.A. No. 3140 / Ahd / 2010 (A.Y. 2006-2007)

Cadila Healthcare Ltd.

Vs.

The Addl. CIT. Range – 1 Ahmedabad.

Details :-

(1) In Section 35 (2AB) the word “on in-house” has avaried meaning and the same is discussed at lengthin this case law.

(2) In this case the learned Assessing Officer has notallowed weighted deduction for expenditure onScientific Research u/s 35 (2AB) in respect of ClinicalTrial.

(3) In this case revenue expenditure for in-houseresearch was at Rs. 6413.97 Lacs and expense forClinical Trials were Rs. 1437 Lacs. The said ClinicalTrials were incurred outside the approved facilities.

(4) The A.O. has asked the assessee to substantiate itsclaim for the allowability of enhanced rate ofdeduction @ 150% u/s 35 (2AB) of the Act, on theClinical Trials when the expenditure was not incurredby the assessee in the approved in-house facility.

(5) The learned Advocate has clarified the section andpresented that “on in-house” means utilizing thestaff and resources of the organization. In this case,clinical research laboratories are approved by DSIR.Thus, it does not limit to four-walls of anyundertaking.

(6) The Tax Authority has allowed the weighteddeduction u/s 35 (2AB) after hearing all the discussionand other case laws referred by the advocate.

Suggested Reading :-

Guidelines for approval in Form 3CM of in-house R&DCenters, Recognized by DSIR and Submission of Reportin Form 3CL – Under Section 35 (2AB) of The IncomeTax Act 1961 (May 2010) By DSIR, New Delhi.

❉ ❉ ❉


1 . ICAI seeks its member’s inputs on the IndianEconomy

The Institute of Chartered Accountants of India(ICAI) has constituted a ”Study Group on IndianEconomy” with the objective to study theQualitative Assessment of the Macro EconomicDevelopmental indicators interalia pertaining totrade, Globalization, Monetary management Fiscalprudence, Financial Reforms, Trade as a tool toDevelopment and recommend measures.

The detail Terms of Reference of the group are asfollows:-

- Empathisation of Key Governmental Initiativesin sustaining economic momentum andleveraging ICAI’s contribution to the core workprogramme in the said area

- Providing inputs through Research and Dialogueon some of the Emerging Developments in thekey sectors of the economy.

- Contributing in the area of Economic Advocacyto position ICAI as a valued partner to existingknowledge depository

- Bringing position Papers and Reports on variousfacets of Indian Economy

- Organizing interactions with Chamber ofCommerce/ Regulators/Other key stakeholderson emerging perspective of economy.

Your kind prospects/inputs/observations/suggestions are invited on the following issuesin not more than 150 words on each of thefollowing area latest by 7th November 2013.

- Harnessing India’s relative comparativeAdvantages for Higher Trajectory Growth

- Resurrecting Agriculture

- Revival of Manufacturing Sector

- Consolidating on Services Advantage

- Addressing Structural Constraints within thesystem

- Building up Infrastructure

Updates from ICAI

- Building up productive Employment

- Bringing money within the system throughincreased FDI

- Calibrating Social Welfare & Economic Growth

- Controlling Menace of Population

- Capacity Building

- Accountability in policy formulation &implementation

- Addressing Fiscal & Monetary Management

- Strengthening Indian Rupee to insulate Economyfrom external shocks

- Curbing Inflation

- Social Inclusion & Balanced Regional EconomicGrowthdas

2 . Volume XXXI o f the Compendium ofOpinions

The Expert Advisory Committee of the Institute ofChartered Accountants of India has publishedCompendium of Opinions, Volume XXXI includinga CD of Compendium of Opinions. This Volume ofCompendium of Opinions contains opinionsfinalised by the Expert Advisory Committee duringthe period February 12, 2011 - February 11, 2012and the CD contains opinions finalised by the ExpertAdvisory Committee upto February 11, 2012 ascontained in Volume I to Volume XXXI.

The subjects of the opinions contained in this volumeinclude:

- ESOP accounting on account of revision of theexercise price

- Depreciation on freehold land having mineralreserves and the internal roads constructed inthe premises of the company

- Accounting for leave liability

- Applicability of AS 17 to a company engagedin refining

- Computation of depreciation on extra shiftworkings

Compiled by CA. Uday I. Shah


- Revenue recognition in case of projectmanagers, construction contracts

- Disclosure requirements for defined benefitplans in case of group administration plans

- Accounting for provident fund contribution incase of provident fund trust run by the holdingcompany.

- Accounting for sales tax exemption benefitunder Ind AS

The salient features of the CD are as follows:

- User-friendly features with search facility forlocating opinions on the desired subject(s).

- Contains more than 1200 opinions on diversesubjects related to accounting and/or auditingprinciples and allied matters, issued by theCommittee since its inception.

Updates from ICAI

- Contains Advisory Service Rules, in accordancewith which the Committee answers the queriesreceived from the members of the Institute.

The opinions are based on the facts and circumstancesof each case as presented to the Committee, and theaccounting/auditing principles and practices and therelevant laws applicable on the dates the Committeefinalised the respective opinions.

Price Rs. 250/-

Ordering Information:

The publication can be purchased directly from the salescounters at ICAI’s Regional Offices or at Head Office.To order by post, requisition may be sent to the PostalSales Department of ICAI at [email protected].

❉ ❉ ❉

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Glimpses of SupremeCourt Rulings

Advocate Samir N. [email protected].

Preventive Detention :

There can never be any shadow of doubt that sans liberty,the human dignity is likely to be comatosed. The libertyof an individual cannot be allowed to live on the supportof a ventilator. Personal liberty has its own glory and isto be put on a pedestal in trial to try offenders, it iscontrolled by the concept of ‘rational liberty’. In essence,liberty of an individual should not be allowed to be erodedbut every individual has an obligation to see that he doesnot violate the laws of the land or affect others’ lawfulliberty to lose his own. The cry of liberty is not to beconfused with or misunderstood as unconcerned senileshout for freedom. The protection of the collective is thebone marrow and that is why liberty in a civilized societycannot be absolute. It is the duty of the courts to upholdthe dignity of personal liberty. It is also the duty of theCourt to see that the individual who crosses theboundaries carved out by is dealt with appropriately. It isquite clear that no individual has any right to hazardothers’ liberty. The body governed by the rule of lawdoes not permit anti-social acts that lead to a disorderlysociety.

[Dharmendra Kirthal Vs. State of Uttar Pradeshand another (2013) 8 SCC 368]

With the hope of their immortalization, severalEmperors, Kings and other rich people got builttemples, churches, mosques and other buildings

in different parts of the world including India. Many ofthese structures are not only marvels of architecture, butalso represent the culture and heritage of the particularplace and period. With the passage of time, thesestructures acquired the status of historical monuments,the preservation and protection of which has become aHerculean task for successive generations.

[G. S. Singhvi, J in case of K. Guruprasad RaoVs. State of Karnataka (2013) 8 SCC 418]

Courts, Tribunals and Judiciary –Administration of Justice:

In administering justice, Judges should be able to actimpartially, objectively, and without any bias. Every

litigant is entitled to fair justice. Independence of judiciaryis the basic feature of the Constitution. It demands thata Judge who presides over the trial, the Public Prosecutorwho presents the case on behalf of the State and thelawyer vis-à-vis amicus curiae who represents the accusedmust work together in harmony in the public interest ofjustice uninfluenced by the personality of the accused orthose managing the affairs of the State. They must ensurethat their working does not lead to creation of conflictbetween justice and jurisprudence. A person whether heis a judicial officer or a Public Prosecutor or a lawyerdefending the accused should always uphold the dignityof their high office with a sense of responsibility and seethat its value in no circumstance gets devalued. The publicinterest demands that the trial should be conducted in afair manner and the administration of justice would befair and independent.

[Lalu Prasad Alias Lalu Prasad Yadav Vs. Stateof Jharkhan (2013) 8 SCC 593]

Service Law – Promotion – Retrospectivepromotion:

It is now well settled by various decisions of the SupremeCourt that retrospective operation can be given tostatutory rules such as the Andhra Pradesh EngineeringService Rules. But, the retroactivity must still meet thetest of Article 14 and Article 16 of the Constitution andmust not adversely trench upon the entitlement of seniorityof others. Retrospective seniority cannot be given to anemployee from a date when he was not even borne inthe cadre. So also, seniority cannot be given withretrospective effect so as to adversely affect others.Seniority amongst members of the same grade must becounted from the date of their initial entry into the grade.Further, the mere existence of a vacancy is not enoughto enable an employee to claim seniority. The date ofactual appointment in accordance with the requiredprocedure becomes important in such a case. When aquota is provided for, then the seniority of the employeewould be reckoned from the date when vacancy arisesin his/her quota and not from any anterior date ofpromotion or subsequent date of confirmation.

[P. Sudhakar Roa and Others vs. U. GovindaRao and others (2013) 8 SCC 693]

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Natural justice : Non speaking order :

Universal Packaging and Ors. v/s. CIT

(2013) 257 CTR 236(Bom) : (2013) 352ITR 0398 (Bom)

Issue :

Whether non speaking order by an Income Tax authorityis valid?

Held :

The order passed by the CIT is a non speaking order inas much as it does not consider the petitioner’s case onmerits and dismissed the same on the ground that thepetitioner has an alternative remedy of filing an appeal.It is well settled position in law that one of the basicprinciples of natural justice is that the authority concernedmust pass a speaking order, so as to enable a party toknow the reasons, as to why his application is beingeither accepted or rejected. This giving of reasons alsoensures due application of mind to the facts by theauthority concerned. The order in the instant case isbereft of reasons, and therefore, quashed and set aside.The CIT is directed to dispose of the petitioner’s revisionapplication u/s 264, after giving the petitioner a personalhearing and considering all the relevant contentionsraised by the petitioner.

Sec. 40A(3) : Deposit of cash inSupplier’s Bank Account :

CIT v/s. Venkatadhri Constructions

(2013) 213 Taxman 180 (Madras)(Mag) : (2013)255 CTR (Mad) 0385

Issue :

Cash deposit in supplier’s Bank account can be disallowedu/s 40A(3) as cash payment?

Held :

Deposit of the amount to the bank does not make thecase any shade better than a cash payment for thepurpose of condoning the conduct of the assessee.

CA. C. R. [email protected].

Consequently, Tribunal was not justified in holding thatthe payment of cash by the assessee to the supplier’sbank account is not a violation of the provisions of sec.40A(3) of the I.T. Act.

Charitable Trust : Depreciation and setoff of Brought forward deficit

CIT v/s. Gujarati Samaj

(2013) 257 CTR (397) MP : 349 ITR 599 (MP)

Issue :

Is a charitable trust entitled to (a) deprecation and (b)setoff of brought forward deficit ?

Held :

On the above issues High Court has held.

(a) The object of providing for depreciation is to spreadthe expenditure incurred in acquiring the asset, overits effective lifetime; the amount of the provision,made in respect of an accounting period, is intendedto represent the proportion of such expenditure,which has expired during that period. If depreciationis not allowed as a necessary deduction in computingthe income of a charitable trust, then there wouldbe no way to preserve the corpus of the trust. Acharitable trust is, therefore, entitled to depreciationin respect of the assets owned by it. Having regardto the aforesaid settled legal provision, the Tribunalhas rightly decided the issue about disallowance ofclaim of depreciation while computing the incomeof charitable trust and has rightly held that theassessee being a charitable trust is entitled for claimof depreciation on the assets owned by it.

(b) Since there are no words of limitation in section11(1) (a) explaining that the income should havebeen applied for charitable or religious purposes onlyin the year in which the income had arisen, excessof expenditure incurred during the year over incomeof charitable trust can be carried forward and set offagainst the income of the subsequent years.

From the CourtsCA. Jayesh C. [email protected].

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From the Courts

Time limit for levy of penalty :

CIT v/s. Jitendra Singh Rathore

(2013) 352 ITR 327 (Raj) : (2013) 257CTR (Raj) 18

Issue :

Which is the notice to be considered for time limit oflevy of penalty u/s 271(1)(c).

Held :

Even when the authority competent to impose penaltyu/s 271D of the I.T. Act 1961, was the Jt. CIT, the periodof limitation for the purpose of such penalty proceedingswas not to be reckoned from the issue of the first showcause by the CIT, but from the date of issue of the firstshow cause for initiation of such penalty proceedings.

First show cause notice for initiation of proceedings wasissued by the A.O. on 25-03-2003, and was served onthe assessee on 27-03-2003. Obviously, the later periodalso expired on 30-09-2003, when six months expiredfrom the end of the month in which the action for imposingthe penalty was initiated. The order as passed by the Jt.CIT for penalty u/s 271D on 28-05-2004, was already hitby the bar of limitation prescribed in clause (c) of section275(1).

Change of head : No penalty :

CIT v/s. Amit Jain

(2013) 258 CTR 88 (Del) : (2013) 351ITR 74 (Del)

Issue :

When the income is taxed on another head than thereturned, whether penalty can be levied on such fact ?

Held :

The record revealed that the amount in question whichformed the basis the A.O to levy penalty was in facttruthfully reported in the return of income. The A.O.chose to treat the income under other head cannotcharacterize the particulars of reported in the return asan “inaccurate particulars” or as “suppression or facts”.

In the circumstances it was held that the change of headof an income does not attract penalty provisions.

G.P. addition and cash credit : Set off

CIT v/s. Megha Industries

(2013) 214 Taxman 400 (Guj)Issue :

Whether when once G.P. addition is made, amount ofcash credit can be sustained ? Whether set off in thiscase can be granted?

Held :

Assessee raised the ground that :

Addition confirmed, if any, in trading results should beallowed to be setoff against unaccounted incomeintroduced in the garb of cash credit.

CIT (A) accepted assessee’s plea and a part of amountwas deleted.

Tribunal and High Court has accepted the decision ofCIT(A) as above.

Remuneration to working partners andSec. 40A(2).CIT v/s. Great City Mfg. Co.

(2013) 351 ITR 156 (All) : (2013) 256 CTR (All)420

Issue :

Whether part remuneration to working partners can bedisallowed u/s 40A(2) when such remuneration is paidas per the provisions of Sec. 40(b) ?

Held :

(1) Remuneration paid to working partners by a firmshould be allowed to the extent permitted u/s 40(b)if the prescribed requirements and monetary limitare fulfilled.

(2) Sec. 40A(2) of the Act is “out of bounds” in so faras expenditure by way of remuneration to workingpartners are concerned. This provision can howeverbe invoked in respect of payments to members ofthe family of the partner or any relative of a partnerirrespective of whether the partner is a workingpartner or not.

(3) Once the remuneration paid to working partnersatisfies the conditions prescribed in Sec. 40(b)(v)of the Act and does not exceed the prescribed limits,the A.O. should allow the payment as a deduction.He cannot go into the question whether the paymentis reasonable or excessive.

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Abacus International (P) Ltd. Vs. DDIT(International Taxation) 155 TTJ550(Mumbai)

Assessment Year 2004-05, Order Dated: May31, 2013

Basic Facts

The assessee is a resident of Singapore and has receivedinterest on income tax refund during the year underconsideration. The assesse offered such interest fortaxation @ 15% as per article 11 DTAA between Indiaand Singapore. The AO denied this claim by relying onArticle 24 of the DTAA as in his opinion the assesse didnot furnish any proof of remittance to Singapore. Hetherefore charged such interest income to tax @ 20% inaccordance with the mandate of s.115A of the IT Act.No relief was allowed by the CIT(A).

Issue

Whether the authorities were justified in refusingthe benefit of Article 11 of DTAA by taxing theinterest @ 20 per cent as per section 115A ofIncome Tax Act, 1956?

Held

It was held that in para.1 of Article 24 the crucial wordsare “…….reduction of tax to be allowed under thisagreement….. shall apply to so much of the income asis remitted to or received in that Contracting State”. Thispart of Article 24 makes it clear beyond any doubt thatthe receipt or remittance of income in Singapore is sinequa non for claiming the benefit of lower rate of tax onthe interest income from India. But if the income is notreceived in Singapore, then the benefit of Article 11providing for a reduced rate of tax of 15 per cent cannotbe extended to the assessee. Simply not having a bankaccount in India does not mean that the amount hasbeen received in Singapore. The requirement of Article24 is to receive the amount of interest in Singapore, whichcannot be established by proving that the amount wasnot received in India. The crux is that, the assessee isrequired to prove that the interest income has beenreceived in Singapore and the burden can be dischargedby showing a credit in the bank account maintained by

the assessee in Singapore. Production of a copy of payin slip showing deposit of return voucher in a bankaccount, or even a certificate from a bank in Singaporein this regard, are the instances of sufficient complianceof the requisite condition.

Hence, a bald submission not backed by any supportedevidence to prove the fulfillment of the requisite condition,cannot be a good reason for drawing an inference infavor of assessee. So, the interest on income tax refundshall be taxed at 20% as per section 115A of the Act.

Mattel Toys (I)(P.) Ltd. Vs. DCIT 144 ITD76 (MUM)

Assessment Year 2002-03, Order Dated:June 12, 2013

Basic Facts

The assessee, a wholly owned subsidiary of U.S.A.Company (Associated Enterprise (AE)), was engaged inmarketing and selling of toys and games imported fromits AE. The assessee returned some unsold goods to itsAE. The assessee adopted Transactional Net MarginMethod (TNMM) in its transfer pricing report and rejectedthe Resale Price Method (RPM). The Transfer PricingOfficer (TPO) made certain adjustments. On appeal, theassessee claimed that the RPM should be followed insteadof TNMM, which was rejected by the CIT(A) on theground that assessee itself had given a detailed analysisas to why RPM could not be taken in its TP Report.

Issue

Whether, resale price method is most appropriatemethods where resale takes place without anyva lue addition to product, for benchmarkingarm’s length price?

Held

It was held that RPM method identifies the price at whichthe product purchased from the A.E. is resold to anunrelated party. Such price is reduced by normal grossprofit margin. The RPM is mostly applied in a situation inwhich the reseller purchase tangible property or obtainservices from an A.E. and resale is made without anyvalue addition having been made. Whereas, under

CA. Yogesh G. [email protected]

Tribunal News CA. Aparna [email protected]

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TNMM, the ALP is determined by comparing theoperating profit related to an appropriate base. It requiresa lot of adjustments to derive the actual operating profit.If the ALP of any transaction can be determined byapplying any of the direct methods then, they should begiven preference, but if the direct methods areinapplicable then only TNMM should be resorted to. Onfacts of the assessee’s case, the assessee being adistributor who was purchasing the goods from it’s A.E.and reselling them to independent parties/unrelatedparties without any value addition. In such a situation,RPM would be the most appropriate method to evaluatethe transactions whether they are at ALP.

The Tribunal rejected the revenue’scontention that oncethe assessee itself had chosen TNNMM as mostappropriate method, then it could not resort to changeits method at an assessment or appellate stage. Accordingto the Tribunal, such contention cannot be upheld,because if it is found on the facts of the case that aparticular method will not result into proper determinationof ALP, the TPO or the appellate authorities can verywell hold that a particular method can be applied forgetting proper determination of ALP or the assessee candemonstrate a particular method to justify its ALP.

Bhavin Arun Shah vs. ITO 156 TTJ 507(Ahd)

Assessment Year 2003-04, Order Dated:June 28, 2013

Basic Facts

The assesse is engaged in the development ofgeographical information system (GIS) software whichincludes converting the raw data into maps by digitizingand vectorizing it. The GIS is a computer basedinformation system to digitally represent and analysesthe geographical features present on earth’s surface andactivities thereon. This is done to meet the daily functionsof municipalities and is said to be built on the visualstudio platform. The assesse had claimed deduction undersection 80IB in respect of this business income. The AOdisallowed the claim of deduction u/s 80IB on the groundthat the customized software developed by the assessewas not manufacture of articles or things. The CIT(A)upheld the order of the AO. On appeal to the Tribunal,Tribunal set aside the matter to the AO with directiontoverify & allow the deduction if customer of the assesseacquires property in the software after its development& transmission to the client since then it would be profitderived from manufacturing of article or thing. In the

setaside proceedings the AO held that since basic areamaps were the material on the basis of which the softwarewas developed and since basic area maps were alwaysbelonging to the customer it was only a case for provisionfor services and deduction u/s 80IB was denied. TheCIT(A) again upheld the AO’s order. The assesse wastherefore again in appeal before the ITAT.

Issue

Whether in the facts of the case is assesseeeligible for the deduction u/s 80IB ?

Held

The Tribunal after viewing demonstration of the softwareheld that ITAT held that software produced not only amere compilation of map simpliciter but interactive digitalproduct which produces lots of reports and relevantinformation, on the basis of various inputs including mapsof the area. The fact that it is produced on platform notowned by the assesse is irrelevant in as much as what isbeing transferred by the assesse is not platform but theend product. The mere fact that one of the inputs isowned by the client itself does not mean that the propertyin the product never belonged to the assesse. It is clearthat the product i.e. software comes into existence aftercarrying on several processes and its only on completionof these processes, the property in the product can betransferred to the customer. The transfer of property istherefore not an ongoing process at each stage of workas will be the case of a provision for services. For thisshort reason alone, the assesse deserves to succeed andis hence entitled to deduction u/s 80IB.

Convergys Customer Management GroupInc. Vs. Adit (International Taxation) 58SOT 69(Del)

Asst. Year 2006-07 & 2008-09, Order Dated:10th May, 2013

Basic Facts

The assessee was an American company. It provided ITenabled customer management services by utilizing itsadvanced information system capabilities, humanresource management skills and industry experience. Theassesse does not carry out any business operation in India.CIS was assessee’s Indian subsidiary which provided ITenabled call center/back office support service toassessee to service its Indian customers. Substantial riskof procurement of services by the assessee from CIS laywith the assessee like, market risks, price risks, R&D risk,service liability risk towards its customers for quality and

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efficiency in delivery of services. Assessee claimed thatits customers were outside India and, therefore, aforesaidrisk resided outside India. In its return of income, theassessee declared certain income earned by it from CIS.Certain reimbursements made by CIS in the nature oflink charges, software payments, etc., were not offeredfor taxation since it claimed that they were not subjectto tax in India in accordance with the provisions of theDTAA. The AO held that the assesse had PermanentEstablishment (PE) in India in form of Fixed Place PE &Dependent Agent PE. He computed profits attributableto the alleged PE in India by estimating revenue fromIndian operations by allocating the Global revenue inproportion of number of employees. He also allocatedexpenses excluding direct expenses in proportion ofnumber of employees. The CIT(A) held that the assessehad a fixed place PE in India but it did not have DependentAgent PE. He accepted the revenue from end-customerwith regard to contracts/projects wherein services wereprocured from CIS as submitted by the assesse andreduced the attribution of profits to PE of the assesse.Aggrieved with the order of the CIT(A), both assesse &department filed appeal to tribunal.

Issue

Whether the assesse had const ituted a PE inIndia under Article 5 of the DTAA? If yes, theamount that should be attributed to the PE inIndia

Held

The assessee employees frequently visited the premisesof CIS to provide supervision, direction and control overthe operation of CIS and such employees had a fixedplace of business at their disposal. CIS was practicallythe projection of the assessee’s business in India becauseCIS carried out its business under the control and guidanceof the assessee and without assuming any significant riskin relation to such functions. Further, the assessee hadalso provided certain hardware and software assets onfree of cost basis to CIS. Accordingly, looking at theentirety of facts and circumstances, the assessee had aFixed Place PE in India. CIS did not constitute aDependent Agent PE of the taxpayer since the conditionsprovided in Article 5(4) of the DTAA were not satisfied.

An overall attribution of profits to the PE is a transferpricing issue and no further profits can be attributed to aPE once an arm’s length price has been determined,which subsumes the functions, assets and risk profile of

the PE. The revenue of the assesse cannot be consideredas the revenue of the PE. Furthermore, the expensesincurred outside India are linked with the businessactivities of the assessee undertaken outside India forthe functions performed outside India and are not linkedto the PE in India. No attribution can be made on accountof entrepreneurial risk because the risk lie outside Indiaand the charge for the employees of the assessee toprovide services to CIS was considered as part of thetransfer pricing analysis of CIS. Moreover, no suchattribution on account of the risks can be made underArticle 7(3) of the DTAA. However, further attributionneeds to be made on account of free assets provided bythe assessee. The following step by step approach needsto be followed to arrive at the profits attributable to thePE:

Step 1: Compute Global operating Income percentageof the total business of the taxpayer.

Step 2: This percentage should be applied to the revenueearned with regard to contracts/projects where serviceswere procured from the PE. The amount arrived at is theoperating income from Indian operations.

Step 3: The operating income from Indian operations isto be reduced by the profit before tax of the PE. Thisresidual is now attributable between US and India.

Step 4: The profit attributable to the PE should beestimated on residual profits as determined under Step3 above.

Placing reliance on the Hon’ble Supreme Court decisionsin the case of Anglo French Textile Company Ltd. vs.CIT 23 ITR 101 (SC) and Hukum Chand Mills Ltd. vs. CIT103 ITR 548 (SC), the Tribunal observed that 15% of theprofits (arrived at in Step 4 above) are to be attributed tothe assessee’s Indian PE operations.

Riddhi Steel & Tubes (P.) Ltd. V. ACIT144 ITD 395 (Ahd)

Asst. Year 2009-10, Order Dated: 12 th

April, 2013

Basic Facts

The AO noticed that there was difference between stockdeclared to bank and stock reflected as closing stockand made addition under section 69B to assessee’sincome. The CIT(A) sustained the addition made by theAO after holding that (a) the discrepancies in stock werenever explained by the assessee with the help of booksof account, bills, vouchers, etc.; (b) stock hypothecated

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to bank was physically verified by the banker on 25-4-2009; and (c) the difference in stock was detected atthe end of year. The CIT (A) had further held that theassessee could not prove any linkage of purchase of steelvide bills with the inventory of stocks furnished to thebank, and accordingly, the CIT(A) had rejectedcontention of assessee that stock were included in thestock statement furnished to the bank.

Issue

Whether merely relying upon statement furnishedto banking authorities, can additions be madeon account of difference arising in quantity andvalue of stock shown in books of account andstatement furnished to bank ing author it ies,admittedly to avail higher credit facilities?

Held

The Tribunal held that additions cannot be made onaccount of difference arising in the quantity and value ofstock shown in the books of account and the statementfurnished to the banking authorities, admittedly to availhigher credit facilities. The Tribunal observed as under:

1) The stock details have been inflated purely onestimate basis in the statement furnished to bank toavail larger credit facilities.

2) The inflated and estimated stock is hypothecatedand not pledged hence was not kept in lock & keyof the bank; therefore assessee’s contention forinflation is acceptable.

3) No actual physical verification of stock is carried outby the officer of banking authorities during the yearor as on date of valuation of stock;

4) The assessee has maintained stock register; this isnot controverted by the AO.

5) The assessee’s books of account are not found tobe defective or non-genuine by Assessing Officer;the statutory & tax Auditor have not qualified theirreports in any manner whatsoever.

6) The books of account maintained by the assesseeare accepted by the Central Excise and/or Sales Taxdepartment.

On the basis of the above facts, the tribunal held thatmerely relying on the statement furnished to the bankingauthorities to avail larger credit facilities, addition cannotbe made on account of difference between the quantity

and value of stock shown in the books of account andthe statement furnished to the banking authorities.

The Tribunal further found that if the inflated stock isincluded in the financial statement it would distort theGP & NP ratios and hence held that this is one morefactor which substantiates the finding that the figure ofstock was inflated, ad hoc and estimated purely for thebank without there being any actual stock acquired bythe assessee. Therefore, the addition made by the AOwas not justified and the same was directed to be deleted.

Tax Deducted at Source (TDS) Issues

Certain Tax Deducted at Source issues aredecided in the case of

Bharat Forge Limited V. Adit 144 ITD 455 (Pune)

Asst. Year 2007-08 and 2008-09, Order Dated:31st January, 2013

Sitting Fees to Directors

Held

As per the Tribunal, the sitting fees paid to the Directorsdo not amount to fees paid for any professional servicesas has been mentioned in the Explanation to S.194J(1).The Tribunal also referred to Finance Bill 2012 introducingthe TDS on Directors fees under section 194J accordingto which, since there was no specific provision fordeduction of tax on the remuneration paid to a directorwhich is not in the nature of salary, the same was includedin section 194J. Accordingly the Tribunal held that tillthe applicability of the provisions of section 194J toDirectors fees from 1st July 2012, TDS under section 194Jwas not applicable to such payments.

Testing & Inspection charges

Held

The Tribunal relied upon the decision of Pune Bench incase of GlaxoSmithKline Pharmaceuticals ltd. wherein itwas held that any consideration to fall under the ambitof section 194J the same should be paid for acquiring orusing technical know-how or it should be made availableby human element. There should be a direct and livelink between the payment and receipt/use of technicalservices/information. In the given case the amount paidwas getting job done like testing, inspection of materialetc. Athough technical expertise may be used it was nottechnical services. Accordingly tax was rightly deductionunder section 194C.

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contd. on page no. 462


In th is issue, we are g iv ing fu l l tex t of thedecision of Chennai Bench of ITAT in the caseof Kal Comm. (P) Ltd in Appeal No.844/ Mds/2011 since it is a short decision.

The issue about grant ing credit o f TDS issometimes very intriguing particularly when theassessee is r ece iv ing income on beha lf ofsomebody else and TDS is made by the payerof such income while making payment to theassessee. The ultimate beneficiary in such caseis th ird party on whose behalf the assesseereceives income but the payer deducts TDS andissues certificate in the name of assessee. Dept.in these cases deny the credit of TDS in thehands of assessee as they believe that assesseeis not showing such amount collected on behalfof somebody as its income and hence assesseecan’t get credit of such TDS.

Though the case reported is in the context ofthe provisions of section 263 of the Act, theobservations therein regarding grating of creditof TDS in such cases may be helpful in a givencase.

We hope readers would find the same useful.

IN THE INCOME TAX APPELLATE TRIBUNAL‘C’ BENCH : CHENNAI

BEFORE Dr. O.K. NARAYANAN, VICE PRESIDENT &SHRI VIKAS AWASTHY, JUDICIAL MEMBER

I.T.A. No. 844/Mds/2011Assessment Year : 2006-07

Kal Comm P. Ltd., Vs Commissioner of Income Tax,73, Murasoli Maran Towers, Chennai–I,MRC Nagar Main Road, CHENNAI – 600 034.MRC Nagar,CHENNAI-600 028.[PAN: AABCK 3906 B](Appellant) (Respondent)

Appellant by : Shri N. Devnathan, AdvocateShri K. Ramkrishnan, C.A.,

Respondent by : Shri T.N. Betgeri, JCIT

CA. Sanjay R. [email protected]

Date of hearing : 21-08-2013Date of pronouncement : 21-10-2013

O R D E R

Per Vikas Awasthy, Judicial Member:

The appeal has been filed by the assessee against theorder of the Commissioner of Income Tax, Chennai-Idated 16-03-2011 passed u/s. 263 of the Income TaxAct, 1961 (herein after referred to as ‘the Act’).

2. The assessee is engaged in providing billing andcollection services to M/s. Sun TV Network Ltd. Theassessee is collecting subscriptions on behalf of M/s. Sun TV Network Ltd., from various cable operators.For the services rendered by the assessee, theassessee is receiving commission from M/s. Sun TVNetwork Ltd.

The cable operators while making payments towardssubscription charges to the assessee, deduct tax atsource. Whereas, the assessee is reimbursing thegross amount to M/s. Sun TV Network Ltd., For theAY. 2006-07, the assessee filed its return of incomedeclaring its income as Rs. 2,08,66,850/- . The caseof the assessee was taken up for scrutiny and noticeu/s. 143(2) of the Act was issued to the assessee.The Assessing Officer vide order dated 03-12-2008completed the assessment by accepting the incomereturned by the assessee. The CIT was of the viewthat the assessment order is erroneous and isprejudicial to the interest of the Revenue and thusissued notice u/s. 263 on 28-02-2011. The CIT issuednotice on the following grounds:

I. “A Sum of Rs. 2,69,44,843/- has been receivedand transferred by you to Sun TV NewtworkLtd., without routing through your Profit andLoss Account.

II. You have charged service tax on the abovesubscription receipts from the Cable TVOperators AO has not verified whether the TDSprovisions have been applied while transferringthe amount to Sun TV Network Ltd., and alsothe applicability of Section 40(a)(ia) when theamount was paid to Sun TV Network Ltd.,

Unreported Judgements


III. As per schedule 24 filed by you (Details of TDSdeducted) deductors include Salem Ctn. Pvt.

Ltd., Satellite Communication Ltd., Matunga

Communications Pvt. Ltd., United Mysore

Network Pvt. Ltd., etc. Receipts from these

parties were shown as Rs. 194 Contract’. Theentire amount of Rs. 2.69 crores has been

received through contract for which the TDS of

Rs. 6,50,910/- has been claimed by you. The

same ought to have been brought in you’re

your Profit and Loss Account.

IV. As per provisions of Sec. 199(2) credit for TDS

can be allowed only when the corresponding

income is offered for taxation in the year in

which such TDS is claimed. Deductions of TDSof Rs. 6,50,910/- supra was allowed without

the corresponding income being declared in

your Profit and Loss Account.

V. There is difference of Rs. 1,80,68,601/- between

the income as per TDS certificates and income

as per Profit and Loss Account”.

The assessee filed objections against the

issuance of show cause notice but the CIT

proceeded on to pass impugned order u/s. 263

of the Act.

Aggrieved against the order of CIT dated 16-

03-2011 passed u/s. 263 of the Act, the assessee

has come in appeal before the Tribunal.

3. From the perusal of the facts which have not been

disputed by the Revenue, it is clear that the assessee

has remitted the entire gross amount received fromthe cable operators to M/s. Sun TV Network Ltd.,

The amount remitted by the assessee to M/s. Sun

TV Network Ltd., includes the amount of TDS

deducted by the cable operators at the time of

payment made by them to the assessee. In lieu of

the services rendered by the assessee, the assesseeis entitled to receive fixed commission. Since tax

has already been deducted and paid to the

Government at the time of making collections, the

assessee is entitled to get the credit of the same

while receiving commission income. M/s. Sun TV

Network Ltd., had engaged the services of the

assessee for collection of the subscription amountagainst commission. However, the cable operators

at the time of payment of subscription, deducted

the tax at source and remitted the remaining amount

to the assessee.

The subscription collected by the assessee is not its

income and hence is not taxable in the hands of the

assessee. The assessee is only a nodal agency for

collecting subscription on behalf of M/s. Sun TVNetwork Ltd. The amounts collected by the assessee

are credited to the separate account ‘Subscription

Charges’. The said account is debited at the end of

Financial Year when the amounts are paid to M/s.

Sun TV Network Ltd. As the subscription collected

by the assessee from various cable operators is notthe income of the assessee, the same is not shown

in Profit & Loss account.

The subscription amount is the income of M/s. Sun

TV Network Ltd. and as such is taxable in the hands

of M/s. Sun TV Network Ltd. However, the cable

operators are deducting tax at source on the

payments of subscription made to assessee,

whereas, the assessee is remitting the gross amountto M/s. Sun TV Network Ltd., the assessee is entitled

to receive credit of the tax deducted at source u/s.

199 of the Act subject to production of TDS

Certificates received from respective deductors. The

levy of tax on the commission received would amount

to double taxation.

4. The other grounds for invoking the provisions of

section 263 are consequential to the main issue

discussed above. Since, we are striking the impugnedorder on the main issue itself, the consequential

issues automatically do not survive. Thus, in view of

the peculiar facts and circumstances of the case,

we allow this appeal of the assessee and set aside

the impugned order.

Order pronounced on Monday, the 21st October,

2013 at Chennai.

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Unreported Judgements


Issue:

Whether expenditure incurred on freebies granted by the

pharmaceutical companies can be allowed as deduction?

Proposition:

Freebies include gift, money, travel facility and hospitality

extended by the pharmaceutical companies to the

medical practitioners. Pharmaceuticals companies give

freebies under the garb of marketing. Small gifts influence

the physician to prescribe the medicine. Instead of giving

generic medicines, doctors prescribe medicines of thecompanies whose hospitality they enjoy. This augments

the sales and revenue of the company. Freebies are also

given to meet the cut throat competition between the

pharmaceutical companies and it also helps in establishing

the brand of the company providing such freebies.

Pharmaceutical companies categorize such costs as

marketing expenses. As freebies are given for marketing

purpose and to increase the revenue, it is proposed that

the expenditure incurred on freebies should be allowed

as deduction.

Relevant provisions of the Act:

Section 37(1) of the Act provides that expenditure is

allowed as a deduction from business income provided

the following conditions are satisfied:

- It is not in the nature described in sections 30 to 36 ofthe Act.

- It is not in the nature of capital expenditure or personal

expenses of the assessee.

- It is laid out or expended wholly and exclusively for

the purposes of the business or profession.

Explanation:- For the removal of any doubts, it is hereby

declared that any expenditure incurred by an assessee

for any purpose which is an offence or which is prohibited

by law shall not be deemed to have been incurred for

the purpose of business and profession and no deductionshall be made in respect of such expenditure.

CBDT is of the view that freebies should not be allowed

as deduction as they are prohibited by Medical Council

of India but we propose that they should be allowed as adeduction as they are given for marketing purposes and

hence for the purpose of business.

View in favour of the proposition:

Let me refer to the case of CIT V. Khemchand Motilal

Jain (MP High Court) wherein the the assessee, engagedin manufacture and sale of bidis, sent its whole-time

director to a forest area purchasing tendu leaves. There,

the director was kidnapped by dacoits and the assessee

paid a ransom of Rs. 5.50 lakhs to secure his release.

The AO disallowed the claim for deduction of the said

amount u/s 37(1) though the CIT (A) and Tribunal upheldthe claim on the ground of commercial expediency.

Before the High Court, the department relied on the

Explanation to section 37(1) and argued that expenditure

incurred for any purpose which is an offence or which is

prohibited by law is not allowable as a deduction.

The Explanation of sec 37(1) provides that expenditure

incurred by an assessee for any purpose which is an

offence or which is prohibited by law shall not be deemed

to have been incurred for the purpose of business. It has

to be seen whether the expenditure is incurred for any

purpose which is an offence or prohibited by law. Whilekidnapping for ransom is an offence u/s 364 A of the

IPC, the payment of ransom to secure the release of a

kidnapped person is not an offense. And hence the

payment of ransom in the light of the above case is not

prohibited by law. Accordingly, the Explanation of sec37 (1) is not applicable and the ransom is deductible as

business expenditure.

In the case of CIT V. Desiccant Rotors International Pvt.

Ltd. 347 ITR 32 , the Delhi High Court has held that

settlement of the suit for infringement of patent and

amount paid in terms of settlement is not in the natureof penalty and the amount is deductible as business

expenditure. The assesssee was exporting its products to

one of its customers, namely M/s. VV Incorporated Inc.

Canada for selling their products. Semco Incorporated

CA. Kaushik D. [email protected].

Controversies


USA had filed a suit against M/s. VV for infringement oftheir registered patents in the USA by selling the products

of the assessee-company. M/s. VV settled the dispute

with Semco by paying certain compensation to it.

Subsequently, Semco instituted the proceedings against

the assessee company as well in the court of the USAalleging that sale of products by the assessee to M/s. VV

amounted to infringement of their registered patents.

Since the cost of litigation was expected to be exorbitant,

the assessee-company after considering the advice of its

legal representative, settled the dispute with Semco by

making payment of US $ 6,75,000. It was, thus, claimedby the assessee that the payment was compensatory in

nature to compensate the loss incurred by Semco as a

result of selling the product covered by patent held by

Semco to M/s. VV.

The remedy for infringement of patent involved civilaction for compensating the damage to private

properties. Quoting section 108 of Indian Patent Act,

1970 the High Court was of the view that any payment

for infringement of patent, being purely compensatory

in nature, could not be disallowed as per the law settledby the Supreme Court in the case of Prakash Cotton

Mills (1993) 201 ITR 684 (SC). It was an expenditure

which was motivated purely by commercial purpose and

would be allowable under section 37(1) of the IT Act.

In the case of Sanjay Enterprise V. Assistant Commissioner

of Income tax Assessee was engaged in business of sellinglottery tickets of Royal Government of Bhutan within State

of Madhya Pradesh. Government of Madhya Pradesh

intended to ban lottery business within its territory.

Assessee appointed selling agents for carrying out work

of liaison with administration and Government forcontinuation of sale of lottery tickets of other States within

State of Madhya Pradesh and paid commission to said

agents in respect of said activity and claimed deduction

on same. Assessing Officer disallowed said claim.

Whether such activit ies of agents of making

representations and mobilizing public opinion forcontinuation of sale of lottery tickets of other States within

the State of Madhya Pradesh was not an offence and

was not prohibited by law. Moreover, carrying out

business of lottery was not against public policy, and

accordingly entire commission paid to selling agents was

allowable as business expenditure under section 37(1).

As held in the case of HSBS Securities & Capital markets(P.) Ltd. V. Assistant Commissioner of Income Tax, the

payment made to stock exchange for the violation of

bye laws of stock exchange cannot be considered as

payment prohibited by law or in connection with an

offence and is allowable as business expenditure.

View against the proposition:

The Supreme Court in the case of Malwa Vanaspati and

Chemicals vs CIT (225 ITR 383), held in the context of

penalty under sales tax laws, that if a levy was of

compensatory nature, though termed as penalty, it couldbe allowed as a deduction. On the other hand, a levy of

punitive nature was found to be not allowable as

deduction. If a levy had both the characters, punitive

and compensatory, then the amount relating to the

compensatory character could be allowed whereas the

amount relating to the punitive character could not beallowed. The problem of allowability of a penalty levied

under sales tax law is compounded by the insertion of

the Explanation in Section 37(1).Accordingly, any

expenditure incurred for any purpose which is an offence

or which is prohibited by law is not allowed as adeduction. Therefore it appears that explanation to section

37(1) can hit such payments.

The assessee in the case of J.K. Panthaki V. Income Tax

Officer was engaged in building contracts. It paid

commission to director of a company in order to secure

contract for construction of a factory building for saidcompany. Assessee’s claim for deduction in respect of

payment of commission was disallowed by authorities.

The payment in question amounted to an abatement of

not only an unethical business practice but also amounted

to abetting to commit a breach of trust by the director ofrecipient company, which was clearly an offence

prohibited by law. Therefore, authorities below were

justified in rejecting assessee’s claim.

Summation:

As per Circular No. 5/2012 [F. No. 225/142/212-ITA.II]dated 1-8-2012, the Indian Medical Council Regulations,

2002 on 1-12-2009 has imposed prohibition on the

medical practitioner and their professional associations

from taking any gift, travel facility, hospitality, cash or

monetary grant from the pharmaceutical and allied health

sector industries.

Controversies


The explanation to Sec 37(1), denies claim of any suchexpenses which have been incurred for a purpose which

is either an offence or prohibited by law.

Thus, the claim of any expenses incurred in providing

the above mentioned or similar freebies in violation of

the provisions of the Indian Medical Council Regulations2002 shall be inadmissible under sec 37(1) of the Income

Tax Act being an expenses prohibited by law.

The disallowance shall be made in the hands of such

pharmaceutical or allied health sector industries or other

assessees who have provided aforesaid freebies andclaimed it as a deductible expense in its accounts against

income. Also the sum equivalent to value of freebies

enjoyed by the aforesaid medical practitioner or

professional association is also taxable as business income

or income from other sources.

An imposing judgement in this case is of the Himachal

Pradesh High Court-Shimla wherein the Confederation

of the Indian Pharmaceutical Industry through its Vice

President T.C.Kansal had put a petition against the CBDT,

Hiring of Cranes (with dirver/operator) for loading& unloading material

HELD

Any payment made towards hiring of cranes and loadingand unloading of material at factory, the tax should bededuct at source under section 194C and not under theprovisions of section 194I as the same is a contractbetween the assessee and the transporter and is not apayment made towards the rent.

O & M contract for Windmill

HELD

Any payment made towards windmill operation andmaintenance will be liable to pay TDS under section 194C and will not attract the provisions of section 194J,asthe contract for the windmill operation and maintenanceis a comprehensive contract covering many services.

Annual Maintenance Contract for Softwaremaintenance

pleading for allowance of expenditure incurred onfreebies as allowable.

It was held that any gifts, travel facility, cash or monetary

gifts given by pharmaceutical companies to medical

practitioners is disallowed as business expenditure to

pharmaceutical companies and taxable in the hands ofthe medical practitioner. But it was further held that if

the assessee satisfies the assessing officer that the

expense is not in the violation of the Medical Council

Regulations, then that expense can be allowed as a

deduction under section 37(1). Further, the question which

arises for discussion and debate is whether the mandateof the Medical Council of India can be treated as laying

down a law or it only has advisory jurisdiction.

I am of the opinion that the MCI has an advisory role

and there is no question of a legal mandate by MCI and

hence freebies granted by a pharmaceutical company tomedical practitioner should be allowed as deduction

under section 37(1).

❉ ❉ ❉

HELD

Any payment made towards annual maintenance chargesfor software maintenance will be liable for deductingtax at source under section 194C and will not attractsection 194J, relying upon the question no. 29 of circularNo. 715 dated 8th auguast,1995. In the said circular ithas been clearly mentioned that the routine, normalmaintenance contracts will be covered under section194C.

Training and seminar expenses

HELD

Payments made to various organisations towardsattending seminars by the employees of the assessecannot be considered as towards rendering of professionalservices by those training institutes as per the provisionsof section 194J.Therefore training and seminar expensesof the would not fall under the category of servicesrendered under section 194J and would be covered bysection 194C.

❉ ❉ ❉

contd. from page 457 Tribunal News

Controversies


Union of India Vs. Kamalakshi FinanceCorporation Ltd. (1993) (72 Taxman 43)(SC) (Tax Mag.)

“In the instant case, the High Court had rightly criticisedthe conduct of the Assistant Collectors and the harassmentto the Assessee caused by the failure of the officers togive effect to the orders of the Authorities higher thanthem in the appellate hierarchy. It could not be toovehemently emphasised that it is of utmost importance,that in disposing of the quasi-judicial issues before them,revenue officers are bound by the decisions of theAppellate Authorities. The orders of the AppellateCollector is binding of the Assistant Collectors workingwithin his jurisdiction and the order of the Tribunal isbinding on the Assistant Collectors and the AppellateCollectors who function under the jurisdiction of theTribunal. The principles of judicial discipline requirethat the order of higher appellate authorities should befollowed unreservedly by the subordinate authorities. Themere fact that the orders of the appellate authority isnot “Acceptable” to the department (which is anobjectionable phrase) and is the subject matter of anappeal can furnish no ground for not following it unlessits operation has been suspended by a competent court.If this healthy rule is not followed, the result will only beundue harassment to the assessee and chaos inadministration of tax laws.

It is clear that the observations of the High Court,seemingly vehement and apparently unpalatable to therevenue, were only intended to curb tendency in revenuematters, which if allowed to become widespread, couldresult in considerable harassment to the assessee-publicwithout any benefit to the revenue. The Departmentshould take these observations in the proper spirit. Theobservations of the High Court should be kept in mind infuture and utmost regard should be paid by theadjudicating authorities and the appellate authorities tothe requirements of judicial discipline and the need forgiving effect to the orders of the higher appellateauthorities which were binding on them”.

Air Conditioning Specialists Pvt. Ltd. VsUnion of India and Another (221 ITR 739)(Guj).

“The law declared by the highest court in the State isbinding on authorities or Tribunals under itssuperintendence and they cannot ignore it either ininitiating a proceeding or deciding on the rights involvedin such a proceedings.

xxxxxxxxxx

The Commissioner of Income-tax is a “Tribunal” subjectto the supervisory jurisdiction of the High Court underArticle 227 of the Constitution. Hence, he is bound toobey the law declared by the High Court. It is not opento the Commissioner of Income-tax to ignore the decisionof the jurisdictional High Court or refuse to follow it onthe ground that the verdict had not been accepted bythe Department and that the matter was carried furtherand was pending before the Supreme Court. When apoint is concluded by a decision of the court, allsubordinate courts and inferior Tribunals within theterritory of the State and subject to the supervisoryjurisdiction of the High Court are bound by it and mustscrupulously follow the said decision in letter and spirit.”

Standard Radiators Vs. Commissioner ofIncome-tax (165 ITR 178) (Guj)

“We may also refer to the decision of the Supreme Courtin East India Commercial Co. Ltd. Vs. Collector ofCustoms (AIR 1962 SC 1893). In this decision, SubbaRaoJ. observed (at pages 1904 and 1905)

‘The Division Bench of the High Court held that acontravention of a condition imposed by a licence issuedunder the Act is not an offence under Section 5 of theAct. This raises the question whether an administrativetribunal can ignore the law declared by the highest courtin the State and initiate proceedings in direct violation ofthe law so declared. Under Article 215, every High Courtshall be a court of record and shall have all the powersof such a court including the power to punish for contemptof itself. Under Article 226, it has a plenary power toissue orders or writs for the enforcement of fundamental

Advocate Tushar [email protected]

Judicial Analysis

1

Bind ing nature of deci s ions of theJurisdictional High Court and Tribunal 2

3


rights and for any other purpose to any person or authority,including in appropriate cases any Government, withinits territorial jurisdiction. Under Article 227, it hasjurisdiction over all courts and tribunals throughout theterritories in relation to which it exercises jurisdiction. Itwould be anomalous to suggest that a tribunal over whichthe High Court has superintendence can ignore the lawdeclared by that court and start proceedings in directviolation of it. If a tribunal can do so, all the subordinatecourts can equally do so, for there is no specific provision,just like in the case of the Supreme Court, making thelaw declared by the High Court binding on subordinatecourts. It is implicit in the power of supervision conferredon a superior tribunal that all the tribunals subject to itssupervision should conform to the law laid down by it.Such obedience would also be conducive to their smoothworking: otherwise there would be confusion in theadministration of law and respect for law wouldirretrievably suffer’.

In view of this decision of the Supreme Court, the Income-tax Officer and the Appellate Assistant Commissionerwere bound to follow the decision of this court inHasanaliKhanbhai’s case (1987) (165 ITR 195). If theyfailed to do so, it would undermine the respect for thelaw laid down by the High Court and the constitutionalauthority of the High Court and their conduct would,therefore, be apprehended by the principles underliningthe law of contempt.”

State of Andhra Pradesh Vs. CTO (169ITR 564) (AP)

“The Tribunals functioning within the jurisdiction of aparticular High Court in respect of whom the High Courthas the power of superintendence under Article 227 arebound to follow the decision of the High Court unless,on an appeal to the Supreme Court, the operation ofthe judgement is suspended. It is not permissible for theauthorities and the Tribunals to ignore the decisions ofthe High Court or to refuse to follow the decisions of theHigh Court on the pretext that an appeal has been filedin the Supreme Court which is pending or that steps arebeing taken to file an appeal. If any authority or theTribunal refuses to follow any decision of the High Courton the above grounds, it would be clearly guilty ofcommitting contempt of the High Court and is liable tobe proceeded against.”

East India Commercial Co., Ltd., CalcuttaAnd Another V. The Collector Of Customs,Calcutta. (1963) 3 SCR 338 (SC)

“It would be anomalous to suggest that a tribunal overwhich the High Court has superintendence can ignorethe law declared by that court and start proceedingsin direct violation of it. If a tribunal can do so, allthe sub-ordinate courts can equally do so, for there isno specific provision, just like in the case of SupremeCourt, making the law declared by the High Courtbinding on subordinate courts. It is implicit in thepower of supervision conferred on a superior tribunalthat all the tribunals subject to its supervision shouldconform to the law laid down by it. Such obediencewould also be conducive to their smooth working :otherwise there would be confusion in the administrationof law and respect for law would irretrievably suffer.We, therefore, hold that the law declared by thehighest court in the State is binding on authorities ortribunals under its superintendence, and that they cannotignore it either in initiating a proceeding or deciding onthe rights involved in such a proceeding. If that be so,the notice issued by the authority signifying the launchingof proceedings contrary to the law laid down by theHigh Court would be invalid and the proceedingsthemselves would be without jurisdiction.”

Garden Silk Mills Ltd. V. CommissionerOf Income-Tax. (1996) 221 ITR 861 –(Guj)

“It may happen that the decision of an appellateauthority or the Tribunal pertaining to an earlierassessment year on a particular point is in favour ofthe assessee and that is followed in the assessmentrelating to the subsequent assessment years. It mayhappen that the Commissioner may consider that sucha decision of the appellate authority or the Tribunal isnot in accordance with law and may also find that sucha decision is the subject-matter of further appeal orrevision as the case may be. He may expect that thehigher court or authority may decide in favour of theRevenue, but that may take a number of years. He maybe of the view that by the time of decision of the highercourt or authority arrives, a number of years may elapseby which time the exercise of the power under section263 may become barred. When an Assessing Officerhas passed an order on the basis of the law laid down bythe court, can it be said that the Assessing Officer’s order

4

5

6


Judicial Analysis


CA. Ashwin H. [email protected]

Statute Updates(A) Service Tax Judgements

In th is issue, judgement on Informat ionTechnology Services , Recovery of Service Taxshort levied and Penalty u/s 78 are reproducedbelow for the benefit of Members.

1 ) Whether service tax is leviable on Software/hardware purchased from third parties andsold on payment of VAT ? Further whetherservice tax is leviable on software whichassessee has developed as per customer’sspecifications ?

[2013] 32 taxmann.com 231 (Mumba i -CESTAT) CESTAT, MUMBAI BENCH 3iInfotech Ltd. v. Commissioner of Service Tax,Mumbai-II

Facts:-

Assessee was engaged in providing softwareinformation technology solutions. It procuredstandard software and hardware items such ascomputers, printers, etc. on which VAT was paid. Inaddition, assessee also developed software as perclient’s specifications and supplied customizedsoftware. Department sought levy of service tax.

Held:-

It was held that Software/hardware purchased fromthird parties and sold on payment of VAT cannot beliable to service tax - Liability to service tax wouldarise only in respect of software which assessee hasdeveloped as per customer’s specifications. Sincedetermination of correct service tax requiredexamination of relevant documents, matter wasremanded back to adjudicating authority. Thus theappeal is allowed by way of remand. The stayapplication is also disposed of .

2 ) Whe ther proceedings can be cont inuedaga inst asses see i f there was nocontumacious conduct on part of assesseeand he has on his own ascertained and paidtax with interest and informed such fact todepartment ?

[2013] 32 taxmann.com 316 (New Delhi -CESTAT) CESTAT, NEW DELHI BENCH A.B.R.Pet ro P roducts Ltd. v . Commiss ioner ofCentral Excise, Allahabad

Facts:-

Since the shortfall was detected , the Assesseedeposited tax with interest on basis of his ownascertainment but before issuance of show-causenotice and thereafter intimated about such depositto Department.

Held:-

It was held that when shortfall in payment wasdetected, before issuance of show cause notice theappellant deposited tax element with interest.Therefore no element of any contumacious conductcomes out from show cause notice. Section 73(3)does not require further proceedings, if the assesseeintimate about deposit of tax and interest on thebasis of its own ascertainment. Present appeal is ofsuch nature and accordingly appeal is allowed.

3 ) Whether penalty is leviable u/s 78 Whereassessee had not paid service tax only onbona fide belief that they have to pay ServiceTax after completion of entire service noton basis of account payment received inseveral lots ?

[2013] 35 taxmann.com 560 (Kol. - CESTAT)CESTAT, KOLKATA BENCH Act iveConstruction Co. v. Commissioner of CentralExcise & Service Tax, Jamshedpur

Facts:-

Assessee did not pay service tax despite collecting itfrom their clients. On being pointed out byDepartment, it paid service tax along with interest.Department issued notice seeking levy of penaltyunder section 78 on ground that assessee depositedservice tax only after being pointed out bydepartment and, thus, they intentionally suppressed



CA. Savan [email protected]

Export and Import of Currency

As part of providing greater flexibility to the residentindividuals travelling abroad, any person resident inIndia may take outside India or having gone out ofIndia on a temporary visit, may bring into India (otherthan to and from Nepal and Bhutan) currency notesof Government of India and Reserve Bank of Indianotes up to an amount not exceeding Rs. 10,000per person.

For full text refer to: A.P. (DIR Series) Circular No. 39

h t t p : / / w w w . r b i . o r g . i n / S c r i p t s /NotificationUser.aspx?Id=8387&Mode=0

Overseas Direct Investment – Amendment

Amendment to para2(iv)(b) of A. P. (DIR Series)Circular No. 69 dated May 27, 2011, which readsas under:

o Further, it has also been decided that issue ofcorporate guarantee on behalf of secondgeneration or subsequent level step downoperating subsidiaries will be considered underthe Approval Route, provided the Indian Partyindirectly holds 51 per cent or more stake in theoverseas subsidiary for which such guarantee isintended to be issued

For full text refer to:A.P. (DIR Series) Circular No. 41


Foreign Investment in India – Guidelines forcalculation of total foreign investment inIndian companies, transfer of ownership andcontrol of Indian companies and downstreaminvestment by Indian companies

Amendment to condition at (d) to Para 6 (ii) ofAnnex to A.P. (DIR Series) Circular No. 1 dated July04, 2013, which reads as under:

o For the purpose of downstream investment, theIndian companies making the downstreaminvestments would have to bring in requisitefunds from abroad and not use funds borrowedin the domestic market. This would, however,not preclude downstream operating companies,from raising debt in the domestic market.

Downstream investments through internalaccruals are permissible by an Indian company,subject to the provisions of clause 6(i) and asalso elaborated below:

For full text refer to:A.P. (DIR Series) Circular No. 42h t t p : / / w w w . r b i . o r g . i n / S c r i p t s /NotificationUser.aspx?Id=8408&Mode=0

Export of Goods and Services – Simplif icationand Revision of Declaration Form for Exports ofGoods/Softwares

Simplification of the existing form used fordeclaration of exports of Goods/Softwares, with acommon form called “Export Declaration Form”(EDF) has been devised to declare all types of exportof goods from Non-EDI ports and a common “SOFTEXForm” to declare single as well as bulk softwareexports.The EDF will replace the existing GR/PP formused for declaration of export of Goods. Theprocedure relating to the exports of goods throughEDI ports will remain the same and SDF form will beapplicable as hitherto. The EDF and SOFTEX formhave been given in Annex I and Annex II respectivelyto this circular.

Under the revised procedure, the exporters will haveto declare all the export transactions, including thoseless than US$25000, in the form as applicable.

For full text refer to:A.P. (DIR Series) Circular No. 43


Foreign Direct Investment (FDI) in India – Reviewof FDI policy – definition for control and sectorspecific conditions

Revision to the definition of the term ‘control’ givenin Annexure to A.P. (DIR Series) Circular 01 of July04, 2013 whereby the definitions for ownership andcontrol for an Indian company has been given, therevised definition readsas under:

o ‘Control’ shall include the right to appoint amajority of the directors or to control themanagement or policy decisions including byvirtue of their shareholding or management rightsor shareholders agreements or votingagreements.

Statute Updates(B) Foreign Exchange Management Act (FEMA)




Overseas fo rex t rading through e lectronic /internet trading portals

Strengthening the restrictions on online transactionslike trading in foreign exchange on portals / websitesoffering such schemes wherein initially funds areremitted from Indian bank accounts using credit cardsor other electronic channels to overseas websites /entities and subsequently receive cash refunds fromthe same overseas entities into their credit card orbank accounts which results in violation of FEMA.

A bank which comes across any prohibitedtransaction undertaken by its credit card or onlinebanking customer the bank will immediately closethe card or account of the defaulting customer andreport the same.



External Commercial Borrowings (ECB) Policy –Liberalisation of definition of Infrastructure Sector

Taking into account the Harmonised Master List ofInfrastructure sub-sectors and InstitutionalMechanism for its updation approved by Governmentof India vide Notification F. No. 13/06/2009-INF datedMarch 27, 2012, it has been decided to expand theexisting definition for infrastructure sector for thepurpose of availing ECB. The expanded infrastructuresector and sub-sectors definition can be found inthe full text of the circular.



Trade Credits for Import into India

On a review, it has been decided to allow companiesin all sectors to avail of trade credit not exceedingUSD 20 million up to a maximum period of fiveyears for import of capital goods as classified byDirector General of Foreign Trade (DGFT). It has alsobeen decided to relax the ab-initio contract periodof 15 (fifteen) months for all trade credits to 6 (six)months.

AD Category - I banks are, however, not permittedto issue Letters of Credit/guarantees/Letter of

Undertaking (LoU) /Letter of Comfort (LoC) in favourof overseas supplier, bank and financial institutionfor the extended period beyond three years.



Trade Credits for Imports into India – Review ofall- in-cost ceiling

On a review it has been decided that the all-in-costceiling as specified under paragraph 4 of A.P. (DIRSeries) Circular No.28 dated September 11, 2012will continue to be applicable till March 31, 2014and is subject to review thereafter.



External Commercial Borrowings (ECB) Policy –ECB proceeds for acquisit ion of shares underthe Government’s disinvestment programme ofPSUs - Clarification

It is clarified that ECB is allowed for all subsequentstages of acquisition of shares in the disinvestmentprocess under the Government’s disinvestmentprogramme of the PSU shares; in other words, facilityof ECB is available for multiple rounds ofdisinvestment of PSU shares under the Governmentdisinvestment programme.



External Commercial Borrowings (ECB) Policy –Refinancing/Rescheduling of ECB

On a review, it has been decided to discontinue thisfacility allowing eligible borrowers to raise ECB at ahigher all-in-cost to refinance / reschedule an existingECB with effect from October 01, 2013.

The scheme of refinance of existing ECB by raisingfresh ECB at lower all-in-cost, subject to the conditionthat the outstanding maturity of the original ECB iseither maintained or extended, will continue ashitherto under the automatic route and approval routeas the case may be.



❉ ❉ ❉

(B) Foreign Exchange Management Act (FEMA)


CA. Bihari B. [email protected].

Statute Updates(C) Value Added Tax (VAT)

[I] Important Notifications/Circulars:

[A] Public Circular:

The Commissioner of Commercial Taxes has issueda Public Circular dated 9.10.2013 in respect of DigitalSignature. The department is ready to accept digitalsignature for the purpose of signing invoices, deliverychallans, cash memo, debit note, credit note andstock transfer note. For availing of this facility, thedealer has to inform the related Registering Authoritythat he wants to use the digital signature by way ofdeclaration and thereafter the dealer can use thedigital signature on the above referred documents.This facility is voluntary.

[B] Notification:

Addition in Rule 28C Sub-rule 6 after clause(b ).

The Deputy Secretary to the Government of FinanceDepartment has issued the Notification dated8.10.2013 and by this Notification the dealers ofHotels, Restaurants and Caterers who have optedthe composition tax may purchase goods which arenot produced in the state due to legal constraintsfor the purpose of sale in the same form subject tothe following conditions;

[i] such dealer shall be liable to pay the tax u/s. 7on the turnover of the sales of such goods;

[ii] such sale shall not be included in the totalturnover of sale for calculating the amount ofLump sum Tax;

[iii] such dealer shall keep separate account for thepurchase and sale of such goods;

This Notification has been come into operation w.e.f.17.08.2006. By this Notification, some relaxationsare given to the dealer under Rule 28C.

[II] Important Judgments : (Works Contract)

Supreme Court in case of M/s. L & T on26.09.2013.

The Larger Bench of Hon. Supreme Court hasapproved the judgment of Smaller Bench of SupremeCourt in case of Raheja Development in respect ofWorks Contract.

The issue was whether the Small Bench Decision ofthis Court in Raheja Development laid down thecorrect legal position? This question in case of M/s.Larsen & Toubro has referred to the matter ofconstruction by the larger bench. In this issue, theprovision of Vat Act of State of Karnataka andMaharashtra are involved, however the same areapplicable to the Works Contract of the State ofGujarat and the developer of Gujarat has to pay theVat in the Works Contract till its completion of theconstruction and therefore this judgment is useful.

As per L & T the development agreement was not aworks contract on account of following reasons.

[a] the agreement was to develop and market flatsto customers;

[b] the intent and purpose of the agreement wasto develop property by the petitioners on theone hand and the land owner on the other;

[c] the construction and development of the saidland involved no monetary consideration; and

[d] the only consideration was that upon thecompletion of the entire project, L & T wouldbe entitled to 75 per cent of the same.

Initially, L & T preferred a writ petition before thisCourt challenging the above demands but that writpetition was withdrawn and a writ petition underArticle 226 of the Constitution of India was filedbefore the Karnataka High Court.

The Single Judge of the Karnataka High Court notedthat the controversy raised by the L & T was coveredby the decision of this Court in Raheja Development


and accordingly, dismissed the writ petition on10.07.2007 by observing as follows:

“From the aforesaid observations of the Apex Courtit is very much clear that as the petitioner No. 1 hadentered into an agreement to carry out constructionactivity on behalf of someone else for cash or fordeferred payment or for any other valuableconstruction, it would be carrying out works contractand therefore would become liable to pay turnovertax on the transfer involved in such work contracts.It is also not in dispute in this matter that theagreement of sale is entered into between the firstpetitioner and the buyers of the flat even prior tocompletion of the construction of the building. Undersuch circumstances, as has been held by the ApexCourt in the RAHEJA DEVELOPMENTCORPORATION’s Case, the petitioners are liable topay the turnover tax on the transfer of goods involvedin such ‘works contract’. In view of the dictum laiddown by the recent judgment cited supra, this Courtdoes not find any merit in this writ petition.

Criticizing the conclusions drawn in paragraph 20 ofthe judgment in Raheja Development, it is arguedby Mr. Rohinton F. Nariman that these conclusionsare incorrect for:

[a] the well known tests to determine as to whethera particular contract is a ‘works contract’ or‘contract of sale’ have not been adverted to;

[b] the contract is not read a whole. Its substanceand the main object has not been looked atand one phrase is torn out of context withoutadverting to any other part of the contract andbased on this reasoning the contract is said tobe a works contract;

[c] though it is noticed that construction/development is to be on payment of a price invarious installments but does not draw anyconclusion from it;

[d] it is noticed that developer has a lien on theproperty but incorrectly states that the lien isbecause they are not owners. The lien isobviously so that if monies are not recoveredfrom the prospective flat purchasers, the liencan be exercised, showing thereby that the

(C) Value Added Tax (VAT)

contract is a contract of an agreement to sellimmovable property;

[e] after noticing that developer can terminate theagreement if any one installment is not paidand can forfeit 10% of the amount that hasbeen paid and can ultimately resell the flat, itis held that the presence of such a clause doesnot mean that the agreement ceases to be a‘works contract’ without appreciating that sucha clause would have no place in a works contractand can only be inconsistent with the contractfor the sale of immovable property in as muchas termination can take place if the entireconsideration for the immovable property is notpaid;

[f] it is stated that if there is termination but thereis no re-sale, there would be no works contractonly to that extent which is again whollyincorrect because post termination whathappens to a particular flat is of no relevancein as much as the prospective flat purchasergoes out of the picture; and

[g] a flat being constructed and a flat underconsideration is a distinction without a differencefor the reason that the judgment notices that ifthe agreement is entered into after the flat isalready constructed, there would be no ‘saleand no ‘works contract’. This is obviously forthe reason that the flat has already beendeveloped by the developer using his materialand his plan and is sold as such to a purchaser.

While referring to Section 2(24) of MVAT Act, it issubmitted by the learned senior counsel that a plainreading of amended explanation b(ii) to section 2(24)of that Act will show that the said provision has notbrought within its scope transactions which are notin their substance works contract. The amendmentbrought in explanation b(ii) to section 2(24) is merelyexplanatory in nature. Even after the amendment,the transaction in which there is transfer of propertyin goods has to be works contract. The amendmentcannot be interpreted to mean that transfer ofproperty in goods in execution of any agreementeven if it is not a works contract has now beenincluded in the definition of sale. Such interpretationwill render the provision unconstitutional. Learned


senior counsel submits that the manner in whichthe State Government is expanding scope of section2(24) on the basis of the decision of this Court inRaheja Development, it has rendered the saidprovision unconstitutional. According to Dr. AbhishekManu Singhvi, Raheja Development, therefore needsto be reconsidered and overruled.

Where a contract comprises of both a works contractand a transfer of immovable property, such contractdoes not denude it of its character as works contract.Article 366(29-A)(b) does contemplate a situationwhere the goods may not be transferred in the formsof goods but may be transferred in some other formwhich may even be in the form of immovableproperty. The decision of the Australian High Courtin M. R. Hornibrook is worth noticing in this regard.Section 3(4) of the Australian Sales Tax AssessmentAct, 1930 was brought in by way of amendment bythe Legislature in 1932 which reads, “ For thepurposes of this Act, a person shall be deemed tohave sold goods if, in the performance of any contractunder which he has received, or is entitled to receive,valuable consideration, he supplies goods theproperty in which whether as goods (or in some otherform) passes, under the terms of the contract, tosome other person”. The question for considerationbefore the Australian High Court in light of the aboveprovision was whether the contractor was liable topay sales tax on the transfer of goods involved in aworks contract. The majority judgment held asfollows.

“ In our opinion the Commissioner is right in hiscontention that this provision applies to the presentcase. The appellant company in the performance ofa contract for building a bridge under which contractit was entitled to receive and doubtless has receivedvaluable consideration, has supplied goods, namely,reinforced concrete piles. Such piles are plainlymanufactured articles. They are chattels. They wereintended to be incorporated in a structure and wereso incorporated. They lost their identity as goods inthat structure. But this fact does not prevent thepiles from being goods any more than it preventsbricks or stones or nuts and bolts from being goods.The fact that the goods were specially manufacturedand designed for a particular purpose cannot be heldto deprive them of the character of goods.”

Decision:

Once Supreme Court has held that Raheja Developmentlays down the correct law, in our opinion, nothing turnson the circular dated 07.02.2007 and the notificationdated 09.07.2010. The circular is a trade circular whichis clarificatory in nature only. The notification enablesthe registered dealer to opt for a composition scheme.The High Court has dealt with the circular and notification.We do not find any error in view of the High Court in thisregard. Moreover, The Advocate General of Maharashtraclearly stated before us that implementation of Rule 58(1-A) shall not result in double taxation and in any case allclaims of alleged double taxation will be determined inthe process of assessment of each individual case.

❉ ❉ ❉

facts with an intent to evade payment of servicetax.

Held:-

It was held that the Show-cause notice nowherestated that unpaid/escaped service tax was a resultof fraud or collusion or wilful misstatement orsuppression of facts or contravention of any provisionsof service tax law or rules made thereunder withintent to evade payment of service tax . Assesseehad bona fide belief that service tax was not payable

contd. from page 465 (A) Service Tax Judgments

in respect of ‘on-account’ payments. Sincedepartment could not bring out any suppression orwilful misstatement or any intention to evade servicetax on part of assessee, no penalty could be imposedunder section 78 in view of judgment in Union ofIndia v. Rajasthan Spg. & Wvg. Mills [2009] 180Taxman 609/20 STT 481 (SC).

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(C) Value Added Tax (VAT)


CA. Naveen [email protected]

Statute Updates(D) Corporate Laws

(A ) SEBI Updates:

1 . Amendments to SEBI (Alternative InvestmentFunds) Regulations, 2012

Through the Securities and Exchange Board of India(Alternative Investment Funds) (Amendment)Regulations, 2013, “Angel Funds” have beenincluded in the definition of ‘Venture Capital Funds’and a separate Chapter has been inserted specificto such funds. Angel funds shall raise funds onlyfrom angel investors. In view of the high riskinvestments of such funds, certain conditions havebeen imposed on investors.

Angel Funds shall have a corpus of atleast Rs.10crore (as against Rs. 20 crore for other AIFs) andminimum investment by an investor shall be Rs. 25lakhs (may be accepted over a period of maximum3 years).

“Angel Fund” means a sub category of VentureCapital Fund under Category I- AlternativeInvestment Fund that raises funds from angelinvestors and invests in accordance with theprovisions specified under Rule 19F of the saidRegulations.

“Angel Investor” means any person who proposesto invest in any angel fund and satisfies any one ofthe three conditions specified under Rule 19A of thesaid Regulations.

(PR No. 88/2013 and Notification No. LAD-NRO/GN/2013-14/24/6573 dated September16, 2013)

2 . Stringent provisions for Investor GrievanceRedressal Mechanism

SEBI has decided to shorten the time taken for theproceedings as well as to give monetary relief tothe investors, during the course of pendency ofproceedings.

Stock Exchanges shall ensure that all complaints areresolved at their end within 15 days. Thecorrespondence with the Member & investor (whois client of a Member) may be done on email if theemail id of the investor is available in the UCCdatabase. The Member (Stock Broker, TradingMember and Clearing Member) shall provide adedicated email id to the stock exchange for thispurpose.

In case the matter does not get resolved, InvestorGrievance Redressal Committee (IGRC) shall be

allowed a time of 15 days to amicably resolve theinvestor complaint. In case the matter is not resolvedthrough the conciliation process, IGRC wouldascertain the claim value admissible to the investor.

Upon conclusion of the proceedings of IGRC, i.e. incase claim is admissible to the investor, StockExchanges shall block the admissible claim valuefrom the deposit of the Member. In case, theMember does not opt for arbitration, the StockExchange shall, release the blocked amount to theinvestor after the aforementioned 7 days.

(CIR/MRD/ICC/30/2013 dated September 26,2013)

3 . Securities and Exchange Board of India (StockBrokers and Sub-Brokers) (SecondAmendment) Regulations, 2013.

Securities and Exchange Board of India (Stock Brokersand Sub-Brokers) Regulations, 1992 have beenamended and definitions of clearing corporation,clearing member, proprietary trading member, self-clearing member, stock broker and other provisionsrelated to registration of Stock Brokers and ClearingMembers have been substituted by the newprovisions.

(Notification No. LAD-NRO / GN / 2013-14 /25 / 24775 dated September 27, 2013)

4 . SEBI permits contracts for pre-emption andoptions in shareholders agreements.

By this notification, the SEBI has permitted contractsfor pre-emption including right of first refusal, tag-along or drag-along rights contained in theshareholders agreements or articles of associationof companies. SEBI has also permitted contractscontaining an option for purchase or sale of securitiessubject to fulfillment of certain conditions.

The contracts permitted under this notification shallbe in accordance with the provisions of ForeignExchange Management Act, 1999.

[PR No. 98/2013 dated October 03, 2013]

(B ) MCA Updates:

1 . Cla r if icat ion on the Not if i cat ion da ted12.09.2013.

By this notification, the MCA has clarified that w.e.f.12.09.2013, the relevant provisions of theCompanies Act, 1956, which correspond to


provisions of 98 sections of the Companies Act, 2013brought into force on 12.09.2013, cease to haveeffect from that date.

[Circular No. 16/2013 F. No. 01/12/2013-CL-V dated 18.09.2013]

2 . Companies (Removal of Difficulties) Order,2013.

Some difficulties have arisen regarding compliancewith the provisions of section 24, section 58 andsection 59 of the Companies Act, 2013 in so far asthey relate to exercise of certain powers by theTribunal during the period it is duly constituted underthe said Act.

To remove such difficulties, the MCA has clarifiedthat until a date is notified by the CentralGovernment under sub-section (1) of section 434 ofthe Companies Act, 2013 (18 of 2013) for transferof all matters, proceedings or cases to the Tribunalconstituted under Chapter XXVII of the said Act, theBoard of Company Law Administration shall exercisethe powers of the Tribunal under sections 24, 58and section 59 in pursuance of the second provisoto sub-section (1) of section 465 of the said Act.

[F. No.1/15/2013-CL-V dated 20th September,2013]

(C ) Latest Judgements:

Sahara India Real Estate Corporation Limited& Ors v/s. Securities and Exchange Board ofIndia & Anr.

Following are the Questions of Law and Observationsof The Supreme Court of this landmark decision:

a. Whether SEBI has jurisdiction or power toadminister the provisions of Sections 56, 62,63, 67, 73 and the related provisions of theCompanies Act, after the insertion of Section55A(b) w.e.f. 13.12.2000, by the Companies(Amendment) Act, 2000, so far as it relates toissue and transfer of securities by listed publiccompanies, which intend to get their securitieslisted on a recognized stock exchange andpublic companies which have issued securitiesto fifty persons or more without listing theirsecurities on a recognized stock exchange;

SEBI has the powers to administer theprovisions referred to in the opening partof Section 55A which relates to issueand t ransfer of se cur i t ies and non-payment of dividend by public companiesl ik e Saharas, which have issuedsecurities to fifty persons or more, thoughnot l is t ed on a recognized stock

exchange, whether they intended to listtheir securities or not.

b. Whether the public companies referred inquestion no. (a) is legally obliged to file thefinal prospectus under Section 60B(9) with SEBIand whether Section 60B, as it is, falls underSection 55A of the Companies Act;

Saharas were legally obliged to file thefinal prospectus under Section 60B(9)with SEB I, fa i lure to do so att ra ctscriminal liability.

c. Whether Section 67 of the Companies Actimplies that the company’s offer of shares ordebentures to fifty or more persons would ipsofacto become a public issue, subject to certainexceptions provided therein and the scope andambit of the first proviso to Section 67(3) of theAct, which was inserted w.e.f. 13.12.2000 bythe Companies (Amendment) Act, 2000.

Section 73 of the Act casts an obligationon a public company to apply for listingof its securities on a recognized stockexchange, once it invites sub scriptionfrom f i f ty o r more pe rsons , wh ichSaharas have violated and they have torefund the money col l ected to theinvestors with interest.

d. What is the scope and ambit of Section 73 ofthe Companies Act and whether it casts anobligation on a public company intending tooffer its shares or debentures to the public, toapply for listing of its securities on a recognizedstock exchange once it invites subscription fromfifty or more persons and what legalconsequences would follow, if permission undersub-section (1) of Section 73 is not applied forlisting of securities;

Section 73 of the Act casts an obligationon a public company to apply for listingof its securities on a recognized stockexchange, once it invites subscriptionfrom f i f ty o r more pe rsons , wh ichSaharas have violated and they have torefund the money col l ected to theinvestors with interest.

e. What is the scope and ambit of DIP (Guidelines)and ICDR 2009 and whether Sahara hadviolated the various provisions of the DIP(Guidelines) and ICDR2009, by not complyingwith the disclosure requirements or investorprotection measures prescribed for public issueunder DIP (Guidelines) and ICDR 2009, therebyviolating Section 56 of the Companies Act;

(D) Corporate Laws


Saharas have vio lated the DIPGuidelines and ICDR 2009 and by notcomplying wi th the dis closurerequirements and investor protectionmeasures for public, and also violatedSection 56 of the Companies Act whichmay attract penal provisions.

f. Whether Rules, 2003 framed by the CentralGovernment under Section 81(1A) of theCompanies Act read with Section 642 of theAct are applicable to any offer of shares ordebentures to fifty or more as per the firstproviso to sub-section (3) of Section 67 of theCompanies Act and what is the effect of UPC(PA) Amendment Rules 2011 and whether itwould operate only prospectively making itpermissible for Saharas to issue OFCDs to fiftyor more persons prior to 14.12.2011;

2003 Rules or the 2011 Rules cannotoverride the provisions of Section 67(3)and Sect ion 73, be ing subordinatelegis la t ions, 2003 Rules are a lso notappl i lcable to any offer of shares ordebentures to more than fo rty n inepersons and are to be read subject tothe proviso to Section 67(3) and Section73(1) of the Companies Act.

g. Whether after the insertion of the definition of‘securities’ in Section 2(45AA) as “includinghybrids” and after insertion of the separatedefinition of the term “hybrid” in Section 2(19A)of the Act, the provision of Section 67 wouldapply to OFCDs issued by Saharas and what isthe effect of the definition clause 2(h) of SCRAct on it;

OFCDs is sued by Saharas have thecharacteristics of shares and debenturesand fall within the definition of Section2(h ) of SCR Act . The def in it ion of‘securities’ under Section 2(45AA) of theCompanies Act includes ‘hybrids’ andSEBI has jurisdiction over hybrids l ikeOFCDs is sued by Sahara s, s ince theexp ress ion ‘secur it ies’ has beenspecifically dealt with under Section 55Aof the Companies Act.

h. Whether OFCDs issued by Saharas areconvertible bonds falling within the scope ofSection 28(1)(b) of the SCR Act, therefore, not‘securities’ or, at any rate, not listable underthe provisions of SCR Act;

Section 28(1)(b) of the SCR Act indicatesthat it is only convertib le bonds and

share/warrant of the type referred totherein, which are excluded from theappl icabil i ty of the SCR Act and notdebentures, which are separate categoryof securities in the definition containedin Section 2(h) of SCR Act. Contentionof Saharas that OFCDs issued by themare convertible bonds issued on the basisof the price agreed upon at the time ofissue and, therefore, the provisions ofSCR Act, would not apply, in view ofSection 28(1)(b) cannot be sustained.

i. Whether SEBI can exercise its jurisdiction underSections 11(1), 11(4), 11A(1)(b) and 11B of theSEBI Act and Regulation 107 of ICDR 2009 overpublic companies who have issued shares ordebentures to fifty or more, but have notcomplied with the provision of Section 73(1) bynot listing its securities on a recognized stockexchange.

SEBI can exercise its jurisdiction underSections 11(1), 11(4), 11A(1)(b) and 11Bof SEBI Act and Regulation 107 of ICDR2009 over public companies who haveissued shares or debentures to fifty ormore, bu t not comp lied with theprovisions of Section 73(1) by not listingits secu r it ie s on a recognized stockexchange.

j. Scope of Section 73(2) of the Companies Actregarding refund of the money collected fromthe Public;

Saharas are legally bound to refund themoney col lected to the investors, asprovided under Sect ion 73(2) of theCompanies Act read with Rule 4D of theCompanie s (Centra l Government ’s )General Rules and Forms, 1956 and theSEBI has the power to enforce thoseprovisions.

k. Civil and Criminal liability under the variousprovisions of the Companies Act.

Saharas’ conduct invit es c iv i l andcriminal liability under various provisionslike Sections 56(3), 62, 68, 68A, 73(3),628, 629 and so on.

[CIVIL APPEAL NO. 9813 OF 2011 withCIVIL APPEAL NO. 9833 OF 2011]

❉ ❉ ❉

(D) Corporate Laws


Income Tax

1) CBDT hereby issues circular regarding the ratesof deduction of income-tax from the paymentof income chargeable under the head Salariesduring the financial year 2013-14 and certainrelated provisions of the Income Tax Act.(Forfull text refer Circular no 08, dated 10/10/2013)

2) CBDT hereby amends rule 44(E) by inserting formno. 34EA [Form of application for obtaining anadvance ruling u/s 245Q(1)] in respect of anapplicant referred to in sub-clause (iiia) of clause(b) of section 245N of the Income Tax Act. ( Forfull text and form 34EA refer notificationno. 76, dated 24-09-2013)

Service Tax

1 ) Amendements i n Mega exemptionNotification No.25/2012

The Central Government hereby inserts entry‘19A’ after entry ‘19’ by further amending thenotification No.25/2012-Service Tax, dated the20th June, 2012,which is as under:-

Services provided in relation to serving of foodor beverages by a canteen maintained in afactory covered under the Factories Act, 1948(63 of 1948), having the facil ity of air-

conditioning or central air-heating at any timeduring the year.”.

(Refer Notification No. 14, dated 22-10-2013)

2 ) Clarification regarding Restaurant Service

Clarification regarding the exemption of servicesprovided by specified restaurants is as under:-

a ) In a complex where air conditioned as wellas non-air conditioned restaurants areoperational but food is sourced from thecommon kitchen, then service tax will notbe leviable on service provided in the nonair-conditioned / non-centrally air-heatedrestaurant.;

b ) In a hotel, if services are provided by aspecified restaurant in other areas e.g.swimming pool or an open area attachedto the restaurant, then service tax is leviableon such service.

c ) If goods are sold on MRP basis (fixed underthe Legal Metrology Act) they have to beexcluded from total amount for thedetermination of value of service portion.

(For full text refer circular No.173/8/2013– ST dated 07-10-2013)

❉ ❉ ❉

CA. Kunal A. [email protected]

Statute Updates(E) Circulars and Notifications

(Income Tax and Service Tax)

Before you start some work, always ask yourself three

questions - Why am I doing it, What the results might be

and Will I be successful. Only when you think deeply and

find satisfactory answers to theses questions, go ahead.

- Chanakya


AS-29 Provis ions, Contingent Liabi l it ies andContingent Assets

Archidply Industries L imited - Annual Report2012-2013.

Notes to Financia l st atements For The YearEnded March 31,2013

Notes-29 Contingent Liabilities and Commitments

1 ) Contingent Liabilities

a) on account of demerger of plywood & blockboard and particle & laminated board (bothdivision) of The Mysore Chip Boards Limited inthe financial year 2007-2008

i. Various parties had filed a civil suit forrecovery of dues/damages against TheMysore Chip Boards Limited, which hasbeen disputed by The Mysore Chip BoardsLimited and deposited an amount ofRs.11,46,419/- (P.Y. Rs. 11,46,419/-) withHon’ble High Court of Gujarat. The saidamount of Rs. 11,46,419/-(P.Y.Rs.11,46,419/-)

As at 31st March, 2013 - Rs.12,28,606/-

As at 31st March, 2012 - Rs.12,28,606/-

ii. The Company, for and on behalf of TheMysore Chip Boards Limited has given aguarantee towards a show cause noticeissued by the Excise Departmentdemanding dues from The Mysore ChipBoards Limited. However The Mysore ChipBoards Limited had deposited an amountof Rs.16,00,000/- (P.Y.Rs,16,00,000/-) withCentral Excise Department. The MysoreChip Boards Limited had filed an appeal &disputed the said demand and the demandhas been reduced to Rs,81,01,637/-(P.Y.Rs.81,01,637/-) and the penalty of thesame amount by Commissioner of CentralExcise, Mysore on 05/10/2006. The MysoreChip Boards Ltd has filed an appeal toCustom, Excise & Service Tax AppellateTribunal, Bangalore and obtained a stay

order against that demand. The tribunal hasremanded back the case to theCommissioner of Central Excise for takingfresh decision after following the principlesof natural justice. The department has filedthe appeal before the Hon’ble SupremeCourt against the order of the Tribunal.

As at 31st March, 2013 - Rs.81,01,637/-

As at 31st March, 2012 - Rs.81,01,637/-

b) The company has received show cause noticeissued by the Excise Department,Commissionate Meerut–ll demandingRs.4,41,92,921/- for period from April 2006 toDecember 2010 and Rs.2,00,10,661/-for periodfrom Jan 2011 to March 2012 for production ofphenol formaldehyde resin at its Rudrapur Unitwhich Company is using for its own production.Final order dtd 29.03.2013 received from ExciseDepartment, Commissionate Meerut –llconfirming the demand along with penalty forthe same amount. The company is going forappeal to the tribunal.

As at 31st March, 2013 - Rs. 6,42,03,582/-

As at 31st March, 2012 - Rs. 4,41,92,921/-

c) The Deputy Commissioner of Sales tax Rudrapurhas demanded Rs. 49,98,319/- related tofinancial year 2007-08 and Rs.1,36,687/- relatedto financial year 2006-07 and interest on aboveamount till date. The Company has depositedRs.11,57,615/- and filed appeal with JointCommissioner Appeal-l, Sales Tax Uttarchandagainst same demand.

As at 31st March, 2013 - Rs. 51,35,004/-

As at 31st March, 2012 - Rs. 51,35,004/-

The Company has filed appeal with the Tribunalagainst the order of the Commissioner for theavailment and utilization of irregular cenvat credittaken on capital expenditure at Chintamani Unitamounting to Rs.43,03,304/- for the financialyear 2011-12. The Company has reversed theamount of Rs.30,45,832/- and charged it to profit

CA. Pamil H. [email protected]

From Published Accounts


& loss account. The credit of an amount ofRs.12,57,472/- is under litigation.

As at 31st March, 2013 - Rs. 12,57,472/-.

As at 31st March, 2012 – Rs. Nil.

f) The Company has imported plant and machineryunder EPCG Scheme on which it has availedDuty benefit.

As at 31st March, 2013 - Rs. 2,35,35,321/-

As at 31st March, 2012 – Rs. 3,07,94,751/-

Raw material under Advance Licence schemeand availed a duty benefit.

f) The Company has done total export ofRs.12,89,84,665/- which shall be adjustedagainst the export obligation for EPCG &cancellation of advance license

The Company has undertaken Domesticfinancial institutions.

As at 31st March, 2013 - Rs. Rs.8,18,52,846/-

As at 31st March, 2012 - Rs.10,02,99,387/-

Guarantees given by the bank on behalf of theCompany.

As at 31st March, 2013 - Rs. 1,60,50,147/-

As at 31st March, 2012 - Rs. 97,38,542/-

2 ) Commitments :

i . Estimated amount of contracts remaining to beexecuted on capital account not provided for(net of advances)

As at 31st March, 2013 - Rs.4,34,01,904/-

As at 31st March, 2012 - Rs. Nil/-

i i . The Company, during the year has capitalizedinterest on loan (borrowing cost) amounting

As at 31st March, 2013 - Rs.7,38,808/-

As at 31st March, 2012 - Rs.Nil

Significant Accounting Policies

14. Provis ion Cont ingent Liabi l i t ies andContingent Assets :

Provision is recognized when there is a presentobligation as a result of a past event thatprobably requires an outflow of resources and areliable estimate can be made of the amount of the

obligation. Disclosure for contingent liability is madewhen there is a possible or a present obligation thatmay, but probably will not, require an outflow ofresources. No provision is recognized or disclosurefor contingent liability is made when there is apossible obligation or a present obligation and thelikelihood of outflow of resources is remote.Contingent Asset is neither recognized nor disclosedin the financial statements.

BEML Limited 49th Annual Report 2012-2013

D. Contingent Liabilities & Commitments

1 ) Contingent Liabilities

A . Cla ims aga ins t the company notacknowledged as debts

i. Disputed statutory demands (Customs Duty,Central Excise, Service Tax Sales Tax/VAT)Rs. 5452.75 Lakhs (P.Y. Rs.2459.40 Lakhs).

ii. Other claims – legal cases etc. Rs. 5116.17Lakhs (P.Y. Rs.3196.17 Lakhs)

B . Guarantees

Corporate Guarantee issued to bankers onbehalf of M/s BEML Midwest Ltd (Joint Venturecompany) Rs.1912.50 Lakhs (P.Y. Rs1912.50Lakhs).

C . Other money for which the Company iscontingently liable Rs. Nil (P.Y. Rs. Nil)

2 ) Commitments :

a . Estimated amount of contracts remaining to beexecuted on capital account and provide forRs.2414.20 Lakhs(P.Y. Rs.12934.25 Lakhs).

b . Unclaimed liability on share and otherinvestments party paid Rs. Nil (P.Y.Rs. Nil)

c . Other commitments (specify nature) Rs. Nil (P.Y.Rs. Nil)

Notes

1 . The company does not expect any re-imbursementin respect of above contingent Liabilities.

2 . It is not practicable to estimate the timing of cashflow, If any, in respect of matters referred in I(a)above pending resolutions of the arbitration/appellate proceedings.

3 . The cash flow in respect of matters referred to inI(b) above is generally expected to occur Within 3years.



Oriental Trimax Limited - Annual Report 2012-2013

I I . Contingenti Liabilities & Commitments

(A ) Contingenti Liabilities

A) Claims against the Company not acknowledgedas debts

AS AT AS AT31.03.13 31.03.12

Rs. in lacs Rs. in lacs

Sales Tax 40.41 40.41

Income Tax —- —-

Custom Duty 9.36 9.36

Excise Duty —- —-

b) Bank Guarantees 108.78 228.78

c) Guarantees issued toCustoms Authorities 6.42 6.42

d) Letters of credit 88.85 524.11

e) Custom Duty payableagainst export obligation 48.69 48.69


B ) Commitments

a) Estimated amount of contracts remaining to beexecuted on capital account and not providedfor.

b) The Company is under obligation to export goodswithin a period of eight years from the issue ofEPCG licences issued in terms of para 5.2 ofForeign Trader Policy 2009-2014. As on the dateof balance sheet, the company is underobligation of export goods wroth Rs. 496.15 lacs(P.Y. Rs. 496.15 lacs) within the stipulated timeas specified in the respective licenses. Out ofthe said amount, the company has fulfilled theexport obligation of Rs.57.08 lacs (P.Y. 57.08)inrespect of which application for export obligationdischarge certificates (EODC) has been filed withthe Director General Foreign Trade (DGFT) withinthe stipulated time.

❉ ❉ ❉

is erroneous ? We are of the view that exercising ofthe power to review in such a situation is not inaccordance with law for the simple reason that theorder of the assessing authority cannot be said to beerroneous as he has rendered the decision followingthe decision of a higher authority or a court on thesame point. It is required to be note that the decisionsreached by the Tribunal or the High Court are bindingupon the Assessing Officer and discipline demands thathe should follow the decision of the Tribunal or theHigh Court, as the case may be. It is not open for himto ignore the same on the ground that the Tribunal’s orthe High Court’s ruling on the question is the subject-matter of revision or appeal before the higher forum. Ifhe is permitted to take such a view, it would introducenothing but judicial indiscipline, which is not calledfor. It would lead to a chaotic situation. The grievanceof the Revenue may be real and substantial in certaincases but such situation cannot be provided for by judicialinterpretation by courts but only by an appropriateagency (Russell Properties Pvt. Ltd. v. Addl. CIT [1977]109 ITR 229 (Cal) and K. N. Agrawal v. CIT [1991] 189ITR 769 (All).”

Assistant Collector of Central Excise,Chandan Nagar V. Dunlop India Ltd., AndOthers. (1985) 154 ITR 172 (SC)

“We desire to add and as was said in Cassell and Co.Ltd. v. Broome [1972] AC 1027 (HL), we hope it willnever be necessary for us to say so again that “in thehierarchical system of courts” which exists in our country,“it is necessary for lower tier”, including the High Court,“to accept loyally the decisions of the higher tiers”. “It isinevitable in a hierarchical system of courts that thereare decisions of the supreme appellate tribunal whichdo not attract the unamimous approval of all membersof the judiciary.... But the judicial system only works ifsomeone is allowed to have the last word and that lastword, once spoken, is loyally accepted” (See observationsof Lord Hailsham and Lord Diplock in Broome v. Cassell).The better wisdom of the court below must yield to thehigher wisdom of the court above. That is the strengthof the hierarchical judicial system.”

❉ ❉ ❉

7

contd. from page 464 Judicial Analysis


IBM to contest IT Department's Rs. 5357 CroreTax Notice

(IBM), the world’s largest technology services firm, saidon Friday that it was contesting a tax notice of Rs5,357crore ($865 million) sent to its Indian unit by the incometax department, which accused the company of under-reporting profit for the 2009 fiscal year.

“Fundamental to IBM’s culture and business model isthat we act with integrity wherever we do business. Wehave demonstrated our commitment to integrity sincewe began operations in India. IBM has taken this taxdispute for judicial recourse,” an IBM spokeswoman saidin an email response.

On Friday, DNA newspaper reported that the I-Tdepartment had slapped a notice on IBM India, allegingthat the company had evaded tax under the exportpromotion scheme of the Software Technology Parks ofIndia (STPI).

The notice alleges that IBM under-reported profit for thefiscal year ended March 2009, reporting only 20-30% ofwhat it earned in total, the report said.

Under STPI rules, IT firms doing business in India canavail of income tax benefits for exporting software.

That dated back to 2011-2012 and involved staff workingin IBM India’s software services division, the report saidciting people familiar with the development, whorequested anonymity.

Over the last decade, IBM has built up a local workforceof over 150,000 in India, generating close to $3 billion inrevenue, according to industry estimates. IBM does notdisclose a region-wise breakup of revenue.

(Source: The Live mint)

Sensex Scales new all time high of Rs. 21294

Aggressive buying by foreign institutional investors amidample liquidity in wake of the US Fed postponing itsmonetary stimulus measures provided the perfect fuel toboost the Sensex to a new all-time high of 21,294 in theweek ended November 1, 2013.

In the week to November 1, the 30-share Sensex gained2.5% or 513 points to end at 21,197 and the Nifty endedup 2.6% or 163 points to end the week at 6,307.

On Friday, the last trading day of the week, the Sensexcatapulted to a new intra-day high of 21,294 surpassing

the previous record high of 21,206.77 on January 10,2008.

Meanwhile, data shows that investors have shifted theirfocus to fundamentally sound midcaps. The BSE Mid-cap index rose 3.6% while the Small-cap index ended2% during the week.

After scaling down their holdings in Indian equities foreigninstitutional investors have turned aggressive buyers duringthe past two months (September & October) with aninvestment of over Rs 28,760 crore or $4.55 billion.

Market experts say that the rally has been driven byliquidity rather than earnings growth with few stocks inselect sectors participating in the rally. Further, retailinvestors have mostly stood on the sidelines during thecurrent rally.

In the second quarter review of the monetary policy heldon Tuesday, RBI hiked the repo rate by 25 bps and hascut the Marginal Standing Facility (MSF) rate by an equalquantum. Besides that, RBI also increased the liquidityprovided through term repos of 7-days and 14-days tenureto 0.50% of banks net demand and time liability from0.25% earlier.

In early signs of industrial recovery, data for the eightcore sector industries’ growth in September showed ayear’s high of eight per cent, against 3.7 per cent inAugust. Signalling recovery in the infrastructure sector,this was aided by good performance in the electricity,cement and coal segments, which rose in double digits,showed the data issued by the Ministry of Commerceand Industry. In the same month last year, the core sectorhad recorded 8.3 per cent growth, the highest sinceJanuary 2009-10.

Financials shares firmed after the central bank’s policydecision on repo rate was in line with expectation andprovision of liquidity. ICICI Bank zoomed nearly 11% afterthe private lender last weekend reported 20% growth innet profit to Rs 2,352 crore in the July-September quarteramid robust growth in retail advances. Healthy growthin fee income and higher margins have also helped thelargest private sector lender in the country to beatanalysts estimate for second quarter. SBI rose 9.4%,HDFC gained 5.6% and HDFC Bank ended 1.6% higher.

Auto shares firmed up after they released October salesdata. Auto-maker Mahindra & Mahindra today reported5.39% decline in its total sales at 50,558 units in October2013. The auto major had sold 53,439 units in the same

Compiled by :Mr. Manthan Khokhani

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month last year, the company said in a statement.However, tractor sales in October rose 29% to 38,263units in October. The company had sold a total of 29,565units in October 2012, M&M said in a filing with theBSE. The stock ended up 6.6%.

Country’s largest carmaker Maruti Suzuki India (MSI)reported 1.91% increase in total sales for October at1,05,087 units as against 1,03,108 in the same monthlast year.Exports during the month rose by 27% to 9,025units as compared to 7,106 units in October last year,the company said. The stock ended up 8.6%.

(Source: Business Standard)

Govt. cuts import tariff on gold, hikes silver

The government on Friday cut the import tariff value ofgold to $440 per ten gram but raised the same on silverto $738 per kg, in line with international price of theprecious metals.

The import tariff value is the base price at which thecustoms duty is determined to prevent under-invoicing.The tariff value on imported gold was hiked two daysback to $442 per ten gram, while it was kept unchangedat $699 per kg for silver.

The notification in this regard has been issued by theCentral Board of Excise and Customs (CBEC), an officialstatement said here. Apart from precious metals, tariffvalue on imported brass scrap has been slashed to $3,840per tonne from $3,933 per tonne maintained till Thursday.However, the tariff value on imported vegetable oils likecrude soyabean oil, RBD palm oil and others has beenraised.

Import tariff value on crude soyabean oil has beenincreased to $1,006 per tonne from $952 per tonne andtariff value on RBD palmolein has been raised to $900per tonne from $869 per tonne in the review period. Theimport tariff value on gold and silver has been changedtaking cues from the global market. In Singapore, theyellow metal is ruling down at $1322.2 per ounce andwhite metal at $21.87 per ounce.

India, the world’s largest consumer of gold, imported393.68 tonnes of the yellow metal during the April-September period of this year, as per official data.

(Source: The Hindu)

FMC Seeks Auditors' list for E-Series Scan

The Forward Markets Commission ( FMC) has written toThe Institute of Chartered Accountants of India ( ICAI)for alist of auditors who can do a forensic examinationof e- series contracts at the scam- hit National SpotExchange (NSEL). The accountants’ body is likely torecommend three names to choose from. The move

comes after a Bombay high court order, directing FMCto take charge of the settlement of e- series contracts.Unlike the NSEL paired contracts, embroiled in a Rs. 5,600crore payment crisis, e- series contracts are backed bydematerialised gold, silver and other metals. “

The issue is of rematerialising these and paying theinvestors. But, given the experience we have had withthe group, we did not want to decide anything withoutfully knowing what we are getting into. That’s why wedecided to go for the forensic audit,” said a senior FMCofficial. Unlike the earlier audit of paired contracts, FMCis likely to directly appoint the auditor and give it theterms of reference, say officials. The auditor would haveto work fast, as the court has directed the job to becompleted in two weeks.

FMC is said to be not too keen to assign the work toGrant Thornton, already given the job to audit the MultiCommodity Exchange, part of the same group as NSEL.About 30,000 investors are awaiting settlements in thesecontracts. In September, Sharp & Tannan, Mumbai- basedchartered accountants, audited the precious metals stocksheld by NSEL in the vaults of a private service provider,Brinks Arya, in Mumbai, New Delhi, Kolkata, Hyderabad,Ahmadabad and Jaipur. The auditors had said theverification did not reveal any discrepancy in the amountof stock.

They said the demat quantity of 910 kg of gold, 46,167kg of silver and 19 kg of platinum matched with thephysical quantities held in the vault However, the auditoralso recorded certain caveats in the verificationmethodology. “At the Mumbai office, stock quantitieswere checked with the demat statement of NSDL andCDSL. In the absence of adequate weighing facilities,the weight mentioned on coin bars has been relied upon,”the report by Sharp and Tannan said. It also said thatowing to the huge quantity of silver stock involved, onlyabout 36 per cent of the silver bars were checked forpurity, refiner’s name, etc.

Under e- series, NSEL offered precious metals such asgold silver and platinum, and industrial metals such asnickel, zinc and copper, in the demat form in smalldenominations. The clearing and settlement payin andpay- out mechanism is based on a T+ 2 settlement cycle.This means the final settlement of transactions done onthe trade day takes place on the second business day. E-series products provide opportunity for intra- day trading,coupled with demat delivery in respect of positions notsettled at the end of the day

(Source: www. Taxmann. Com)

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CA. Chintan M. DoshiHon. Secretary

Association News CA. Abhishek J. JainHon. Secretary

Glimpses of events gone by:

On 14.10.2013, 6th Study Circle Meeting was held on the topic of “Reverse Charge Mechanism,Service Tax Voluntary Compliance Encouragement Scheme, 2013 (VCES) and

Cenvat Credit” by CA. Hardik P. Shah.

( L to R CA. Shailesh C. Shah CA. Chintan M. Doshi, CA. Prakash B. Sheth, Faculty CA. Hardik P. Shah,CA. Chandrakant H. Pamnani , CA. Ronak M. Khandwala,)

Forthcoming Programmes

Date/Day T ime Programmes Speaker Venue

22.11.2013 05.00 pm to Overview of Accounitng CA. Aniket S. Talati Shantinath Hall, ICAI Bhawan,Friday 07.00 pm Standards -2,7,9,15 & 22 123, Sardar Patel Colony,

Naranpura, Ahmedabad.

14.12.2014 07.30 am Cricket Match - President XI Sardar Patel Stadium,Saturday onwards v/s Secretary XI Navrangpura, Ahmedabad

28.12.2014 07.30 am Cricket Match - C.A.Asso. v/s Sardar Patel Stadium,Saturday onwards I. T. Bar Asso. Navrangpura, Ahmedabad

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