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    • volume 60 no. 5 november 2011 r100 CHARTERED JOURNALvolume 60 no. 5 november 2011 THE ACCOUNTANT t H e i n s t i t u t e o f c H a rt e r e D a c c o u n ta n t s o f i n D i a set up by an act of parliamentthe chartered accountant ICAI International Conference “Accountancy Profession: Leveraging Emerging Challenges For Inclusive Growth” 6 - 8 January, 2012 at Chennai Trade Centre, Chennai Accounting is becoming more and more intricate with the advance of modern technique in industry. After all, accounts follow facts… an accountant must have a very good inkling-a very comprehensive idea of what he is looking into… the role of an accountant in modern India, r100 which is fast industrialising, is very great indeed…He has to know a great deal in each sphere of activity. He has to be jack of all trades. He has got to know something of everything. Shri V. Narhari Rao First Comptroller and Auditor General of India, on Role of an Accountant and Auditor in National Economy [April 5, 1954, at ICAI Headquarters]
    • 659 EDITORIALGlobal Economic Turbulence and IndiaT he ongoing global economic turbulence, of Indian shares between August and September this which, in a sense, is a continuation of the year. financial crisis that began in 2007, Europe is one of India’s largest trading partners.is threatening to become another major global Austerity measures in European countries and fallingrecession. The grim situation has created panic in consumer expenditure may affect Indian exports,the developed world, so much so that London’s especially in services. If European banks collapseThe Economist has already predicted a double-dip due to exposure to countries such as Greece, Irelandglobal recession led by America. The turbulence, and Portugal, the supply of foreign credit to emergingmainly triggered by the sovereign debt crises in many markets, including India, will dry up. That will putEuropean countries followed by the unprecedented pressure on investment spending in emerging marketsdowngrading of the US sovereign long term credit — already struggling with high capital costs due torating by Standard & Poor, saw the world stock tight monetary policies.exchanges going into a tailspin. The sovereign credit Early warning signs, such as low investorcrisis in the Eurozone has led to virtual insolvency confidence and falling consumer demand acrossof Greece, Ireland and Portugal. The crisis is the board, signal a crisis at India’s doorstep, whichnow threatening Spain and Italy and is unlikely to it cannot completely avoid. But India can considerablystop there. Adding fuel to the fire, the turbulence minimise the damage. And for that it is imperativehas laid the seeds of a more fundamental crisis. that India looks inward and boost domestic demandAs the burden of sovereign debt is passed on to compensate for the shrinking world market.to the common people, their purchasing power Huge domestic demand within India provides a buffercorrespondingly declines and combined with to global economic turbulence. In fact, India does havethe growth of unemployment, leads to a sharp a significant control over its own destiny. Domesticcontraction in domestic demand. India’s Finance consumption accounts for around 70% of its GDP .Minister Pranab Mukherjee recently rightly warned India can reinvigorate itself with domestic structuralthe world community that if not managed with an reform. The key is to spur business investment.iron hand, the crisis will have a contagion However, a major problem is that India is sacrificingeffect and indeed lead to a double-dip growth to fight inflation, with the Union Finance Ministerglobal recession. hinting that India may continue to tighten This crisis has already drastically reduced global monetary policy, in contrast to most other majortrade and slowed down the world economy, with emerging economies, to keep stubbornly-highEurope and the US growing just over 1%. In this inflation in check despite fears of a broader economicbackground, the International Monetary Fund in slowdown.its recent report has trimmed its economic growth Every crisis offers opportunities as well. Indianforecasts for Asia to average 6.3% in 2011 from its policymakers need to maintain domestic demandearlier forecast of 7%. India remains no exception to and work towards gaining investors’ confidence.this widening trend. The global economic turbulence The government must explore export markets likehas been one of the main reasons for Indian growth Africa and the ASEAN countries, and continue toprospects being downgraded to below 8% this fiscal reduce dependence on Europe and the US. Specialfrom 9% projected in the Budget 2011-2012. The World tax incentives for exporters to Europe and the USBank has also recently said that India’s growth was may help them retain their competitiveness in theselikely to slow to 7% to 8% in the next two years as a markets. Some of the pending reforms, whether theyresult of uncertainties weighing on investment, tighter are FDI in retail, labour or financial and insurance sectormacroeconomic policies intended to fight inflation and reforms, need to be pushed ahead to maintain growththe base effect of the strong agricultural rebound last and investment. It is time to show that India is a safeyear. haven for investment, and to do this, bold gover- If the world economy goes into a double-dip nance reforms are needed to improve the overallrecession, it will have considerable negative impact competitiveness of the Indian economy.on FDI inflows, flow of money into Indian bourses, andemployment. The initial symptoms are already evidentin the stock markets, where share values and wealth -Editorial Boardare eroding. FIIs have sold more than $2.2 billion worth ICAI-Partner in Nation Building THE CHARTERED ACCOUNTANT NOVEMbEr 2011 3
    • CONTENTS 662EDiTORiaL BOaRD vOiCE VOLUME 60 NO. 5 NOVEMBER 2011 R100 CHARTERED JOURNAL VOLUME 60 NO. 5 NOVEMBER 2011EDITOR CA. G. RAMASWAMY, 659 Editorial THE ACCOUNTANT President 664 From The PresidentJOINT EDITOR CA. JAYDEEP N. SHAH, Vice-President T H E I N S T I T U T E O F C H A RT E R E D A C C O U N TA N T S O F I N D I AMEMBERS SET UP BY AN ACT OF PARLIAMENT CA. ATUL C. BHEDA CA. K. RAGHU CA. M. DEVARAJA REDDY MEMBERS CA. MADHUKAR N. HIREGANGE THE CHARTERED ACCOUNTANT ICAI International Conference “Accountancy Profession: Leveraging 670 Readers Write Emerging Challenges For Inclusive Growth” CA. MANOJ FADNIS 6 - 8 January, 2012 at Chennai Trade Centre, Chennai CA. NAVEEN N.D. GUPTA 672 Photographs CA. NILESH S. VIKAMSEY 710 Opinion CA. P RAJENDRA KUMAR . CA. RAJKUMAR S. ADUKIA  Accounting for Leave Liability CA. RAVINDRA HOLANI 771 Know Your Ethics CA. SUBODH K. AGRAWAL 790 Classifieds CA. SUMANTRA GUHA CA. V. MURALI Accounting is becoming more and more intricate with the advance of modern technique in industry. After all, accounts follow facts… an accountant must have a very good inkling-a very comprehensive idea CA. ANIL S. DANI upDaTES of what he is looking into… the role of an accountant in modern India, R100 which is fast industrialising, is very great indeed…He has to know a great deal in each sphere of activity. He has to be jack of all trades. He has got to know something of everything. CA. R. GIRI CA. S. SUNDARRAMAN Legal Update Shri V. Narhari Rao First Comptroller and Auditor General of India, on Role of an Accountant and Auditor in National Economy [April 5, 1954, at ICAI Headquarters]SECRETARY CA. NITIN JAIN 680 Legal DecisionsICAI EDITORIAL TEAM NADEEM AHMED 696 Circular and Notifications SUSANTA K. SAHU DR. N. K. RANJAN 765 National Update NIMISHA SINGH 767 International UpdateTHE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA 770 Accountant’s BrowserICAI Bhawan, Post Box No.7100, Indraprastha Marg, 779 Economic UpdateNew Delhi-110002, Tel: +91 (11) 39893989.E-mail: icaiho@icai.org, Website: www.icai.orgSUBSCRIPTION RATESInland subscribers : R1,000 per annum iCai CORpORaTE fORuMOverseas : $150 per annum (subscribers by sea mail) 755 Career AscentFor Overseas Members/Subscribers 763 Gulf Campus •Air Mail Surcharge : R2,100 per annum 775 ICAI Awards •Sea Mail Surcharge : R1,100 per annum 792 Financial ExpoCA Students : R1,400 for 3.5 years 808 Corporate Conclave R400 per annumOther students & faculties : R600 per annum iCai NEWSCLASSIFIEDS:Minimum R1,000/- for the first 25 words or part thereof and R250/- 780 Certificate Course on Enterprise Risk Managementfor five words or part thereof over and above first twenty five words. 781 Certificate Course on Internal AuditPlease contact: The Journal Section at ICAI Bhawan, A-29, Sector-62, Noida or call at +91(120) 3045955 782 Articles requested for new feature, Professional Opportunitiesor e-mail at eboard@icai.org 782 Invitation to Contribute Articles for E-Newsletter 783 Invitation for Contribution of Questions for ISA-AT Question BankEDITORIAL SUPPORT, DESIGN, ADVERTISEMENT & MARKETINGSPENTA MULTIMEDIA 784 Contribution to the Question Bank of CPTAaron Rodrigues, Subramanian Shankar, Nilesh Juvalekar, Ganesh 785 ICAI Announcement regarding minimum Recommended Scale of FeesWaradkar & Anand Dhuri.MUMBAI: Spenta Multimedia, Peninsula Spenta, Mathuradas Mill 785 Quick Insight: CA ProfessionCompound, N. M. Joshi Marg, Lower Parel. Mumbai-400013. 785 E-learning Courses on Service Tax and Transfer PricingTel: +91 (22) 24811022/24811025, Telefax: -91(22) 24811021.DELHI: No.7, 1st Floor, Nizamuddin (West) Market. 786 CMII Forms 50th CPE Study Circle for Members in IndustryNew Delhi-110013. Tel: +91 (11) 4669 9999. 787 New Publications from the Auditing and Assurance Standards BoardBENGALURU: Old No. 583, New No. 9, Sri Manjunatha Krupa, 788 New Publication from the Research Committee80 Feet Road, 3rd Cross, Opp. Koramangala Police Station,Bengaluru-560095. Tel: +91(80) 4161 8966/77. 789 Announcement regarding compliance with paragraphs 61 and 62 of theKOLKATA: 206-Jodhpur Park, Kolkata - 700068. Tel: +91(33) 2473 Standard on Review Engagements (SRE) 24105896. Telefax: +91(33) 2413 7973.CHENNAI: AKS Pooja Complex, 2nd Floor, Old No: 203 New No: 790 Certificate Course on Indirect Taxes at Chennai154, R. K. Mutt Road, Mandevelli (Next to Jagan Mohan Clinic), 791 ICAI Offers First MBF Campus PlacementChennai-600028.HYDERABAD: H.No: 8-2-684/3/R/1&2, Flat No: 304, Alankrith Apts,Gulmohar Avenue, Rd No: 12, Banjara Hills, Hyderabad. EvENTSTel.: +91 9676666691. 794 Three Days Residential Refresher CPE Course, AlleppeyICAI RESERVES THE RIGHT TO REJECT ADVERTISEMENTSPrinted and published by Vijay Kapur on behalf of The Institute 794 Workshop on Capacity Building Measures of Practitioners & CA Firms,of Chartered Accountants of India (ICAI) Bhavnagar, Kota, Bellary, Nagpur, Baroda, Jalgaon, Shimla, Raigarh, Editor – CA. G. RamaswamyPublished at ICAI Bhawan, P O. Box No. 7100, Indraprastha Marg, . Sriganganagar, Jammu Tawi, Anand and DurgapurNew Delhi - 110 002 and printed at Spenta Multimedia. Peninsula 800 “Auto Connect”- CMII National Conference on Auto Industry, PuneSpenta, Mathuradas Mill Compound. N. M. Joshi Marg, LowerParel, Mumbai - 400013 801 National Residential Refresher Course on CA Profession towardsThe views and opinions expressed or implied in THE CHARTERED Excellence through Capacity Building, Churu(Rajasthan)ACCOUNTANT are those of the authors and do not necessarilyreflect those of ICAI. Unsolicited articles and transparencies are 803 Residential Refresher Course, Rajasthansent in at the owner’s risk and the publisher accepts no liability forloss or damage. Material in this publication may not be reproduced, 804 Two Days Workshop on Auditing, Indorewhether in part or in whole, without the consent of ICAI. 805 Residential Refresher Course, ChailDISCLAIMER: The ICAI is not in any way responsible for the result ofany action taken on the basis of the advertisement published in the 806 Three Days Residential Workshop on Internal Audit, DarjeelingJournal. The members, however, may bear in mind the provision ofthe Code of Ethics while responding to the advertisements. 807 National Seminar on Taxation, KochiTOTAL CIRCULATION: 2,16,272 807 Certificate Course on Arbitration of the ICAI, MumbaiTotal No. of Pages: 164 including CoversCover image, Inside images and Graphics: www.dreamstime.com 6 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • volume 60 no. 5 november 2011 R100 CHARTERED663 JOURNAL THE ACCOUNTANT T H E I N S T I T U T E O F C H A RT E R E D A C C O U N TA N T S O F I N D I A SET Up by AN ACT OF pARlIAmENTiN THiS iSSuE... iNTERNaTiONaL TaxaTiON 741 Special Measures in Respect of Transactions with Persons Located in Notified Jurisdictional Area iNTERNaTiONaL CONfERENCE – CA. Thakur Repudaman 6TH – 8TH JaNuaRy, 2012 aT CHENNai TRaDE CENTRE 676 In the context of integrated and diversified financial 750 Attribution of Profits to Permanent Establishment – operations, our profession is undergoing a sea The Indian Experience change in its fundamentals, including a need for – Committee on International Taxation of the ICAI uniform accounting code. At this crossroads, with our determination to stick to integrity, we can not forgo our responsibility at any cost. This Conference aims to touch essentially all such aspects… MaNagEMENT 757 Benchmarking- A Strategic Tool for CFOs – CA. Sanjay Banka auDiTiNg 716 Benford Distribution - An Effective Audit Tool – Dr. L. Kailasam TECH fOR yOu 773 Mobile Computing: Business Applications and Chartered Accountants – CA. A. Rafeq CORpORaTE & aLLiED LaWS 721 Foreign Contribution (Regulation) Act, 2010 – A Changing Perspective — CA. Anand Pagaria 728 Justice is Important, Rules of Procedure are Handmaids: Discussion in View of SC Verdict – CA. Dev Kumar Kothari and CA. Uma Kothari gENERaL 810 Understanding the ‘Aadhaar’ – CA. Gagan Jain BaCKpagE 816 Cross Word 065 Smile Please TaxaTiON 734 LLP to be Subject to Alternate Minimum Tax – CA. Aadesh Kumar Agrawal THE CHARTERED ACCOUNTANT NOVEMbEr 2011 7
    • FROM THE PRESIDENT 664 of all human studies must be to create a better and beautiful world around us. I would like to call out the members of my profession to work in unison towards achieving this universal goal. Let us get updated with some recent and important developments in the profession that have taken place in the past one month: International Initiatives It is true that we are at cross- roads between volatile busi- ness environment and economy and subsequent changes being made in accountancy. CA. G. Ramaswamy, President, ICAI But I personally feel better when I contemplate over the way we have been respondingDear Friends, for quite some time to the needs of the contemporary business environment of our nation. Our membershipI n my message, this time, I would like to recall Shri has grown really big, i.e. 1,82,000 at present, and V. Narhari Rao, the first Comptroller and Auditor this demands a responsible vision and growth from General of independent India, who had come to the profession and its stakeholders. Internationallyour headquarters in Delhi, on the occasion of the First too, we have been growing in all possible directionsConference of Chartered Accountants of India, on 5th logically while carrying CSR attitude all the time withApril, 1954, to deliver the last distinguished talk of the us. I, along with the ICAI Vice-President CA. JaydeepConference on the Role of an Accountant and Auditor in N. Shah, visited the Abu Dhabi, Dubai, Muscat andNational Economy. Through his words of wisdom and Doha Chapters of the Institute recently towardswith his underlying objective to secure independence leveraging our international linkages and initiativesand integrity for the profession, Shri Rao had urged with regard to our profession:the members to remain responsible and courageousduring discharge of their professional duties. That First Foreign IT-Training Centre Opened in Dubai:was quite relevant and reinforcing for the profession At Dubai Chapter of the Institute, we have set up anconsidering the formative years that the profession IT-training (ITT) centre, our first such initiative outsidewas passing through. Quite humbly, on behalf of our the country, which was inaugurated by the Indianforefathers in profession, I would like to acknowledge Corporate Affairs Minister, Dr. M. Veerappa Moily,that we had started our journey quite courageously who praised our role in the economic growth of ourwith a just sense of integrity, and we have come really nation while appreciating our proactive partner-in-a long way following the same courage and integrity nation-building endeavours including that for newthrough the good and bad times of economy. Companies Bill under preparation and for new reporting framework under XBRL. The event was also The gap between our knowledge and our wisdom addressed by the Indian Ambassador in U.A.E., H. E.always surprises me. I would urge our stakeholders Shri M. K. Lokesh and the Counsel General of Indiato explore how to bridge this gap and achieve a in Dubai, H. E. Shri Sanjay Verma. They appreciatedhundred percent correspondence between them. that the Dubai Chapter of ICAI is among the mostOur endeavours should aim to create a better and efficient and proactive professional fora in Dubai.more beautiful world around us, so that we could This ITT centre would facilitate, I must appreciate, inexist in a graceful cohesion. To me, the culmination empowering our students abroad in completing their 8 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • 665 FROM THE PRESIDENTarticleship and IT training outside India. The Indian participants on the occasion.Business Professional Council (IBPC) also hosted aprogramme in the honour of Dr. Moily. Initiatives towards Nation-Building Meeting with SEBI Chairman: I had the opportunity Knowledge Sharing Forum in Doha: Our Doha to meet the SEBI Chairman Shri U. K. Sinha recently.Chapter recently organised a well-conceptualised and We requested him to prescribe, through the listingwell-attended ‘annual knowledge-sharing forum’ event agreement, independent internal audit by the externaland held a seminar on Strategic Decision Making, professional firm of chartered accountants for allProject Financing and Green Building Concept. The listed companies. Alternatively, in case the corporateevent further strengthened the esteemed position that entity has its own internal audit department, weIndian professionals occupy in Qatar in particular and suggested him to mandate for external monitoringthe entire Gulf region in general. On the occasion, I of the compliance of standards of the internal auditupdated the gathering on the proposed reforms in system by independent firm of chartered accountants.the regulations governing the profession in India and Further, we also made a suggestion regarding theabroad and bright possibility of ICAI partnering with the need for a Standard Audit Manual for inspection ofQatari authorities in forming an accounting body that mutual funds, which could address the shortcomingswill regulate the profession of accounting and auditing and improve quality in the inspection of mutual fundsin Qatar. I emphasised on the need of corporate social and bring uniformity in reporting the same.responsibility and putting something back into thesociety in line with Qatar’s 2030 Vision of diversifying Independent Directors Meeting in Mumbai: I alsothe local economy. Vice-President CA. Jaydeep N. attended the interactive meeting of independentShah was also the Guest of Honour on the occasion. directors organised by the ICAI from public- and private-sector banks, and financial institutions along International Seminar on Sustainability and Growth with the Vice-President CA. Jaydeeep N.Shah andin Abu Dhabi: In Abu Dhabi, we attended the 23rd various Council members. Shri T. M. Bhasin, ChairmanAnnual International Seminar with the theme Towards & MD, Indian Bank, was the Chief Guest and meetingSustainability and Growth of our Abu Dhabi Chapter was attended by the 30 independent directors ofheld recently at the Armed Forces Officers Club, various banks and financial institutions. This meeting,where the Ambassador of India in U.A.E., H. E. Shri successfully hosted by WIRC of the Institute, providedM. K. Lokesh, was the Guest of Honour and Dr. a platform to independent directors to share their richTayab Kamali, Vice Chancellor, Higher College of experiences on new emerging concepts in bankingTechnology, and Group CEO, Centre of Excellence sector like risk management, internal control system,for Applied Research and Training, was the Chief effectiveness of audit committee, etc.Guest. I acknowledged that the words sustainabilityand growth were important in the context of bringing Workshop on Financial Statements of Corporates intransparency through corporate governance, and that Mumbai: I along with the Vice-President CA. Jaydeepwe would play an important role in the implementation N. Shah, past-President CA. Amarjit Chopra, and myof corporate governance. I asserted that we chartered Central Council colleague CA Manoj Fadnis, amongaccountants, known for quality services, were fully others, attended the Workshop on Analyzing Financialcommitted and involved in the country’s growth. Other Statements of Corporates under IFRS recently heldspeakers included ICAI past-President CA. Amarjit at the RBI Central Office in Mumbai, which wasChopra, among others, who spoke on the status of IFRS organised by the Centre for Advanced Financialimplementation in India. Issues affecting the corporate Research and Learning, promoted by RBI. I addressedworld, including leadership, sustainable growth, etc., the efforts made by the Institute in formulation of thewere discussed too. The Seminar also included an Ind ASs (Indian Accounting Standards) convergedinteresting panel discussion on The Shift of Power with the IFRSs and the steps being taken towardsfrom West to East. the preparation of frequently asked questions on Ind AS. Smt. Usha Thorat, Director, CAFRAL, and CA. Seminar on Economic Growth in Muscat: We were Prabhakar Kalavacherla, Board Member, Internationalalso at the Muscat Chapter of the Institute to attend Accounting Standards Board, also addressed ata one-day CPE event recently, where I delivered a the Workshop. Presentations on would-be financialkey note address at the seminar titled Adding Value statements under Ind ASs were made. An interestingto Economic Growth. CA. Shah also addressed the observation was that the companies which were THE CHARTERED ACCOUNTANT NOVEMbEr 2011 9
    • FROM THE PRESIDENT 666hitherto following the correct accounting principles will Telugu and Assamese languages under the guidancenot have a significant impact on their top line and of my Central Council colleague CA. Vinod Jain, whichthe bottom line on adopting the Ind AS. I sincerely were developed by the Ministry of Corporate Affairsacknowledge the efforts of Shri Ravi Mohan, Chief for distribution in the investor awareness programmes.General Manager, RBI and member, Accounting We have brought out the same in English versionStandards Board of ICAI. too. Copies of those translations were presented by the Institute to Dr. M. Veerappa Moily, Hon’ble Dr. M. S. Ahluwalia Delivered V. Sankar Aiyar Memorial Minister of Corporate Affairs, during an Investors’Lecture at ICAI: I wish to inform you that I attended Meet 2011 held recently.the V. Sankar Aiyar Memorial Lecture in Chennairecently, which was delivered by Dr. Montek Singh Professional DevelopmentsAhluwalia, Deputy Chairman, Planning Commission. Meeting with CBDT Chairman: As you are aware,Dr. Ahluwalia’s lecture on Economic Reforms for the CBDT had recently issued a discussion paperInclusive Growth, was well-appreciated, especially on Tax Accounting Standards that are proposed tohis thought-provoking references to the mission to be followed for the purpose of computing taxableserve the society, particularly its economically-weaker income. In order to discuss the issues arisingsections. I am confident that our country will touch from that, I recently had a meeting with the CBDTgreat heights of glory under his noble guidance. Dr. Chairman Shri M. C. Joshi, along with my CentralAhluwalia suggested us not to change minds about Council colleague CA. Sanjay Agarwal. Concernsmarket economy just because there was a loss of faith that I raised during the meeting were well-receivedin the industrialised countries. Shri Mani Shankar Aiyar, by the CBDT Chairman, who requested us further toMember of the Rajya Sabha, in the memory of whose submit the detailed suggestions in this regard. Wefather this Lecture was organised, presented the will submit the same shortly.introductory remarks. We suggested on the occasionthat all flagship programmes of the government should Delhi High Court Upholds ICAI Decision: I wish tobe audited by the chartered accountants. Dr. Isher acknowledge before our stakeholders with satisfactionJudge Ahluwalia, Chairperson, Board of Directors, that Delhi High Court has upheld Institute’s decision toIndian Council for Research on International Economic bar an auditor of Global Trust Bank (GTB) from practisingRelations, was also present on the occasion. accountancy for five years. We had found him guilty of professional misconduct as auditor during 2000-2001. More Training Programmes in Accounting Concepts: As you know, it was then that the 1993-formed bankI find it professionally gratifying to communicate that, in was on the verge of collapse due to reckless lending.line with our joint endeavour with the office of C&AG of Although, a single bench of the High Court hadIndia to organise training programmes on accounting quashed our order in the past. After our appeal againstconcepts for the officials of autonomous bodies, we the same, the verdict eventually came out in supportrecently conducted a training programme in Ahmedabad. of our disciplinary proceedings against him. The CourtShri K. P Sasidharan, Director General, Autonomous . has also clarified that the procedures prescribed byBodies, Office of C&AG of India, among others, was the unamended Chartered Accountants Act, 1949, i.e.present during the programme, which was attended Sections 21, 22 and 22A, would be applicable to allby more than 120 participants including the officials pending proceedings in information case and not theof autonomous bodies of Rajasthan and Gujarat, and procedure prescribed after the amendment made bymembers of the profession. Another such programme the Chartered Accountants (Amendment) Act, 2006.was conducted in Bangalore, which was inaugurated We can now initiate an inquiry against an accused onby Shri K. P Sasidharan and attended by about 185 . the basis of information or complaint.participants including the officials of autonomous bodiesof Tamil Nadu, Karnataka and Puducherry. ICAI Proposes Norms in Internal Audit: Realising that quality is one of the fundamental assumptions Two Publications for Investor Awareness of internal audit and there has been a steep rise inProgrammes: I am glad to inform that, with regard to attention on internal audit, we have till date issued 17our responsibility towards the investors of our country, Standards on internal audit to cover the basic principleswe have got the two informative booklets, First steps to and practice of internal audit and establish the basisInvesting -A Beginner’s Guide and Primer for First time for its performance evaluation. To enable the internaland Existing Investors, translated in Punjabi, Gujarati, auditors in performing quality audit, I wish to inform 10 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • 667 FROM THE PRESIDENTour stakeholdersthat the Council ofthe Institute hasrecently decidedthat whereverthe Standardson internal auditare being compliedwith, internal auditreports may mentionthat the audit hasbeen conducted inaccordance with theStandards issuedby the Institute. Weare also in dialoguewith the Ministry ofCorporate Affairsin this regard andhave recommendedmaking it mandatoryfor all companiesto mention in theirinternal auditor’s report that the audit has been application process for nomination, deadline, etc.,conducted in accordance with the Standards on can be collected online from the Institute’s websiteinternal audit issued by the Institute. I am sure that this and also published elsewhere in the journal. In thischange would promote credibility and consistency in regard, I wish to acknowledge the efforts made by mythe internal audit reports. Central Council colleague CA. K. Raghu in planning and conceptualising this mega event. ISA Faculty Meet at Centre of ExcellenceHyderabad: I am happy to inform our stakeholders Guidance Note on Certification of XBRL Financialthat we recently organised the ISA Faculty Meet at Statements: The Ministry of Corporate Affairs had videCentre of Excellence Hyderabad, where eminent and their circulars of July 2011 required that the XBRLexpert faculties from all over the country participated. financial statements be certified by a professional,This event gave me an opportunity to interact personally inter alia, a chartered accountant. This certificationwith each of the faculty participants there. Hopefully, requirement is appearing in the Forms 23AC-XBRLa new revised and an updated curriculum of the ISA and 23ACA-XBRL notified by the Ministry to uploadcourse will be released shortly to help our members the XBRL financial statements under MCA 21. I amat large. glad to inform you that we have recently released the Guidance Note on Certification of XBRL Financial ICAI Corporate Forum to be held in Bangalore: To Statements, which has been developed to help theprovide our members in profession and industry a chartered accountants effectively and efficientlyplatform to interact, and to appreciate our members carry out these certification engagements in thewho have done exceptionally well in professional/ most value added manner. The Guidance Note,social milieu, I wish to inform our stakeholders that among other things, provides guidance on the dutieswe will now be organising our 5th Corporate Forum in and responsibilities of the management vis a visDecember 2011 in Bangalore, which will have a series the chartered accountant with respect to the XBRLof events like Career Ascent, Gulf Campus, Financial mode financial statements as well as theServices Expo, Corporate Conclave, ICAI Awards, etc. detailed procedures to be undertaken by theThe Infosys Chief Mentor, Shri N. R. Narayana Murthy, chartered accountants to provide the assurancehas agreed to head the jury for the ICAI Awards. The sought under Forms 23-AC XBRL and 23-Awards ceremony will take place at the magnificent ACA XBRL. This is also been hosted on theand historic Bangalore Palace. Details about Institute’s website. THE CHARTERED ACCOUNTANT NOVEMbEr 2011 11
    • FROM THE PRESIDENT 668 Residential Certificate Course on Internal Audit: I am or in the process of our education. Carl Rogers, onepleased to inform you that we recently launched the first of the founding fathers of psychotherapy research,batch of the Residential Certificate Course on Internal is ready to call a person educated on a condition ifAudit at the Centre for Excellence in Hyderabad, which we have learnt how to learn and change. In the sameaims to deliver a programme dealing with the issues context, now, we will be able to understand why Althat impact internal audit profession at present and in McGuire, a well-known basketball coach, said: I thinkfuture. The Course will help our members in acquiring everyone should go to college and get a degree andknowledge on the theory and practice of internal audit then spend six months as a bartender and six monthsand its allied functions and on our role in them, and as a cabdriver. Then they would really be educated.how these impact contemporary business enterprises. Education is in fact a patient and an ongoing processDuration of the Course is 200 hours comprising where we simply are required to be diligent.ten classroom days, case-study preparation, selfstudy and e-learning. Classroom sessions will cover All educational degrees or diplomas shouldcontemporary topics including internal controls, prepare us to be ready to learn for the rest of our lives.corporate governance, risk management, etc. To Acclaimed social psychologist Erich Fromm justifiablystrengthen the content and add value to the course, asks: Why should society feel responsible only for thegroup assignments and case studies have also been education of children, and not for the education of allincorporated. adults of every age? Education is not just about books, colleges or institutions. We start feeling the presenceInfrastructure Initiatives of education in our lives when we finish up with ourAhmednagar Branch Building Inaugurated: I am happy formal education and we deal with the realities ofto inform that I recently inaugurated the building of life. We will never precisely realise its presence inthe Ahmednagar Branch of the WIRC in the presence our life unless we reflect on the way we carry out ourof the ICAI Vice-President CA. Jaydeep N. Shah and work, the way we approach a problem, or, the waymy Central Council colleagues, among others. we think about the processes that run around us. I am sure this is what Albert Einstein meant by when Laying Foundation Stone of Trichur Branch: I am glad he said: Education is what remains after one hasto inform our stakeholders that I happened to lay the forgotten everything he learned in school. I would likefoundation stone for the building of the Trichur Branch to advocate this understanding and propagate thisof the Institute recently. CA. K. Shanmukha Sundaram, around us and among all my readers: let us not missSIRC Chairman, was also present on the occasion. a chance to learn after our formal learning is over.Best Wishes for Forthcoming CA Examinations We are a country of numerous faiths and beliefs,When this issue reaches you, an estimated two and and, with pride, I admit that we quite agreeably alwayshalf lakh students might have started appearing at the celebrate and rejoice with the people of all faiths inNovember 2011 Chartered Accountants Examinations their moments of joy. In keeping up with the true spiritof our Institute at 345 examination centres in India as of celebrations, I would like to extend my best wisheswell as abroad. I would like to extend my heartiest on behalf of the Institute to all towards the celebrationswishes to them and hope that they would perform on Id-ul-Zuha (also Id-ul-Aḍha or Bakr-Id) and on Guruwell and come out with flying colours. Nanank Jayanti (founder of Sikh faith Guru Nanak Dev’s birthday). May the prayers offered and greetings Acclaimed ontologist G. K. Chesterton associates shared by the devotees bring further happiness andeducation with the soul of a society. Will Durant calls peace to the people of our nation! Amen!it a transmission of civilization. Political activist EmmaGoldman considers it our effort to unlock the wealth of Best wishessympathy, the kindness and generosity hidden in thesoul of a child. To me, education must enable us todeal with the existing differences and indifferences inour society and with the situations that drive us awayfrom the world of sympathy, kindness and generosity.If we are educated, we will always move towards a CA. G. Ramaswamyunified society. Therefore, if we are not united, there President, ICAIhas to be some flaw somewhere in our being educated October 24, 2011 12 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • READERS WRITE 670October 2011 Issue Well- The articles titled ‘Taxability of taken in this regard will evolvePacked with Knowledge Software Payments under the over time. One of the best visible The range and level of our journal Act—The Controversy Continues’ examples of evolution over a periodis continuously increasing and I am (International Taxation) and ‘How of time is Microsoft Office. Somevery thankful to institute for providing to Succeed in Life Against All things come to my mind which Ius a useful key to knowledge in the Odds’ (General) were also highly would like to share. The registrationform of journal. In the October 2011 informative and useful. Congrats of a firm should be linked with itsissue of the journal, the column for the same. partner data base. Thus, the time of‘From the President’ was very -CA. S. Gulati registration of UDIN, signing dateinformative and updated us on the field input value allows drop downlatest developments pertaining to September’ 2011 list of active partner for the firm.our Institute and the profession. Illuminated the Readers Essentially the signing partner nameThe various informative features The September 2011 shall also get captured in the datalike Editorial, ICAI News, Events, Chartered Accountant Journal base. The system can be built up soKnow Your Ethics, Legal Update, has illuminated the readers with that where there is statutory limitsNational and International Update, the latest developments in the individual, firm and partner whoEconomic Update, Accountant’s Companies Act especially revised are eligible to sign the document,Browser and Tech for You, schedule VI. The articles written system shows pop error messageCrossword, etc. are all very useful about Information technology and even generates list for crossand highly commendable. Further, and chartered accountants are checking on given value. WhereI would like to suggest the feature noteworthy. Index of volume of the individual is acting and partner as‘Speech’, which carries on the one year issue will definitely help well as have individual capacity, thewords of wisdom from eminent the users for a snapshot reference if system shall check data base to putpersonalities, should be published required in case of urgency. Hearty check on upper ceiling on partnerregularly. congratulations to the Editorial and firm at the time of registration. -Aman Daga, CA Final Student Board for the efforts made in terms Another important input value of content as well as design. Further, could be for every document at In the October 2011 issue of I would request you to include more registration is PAN in case of Indianthe journal, the Editorial titled articles of Indian Miscellaneous entity for purpose of identification.‘Concept of Independence in Laws so that our professional Foreign entities do not have PANIndependent Auditor’ was really colleagues can enhance their and they shall have extra field namethought provoking and informative. area of work and meet their client of country to register documentThe Editorial rightly says that often requirements. without PAN value.it is believed that auditors reportto the shareholders but work for -CA Jomon C.V., Mumbai -CA. Sanjeev Vijayvargiathe management and this myth nlays the stress and strain for the Unique Document Corrigendumindependence, excellence and Identification Number readers please note that in the credit lineintegrity of the auditors. Indeed, Identification and application of of the article titled ‘Forensic Accounting-the auditors, in order to preserve Unique Document Identification Another Feather in the Hat of Accounting’their reputation for independence, Number is a stepping stone in the published on pages 568-571, the title ‘Dr.’should not have any commercial or process of establishing authenticity was erroneously prefixed with the nameconflict of interest in the company of document. Though a lot of of the author Indrani Ghosh. The error isin which they are the auditors. considerations and measures regretted.Editor For the Attention of Readers Write to Editor Readers’ attention is specifically invited to the fact ‘Information is Power’ and our ever-evolving profession that the views and opinions expressed or implied in needs more and more of that today than ever before. The Chartered Accountant journal are those of the Do you have any relevant points to make, experiences respective authors only, and not of the ICAI. The ICAI to share, and views to spread among the CA fraternity? bears no responsibility of any sort whatsoever in case If yes, e-mail us at eboard@icai.org/nadeem@icai.org of any action taken by any reader based on any article or write to: published in the Journal. The Editor, The Journal Section, ICAI, A-29, Sector 62, Noida (UP) - 201309 14 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • PHOTOGRAPHS 672 Inauguration of IT Training Lab in Dubai Convocation CeremonyUnion Minister of Corporate Affairs Shri Veerappa Moily with ICAI President Union Minister of Coal Shri Shriprakash Jaiswal with ICAI President CA. G.CA. G. Ramaswamy and ICAI Vice President CA. Jaydeep N. Shah at the Ramaswamy and ICAI Vice President CA. Jaydeep N. Shah at the convocationinauguration of IT Training lab of Dubai Chapter of ICAI. (1st October, 2011) ceremony of the newly qualified chartered accountants of CIRC at Kanpur. (24th September, 2011) V. Sankar Aiyar Memorial Lecture Meeting with CBDT ChairmanDeputy Chairman of Planning Commission Dr. Montek Singh Ahluwalia and ICAI President CA. G. Ramaswamy in a meeting with Chairman of CentralMember of Rajya Sabha Shri Mani Sankar Aiyar with ICAI President CA. G. Board of Direct Taxes Shri Mukesh Chand Joshi at New Delhi. (21st October,Ramaswamy, Central Council member CA. P Rajendra Kumar, SIRC Chairman . 2011)CA. K. Shanmukha Sundaram and other dignitaries on the occasion of V.Sankar Aiyar Memorial Lecture in Chennai. (19th October 2011) International Seminar in Abu Dhabi Knowledge Sharing Forum in DohaICAI President CA. G. Ramaswamy and ICAI Vice President CA. Jaydeep N. ICAI President CA. G. Ramaswamy and ICAI Vice President CA. Jaydeep N.Shah with Vice Chancellor of Higher College of Technology U.A.E. Dr. Tayab Shah with other dignitaries at the ‘Annual Knowledge Sharing Forum’ event andKamali, India’s ambassador in U.A.E. Shri M. K. Lokesh and other dignitaries Seminar organised by Doha Chapter of ICAI in Doha. (12th October, 2011)on the occasion of 23rd Annual International Seminar on ‘Towards Sustainabilityand Growth’ organised by Abu Dhabi Chapter of ICAI. (13th -14th October, 2011) 16 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • PHOTOGRAPHS 674 32nd Regional Conference of CIRC Diamond Jubilee Conference of WIRCICAI President CA. G. Ramaswamy, ICAI Vice President CA. Jaydeep N. Shah, CA. G. Ramaswamy, President, ICAI presenting a memento to Shri V. B.Central Council Members CA. Anuj Goyal and CA. Ravindra Holani, CIRC Haribhakti, Past President of the ICAI during the WIRC Diamond JubileeChairman CA. Vivek Khanna and other dignitaries at the inauguration of 32nd Conference while ICAI Vice-President CA. Jaydeep N. Shah and WIRCRegional Conference of CIRC at Kanpur. (8th October, 2011) Chairman CA. Y. Shriniwas Joshi sharing the moment. Workshop for Practitioners and CA Firms Foundation Stone Laying CeremonyICAI President CA. G. Ramaswamy with Justice Dinesh Singh, Central Council ICAI President CA. G. Ramaswamy, SIRC Chairman CA. K. ShanmukhaMembers CA. Vijay Garg and CA. Ravindra Holani, and other dignitaries at the Sundaram and other dignitaries during the foundation laying ceremony ofWorkshop on ‘Capacity Building Measures for Practitioners and CA Firms’ at Trichur branch of ICAI. (28th September, 2011)Patna. (18th September, 2011) Ahmednagar UdaipurInauguration of ICAI Bhawan, Ahmednagar Branch of WIRC. ICAI President CA. ICAI President CA. G. Ramaswamy, Vice-President CA. Jaydeep N. ShahG. Ramaswamy, Vice-President CA. Jaydeep Shah, Central Council member and Central Council member CA. Vijay Garg lighting the lamp to inaugurateCA. S.B. Zaware, WIRC Chairman CA. Y. Shriniwas Joshi, Founder Chairman of National Conference on Excellence in Profession through Capacity Buildingthe Branch, CA. Mohan Barmecha and Branch Chairman CA. Vijay Marda are hosted by Udaipur Branch of CIRC.seen in the photograph among other dignitaries. (20th October, 2011) 18 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • International Conference Accountancy Profession: Leveraging Emerging Challenges For Inclusive Growth 6 – 8 January, 2012 at Chennai Trade Centre As financial markets integrate and business operations diversify; the seamless integration has occasioned ripples never seen before. While at one end one sees the expanding horizons for professionals and professional services; one still grapples with sporadic issues of service quality, need for a uniform lexicon of globalised standards to name a few. Accountancy profession like any other professional services is today at threshold. The responsibility is cast more on the accountancy profession as unlike others it touches upon vast segment of society. The challenges of trust, utility, technology, relevance and in process adherence to laid ethical norms are all the more important and should form the part of “must do” for each one of us so that the profession is projected as a responsible constituent and collaborative partner in whatever sphere of economic activities it is. The ICAI believes that in such complex and emerging times; it is knowledge sharing of emerging paradigm and its application in a practical context which would provide the requisite information, skill application and empathisation to broader context so that these learning outcomes are dovetailed by membership and other stakeholders in their professional pursuits. Recognising its responsibility to the stakeholders in general and ICAI members in particular; the ICAI is organising the International Conference. The International Conference is a forum of establishing interface for region’s most influential thought leaders in the field of accounting, finance & business and participants from academics, researchers, practitioners and policy makers to share and gain fresh insights in cutting-edge information on global trends, issues and challenges. Participants would not only have the occasion to professionally upgrade but also have enough networking opportunities with vast segment of accounting fraternity which is likely to participate not only from across pan India also likely to see significant delegations from SAARC Region and galaxy of International speakers and those from industry, government and other regulatory constituents. It is an event which extends to full two days on 7th & 8th January, 2012 with inauguration on 6th January. The Conference would be an assimilation of learned resources in areas of financial reengineering, Governance, harmonisation of standards; Financial cauldron & learning lessons, SMP Context, Accountants and millennium Developmental goal and related issues out of current and emerging context.CPE Hours 12 hoursDelegate Fees Members (ACA) R2000 Members (FCA) R2500 Non Members R3000 Foreign Delegates US$ 125 On the spot Registration Members R3000How to make payment Pay online at www.icai.org or by Demand Draft in favour of ‘Secretary ICAI, Chennai International Conference 2012 A/c’, Payable at ChennaiProgram Significant Thematic Issues:Details ▪ Towards Globalised Accounting Framework – A Reality Check ▪ Value Creation through Innovation & Entrepreneurial Vision ▪ Professional & Social Panorama ▪ Accountancy Profession: Serving a Wider Landscape ▪ Financial Sector – Fulcrum of Inclusive Economic Growth ▪ Harmonisation of International Auditing Standards – International & Indian Perspective ▪ Encouraging Good Governance through Market Mechanisms ▪ Emerging Paradigm of Accounting ProfessionOrganisers Conference Chairman Conference Co-Chairman CA. G. Ramaswamy CA. Jaydeep N. Shah President, ICAI Vice-President, ICAI Conveners CA. S. Santhankrishnan CA. V. Murali CA. Rajendra P Kumar . Central Council Member Central Council Member Central Council Member Co-Convener CA. K. Shanmukha Sundaram Chairman, SIRC Co-ordinators CA. S. Murali CA. P R. Aruloli . CA. Gopal Krishna Raju Secretary, SIRC Regional Council Member Regional Council MemberFor registration and Shri D. Vijayaragavan, Deputy Secretary (044-30210325), email: vijayaragavan@icai.inother details please Shri T. V. Srinivasan, Sr. Assistant Secretary (044 -30210320), email: tvsrinivasan@icai.orgcontact Shri Nitin Grover, Executive Officer (011-3011 0443), email: ic@icai.org ICAI Bhawan, 122, Mahatma Gandhi Road, Post Box No. 3314, Nungambakkam, CHENNAI-600 034 Website: http://www.icai.orgFor sponsorship Dr. Surinder Pal, Sr. Dy. Director ( 011-3011 0430)related details please Email: spal@icai.in;contactSponsorship Avenues SPONSORSHIP AVENUES PLATINUM SPONSOR (R25 lacs)  Providing a fully furnished exclusive stall(15 sqm) outside the conference premises, allowing your to showcase your products to the participants  Acknowledgement on International Conference website as “Platinum Sponsor”  Acknowledgement on the Invitation Card of the Conference  Acknowledgement as the Conference sponsor on the banners & signages  Display of 10 Standees on the event sites  Logo on the cover page of the writing pad to be used in Conferences/Seminars/ Workshops  Advertisement in the Conference Souvenir  Logo on the Conference bag  Complementary passes(15) for delegates  Full Coloured Page Advertisement in ICAI’s Journal (January/February Edition) GOLD SPONSOR (R20 lacs)  Providing a fully furnished exclusive stall(10 sqm) outside the conference premises, allowing your to showcase your products to the participants  Acknowledgement on International Conference website as “Gold Sponsor”  Acknowledgement on the Invitation Card of the Conference  Display of 6 Standees on the event sites  Advertisement in the Conference Souvenir  Complementary passes(10) for delegates  Full Coloured Page Advertisement in ICAI’s Journal (January/February Edition)
    • Sponsorship Avenues SPONSORSHIP AVENUES EMERALD SPONSOR (R10 lacs)  Providing a fully furnished exclusive stall (6 sqm) outside the conference premises, allowing your to showcase your products to the participants  Acknowledgement on International Conference website as “Emerald Sponsor”  Acknowledgement on the Invitation Card of the Conference  Advertisement in the Conference Souvenir  Complementary passes(5) for delegates  Full Coloured Page Advertisement in ICAI’s Journal (January/February Edition) SILVER SPONSOR (R7.5 lacs)  Providing a fully furnished exclusive stall (6 sqm) outside the conference premises, allowing your to showcase your products to the participants  Acknowledgement on International Conference website as “Silver Sponsor”  Acknowledgement on the Invitation Card of the Conference  Advertisement in the Conference Souvenir  Complementary passes(2) for delegates  Full Half Coloured Page Advertisement in ICAI’s Journal (January/February Edition) PEARL SPONSOR (R5 Lacs)  Providing a fully furnished exclusive stall (6 sqm) outside the conference premises, allowing your to showcase your products to the participants  Acknowledgement on International Conference website as “Silver Sponsor”  Acknowledgement on the Invitation Card of the Conference  Advertisement in the Conference Souvenir  Complementary passes(1) for delegates  Full Half Coloured Page Advertisement in ICAI’s Journal (January/February Edition) OTHER SPONSORSHIP AVENUES Dinner +Cultural Evening (7 January, 2012) – R15,00,000 (1 event) Conference Lunch (3) (7-8 January, 2012) - R7,50,000 each Tea–Coffee Plaza (3) (7-8 January, 2012) - R1,50,000 each Delegate Kit - R15,00,000 Souvenir-Advertisement Back Cover Page- R2,50,000 Inside Front Cover Page - R2,00,000 Inside Back Cover Page - R2,00,000 Full Page Colour Advertisement - R1,50,000 Half Page Colour Advertisement - R75,000 Full Page B/W Advertisement - R50,000 Half Page B/W Advertisement - R25,000 Display Stalls - R75,000/Day Attractions Cultural Extravaganza 7th January, 2012 For more details, please visit http://www.icai.org  ICAI International Conference on “Accountancy Profession: Leveraging Emerging Challenges For Inclusive Growth” 6 – 8 January, 2012 at Chennai Trade Centre Registration Form Yes, I am interested in participating in the International Conference on “Accountancy Profession: Leveraging Emerging Challenges For Inclusive Growth” Name of the Delegate: Organisation/Firm: Address: Tel (with STD/ ISD Code): Fax (with STD/ ISD Code): E-mail: Member of the Institute: Yes: No: Membership No: CATEGORY FEES MEMBER (ACA) R2000 MEMBER (FCA) R2500 ICAI NON-MEMBERS R3000 FOREIGN DELEGATES $ 125 ON THE SPOT REGISTRATION MEMBERS R3000 Mode of payment: DD/Cheque No. dated drawn on for R in the name of “Secretary ICAI, Chennai International Conference 2012 A/c” payable at Chennai. Kindly send in duly filled in Registration Form alongwith requisite payment to: International Conference 2012 ICAI Bhawan, 122, Mahatma Gandhi Road, Post Box No. 3314, Nungambakkam, CHENNAI-600 034 For Online Payment Please visit: www.icai.org
    • LEGAL UPDATE Legal Decisions 680Legal Decisions1 Income-tax Act Expenditure – Allowable as DIRECT LD/60/49 Ransom money paid to kidnappers for release of a whole TAXES The Scientific Instrument Co. Ltd. time Director was an allowable deduction Vs. The assessee, an private limited company, whose CIT main income is from manufacturing and sale of bidis. One August 12, 2011 (ALL) ‘S’ was whole time Director of the assessee company. He [Assessment Years 1989-90, 1990-91, was looking after the purchase, sales and manufacturing 1992-93 & 1993-94] of bidis. He was kidnapped for ransom by a dacoit gang Section 28(i) read with Section 22 of while he had gone to for purchase of tendu leaves.the Income-tax Act, 1961 – Business and Professional Immediately complaint and FIR were lodged with Police.Income – Chargeable as The police were unsuccessful to recover him from theWhere assessee continued its business while renting clutches of dacoit. Ultimately a sum of R5,50,000 wasout one of business properties to bank in lieu of which paid by way of ransom for his release. Assessee’s claimit received relatively higher income in form of rent and for deduction of this ransom amount under the head ofinterest free loan, income from leasing would be assessed General Expenses was disallowed by the Assessingas business income Officer. The assessee is carrying on business of import and The High Court of Madhya Pradesh held that sectionsale of scientific instruments. The assessee rented out 37(1) provides that kidnapping a person for ransom is anits property to Citibank on Leave and Licence basis and offence and any person doing so or compelling to pay, isreceived a huge deposits as advance free of interest liable for the punishment as provided in the section, butwhich was to be adjusted by Citibank. The Assessing nowhere it is provided that to save a life of the person if aOfficer assessed the income from said property under the ransom is paid, it will amount to an offence. No provisionhead ‘Income from house property’. is brought to notice that payment of ransom is prohibited The High Court held that all the assets of the business by any law. In absence of it, the Explanation of sub-sectionwere not rented out by the assessee company. It was (1) of section 37 would not be applicable in the presentdoing the main business of manufactures, imports, case and the aforesaid expenditure was to be allowed aspurchases and dealing in scientific apparatus, chemicals, business expenditure.chemical products, articles of glass, metal, wood, paperetc., more or less connected with science, as given in the LD/60/51memorandum of association. Out of the three properties iPolicy Network (P Ltd. .)at Mumbai, the property in dispute was being used for its Vs.Regional Office. In the interest of the company, it decided Income-tax Officerto let out one of its properties, to the City Bank, by way June 17, 2011 (ITAT-DEL)of exploitation of business assets, for making profit. The [Assessment Year 2006-07]assets were let out, while carrying out other business Section 92C of the Income-tax Act, 1961 - Transferactivities. There was nothing on record, to show that the Pricing - Computation ofappellant had sold away the properties or abandoned Where difference in arm’s length price determined by TPOits business activities. In the circumstances, in order to and price charged by assessee was less than 5 per cent,exploit business assets, as a prudent business decision, applying unamended proviso, addition had to be deletedthe appellant took interest free loan from the City Bank If the unamended proviso is compared with theand rented out, one of its properties to it, and shifted its amended proviso to section 92C(2), then, it is clearlyRegional Office. In this commercial venture, the appellant noticed that there is a substantial change in the relief givenreceived a higher income regularly from its commercial to the assessee. By the unamended proviso, an optionassets. Therefore, the whole income from renting of was given to the assessee to have its price of internationalproperty would be assessed as business income, and not transaction in variation of (+/-) 5 per cent of arithmeticalincome from property. mean through which the arm’s length price is determined by the TPO by adopting most appropriate method in a LD/60/50 case where more than one price is determined by the said Commissioner of Income-tax appropriate method. By the amended proviso, firstly it has Vs. been provided that in a case where more than one price Khemchand Motilal Jain is determined by the most appropriate method, the arm’s August 23, 2011 (MP-Jabalpur) length price will be the price as determined by adoptingSection 37(1) of the Income-tax Act, 1961 – Business arithmetical mean of such prices. It is further provided that1 Readers are invited to send their comments on the selection of cases and their utility at eboard@icai.org. 24 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • LEGAL UPDATE Legal Decisions 682if the variation between arm’s length price so determined facts and a wrong claim made by assessee by withholdingand price at which international transaction has actually material facts fully and truly; it is only in latter case thatbeen undertaken and it does not exceed 5 per cent of the Assessing Officer would be entitled to proceed underlatter, then, the price at which the international transaction Section 147has actually been undertaken shall be deemed to be the The Petitioner filed return of Income for the assessmentarm’s length price. Thus, a deeming provision has been year 1997-98 along with the duly audited Accountscreated to adopt an arm’s length price if the price actually Tax Audit Report, etc. in respect of its income from theundertaken by the assessee does not exceed 5 per cent of manufacturing fabrication and servicing of components.the amount at which international transaction has actually After the assessment, the petitioners income for the saidbeen undertaken. Thus, 5 per cent difference has to be year was assessed by an Order under Section 143(3) of thereckoned from the price at which international transaction Act on 29-12-1999. An appeal against that was decided onhas actually been undertaken instead of reckoning from 31-7-2000 by the Commissioner of Income Tax of Appeals.price which is determined by the TPO, which was the On 18-3-2004, the Respondents issued the impugnedposition under unamended proviso. Thus, there is a basic notice for re-opening of assessment under Section 147.difference in both the provisos i.e., pre-amended and post The notice under section 148 stated that theamended. Assessing Officer had reasons to believe that income had A bare reading of the pre amended proviso will escaped assessment because the assessee had wronglyclearly reveal that in a case where more than one price claimed deduction under Section 80-IA in respect ofis determined by the most appropriate method, the arm’s income which was not derived from the income of thelength price shall be taken to be the arithmetical mean Petitioners Unit. Further, that long term capital gains hadof such prices, or at the option of the assessee, a price been wrongly claimed by the assessee which had beenwhich may vary from the arithmetical mean for an amount wrongly considered for the set off of the said Unit whichnot exceeding 5 per cent of such arithmetical mean. had resulted in escapement of income. Nowhere has the The arithmetical mean in the present case was 15.64 Assessing Officer stated that there was any failure on theper cent and by adopting the same, the arm’s length price part of the assessee to disclose fully and truly all materialhad been determined at R15,08,43,128/-. The arithmetical facts necessary for assessment.mean in the present case had been computed on the The Bombay High Court held that having regard to thebasis of three comparables; therefore, it was a case purpose of the section, the power conferred by Sectionwhere more than one price was determined by the most 147 does not provide a fresh opportunity to the Assessingappropriate method which is TNMM. If it is so, then, 5 Officer to correct an incorrect assessment made earlierper cent of a price which was determined by calculating unless the mistake in the assessment so made is thethe arithmetical mean was to be taken as the relevant result of a failure of the assessee to fully and truly disclosedifference for computing the benefit of safe harbour of all material facts necessary for assessment. Indeed,+/- 5 per cent. In other words, the safe harbour had to be where the assessee has fully disclosed all the materialcomputed with reference to arm’s length price determined facts, it is not open for the Assessing Officer to re-openby the TPO. The 5 per cent difference of arm’s length price the assessment on the ground that there is a mistake indetermined by the TPO came to R75,42,156 and if the assessment. Moreover, it is necessary for the Assessingsame was included in the revenue shown to be received Officer to first observe whether there is a failure to discloseby the assessee, the total would come to R15,08,75,869, fully and truly all material facts necessary for assessmentwhich was in excess of arm’s length price determined by and having observed that there is such a failure tothe TPO. Therefore, the difference in the arm’s length price proceed under Section 147. It must follow that where thedetermined by the TPO and charged by the assessee was Assessing Officer does not record such a failure he wouldless than 5 per cent. Therefore, applying the unamended not be entitled to proceed under Section 147.proviso the addition on that very ground had to be deleted In the instant case the Assessing Officer had notand was accordingly deleted. recorded the failure on the part of the Petitioner to fully and truly disclose all material facts necessary for the LD/60/52 assessment year. What was recorded was that the Titanor Components Ltd. Petitioner had wrongly claimed certain deductions which Vs. he was not entitled to. Assistant Commissioner of Income Tax There is a well known difference between a wrong June 9, 2011 (BOM-GOA) claim made by an assessee after disclosing all the true and [Assessment Year 1997-98] material facts and a wrong claim made by the assesseeSection 147 read with Section 80-IA of Income-tax by withholding the material facts fully and truly. It is only inAct, 1961 - Income escaping assessment the latter case that the Assessing Officer would be entitledThere is a well known difference between a wrong claim to proceed under Section 147.made by an assessee after disclosing all true and material 26 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • LEGAL UPDATE Legal Decisions 684 LD/60/53 considered in the appellant’s block assessment and the Status Home and Enclaves (P Ltd..) matter was required to be examined in the subsequent Vs. year. The Tribunal allowed the Revenue’s appeal. CIT The High Court of Calcutta held that it would appear August 12, 2011 (CAL) that the promissory note in question on the face of it did [Block Period from 1992-93 to 1997-98] not disclose that the same was payable to the appellant-Section 158B of the Income-tax Act, 1961 – Block company. On a plain reading of the said promissory note,assessment in search cases – Block Period/ it appears that on demand the firm TC promised to payUndisclosed income to the director of the appellant company a sum of R4 lacAny promissory note promising to pay an amount to a being the premium amount for development agreement.Director of company cannot be deemed to be an amount On the basis of such promissory note, the amountpayable to company; company cannot deny tax liability of was not payable to the appellant but was payable to itsequal sum disclose in search director. Any promissory note promising to pay an amount A search was conducted against the appellant to a Director of the company cannot be deemed to be anin course of which a promissory note in original was amount payable to the company and thus, the authoritiesseized from the residence of the appellant’s director. The below acted illegally in treating the amount payable underAssessing Officer initiated block assessment proceeding that promissory note to be an amount receivable by thepursuant to the said search against the appellant. appellant, the Company. The case of the appellant, a real estate business- However, having regard to the fact that in thecompany was that it undertook a project and invested promissory note itself, the development agreementdiverse amounts in the said project. The appellant being indicated and the appellant itself having taken theclaimed that due to paucity of fund, a development plea that the same was a security to the appellant, andagreement was entered into between the appellant and a the Commissioner (Appeals) having relied upon suchconstruction firm TC. In terms of the said agreement, the document, the matter was to be remanded back.said firm agreed to complete the project at its own costand, in turn, to provide a portion of the constructed area LD/60/54to the appellant by way of consideration. The appellant Deputy Commissioner of Income-taxclaimed that the said firm also agreed to pay the appellant Vs.a sum of R4 lac towards reimbursement of part of the Summit Securities Ltd.construction cost and preliminary expenses incurred August 10, 2011 (ITAT-MUM-SB)by the appellant. In order to secure the payment of the [Assessment Year 2006-07]said sum of R4 lac, it had obtained from the said firm a Section 255 of the Income-tax Act, 1961 - Appellatepromissory note. Since the said firm did not pay the said Tribunal – Procedure ofsum of R4 lac to the appellant within the financial year Reference to Special Bench cannot be withdrawn merelyending on March 1997 and in the account for the relevant for reason that High Court has admitted identical questionfinancial year, the said sum of R4 lac was reduced from of law in another casethe cost of work-in-progress relating to the project and an There should be consistency in the approach ofidentical amount together with interest of R18,000/- was various Benches of the Tribunal. Once a case has beenshown as receivable from the said fund. decided by an earlier Bench, the subsequent Bench According to the appellant, the said firm had also should respect such decision and should not endeavourshown the said sum of R4 lac together with interest of to make departure therefrom unless the facts are differentR18,000/- as payable to the appellant during the relevant or the legal position appreciated by the earlier Benchfinancial year ending on March 31, 1997. The appellant has undergone change because of some statutoryfurther claimed that in the financial year ending on March amendment or enunciation of law by the Supreme Court31, 1998, the said firm allotted additional constructed area or the jurisdictional High Court. Consistency in the judicialto the appellant in the project and adjusted the said sum approach removes the sword of uncertainty hanging overof Rs.4 lac against the same. the heads of litigants. The Income-tax Appellate Tribunal The Assessing Officer treated the said sum of R4 lac is an all India Body working through its Benches acrossas the appellant’s undisclosed income for the block period the country. The judicial discipline requires that the viewon the ground that the promissory note did not indicate taken by one Bench should be respected and ordinarilythat the payment had not been made to the appellant and followed by the others. This type of approach results intofurther that the appellant could not furnish the agreement consistency in the administration of justice as the partieswith the said firm. can reasonably predict the decision of a subsequent The Commissioner (Appeals) allowed the appeal of Bench when the same issue has been decided by anthe appellant and held that the sum of R4 lac could not be earlier Bench. 28 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • LEGAL UPDATE Legal Decisions 686 It is however not the end of the road. As the Tribunal against which either the Revenue or the assessee haveis a quasi-judicial body, its Members cannot work preferred appeal before the Tribunal and the matter ismechanically by following the view taken by the earlier still undecided. The same consequences will follow ifCo-ordinate Bench when they strongly believe that the the Tribunal is proscribed from hearing the matters onearlier decision was not rendered by appreciating the legal the admission of identical question of law by the Highposition in correct perspective. Naturally there cannot Court till a final decision is rendered, which may take abe any fetters on the powers of the subsequent Bench couple of years. Where the substantial question of lawof the Tribunal to dispute the correctness of the earlier was admitted by the High Court in another case of Zuariorder in justifiable cases. To presume that a subsequent Industries Ltd. Vs. ACIT [2007] 105 ITD 569 (MUM) andBench, despite having strongly entertained the doubt many years have elapsed and the matter has still notabout the accuracy of the earlier decision should follow been taken up for consideration and final disposal. Nothe same, would make a mockery of the judicial system objection to continuation of Special Bench of the Tribunaland act as a speed breaker on the thinking process and can be raised on ground that similar question of law hasflow of thoughts. The Members have freedom to doubt been admitted by High Court in another case. If such anthe correctness of an earlier decision in deserving cases argument is accepted and further advanced then all thefrom their own point of view. If after due application of High Courts will have to bring to an end the hearing ofmind the subsequent Bench comes to the conclusion that appeals before them involving a question of law on whichit cannot agree with the earlier view, it should not straight SLP has been admitted by the Supreme Court, which mayaway proceed to record a conflicting decision. In such a again take a number of years.situation the subsequent Bench is empowered or rather The consequences of such a course of action wouldduty bound to make a reference to the President on the lead to a chaotic situation. The entire working of thepoint they perceive to be an error of law in the earlier Tribunal will come to standstill if a reference to the Specialdecision. The Larger Bench is then made up to consider Bench is withdrawn simply on the ground that identicalthe correctness of the earlier decision on the facts and question of law has been admitted by the High Court.circumstances of the case before it. The decision thus Contemplate a situation in which an earlier Bencharrived at by the larger wisdom becomes a binding decides an issue in favour of one party, be it the Revenueprecedent for all other Benches across the country unless or the assessee and the aggrieved party appealsthere is a contrary judgment of the jurisdictional High against the said Tribunal order which is admitted by theCourt on the point. After such order, no Division Bench High Court. Suppose similar issue comes up before acan or should question the correctness of view taken by subsequent Bench which finds itself unable to endorsethe Special Bench. the view taken by the earlier Bench. The only course Where the High Court has neither decided the open to the subsequent Bench is to make a referencepoint on merits nor blocked hearing of cases involving to the President for the constitution of a Special Benchidentical question of law by the Tribunal till the disposal instead of recording a contrary decision at its own. Onof appeal pending before it, the mere fact that a superior the constitution of the Special Bench if an argument isauthority is seized of an issue identical to the one before taken that since the substantial question of law has beenthe lower authority, there cannot be any impediment on admitted by the High Court against the earlier order ofthe powers of the lower authority in disposing off the the Tribunal and hence such reference be withdrawn,matters involving such issue as per prevailing law. The there would be a deadlock. The subsequent Bench wouldfirst appellate authorities in all subsequent cases shall be land itself in a quagmire, being neither in a position todebarred from hearing the matters involving a question swallow the earlier view nor spit it out. Following the earlier 30 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • LEGAL UPDATE Legal Decisions 688decision of the Co-ordinate Bench would be difficult Notwithstanding the fact that SLP against the judgmentbecause of its non-concurrence with it. In the like manner of its earlier Bench has been admitted by the Supremeit would find its hands tied to directly record a contrary Court, the High Court does not stop its functioning toconclusion because of the prevalence of the aforestated wait for the outcome before the Supreme Court for anlegal position expressed by the Supreme Court and other indefinite time. The Larger Bench so constituted hears theHigh Courts prohibiting adopting such a course of action. matter and gives its conclusion, which becomes final quaDisposal of appeal against the earlier order by the High various Benches of that High Court until the final judgmentCourt may take several years and during the currency is rendered by the Supreme Court.of these years the Tribunal would become defunct on If a subsequent Bench of the Tribunal is disinclined tosuch issues. follow the view taken by an earlier Bench on a particular In order to come out of such a tricky situation, the issue, the only course open before it, is to make a referenceLegislature has provided a solution by enshrining section to the President for the constitution of Special Bench so255(3) empowering the President of the Tribunal to that the issue may be finally decided by a Larger Bench.constitute the Special Bench. Notwithstanding the fact that the substantial question of law A bare perusal of the relevant part of sub-section (3) raised in the order of the earlier Bench has been admittedof section 255 transpires that the President may for the by the High Court, there are no fetters on the Tribunaldisposal of any particular case constitute a Special Bench in hearing the case in Special Bench and rendering theconsisting of three or more members. The President is decision which would prevail upon and become a bindingempowered to constitute a Special Bench under section precedent for the other Benches of the Tribunal. The255(3) on his own volition if he considers any issue of a justice delivery system has to take its own course andgreater significance affecting large number of taxpayers cannot wait in eternity for a higher judicial body to decideor due to the importance of the issue even if it does not the issue first. Situation may be different where the saidaffect several assessees or otherwise. The powers of the substantial question of law receives consideration by thePresident in forming the Special Bench at his own will High Court and a final verdict is given. In such a case theare plenary, unfettered and unlimited. Apart from making parties before the Tribunal may apply for the withdrawal ofa Special Bench on the Presidents own choice, such the reference before the Special Bench provided the factsa Bench can also be constituted by the President on a and circumstances of such case are similar to the onerepresentation made either by the assessee or by the decided by the jurisdictional High Court. Such withdrawalRevenue. Further if a Single Member Bench of the Tribunal may sound justified as proceeding with the matter wouldor a Division Bench hearing a particular case considers it be an exercise in futility in the face of the judgment ofexpedient to have opinion of the Larger Bench on the issue the jurisdictional High Court. But where only a substantialbecause of its vital implications or they feel themselves question of law has been admitted by the High Courtunable to agree with the view expressed by an earlier and the case is yet to come up for hearing, which mayBench on similar point, they can request the President for take several years, there is no reason whatsoever for anythe making of a Special Bench on such issue. Besides party to approach the Tribunal for the withdrawal of thethat there may be certain other circumstances also in reference to the Special Bench on the point. Therefore,which the President can constitute Special Bench under the reference to the Special Bench cannot be withdrawnsection 255(3) consisting of three or more members for merely for the reason that the High Court has admitted thethe disposal of any particular case. identical question of law in another case. Thus it can be noticed that the constitution of theSpecial Bench eases the situation in a case where the Service Taxsubsequent Bench finds itself unable to endorse the LD/60/55view taken by the earlier Bench on the point. The order Home Solutions Retails (India) Ltd.of the Special Bench helps in providing consistency INDIRECT Vs.qua different Benches of the Tribunal until the matter TAXES Union of Indiareceives consideration of the higher judicial forums. It is September 23, 2011 (DEL-FB)further pertinent to note that the practice, similar to theconstitution of Special Bench by the Tribunal to resolve apossible conflict in the views amongst various Benches of Section 65(105)(zzzz) read withthe Tribunal and not waiting till the matter is finally decided Section 66 of the Finance Act, 1994by the High Court, is also uniformly followed by the High – Renting of Immovable PropertyCourts as well. Whenever a view is taken on a point by a Imposition of service tax under Section 65(105)(zzzz) readBench of a High Court and the subsequent Bench of the with Section 66 is not a tax on land and building which issame High Court finds it difficult to accept the same, the under Entry 49 of List II of the Constitution, and what ispractice is to refer the matter to the Chief Justice of the being taxed is an activity of letting or leasing fundamentallyconcerned High Court for constitution of a Larger Bench. for commercial or business purpose; therefore, section 32 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • 689 Legal Decisions LEGAL UPDATE65(105)(zzzz) of Finance Act, 1995 and section 66 asamended by Finance Act, 2010 are constitutionally valid The renting of immovable property has been defined toinclude renting, letting, leasing, licensing and other similararrangements of immovable property for use in the courseof furtherance of business or commerce including use asfactory, building, warehouse, exhibition halls, multiple usebuilding, etc. The said provision came into force with effectfrom 1.6.2007. It was urged that contrary to the expresswords of the provisions of the Act, the Legislature, placingan erroneous interpretation on section 65(105)(zzzz) asit stood in 2007, issued a notification No.24/2007 dated22.5.2007. After the notification was issued, a circulardated 4.1.2008 was issued by the Ministry of Financeof the Union of India. The constitutional validity of thenotification and the circular was questioned before thisCourt in the case of Home Solution Retail India Ltd. Vs.Union of India, 158 (2009) DLT 722 (DB). In the case of Home Solutions case (supra) it wascontended that the notification and circular had come intoexistence by absolute fallacious interpretation placed onSection 65(105)(zzzz) and Section 65(90)(a) inasmuch asan attempt has been made to levy service tax on rentingof immovable property as opposed to the levy of servicetax on the service provided “in relation to renting ofimmovable property”. The Division Bench has held thatsection 65(105)(zzzz) could not have brought in its ambitand sweep the renting out of immovable property for usein the course of furtherance of business or commerce toconstitute a taxable service and thereby exigible to servicetax and, accordingly, the notification dated 22-5-2007 andcircular dated 4-1-2008 were declared ultra vires. After the said decision was rendered, Section 65(90)(a)and sections 65 and 66 were amended. The amendmentshave been brought with retrospective effect from 1-6-2007. Challenging the validity of the amendments, thepetitioner submitted that the Parliament has no authorityto enact the impugned legislation as renting of immovableproperty is a tax on lands and buildings which squarelycomes within Entry 49 of List II of the Seventh Schedule ofthe Constitution of India. It was further submitted that theuse of the word ‘taxes’ in Entry 49 connotes a multitude oftaxes imposable on land when the renting of an immovableproperty would squarely fall within Entry 49 of List II. The Full Bench of the Delhi High Court held that section65 is the provision which deals with the charging of servicetax. Section 66(105) defines taxable service to mean anyservice provided or to be provided to any person, by anyother person by renting immovable property or any otherservice in relation to such renting for use in the course ofor furtherance of business or commerce. Section 65(90a)has been amended in 2010 to mean renting of immovableproperty which includes renting, letting, leasing, licensingor other similar arrangements of immovable property foruse in the course or furtherance of business or commercebut does not include certain aspects. Explanation No.1 THE CHARTERED ACCOUNTANT NOVEMbEr 2011 33
    • LEGAL UPDATE Legal Decisions 690to the said provision provides that “for use in the course or building situated in a particular place does possessor furtherance of business or commerce” includes the certain inherent qualities which distinguishes it from landuse of immovable property as factories, office buildings, or building at other places. The factors which really weighwarehouses, theatres, exhibition halls and multiple-use are location, accessibility, goodwill, construction qualitybuildings. Explanation 2 further declares that for the and other advantages. A land or building in one area maypurposes of this said clause, renting of immovable property fetch more rent than in another area. When a particularwould include allowing or permitting the use of space in building is rented or leased or given under arrangementan immovable property, irrespective of the transfer of for commercial or business purposes, many factors arepossession or control of the said immovable property. The taken into consideration. Every building or premisesearlier provision had introduced the definition of renting cannot be utilised for commercial or business purposes.of immovable property including renting, letting, leasing, When a particular building or premises has the “effectlicensing or other similar arrangements in the course or potentiality” to be let out on rent for the said purpose, anfurtherance of business or commerce. element of service is involved in the immovable property The hub of the matter is when a premise is let out for and that tantamounts to value addition which woulduse, should a person who rents an immovable property or come within the component of service tax. To furtherrenders any other service in relation to such letting for use clarify, an element of service arises because a personin the course or furtherance of business or commerce be who intends to avail the property on rent wishes to useliable to service tax. it for a specific purpose. The value of the building gets The terms which are significant are renting, letting, accentuated because of scarcity of land or building,leasing and licencing for use in the course or furtherance goodwill, accessibility and similar ancillary advantagesof business or commerce. The legislature has not merely which constitute value addition.said renting of immovable property. It has used the The modern economic theory of rent also has aterminology renting of property or any service in relation nexus with demand and supply. In this analysis, rental isto such renting and that too in the course or furtherance hiked because supply of land is scarce in relation to itsof business or commerce, the last part being important. demand. This economic concept is called “scarcity theoryWhile understanding the concept of service tax, it is to of rent”. This includes the facet of competition and quality.be kept in mind that it is both a general tax as well as According to the modern theory, rent is not peculiar to landa destination based consumption tax levied on services. alone but arises in the case of many a factor which earnSometimes services can be “property based services” over and above the transfer earnings. There is a distinctionand “performance based services”. The architects, between “actual earnings” and “transfer earnings”.interior designers and real estate agents would come in According to the modern analysis of rent, it is not peculiarthe category of performance service providers. to land alone and the concept of transfer earning is more attracted towards the building depending upon its use.Whether when a property is leased or rented, the As an economic concept, it has been developed that rentelement of service is absolutely absent? qua building or premises or, for that matter, land has a nexus, an inseparable one, with the potentiality of its use In this context, the concept of rent has to be appositely in a competitive market. The economic growth has anunderstood. A rent is basically a reward paid for the use effect on rent. In this regard, modern economists haveof the land. The tenant or the occupant pays the same evolved certain methods, namely, technical progressto use the premises. In the economic concept, rent can in methods of production, development in means ofbe categorized into two heads, namely, contract rent transportation and population growth. We have referredand economic rent. Contract rent fundamentally refers to to these concepts only to highlight that the legislaturethe total amount of money paid for use of the land and has not imposed tax on mere letting but associated it witheconomic rent is a part of the total payment which is made business or commercial use. Thus, it comes within thefor the use of land and it is estimated on many a ground. concept of activity and the value addition is inherent. It isThe economic rent can be contract rent minus interest on worth noting that the language employed in the dictionarythe capital invested. The concept of economic rent can clause and the charging section, that is, “commercial usealso represent an amount which a factor can earn in its next for business purposes” have their own significance.best alternative use. Be it noted, the rent varies dependingupon advantages. The value difference comes into play When premises is taken for commercial purpose, it isbecause of transport charges. The surplus arises because basically to subserve the cause of facilitating commerce,of the location and availability of facilities. Appreciated business and promoting the same. Therefore, there canin this context, economic rent is a surplus which arises be no trace of doubt that an element of value addition ison account of natural differential advantages and can involved and once there is a value addition, there is anbe treated as ‘service’. That apart, scarcity of premises, element of service.the pressure of demand and the increase of population The imposition of service tax under Section 65(105)are also contributory factors. Consequently, any land (zzzz) read with Section 66 is not a tax on land and building 34 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • 691 Legal Decisions LEGAL UPDATEwhich is under Entry 49 of List II. What is being taxed is an (c) The challenge to the amendment giving it retrospectiveactivity, and the activity denotes the letting or leasing with a effect is unsustainable and, accordingly, the samepurpose, and the purpose is fundamentally for commercial stands repelled and the retrospective amendment isor business purpose and its furtherance. The concept has declared as constitutionally valid.to be read in conjunction. Service tax is associated withvalue addition as evolved by the judgments of the Apex Companies ActCourt, the submission that the base of the said decisionscannot be taken away by a statutory amendment need LD/60/56not be adverted to. Once there is a value addition and the O T H E R Shin Satellite Public Companyelement of service is involved, in conceptual essentiality, AC T S Limitedservice tax gets attracted and the impost gets out of the Vs.purview of Entry 49 of List II of the Seventh Schedule of ATN International Limitedthe Constitution and falls under the residuary entry, that July 29, 2011 (CAL)is, Entry 97 of List I. Section 434 of the Companies Act, The conclusions as arrived by the Full Bench are to be 1956 – Winding up of Companyenumerated in seriatim as follows: Sum due and payable to creditor(a) The provisions, namely, Section 65(105)(zzzz) which is accepted by company is to be paid and Section 66 of the Finance Act, 1994 and as The petitioning creditor agreed to provide digital amended by the Finance Act, 2010, are intra vires the channel service to the company against a service fee for Constitution of India. the agreed period. A credit period of 40 days was provided(b) The decision rendered in the first Home Solution’s and security deposit given. For non-payment of sums the Case (Supra) case does not lay down the correct law petitioning creditor terminated the agreement between the as there is value addition when the premises is let out parties. The security deposit was also forfeited. A notice for use in the course of or furtherance of business or under section 434 was issued whereby the company was commerce and it is, accordingly overruled. called upon to pay US $ 2,12,452.78. A reply was given to THE CHARTERED ACCOUNTANT NOVEMbEr 2011 35
    • LEGAL UPDATE Legal Decisions 692the said notice wherein forfeiture of the Security deposit The High Court of Delhi held that on a studied scrutinywas disputed so also payment of US $ 2,12,452.78. of the statutory provisions of section 21A(4), it is clear The plea of arbitration clause was not taken in the that the Director (Discipline), who is the Secretary of thereply to the notice issued under section 434 of the 1956 Board of Discipline, has been conferred the power toAct. Neither reference had been filed nor any arbitration submit reports before the Board of Discipline with all theclause was invoked. information on the complaints for the purpose of formation In the e-mail of outstanding balance has been admitted of an opinion. If the Director (Discipline) is of the opinionby the company and a payment schedule contemplated. that there is no prima facie case and the Board of DisciplineLater on, a confirmed payment schedule was sent to the agrees with the opinion of the Director (Discipline), thepetitioning creditor by the company and a statement of matter is closed. In case of disagreement, the Board ofAccount was sent by the company to the Income Tax Discipline may advise the Director (Discipline) to carryDepartment. Such statement showed a sum of US $ further investigation.82,467.90 payable by the company to the petitioning The Chapter-IV of the Act deals with Board of Discipline.creditor. Chapter-V deals with the Disciplinary Committee. Section The Calcutta High Court held that a sum of US $ 21A(4) clearly stipulates that if the Board of Discipline82,467.90 was due and payable to the petitioning creditor disagrees, it may advise the Director (Discipline) to furtherby the company and accordingly the Company was investigate the matter. It is, however, not possible to acceptdirected to pay the above said sum within 6 weeks from that the Board cannot disagree with the report of Directorthe date of receipt of this order alongwith interest at the (Discipline) or in case of disagreement the Board canrate of 12 per cent per annum. only direct further investigation by the Director (Discipline) As a bonafide dispute has been raised in respect and not refer the matter to the Disciplinary Committeeof forfeiture of the Security deposit the said cannot be when violation/breach of the Second Schedule or bothdecided in this application and the parties will be entitled schedules is alleged. Any such restriction on the Boardto take steps in accordance with law. of Discipline is not expressly stipulated and should not impliedly infer if one examines the provisions dealing disciplinary proceedings. LD/60/57 Naresh Chandra Agarawal Section 21(4) stipulates that the Disciplinary Directorate Vs. shall follow the procedure as they may be specified. The The Institute of Chartered Accountants of India procedure is specified in Rules including the impugned September 5, 2011 (DEL) Rule 9(3)(b).Rule 9 of Chartered Accountants (Procedure of The Director (Discipline) functions as the Secretary ofInvestigation of Professional and Other Misconduct the Board of Discipline. However, it is difficult to acceptand Conduct of Cases) Rules, 2007 read with that in case Director (Discipline) gives a closure reportSection 21A of the Chartered Accountant Act, 1949 – on the basis of his or her opinion that there is no primaExamination of the ComplaintRule 9(3)(b) of the Rules does not transgresses andsupplants Section 21A(4) of the Chartered AccountantsAct, 1949 and, hence, is not ultra vires The petitioner, a Chartered Accountant, had prayedfor declaring Rule 9(3)(b) of Chartered Accountants(Procedure of Investigation of Professional and OtherMisconduct and Conduct of Cases) Rules, 2007 (theRules) as ultra vires as the said Rule transgresses andsupplants Section 21A(4) of the Chartered AccountantsAct, 1949 (the Act). It was submitted by the petitioner thatSection 21A(4) mandates that the Board of Discipline if itdisagrees with the Director (Discipline), it shall close thematter but the Rule as has been framed empowers theBoard of Discipline either to proceed with Chapter-IV ofthese Rules if the matter pertains to the First Schedule orrefer the matter to the Committee of Disputes to proceedunder Chapter-V of these Rules if the matter pertainsto Second Schedule or both the schedules. When theSection provides in a categorical manner either to closethe case or direct further investigation, the question ofreference to the Dispute Committee does not arise. 36 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • LEGAL UPDATE Legal Decisions 694facie case, the Board of Discipline/Disciplinary Committee was no other shareholder in this company and themust accept that opinion and the only option to the directors had 50 per cent shareholding each. This wasBoard of Discipline is to advise the Director (Discipline) an investment company whose main object was toto investigate the matter further. The provisions do not invest in shares/debentures of other companies. The twopostulate finality to the prima facie opinion of the Director directors of appellant, in their individual capacity, were(Discipline). On the other hand, Director (Discipline) is the also promoters of the target company and they togetherSecretary of the Board. The final determination whether held 33.38 per cent of the voting rights/share capital inor not a member is guilty of professional or other mis- the target company. The remaining 15 promoters of theconduct in the First Schedule or the Second Schedule, target company as shown in the statement filed with theis decided by the Board of Discipline or the Disciplinary stock exchanges held 12.32 per cent of the voting rightsCommittee. The argument raised and the interpretation in that company. Thus, the total holding of the promoterplaced by the petitioner is contrary to the legislative intent group in the target company came to 45.70 per centand will make the provisions unworkable as it would make including that of the two directors. The appellant companythe Board of Discipline and the Disciplinary Committee acquired 6.17 per cent of the total equity capital of thepowerless in case the Director (Discipline) gives a target company.negative prima facie report. The phrase “prima facie” itself As the appellant company acquired shares/votingshows that report of the Director (Discipline) is tentative rights in the target company which entitled it to exerciseand not final. The finality is attached to the orders which more than 5 per cent (6.17 per cent) of the voting rightsare ultimately passed either by the Board of Discipline or therein thereby increasing the collective shareholding ofthe Disciplinary Committee. the two directors/promoters and the appellant in the target Quite apart from the above, the term used in Section company from 33.38 per cent to 39.55 per cent triggering21A(4) is “may”. The Board is not bound in all cases of Regulation 11(1) of the Takeover Code and since thedisagreement to refer for reinvestigation. When discretion appellant did not come out with a public announcementhas been granted, the word “may” should not be read to acquire further shares of the takeover code, the SEBIhere as “shall”. The word “may” must take the literal alleged violation of Regulation 11(1).colour in the present case. It gives discretion or choice The Securities Appellate Tribunal held that if ato the Board. As the word “may” is deliberately used and promoter of a target company, who is an individual, holdsconveys the legislative intent, one should perceive that it 10 per cent or more shares in any other company, thenshould be interpreted as “shall”. It has to be borne in mind that company also becomes a part of the promoter groupthat Rule 9(3)(b) is procedural and states how the steps of the target company. In the present case each of the twoshould be taken and, therefore, it would be an anathema promoter-directors held 50 per cent shares in the appellantto the basic conception of statutory interpretation that company. The appellant company was, therefore, a partRule 9(3)(b) transgresses or encroaches upon the power of the promoter group of the target company even withoutconferred under Section 21A(4). On the contrary, it only holding a single share. It was, thus, clear that the twosupplements. In view of the aforesaid, the Rule 9(3)(b) promoter/directors and the appellant were promoters ofcannot be held to be ultra vires. the target company. It is true that ‘person acting in concert’ comprises SEBI two or more persons who share a common objective LD/60/58 or purpose of substantial acquisition of shares or voting Nirvana Holdings Private Ltd. rights in a company. In other words, there has to be a Vs. meeting of their minds when the acquisition takes Securities and Exchange Board of India place and it is only then that it could be said that they August 9, 2011 (SAT-MUM) acted in concert. In the present case it could notRegulation 11 of the SEBI (Substantial Acquisition even be suggested that the appellant while acquiringof Shares and Takeovers) Regulations, 1997 – 6.17 per cent shares of the target company did notConsolidation of Holdings act in concert with the two promoter directors who, asWhere a company acquired shares of target company already observed, were promoters of the target companyalong with its promoter directors, company should be in their individual capacity and also hold 100 per centpresumed to have acted in concert with its promoter shares of the appellant company. The two promoterdirectors in their individual capacity and their holdings directors controlled the appellant company and theyhad to be clubbed; when total holdings would cross were also its directing mind. No investment decisionpermissible creeping acquisition limit of 5 per cent, but on behalf of the appellant company could be takenno public announcement was made, Regulation 11(1) of without their authority, knowledge, consent and approval.Takeover Code would be violated The appellant being a body corporate was distinct from The appellant was a private limited company and the two promoter directors. In this view of the matter, ithad only two promoters/directors/ shareholders. There was obvious that when the appellant company which 38 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • 695 Legal Decisions LEGAL UPDATEwas a body corporate acquired shares of the targetcompany, it acted in concert with its promoter directorsin their individual capacity who were also the promotersof the target company. The shares acquired by theappellant company and the holding of the two promoterdirectors had to be clubbed for the purposes ofRegulation 11(1) of the takeover code as they wereacting in concert. When this was done, it became clearthat the appellant crossed the permissible creepingacquisition limit of 5 per cent thereby triggeringRegulation 11(1) of the takeover code and not havingmade a public announ-cement, violated the saidprovision. Even if the shareholding of the other promoters isexcluded, the shareholding of the two promoter/directorsand the appellant together was enough to triggerRegulation 11(1). In this view of the matter, no fault couldbe found with the conclusion arrived at by the wholetime member that Regulation 11(1) got triggered and theappellant by not making a public announcement violatedthe said provision. Whenever an acquirer violates Regulation 10, 11 or12 of the takeover code by not making a publicannouncement, he should be directed to comply withthe provision by making a public offer. The words “unlesssuch acquirer makes a public announcement” appearingin Regulations 10 and 11(1) make these provisionsmandatory and a public announcement has to be made.Similar words appear in Regulation 12 as well. Theseprovisions make the acquisition conditional upon apublic announcement being made. The primary objectof the takeover code is to provide an exit route to thepublic shareholders when there is substantial acquisitionof shares or a take over. This right to exit is an invaluableright and the shareholders cannot be deprived of thisright lightly. It is only when larger interest of investorprotection or that of the securities market demandsthat this right could be taken away. Therefore,as a normal rule, a direction to make a publicannouncement to acquire shares of the target companyshould issue to an acquirer who fails to do that.The Board need not give reasons as to why such adirection is being issued because that is the mandateof Regulations 10, 11 and 12. However, if the issuanceof such a direction is not in the interest of the securitiesmarket or for the protection of interest of investors,the Board may deviate from the normal rule and issueany other direction as envisaged in Regulation 44 ofthe takeover code. In that event, the Board shouldrecord reasons for deviation. In the instant case, noreasons had been recorded for deviating from thenormal rule and there was no ground for deviation.In these circumstances, the appellant was to be directedto make a public announcement to acquire the sharesof the target company in accordance with the provisionsof the Takeover Code. n THE CHARTERED ACCOUNTANT NOVEMbEr 2011 39
    • LEGAL UPDATE Circulars / Notifications 696Circulars/NotificationsGiven below are the important Circulars and Notifications issued by the CBDT, CBEC, MCA, RBI and SEBI during thelast month for information and use of all the readers. Readers are requested to use the Citation/website or weblink toaccess the full text of desired circular/notification. You are requested to please submit your feedback and suggestionson the column at eboard@icai.org. (Matter on Direct Taxes has been the interest accruing on the above mentioned deposit(s) DIRECT contributed by the Direct Tax as per existing procedure and at the rates in force and TAXES Committee of the ICAI) that the certificate of deduction of tax shall be issued by the bank in the name of ‘the depositor’. The circular I. CIRCULARS further provides that if more than one person has been 1. Circular No. 7/2011, dated directed to deposit any specified amount, the amount of September 27, 2011 TDS shall be corresponding to each such depositor for The Central Board of Direct Taxes the portion of interest accrued in its respective share inhas through this circular, modified Circular No.07/2007, the total amount deposited and TDS certificates shall bedated October 23, 2007 which laid down the procedure accordingly issued by the bank.for refund of tax deducted at source under section 195 of It has also been clarified that the depositor at the timethe Income-tax Act, 1961 to the person deducting tax at of making deposit shall submit a prescribed declarationsource from the payment to a non-resident. with the court for record purpose and to facilitate the The Circular No. 07/2007, dated October 23, 2007, administration of TDS. The Registrar/ Prothonotarydid not cover a situation where the tax is deducted at a and Senior Master or any person authorised by therate prescribed in the relevant DTAA which is higher than court will pass the information furnished therein to thethe rate prescribed in the Income-tax Act, 1961.Since bank concerned for TDS properly in the name of thethe law requires deduction of tax at a rate prescribed depositor(s) in accordance with the provisions ofin the relevant DTAA or under the Income-tax Act, 1961 the Act.whichever is lower, there is a possibility that in such Further, the circular also provides that the aforesaidcases excess tax is deducted relying on the provisions procedure shall not apply in respect of any deposit heldof relevant DTAA. Accordingly, in order to remove the in the capacity of being an administrator or receiver or anygenuine hardship faced by the resident deductor, the deposit arisen due to attachment made by the court or inBoard has modified circular no. 07/2007, dated October the cases of representative assessee defined in section23, 2007 to the effect that the same shall also apply to 160 of the Income Tax Act, 1961.those cases where deduction of tax at a higher rate under The complete details of the text of the circulars can bethe relevant DTAA has been made while a lower rate is downloaded from the following linkprescribed under the domestic laws. http://law.incometaxindia.gov.in/DIT/Circulars.aspx2. Circular No. 8/2011, dated October 14, 2011 II. Notifications On the basis of references received expressing the 1. Notification No. 52, dated September 23, 2011difficulties faced in implementation of provisions of section Section 10(15)(iv)(h) exempts interest payable by194A in a situation where in course of proceedings before any public sector company in respect of such bondsSupreme Court /High Court/ any other court or tribunal, or debentures specified by the Central Government byone or more than one litigant is directed by the court notification in the Official Gazette. The notification wouldthat a specified amount be deposited in the bank in the also specify the conditions subject to which the exemptionnames of Registrar/Prothonotary and Senior Master or would be available. Accordingly, in exercise of the powersany other name as per the order of the court in order to conferred in section 10(15)(iv)(h), the Central Governmentprotect the interest of litigants, the Board has, through has specified the issue of tax free, secured, redeemable,this circular provided that the bank shall in accordance non-convertible bonds of National Highways Authority ofwith the provisions of the Act, deduct tax at source on India (NHAI), Indian Railways Finance Corporation Ltd. 40 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • 697 Circulars / Notifications LEGAL UPDATE(IRFCL), Housing and Urban Development Corporation (Matter on Indirect Taxes has beenLtd.(HUDCL) and Power Finance Corporation (PFC) to be INDIRECT contributed by the Indirect Taxesissued during the financial year 2011-12, the interest on TAXES Committee of the ICAI)which would be exempt under the said section. Further, ithas been provided that such benefit shall be admissible A.SERVICE TAXonly if the holder of such bonds registers his or her name I.Notifications:and the holding with the said entity. 1. Notification No. 46 and 47/2011 ST dated September 19, 2011: Notification2. Notification No. 54, dated October 03, 2011 No. 18/2002 ST dated 16.12.2002 The Government of Republic of India has entered into an exempts the taxable services provided by a consultingagreement with Government of the British Virgin Islands for engineer on transfer of technology from so muchexchange of information relating to taxes. Further, in exercise of the service tax leviable thereon, as is equivalentof the powers conferred by section 90 of the Income-tax to the amount of cess paid on the said transfer ofAct, 1961, the Central Government hereby directs that all technology under the provisions of Section 3 of thethe provisions of the said agreement, shall be given effect Research and Development Cess Act, 1986. The saidto in the Union of India with respect to criminal tax matters exemption would now be available if the Research &immediately and with respect to all other matters covered in Development Cess is paid at the time of service orArticle 1 of the said agreement, for taxable periods beginning before payment for the service subject to maximumon or after the 22nd day of August, 2011 or where there is of six months period from the date of invoice or inno taxable period, for all charges to tax arising on or after case of associated enterprises the date of credit inthe 22nd day of August, 2011. the books of account. Also, necessary records will The complete details of the text of the above-mentioned have to be maintained so as to establish a linkagenotifications can be downloaded from the following link between the invoice or the credit entry, as the case http://law.incometaxindia.gov.in/DIT/Notifications. may be, and the cess payment challan.aspx Similar conditions have been imposed in respect THE CHARTERED ACCOUNTANT NOVEMbEr 2011 41
    • LEGAL UPDATE Circulars / Notifications 698 of the exemption available to the amount of cess Excise and Service Tax returns, the DG (Systems) paid by thholder of intellectual property right on has issued comprehensive instructions outlining import of technology under the provisions of the procedure for electronic filing of Central Excise Section 3 of the Research and Development Cess duty and Service Tax returns and electronic payment Act, 1986 of taxes under ACES. The said instructions outline the registration process for new assessees, existingB. CENTRAL EXCISE assessees, non–assessees and for Large TaxpayersI. Circular: Units, steps for preparing and filing of return, use1. Circular No. 953/14/2011 dated September 12, of XML Schema for filing dealer’s return, procedure 2011: In every Commissionerate a Regional Advisory for obtaining acknowledgement of e-filed return, Committees (RAC) provides advisory services for procedure for e-payment etc. solution of procedural difficulties of general nature. There are separate RAC for organised sector & C. CUSTOMS small scale sector. These RAC are presently being I. Circular: chaired by the Commissioner. The circular issued 1. Circular No. 44/2011 Cus dated September 23, provides that from now onwards a single RAC may 2011: Pursuant to the judgement of the Supreme be constituted for the organised sector and the small Court in the in the case of CCus. v. Sayed Ali 2011 scale industries by the Zonal Chief Commissioner (265) ELT 17, an Instruction F.No.437/143/2009- Cus. at Zonal level instead of a separate RAC for each IV(pt) dated 15.04.2011 was issued by the Board Commissionerate in his Zone. In addition , following directing the field formations to examine pending are the other decisions of the Board in this respect: Show Cause Notices and wherever these are not i. The number of members in each RAC raised to 16 hit by time limitation to get these issued afresh from 12 so as to include representatives from the by the jurisdictional Commissionerates. Further, State Government, manufacturers, SSI, PSU etc. as a prospective remedial measure, the officers ii. Three more members to be co-opted by the Chief of Directorate General of Revenue Intelligence Commissioner. Meetings of RAC to be convened (DRI), Commissionerates of Customs (Preventive), on a quarterly basis. Directorate General of Central Excise Intelligence iii. The Chief Commissioner shall be the Chairperson (DGCEI) and Central Excise Commissionerates were of RAC. assigned the functions of the ‘proper officer’ for the purposes of Sections 17 and 28 of the Customs Act2. Circular No. 956/17/2011 CX dated September by the Board vide Notification No.44/2011-Customs 28, 2011: Pursuant to issuance of Notifications No. (N.T.), dated July 06, 2011. 21/2011-Central Excise (NT) & 22/2011-Central With a view to validate the Show Cause Notices issued Excise (NT) both dated September 14, 2011 and prior to July 06, 2011, Section 28 of the Customs Notification No. 43/2011 ST dated August 25, 2011 Act, 1962 has been retrospectively amended by the prescribing mandatory electronic filing of Central Customs (Amendment and Validation) Act, 2011. As 42 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • 699 Circulars / Notifications LEGAL UPDATE per the amended section, Show Cause Notices issued prior to July 06, 2011 by officers of Customs, which would include officers of Commissionerates of Customs (Preventive), Directorate General of Revenue Intelligence (DRI), Directorate General of Central Excise Intelligence and similarly placed officers stand validated since these officers are retrospectively recognized as ‘proper officers’ for the purpose of Sections 17 and 28 of the said Act. The Board has therefore, withdrawn Instruction F.No.437/143/2009- Cus. IV (pt) dated April 15, 2011 as the matter pertaining to validity of Show Cause Notice has now been settled in terms of Notification No. 44/2011-Customs (N.T.) dated July 06. .2011 and amended Section 28 of the Customs Act, 1962.2. Circular No. 42/2011 Cus. dated September 22, 2011: The Government has announced the revised All Industry Rates (AIR) of Duty Drawback 2011-12 vide Notification No. 68 / 2011- Cus (N.T.) dated September 22, 2011. The rates of duty drawback are effective from October 01, 2011.3. Circular No. 45/2011 –Cus. dated October 13, 2011 : It has been clarified that in respect of reward schemes specified under FTP and DEPB scheme, re-export of imported goods, which are found to be defective /unfit and/ or for re-export on account of any other reason, may be permitted by the Commissioner of Customs, subject to fulfillment of certain prescribed conditions.II. Notifications:1. Notification No. 69 /2011- CUS(NT) dated September 22, 2011: Section 75A of the Customs Act, 1962 provides for payment of interest if the drawback is not paid to the claimant within one month from the date of filing a claim for drawback at the rate prescribed from the date of expiry of one month till the date of payment of such drawback. This period of ‘one month’ was amended w.e.f May 14, 2003 from ‘two months’ prior to May 14, 2003. However, corresponding amendment was not made in rule 13(4) of the Customs and Central Excise Duties and Service Tax Drawback Rules, 1995, which provides for manner and time limit for claiming drawback. The rule continued to mention that ‘two months’ period prescribed under section 75A shall exclude the time taken in testing of the export goods subject to maximum of one month. CBEC has therefore, now amended this period under Rule 13(4) from ‘two months’ to ‘one month’ to bring it in line with time limit prescribed under section 75A. Drawback allowed on Cotton Yarn: Drawback was not allowed earlier on Cotton Yarn falling under heading 5205, 5206 and 5207. Now this restriction is removed.2. Notification No.67/2011 Cus. (NT) dated September 22, 2011: By virtue of Notification No. 67/2011 dated September 22, 2011, the Resident Public Limited Companies have been brought under the ambit of Section 28E of Customs Act. Such companies can now avail the facility of advance ruling. Public limited company shall have the same meaning as is assigned to a “public company” in clause (iv) of sub-section (1) of section 3 of the Companies Act, 1956 and shall include a private company that becomes a public company by virtue of section 43A of the said Act. A ‘resident’ shall have the same meaning as is assigned to it in clause (42) of section THE CHARTERED ACCOUNTANT NOVEMbEr 2011 43
    • LEGAL UPDATE Circulars / Notifications 700 2 of the Income tax Act, 1961 in so far as it applies to a company. The complete text of the above-mentioned notifications and circulars can be downloaded from www.cbec.gov.in (Matter on FEMA has been contributed by CA. Manoj Shah and FEM A CA. Hinesh Doshi) Review of foreign exchange facilities available to individuals – Residents/ Non-Resident Indians (NRIs) and Persons of Indian Origin (PIOs) The Committee constitutedunder the Chairmanship of Smt. K. J. Udeshi forreview of procedures relating to foreign exchangefacilities to individuals – Residents/ NRIs and PIOshas submitted its report to the RBI on August 8,2011. Pursuant to the recommendations made bythe Committee to improve facilities to resident individuals,NRIs, PIOs as also, for simplification of procedures,the RBI has issued following circulars implementingsome of the recommendations made bythe Committee.1. Savings Bank account maintained by residents inIndia – non-resident close relative allowed as jointholderA.P (DIR Series) Circular No.12 dated September 15, . 3. Foreign Investments in India – increase in limit for2011 transfer of security by way of gift RBI has permitted individuals resident in India to A.P (DIR Series) Circular No.14 dated September 15, .include non-resident close relative(s) (‘relative’ as defined 2011in section 6 of the Companies Act, 1956) as a joint holder(s) In terms of the Foreign Exchange Managementin their resident bank accounts on ‘former or survivor’ (Transfer or issue of Security by a Person Resident outsidebasis. However, non-resident Indian close relatives shall India) Regulations, 2000, as amended a person resident innot be eligible to operate the account during the life time India is permitted to transfer any security, by way of gift, toof the resident account holder. a person resident outside India, with prior approval of the RBI subject to specified conditions. One of the conditions2. NRIs/PIOs holding Non-Resident (External) Rupee specified is that the value of security to be transferredAccount Scheme (NRE)/ Foreign Currency (Non- by the donor/ transferor, together with any securityResident) Account (Banks) Scheme (FCNR(B)) transferred to any person residing outside India as gift in theaccounts jointly with Indian resident close relative – calendar year should not exceed the rupee equivalent ofliberalisation USD 25,000. This limit has now been enhanced toA.P (DIR Series) Circular No.13 dated September 15, . USD 50,000 per financial year.2011 RBI has permitted NRI as defined in Foreign 4. Exchange Earners Foreign Currency (EEFC)Exchange Management (Deposit) Regulations, 2000 Account and Resident Foreign Currency (RFC)to open NRE / FCNR(B) account with their resident account – resident close relative allowed as jointclose relative (‘relative’ as defined in section 6 of the holderCompanies Act, 1956) on ‘former or survivor’ basis. The A.P (DIR Series) Circular No.15 dated September 15, .resident close relative shall be eligible to operate the 2011account as a Power of Attorney holder in accordance RBI has permitted resident individuals to includewith extant instructions during the life time of the NRI/ PIO resident close relative(s) (‘relative’ as defined in sectionaccount holder. 6 of the Companies Act, 1956) as a joint holder(s) in their 44 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • LEGAL UPDATE Circulars / Notifications 702EEFC/RFC bank accounts on ‘former or survivor’ basis. 8. Repayment of loans of Non-resident close relativesHowever, such resident Indian close relative, now being by residentsmade eligible to become joint account holder, shall not be A.P (DIR Series) Circular No.19 dated September 16, .eligible to operate the account during the life time of the 2011resident account holder. Hitherto, in terms of Regulation 8 (d) of the Foreign Exchange Management (Borrowing and Lending in5. Credit of sale proceeds of Foreign Direct Rupees) Regulations, 2000 as amended, relative ofInvestments in India to NRE/FCNR (B) accounts – the NRI / PIO borrower in India is allowed to repay theClarification housing loan taken by such NRI or PIO from anA.P (DIR Series) Circular No.16 dated September 15, . authorised dealer or a housing finance institution in India2011 approved by the National Housing Bank for acquisition In terms of the Schedule 3, 4 and 5 of the Foreign of a residential accommodation in India by crediting theExchange Management (Transfer or issue of Security by borrower’s loan account through the bank account ofa Person Resident outside India) Regulations, 2000, sale such relative. RBI has review the extant provision andproceeds of Foreign Investments in India were treated decided to permit the resident close relative (‘relative’as eligible credit to NRE/FCNR (B) accounts, where the as defined in Section 6 of the Companies Act, 1956),purchase consideration was paid by the NRIs / PIOs of the NRI to repay the loan granted to such NRI by anout of inward remittance or funds held in their NRE/ authorised dealer in India in accordance with RegulationFCNR (B) accounts and subject to applicable taxes, 7 of the aforesaid Regulations, by crediting the borrower’sif any. It is now clarified that the same facility would be loan account through the bank account of suchavailable to NRIs/ PIOs under Regulation 11 of the said relative.Regulations. 9. Meeting of Medical expenses of NRIs close6. Gift in Rupees by Resident Individuals to NRI close relatives by Resident Individualsrelatives A.P (DIR Series) Circular No.20 dated September 16, .A.P (DIR Series) Circular No.17 dated September 16, 2011 . 2011 RBI has permitted a resident individual to make RBI has clarified that where the medical expensesa rupee gift to a NRI/PIO who is a close relative of the in respect of NRI close relative (‘relative’ as defined inresident individual (‘relative’ as defined in Section 6 of Section 6 of the Companies Act, 1956) are paid by athe Companies Act, 1956) by way of crossed cheque / resident individual, such a payment being in the nature ofelectronic transfer. The amount should be credited to a resident to resident transaction may be covered underthe Non-Resident (Ordinary) Rupee Account (NRO) the term “services related thereto” under Regulation 2(i)account of the NRI / PIO and credit of such gift amount of Notification No. FEMA 16 /2000- RB dated May 3, 2000may be treated as an eligible credit to NRO a/c. issued in pursuance of the provisions of section 3 of theThe gift amount would be within the overall limit of Foreign Exchange Management Act, 1999.USD 200,000 per financial year as permitted under theLiberalised Remittance Scheme (LRS) for a resident External Commercial Borrowings (ECBs) – Rationali-individual. It would be the responsibility of the resident sation and Liberalisationdonor to ensure that the gift amount being remitted is 1. A.P (DIR Series) Circular No.25 and 26 dated .under the LRS and all the remittances under the LRS September 23, 2011 and Circular No.30 datedduring the financial year including the gift amount have September 27, 2011not exceeded the limit prescribed under the LRS. Considering the specific needs of the infrastructure sector, RBI has reviewed the existing ECB policy in7. Loans in Rupees by resident individuals to NRI consultation with the Government of India and it hasclose relatives allowed Indian companies which are in the infrastructureA.P (DIR Series) Circular No.18 dated September 16, . sector (as defined in the ECB Guidelines):2011 (i) to utilise 25% of the fresh ECB raised towards RBI has permitted a resident individual to lend to a refinancing of the Rupee loan(s) availed from theNRI/ PIO close relative (‘relative’ as defined in Section 6 domestic banking system, under the approval route,of the Companies Act, 1956) by way of crossed cheque / subject to the following conditions:-electronic transfer, subject to the specified conditions. (a) at least 75% of the fresh ECB proposed to be For conditions in detail, please refer the circular on raised should be utilised for capital expenditureRBI website at towards a ‘new infrastructure’ project(s), where http://www.rbi.org.in/scripts/NotificationUser. “infrastructure” is as defined in terms of the extantaspx?Id=6713&Mode=0 guidelines on ECB; 46 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • 703 Circulars / Notifications LEGAL UPDATE (b) in respect of remaining 25%, the refinance shall condition that the proceeds of the ECBs should only be utilized for repayment of the Rupee not be used for acquisition of land. loan availed of for ‘capital expenditure’ of earlier (ii) ECBs designated in INR completed infrastructure project(s); and (a) ‘All eligible borrowers’ can avail of ECBs (c) the refinance shall be utilized only for the Rupee designated in INR from foreign equity holders loans which are outstanding in the books of the under the automatic/ approval route, as the case financing bank concerned. may be, as per the extant ECB guidelines. Companies desirous of availing such ECBs may (b) NGOs engaged in micro finance activities will,submit their applications in Form ECB through their however, be permitted to avail of ECBs designateddesignated Authorised Dealer bank with the prescribed in INR under the automatic route from overseasdocuments. organizations and individuals as per the extant(ii) to import capital goods by availing of short term credit guidelines. (including buyers’ / suppliers’ credit) in the nature of ‘bridge finance’, under the approval route, subject to (iii) ECB for Interest During Construction (IDC) the following conditions:- It has been decided to consider IDC as a permissible (a) the bridge finance shall be replaced with a long end-use for the Indian companies which are in the term ECB; infrastructure sector under the automatic/approval route, (b) the long term ECB shall comply with all the extant as the case may be, subject to the following conditions:- ECB norms; and (a) that the IDC is capitalized; and (c) prior approval shall be sought from the RBI for (b) is part of the project cost. replacing the bridge finance with a long term ECB. 3. A.P (DIR Series) Circular No.28 dated September .(iii) to avail of ECBs in Renminbi (RMB), under the 26, 2011 approval route, subject to an annual cap of USD 1 Presently, credit enhancement is permitted to be billion pending further review. The RBI approval will provided by multilateral / regional financial institutions and be valid for 3 months from the date of issue of the Government owned development financial institutions approval letter and the loan agreement should be for domestic debt raised through issue of capital market executed within the validity period. The company may instruments, such as, debentures and bonds, by Indian thereafter submit the completed Form 83 to the RBI companies engaged exclusively in the development for allotment of loan registration number (LRN) within of infrastructure and by the Infrastructure Finance 7 days (from the date of signing the loan agreement between the borrower and the lender). In case the Companies (IFCs), which have been classified as such by borrower fails to obtain LRN within the above period, the RBI under the approval route. the RBI approval will stand cancelled. AD Category- It has now been decided to further liberalise the policy I bank will be permitted to open Nostro accounts in relating to structured obligations to permit direct foreign Renminbi (RMB). equity holder(s) as per extant ECB guidelines (minimum The designated AD - Category I bank shall monitor the holding of 25% of the paid up capital) and indirect foreignend-use of funds and banks in India will not be permitted equity holder, holding atleast 51% of the paid-up capital,to provide any form of guarantees. to provide credit enhancement to Indian companies engaged exclusively in the development of infrastructure and to the IFCs, which have been classified as such by2. A.P (DIR Series) Circular No.27 dated September . the RBI.23, 2011 RBI has, in consultation with the Government of India, Credit enhancement by all eligible non-residentfurther rationalised and liberalised the ECB guidelines as entities will henceforth be permitted under the automaticunder:- route and no prior approval will be required from the Reserve Bank.(i) Enhancement of ECB limit under the automatic route (a) Eligible borrowers in real sector-industrial sector- infrastructure sector can avail of ECB up to USD 4. A.P (DIR Series) Circular No.29 dated September . 750 million or equivalent per financial year under 26, 2011 the automatic route as against the present limit of (i) As per the extant ECB policy, a ‘foreign equity holder’ USD 500 million or equivalent per financial year. to be eligible as ‘recognised lender’ under the (b) Corporates in specified service sectors viz. hotel, automatic route would require minimum holding of hospital and software, can avail of ECB up to USD paid-up equity in the borrower company as set out 200 million or equivalent during a financial year below: as against the present limit of USD 100 million (a) for ECB up to USD 5 million – minimum paid-up or equivalent per financial year subject to the equity of 25% held directly by the lender; THE CHARTERED ACCOUNTANT NOVEMbEr 2011 47
    • LEGAL UPDATE Circulars / Notifications 704 (b) for ECB more than USD 5 million – minimum hotels, hospitals and software, could also be paid-up equity of 25% held directly by the lender considered as eligible borrowers if the loan and debt-equity ratio not exceeding 4:1 (i.e. the is obtained from foreign equity holders. This proposed ECB does not exceeds four times the would facilitate borrowing by training institutions, direct foreign equity holding). R &D, miscellaneous service companies, etc; It has now been clarified that (b) ECB from indirect equity holders may be (a) Now onwards the term ‘debt’ in the debt-equity considered provided the indirect equity holding ratio will be replaced with ‘ECB liability’ and the by the lender in the Indian company is at least ratio will be known as ‘ECB liability-equity’ ratio 51%; and to make the term signify true position as other (c) ECB from a group company may also be borrowings/debt are not considered in working permitted provided both the borrower and the out this ratio; foreign lender are subsidiaries of the same (b) The paid-up capital contributed by the foreign parent. equity holder is considered under the extant While submitting these proposals, it may be guidelines for the purpose of calculation of ensured that total outstanding stock of ECBs (including equity for ECBs of or beyond USD 5 million from the proposed ECBs) from a foreign equity lender direct foreign equity holders. Henceforth, besides does not exceed 7 times the equity holding, either the paid-up capital, free reserves (including the directly or indirectly of the lender (in case of lending share premium received in foreign currency) by a group company, equity holdings by the common as per the latest audited balance sheet shall parent would be reckoned). be reckoned for the purpose of calculating the equity of the foreign equity holder. Where Revision in Guidelines for appointment of Agents / there are more than one foreign equity holder Franchisees by Authorised Dealer (AD) Category-I, in the borrowing company, the portion of the AD Category-II and Full Fledged Money Changers share premium in foreign currency brought A.P (DIR Series) Circular No.31 dated October 03, . in by the lender(s) concerned shall only be 2011 considered for calculating the ECB liability- In view of the growth in money changing equity ratio for reckoning quantum of activities undertaken by the agents / franchisees of AD permissible ECB; Category-I banks / AD Category II / FFMCs and the (c) For calculating the ECB liability, not only the issuance of Anti Money Laundering (AML) Guidelines proposed borrowing but also the outstanding ECB from the same foreign equity holder lender on money changing activities and need to exercise should be reckoned. adequate control over the franchisees by the franchisers,(ii) To benefit eligible borrowers, it has been decided, in the RBI has amended certain instructions contained consultation with the Government of India, to consider in the A.P (DIR Series) Circular No. 57 [A.P (FL/RL . . the ECB proposals from foreign equity holders Series) Circular No. 04] dated March 9, 2009 in terms of (direct/indirect) and group companies under the which the Guidelines for appointment of Agents / approval route as under:- Franchisees by Ads Category - I, Ads Category - II and (a) Service sector units, in addition to those in FFMCs were prescribed. 48 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • LEGAL UPDATE Circulars / Notifications 706 For revised instructions, please refer the circular onRBI website at http://www.rbi.org.in/Scripts/NotificationUser.aspx?Id=6743&Mode=0Consolidated Foreign Direct Investment (FDI) Policy –Circular 2 of 2011 effective from October 1, 2011 The Department of Industrial Policy and Promotion(DIPP) has, on September 30, 2011 issued updatedConsolidated FDI Policy Circular 2 of 2011 which iseffective from October 1, 2011. This circular subsumesand supersedes all Press Notes / Press Releases /Clarifications / Circulars issued by DIPP which were in ,force as on September 30, 2011, and reflects the FDIPolicy as on October 1, 2011. The entire circular is available at DIPP website at: http://dipp.nic.in/English/Policies/FDI_Circular_02_2011.pdf (Matter on Corporate Laws has been CORPORATE contributed by CA.. Jayesh Thakur, LAWS Mumbai) MCA 1. Replacement of LLP annual compliance form to enable STPwww.llp.gov.in The MCA has issued Notification No. F.No.2/17/2011-CLV dated 14.09.2011 replacing the Form 8(Statement of Account & Solvency) relating to annualfiling for LLPs. The only change in the form is in otherwise for more than sixty days, from the date ofrelation to the enabling of the form for submission/ its filing excluding the cases where approval from theuploading of the same online in a straight-through Central Government or Regional Director or Companyprocessing (STP) manner. There is no other change in the Law Board or Court or any other competent authority iscontent. One may refer to the above citation for required. One may refer to the above citation for furtherfurther details. details.2. Revised form 5 notified by MCA 4. Extension of time for submitting DIN-4www.mca.gov.in www.mca.gov.in The MCA has issued Notification F.No. 2/20/2011- The MCA has issued General Circular No. 66/2011CLV dated 23.09.2011 revising the form 5 (Notice dated 04.10.2011 extending the time for filing DIN-4 byof consolidation, division, etc. or increase in share capital DIN holders for furnishing the PAN and to update PANor increase in number of members). The new forms will details till 15.12.2011. One may refer to the above citationbe effective from 25.09.2011. One may refer to the above for further details.citation for further details and the form. 5. Extension of time for Company Law Settlement3. Companies (Amendment) Regulations, 2011 Scheme, 2011www.mca.gov.in www.mca.gov.in The MCA has issued Notification F.No 2/13/201l-CL-V The MCA has issued General Circular No. 65/2011dated 22.09.2011 whereby it is provided that except dated 04.10.2011 extending the time for submittingas otherwise provided in the Act, the Registrar shall applications under the Company Law Settlement Scheme,not keep any document pending for approval and 2011 upto December 15, 2011. One may refer to theregistration or for taking on record or for rejection or above citation for further details. 50 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • 707 Circulars / Notifications LEGAL UPDATE6. Companies (Filing of documents and forms Regulations, 2011 which supersedes the SEBIin Extensible Business Reporting Language) Rules, (Substantial Acquisition of Shares and Takeovers)2011 Regulations, 1997. The NTR would be effective fromwww.mca.gov.in the 30th day of the notification, that is, effective The MCA has issued Notification No. F.No. 5/18/2005- from October 22, 2011. The features of the NTR are asCL-V dated 05.10.2011 notifying the above Rules and under:which specifically refer to e-Forms no. 23AC-XBRL and  The initial threshold for trigger of open offer is23ACA-XBRL specified under the Companies (Central increased from 15% of voting control to 25%.Government) General Rules and Forms, 1956 which  Maximum 5% allowed per financial year to acquirersshould be utilized where one is covered and required to holding 25% or more, upto the maximum permissiblesubmit the annual filings in XBRL. One may refer to the non-public shareholding.above citation for further details.  In an acquisition situation, the ability to indirectly exercise voting rights beyond the trigger thresholdSEBI/RBI limits, or exercise ‘control’ over a target company, would trigger open offer.7. Amendments to Issue of Capital and Disclosure  The definition of the term ‘control’ is substantivelyRequirements adopted from the extant Regulations, withoutwww.sebi.gov.in including the wider parameter of ‘ability to control’ The SEBI has issued Notification No. LAD-NRO/ as recommended by TRAC (Takeover RegulationGN/2011-12/25/30309 dated 23.09.2011 relating to rights Advisory Committee).issue of Indian Depository Receipts (IDRs) and some  The NTR do not contain whitewash provision in caseother minor amendments. It is provided that a listed of change in control of the target company. Under theissuer offering IDR through a rights issue shall satisfy the extant Regulations, an open offer was not requiredconditions specified in Chapter XA (which is inserted by if the shareholders of the target company passed athis Notification) of the SEBI (Issue of Capital and special resolution waiving the open offer in case ofDisclosure Requirements) Regulations, 2009 at the time change in control.of filing the offer document and that every listed issueroffering IDRs through a rights issue shall prepare the offer The following details the nature of exemptions from opendocument in accordance with the home country offer obligations:requirements along with an addendum containing  The extant exemption available for inter se “group”disclosures as specified in Part A of Schedule XXI and transfers is dispensed with and brought on parregulation 106F and file the same with the SEBI and the with the inter se promoter transfers. The definitionstock exchanges on which the IDRs of the issuer are of ‘group’, earlier linked to the Monopolies andlisted. The Notification gives more details on applicability Restrictive Trade Practices Act, 1969, is nowand eligibility to make an IDR issue, renunciation by an removed and restricted specifically to co-subsidiariesIDR holder, requirements for depository and record date, and parents.disclosures in the offer document and the addendum for  Exemption will apply only if (a) cash or cash equivalentthe rights offering, filing of draft offer document and the consideration to be offered is less than 25% of theaddendum for rights offering, fast track issue, dispatch total consideration paid under the scheme, andof abridged letter of offer and application form, period (b) existing body of shareholders retains at leastof subscription, pre-issue advertisement for rights 33% of the voting rights in the combined entityissue, utilisation of funds raised in rights issue, etc. directly or indirectly.  For increase in voting rights pursuant to buy-back,The Notification also contains Part ‘D’ containing the of a shareholder holding less than 25%, increaserequirements for disclosures in abridged prospectus, beyond the initial threshold of 25% would be exemptSchedule XXI containing Part A on disclosures in the if the shareholder reduces his voting rights belowaddendum to the offer document for rights issue of IDRs 25% within 90 days. In case of a shareholder holdingand Part B on disclosures in abridged letter of offer for more than 25%, increase by more than 5% in anyrights issue of IDRs. One may refer to the above citation financial year would be exempt if the specifiedand website for further details. conditions are met, else the requirement to reduce additional voting rights below 5% is within 90 days.8. New Takeover Regulations (NTR)  Acquisition of shares pursuant to Corporate Debtwww.sebi.gov.in Restructuring scheme would be exempt if it does The SEBI has issued Circular No. F. No. LAD-NRO/ not entail change in control and is approved byGN/2011-12/24/30181 dated 23.09.2011 notifying the shareholders by a special resolution passed throughSEBI (Substantial Acquisition of Shares and Takeovers) postal ballot. THE CHARTERED ACCOUNTANT NOVEMbEr 2011 51
    • LEGAL UPDATE Circulars / Notifications 708In relation to the offer size, the following is relevant: 9. Amendment to listing agreement pursuant to New Mandatory offer of minimum of 26% necessary of the Takeover Regulations total shares of the target company. www.sebi.gov.in In case of voluntary offer, acquirers collectively The SEBI has issued Circular No. SEBI/CFD/DCR/ holding 25% or more voting rights in the target SAST/ 1/2011/09/23 dated 23.09.2011 proposing company can make a voluntary offer for a minimum consequential amendments to Clause 35 of the Equity size of 10% or such other number of voting capital Listing Agreement pursuant to the New Takeover as would not result in breach of the maximum non- Regulations (NTR). A consequential amendment is made public shareholding. to clause 35 of the Equity Listing Agreement pursuant to NTR as per Annexure – 1 to this circular. Stock ExchangesIn relation to minimum public shareholding requirements, are advised to carry out the amendments in their Listingthe following is relevant: Agreement and confirm compliance of the same in the next If post open offer shareholding of the acquirer exceeds monthly development report. Also, formats for disclosures the maximum permissible non-public shareholding, / reports under the NTR which have prescribed various the acquirer shall be required to bring down his reports / disclosures to be filed under various provisions shareholding to the permissible level within the time contained therein, in the formats as may be specified by permitted under the Securities Contracts (Regulation) the Board. Accordingly, the formats have been specified Rules, 1957. and listed in Annexure - 2 of this circular. One may refer to Further, the acquirer shall not be eligible to make a the above citation and website for further details. voluntary delisting offer under the SEBI (Delisting of Equity Shares) Regulations, 2009 for a period of 12 10. Disclosure of Price Information of past issues months from the date of the completion of the open handled by Merchant Bankers offer period. www.sebi.gov.in The SEBI has issued Circular No. CIR/CFD/DIL/5/2011In relation to offer price, the minimum offer price shall be dated 27.09.2011 referring to the Schedule VI, Formhigher of: A, para (16) of SEBI (Issue of Capital and Disclosure Negotiated price per share of the target company for Requirements) Regulations, 2009 which provides that any acquisition under the agreement attracting open ‘Price Information of Past Issues handled by Merchant offer requirement; Bankers (who are responsible for pricing this issue)’ Volume weighted average price paid or payable for should be enclosed along with Due Diligence certificate acquisitions by the acquirer or any person acting in submitted to the Board. The format for disclosure of Price concert with him during preceding 52 weeks; Information of Past Issues handled by Merchant Bankers Highest price paid or payable for any acquisition by is given at Annexure to this Circular. This circular shall the acquirer or any person acting in concert with him be applicable on Draft Red Herring Prospectus/ Red during the preceding 26 weeks; Herring Prospectus/Prospectus filed with SEBI/Registrar Volume weighted average market price for a of Companies (as applicable) on or after November 1, period of 60 days in case of frequently traded shares, 2011. One may refer to the above citation and website for or the price determined by the acquirer and the further details. manager to the offer taking into account valuation parameters in case the shares are not frequently 11. Filing offer documents with SEBI traded; and www.sebi.gov.in The per share value of target company, if applicable. The SEBI has issued Circular No. CIR/CFD/DIL/6/2011 dated 28.09.2011 and as a green initiative, it has beenFurthermore, the NTR also provide for the following: decided to reduce the number of copies of offer The entire non-compete fees / control premium documents being submitted to SEBI. Also, considering the payment would form part of the negotiated price. availability of the soft copies of the offer documents in the In case of any additional payment, and in case the websites of SEBI and the concerned merchant bankers, acquirer acquires shares of the target company in a it is hereby prescribed that, (a) three copies of the draft negotiated deal during 26 weeks after the tendering offer document shall be filed with the relevant office of period at a price higher than the offer price, such the Board, and, (b) one copy of the offer document shall excess shall be paid within 60 days from the date be filed with the relevant office of the Board. It is clarified of further acquisition to all the shareholders whose that this requirement shall be applicable for all draft/final shares were acquired in the open offer. offer documents filed with SEBI on or after the date of thisOne may refer to the above citation and website for further circular. One may refer to the above citation for furtherdetails. details. 52 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • 709 Circulars / Notifications LEGAL UPDATE12. Clarification on 100% promoter holding in demat offer documents for issue of structured products/form market linked debentures that seek listing on stockwww.sebi.gov.in exchanges. The SEBI has provided detained guidelines The SEBI has issued Circular No. SEBI/Cir/ISD/ and conditionalities which need to be complied05 /2011 dated 30.09.2011 regarding 100% promoter with in respect of listing of structured debt/equityholding in demat form. On review of the promoters linked debentures in the above Circular. One mayholding in demat form, it has been observed that there refer to the above citation and website for furtherhas been improved compliance to the above circular details.and the companies/promoters have started the processof converting their physical holdings in dematerialized 14. Simplification and rationalisation of tradingform. At the same time representations have been account opening processreceived from large number of companies as well as www.sebi.gov.invarious industry bodies regarding practical difficulties The SEBI has issued Circular No. CIR/MIRSD/16/2011being faced in dematerializing promoters holding and dated 22.08.2011 and based on feedback fromseeking exemptions/extension in complying with the investors that the present trading account openingprovisions. Hence, it is decided to extend the current procedure is very cumbersome whereby an investordeadline by one quarter i.e. quarter ending December has to enter into a number of agreements depending2011. Also, the Stock Exchanges are advised to put in on his trading preferences i.e. stock exchanges,place the adequate systems and issue the necessary segments, internet/wireless technology based trading,guidelines to the market for implementing the above etc. As a result, it requires a large number of signaturesdecision, make necessary amendments to the relevant on various documents devised by the stock brokers/bye-laws, rules and regulations for the implementation trading members. With a view to simplify and rationaliseof the above decision immediately, bring the provisions the account opening process, the SEBI has reviewed,of this circular to the notice of the member brokers of consolidated and updated all the documents/the Exchange and also to disseminate the same on the requirements prescribed in respect of account openingwebsite and communicate to SEBI, the status of the process over the years, in consultation with majorimplementation of the provisions of this circular in a stock exchanges and market participants. TheMonthly Report. One may refer to the above citation and simplification includes replacement of all client-website for further details. broker agreements with the ‘Rights and Obligations’ document, which shall be mandatory and binding on the13. Guidelines for issue and listing of structured existing and new stock brokers (including tradingproducts/market linked debentures members) and clients. For this purpose, the SEBI (Stockwww.sebi.gov.in Broker and Sub-Broker) Regulations, 1992 have been The SEBI has issued Circular No. IMD/DF/17/2011 amended suitably and now SEBI has devised the uniformdated 28.09.2011 recalling its initial and continuous documentation to be followed by all the stock brokers/disclosure norms applicable to issue and listing trading members and a copy thereof to be providedof debt securities through the Securities and by them to the clients. The documents are, (a) index ofExchange Board of India (Issue and Listing of documents giving details of various documents for clientDebt Securities) Regulations, 2008 and the Simplified account opening process - Annexure-1 (of circular), and,Listing Agreement for Debt Securities. SEBI had (b) client account opening form in two parts, viz., Knowobserved that a variety of hybrid securities that Your Client (KYC) form capturing the basic informationcombine features of plain vanilla debt securities about the client and instruction/check list to fill up theand exchange traded derivatives are being issued form - Annexure-2 (of circular), and, Document capturingthrough private placements and listed on stock additional information about the client related to tradingexchanges. It is seen that such securities differ account -Annexure-3 (of circular). In the account openingfrom plain vanilla debt securities or debt securities process, the stock brokers/trading members wouldissued with embedded call or put options, i.e., by also give the useful information to the clients like, (a)offering market linked returns obtained through a tariff sheet specifying various charges, includingexposures on exchange traded derivatives. Since brokerage, payable by the client to avoid any disputessuch returns are linked to equity markets, such at a later date, and, (b) information on contact detailssecurities are also called equity linked debentures of senior officials within the stock broking firm andor stock linked debentures etc. Hence, such investor grievance cell in the stock exchange, so thatsecurities being different in their nature and their risk- the client can approach them in case of any grievance.return relationship, it has been decided to specify One may refer to the above citation and website foraddi-tional disclosures and other requirements in further details. n THE CHARTERED ACCOUNTANT NOVEMbEr 2011 53
    • OPINION 710Accounting for leave liability The following is the opinion given by the Expert Advisory Committee of the Institute in response to a query sent by a member. This is being published for the information of readers.A. Facts of the Case Above 10, upto 15 years 26 10 3 10 3 Above 15, upto 20 years 28 11 3 11 31. A public sector company is engaged in the manufacture of power equipments. The company Above 20 years 30 11 4 11 4 has manufacturing units, power sector regions, service centers and regional offices besides project 3. The querist has stated that the accumulation limit sites spread all over India and abroad. The shares of earned leave is 300 days, beyond which, it shall of the company are listed in stock exchanges at automatically lapse. The advance credit of encashable NSE and BSE. The turnover of the company was portion of earned leave will, however, not be taken Rs. 34,154 crore in the year 2009-10. The company into account for determining the accumulation had employee strength of 46,274 Nos. as on limit. Encashable earned leave can be encashed 31.03.2010. or availed at any time subject to an accumulation limit of 300 days and NEL is encashable at the time2. The rules of the company relating to the leaves are of retirement only, but it can be availed at any time as below: during the service period. There is no restriction on an employee in availing the earned leave (whether Earned Leave (EL): encashable or non-encashable) in the same year in The entitlement of earned leave is related to the which it has fallen due. It is an employees’ discretion number of years of service put in by the employee to avail/encash or accumulate the leave at any time. as under: In a nutshell, the employee has an option either to avail the leave without any restriction or encash onceNumber of completed years of Entitlement of in a year or accumulate subject to the ceiling limit ofservice earned leave per 300 days. annum (days) 4. The querist has also explained the rules of theUpto 5 years 22 company relating to Half Pay Leave (HPL) asAbove 5, upto 10 years 24 below:Above 10, upto 15 years 26 (i) All employees are entitled to 20 days of half payAbove 15, upto 20 years 28 leave in a year.Above 20 years 30 (ii) Advance credit is allowed on 25th June/25th December each year at the rate of 10 days eachThe earned leave has two components, viz., encashable time.(EEL) and non-encashable (NEL). The company gives (iii) There is no limit for accumulation of half payadvance credit of leave in terms of encashable and leave. However, it is encashable only at the timenon-encashable leave on the existing standard dates as of superannuation subject to a maximum of 480given below: half days, i.e., 240 days. No. of completed Entitl- Credit No. of days (iv) Half pay leave can be availed at any time but years of service ement encashable only at the time of superannuation. of EL (v) Half pay leave can also be commuted and per availed, as ‘sick leave’, i.e., 2 half days will be annum counted as ‘one sick leave’. (days) 5. A summary of the above rules has been provided by On 25th On 25th the querist as under: June Dec. EEL NEL HPL EEL NEL EEL NEL Accrued during 16 to 22 6 to 8 20 Upto 5 years 22 8 3 8 3 the year (days) Above 5, upto 10 years 24 9 3 9 3 54 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • 711 OPINIONMaximum 300 days both for EEL & No limit 9. During the audit of annual accounts for the financialaccumulation limit NEL put together year 2009-10, the Government audit has raised(days) a query stating that the past pattern indicates that the employees are unlikely to avail/encashEncashable Yes- once No No the entire carried forward leave during the nextduring the service in a year twelve months and hence, the benefit would without any not be short-term. Accordingly, they are of the restriction view that keeping in view the behavioral patternEncashable 300 days EEL & NEL 480 half of the employees, the leave benefit should belimit on both put together days. considered as long-term benefit and thesuperannuation (240 full provision should be made based on actuarial(days) days). valuation.Availment No No Norestriction at 10. The company has expressed its views as below:any time during Paragraph 8 (b) of AS 15 (revised 2005), issued byservice the ICAI states as follows: “8. Short-term employee benefits include items6. The querist has stated that prior to the introduction such as: of Accounting Standard (AS) 15 (revised 2005), b) short-term compensated absences (such ‘Employee Benefits’, issued by the Institute of as paid annual leave) where the absences Chartered Accountants of India (ICAI), the leave are expected to occur within twelve months liability was being accounted for on actuarial basis. after the end of the period in which the However, pursuant to the introduction of AS 15 (revised employees render the related employee 2005) from 01.04.2006, the company is accounting service;” for the leave liability on accrual basis based on the Paragraph 10 of AS 15 (revised 2005), issued by opinion taken from a renowned consultant, which as the ICAI states as follows: per the querist, is in line with the requirements of AS 15 (revised 2005). “10. When an employee has rendered service to an enterprise during an7. The accounting policy of the company relating to accounting period, the enterprise should employee benefits is as below: recognise the undiscounted amount of short-term employee benefits expected to “Earned leave, half pay leave, provident fund and be paid in exchange for that service…” employees’ family pension scheme contributions are accounted for on accrual basis. Liability for In the case of the company, leave is accrued when the gratuity, travel claims on retirement and post- employee renders his service and there is no restriction retirement medical benefits are accounted for on an employee in availing /encashing in the same in accordance with actuarial valuation. The year in which it has fallen due. The accumulation actuarial liability is determined with reference to or encashment is entirely an individual’s discretion employees at the beginning of each calendar year. and the employee can avail/encash the entire Compensation under voluntary retirement scheme accumulated leave balance in one financial is charged-off in the year of incurrence on a pro- year itself. rata monthly basis.” The point raised by Government audit for treating8. The accounting practice of the company in respect the leave benefit as long-term benefit is stated to be of leave liability from 1.4.2006 is stated by the querist based on behavioral pattern of the employees on as below: availing /encashing the leave based on the ASB Liability for encashable earned leave (EEL), non- Guidance on Implementing AS 15, Employee Benefits encashable earned leave (NEL) and half pay leave (revised 2005), issued by the Institute of Chartered (HPL) is provided for in the books on accrual basis Accountants of India (ICAI). Since there is no provision for the value of leave outstanding at the end of the in AS 15 (revised 2005), issued by the ICAI on treatment year. According to the querist, provision for half pay of benefits based on behavioral pattern, the treatment leave is made for the total leave balance at the year end without restricting it to 480 half days (240 full has to be in line with AS 15 and not based on the said days) per employee in line with the requirements Guidance which clearly states that it is not a part of of AS 15(revised). standard. THE CHARTERED ACCOUNTANT NOVEMbEr 2011 55
    • OPINION 71211. The querist has enclosed the trend of leave accrued, referred to as ‘the Rules’) which are reproduced leave availed/encashed during the period 2008- below: 09 and 2009-10 at Annexure A for reference. The querist has pointed out that it may be seen from the “7.2 Short-term employee benefits are Annexure that approximately 96% of EEL and 82% of employee benefits (other than termination NEL accrued during the year were availed/encashed benefits) which fall due wholly within twelve by the employees in the year 2009-10. Further, there months after the end of the period in which is no clear trend that on an average how many the employees render the related service.” employee will encash/avail or carry forward the leave. It may also be observed that in the financial “7.8 Other long-term employee benefits year 2009-10, there is a substantial increase in leave are employee benefits (other than post- encashment/availment as compared to year 2008- employment benefits and termination benefits) 09. Therefore, as per the querist, when there is a full which do not fall due wholly within twelve obligation of the company towards leave liability, it months after the end of the period in which should be treated as short-term and accounted for the employees render the related service.” on accrual basis. 16. The Committee also notes that paragraph 8 of AS 1512. According to the querist, in view of above and notified under the Rules provides as below: based on opinion given by the consultant when AS “8. Short-term employee benefits include 15 (revised 2005) was introduced, leave liability is items such as: accounted on accrual basis and being continuously … followed from the financial year 2006-07 onwards. (b) short-term compensated absences (such as paid annual leave) where the absencesB. Query are expected to occur within twelve months after the end of the period in which the13. Based on the above facts, the querist has sought employees render the related employee the opinion of the Expert Advisory Committee on the service; following issues: …” (i) Whether treatment of leave liability as short-term employee benefit and accounting on accrual The Committee also notes that although ASB Guidance basis by the company is correct and is in line on Implementing AS 15, Employee Benefits (revised with AS 15 (revised 2005) or not. 2005) does not form part of the Standard, by virtue of (ii) In case it is not, then how to account for the this Guidance, the Accounting Standards Board has change during the year 2010-11, i.e., through clarified in the context of short-term and long-term profit and loss account or through retained employee benefits, vide Issue 3 thereof, which, inter alia, earnings (balance sheet approach). provides as below:C. Points considered by the Committee “Paragraph 7.2 of the Standard uses “falls due” as the basis, paragraph 8(b) of the Standard uses14. The Committee, while answering this query, has “expected to occur” as the basis to illustrate restricted itself to the issues raised in paragraph classification of short- term compensated absences. 13 above and has not touched upon any other A reading of paragraph 8(b) together with paragraph issue arising from the Facts of the Case, such as, 7.2 would imply that the classification of short-term accounting policy of the company in general and compensated absences should be only when particularly for provident fund, gratuity, pension, absences have “fallen due” and are also “expected travel claims on retirement, post-retirement medical to occur”. In other words, where employees are benefits and compensation under voluntary entitled to earned leave which can be carried forward retirement scheme, etc. and the basis of acturial to future periods the benefit would be a ‘short-term valuation etc. benefit’ provided the employee is entitled to either encash/utilise the benefit during the twelve months15. The Committee notes the definitions of the terms after the end of the period when he became entitled ‘short-term employee benefits’ and ‘other long-term to the leave and is also expected to do so. Where employee benefits’ as contained in paragraphs 7.2 there are restrictions on encashment/availment, and 7.8 of AS 15, notified under the Companies clearly the compensated absence has not fallen due (Accounting Standards) Rules, 2006 (hereinafter and the benefit of compensated absences is more 56 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • 713 OPINION likely to be a long term benefit. For example, where the entire benefit on account of these leaves should an employee has 100 days of earned leave which he be treated as ‘other long-term employee benefits’. is entitled to an unlimited carry forward but the rules of the enterprise allow him to encash/utilise only 18. With respect to the recognition and measurement of 30 days during the next twelve months, the benefit other long-term employee benefits, the Committee would be considered as a ‘long-term’ benefit. In notes that AS 15 (revised 2005) provides that the some situations where there is no restriction but the same should be measured on actuarial basis using absence is not expected to wholly occur in the next the Projected Unit Credit Method. The Standard twelve months, the benefit should be considered as contains detailed requirements in this regard in ‘long-term’. For example, where an employee has paragraphs 129 and 130. 400 days carry forward earned leave and the past pattern indicates that the employees are unlikely to 19. As regards accounting for the change in the avail/encash the entire carry forward during the next accounting treatment of these types of leaves, the twelve months, the benefit would not be ‘short-term’. Committee notes the definition of the term ‘Prior Whilst it is necessary to consider the earned leave period items’ and paragraphs 15 and 19 from which “falls due”, the pattern of actual utilisation/ Accounting Standard (AS) 5, ‘Net Profit or Loss encashment by employees, although reflective of the for the Period, Prior Period Items and Changes in behavioural pattern of employees, does determine Accounting Policies’, notified under the Rules, which the status of the benefit, i.e., whether ‘short-term’ or provide as follows: ‘long term’. The value of short-term benefits should be determined without discounting and if the benefit “Prior period items are income or expenses is determined as long-term, it would be recognised which arise in the current period as a result and measured as “Other long-term benefits” in of errors or omissions in the preparation of accordance with paragraph 129 of the Standard. the financial statements of one or more prior The categorisation in ‘short-term’ or ‘long-term’ periods.” employee benefits should be done on the basis of the overall behavioural pattern of all the employees “15. The nature and amount of prior period of the enterprise and not on individual basis.” items should be separately disclosed in the statement of profit and loss in a manner that17. On the basis of the above, the Committee is of the their impact on the current profit or loss can view that short-term employee benefits include only be perceived.” those compensated absences which accrue to the employees and are expected to be availed (or “19. Prior period items are normally included encashed, as the case may be) within twelve months in the determination of net profit or loss for the after the end of the period in which the employees current period. An alternative approach is to render the related service. In other words, where it show such items in the statement of profit and is expected that the employees will avail/encash the loss after determination of current net profit or whole of the benefit accruing to them on account loss. In either case, the objective is to indicate of earned leave (EEL and NEL) and half-pay leave the effect of such items on the current profit or within the twelve months after the end of the period loss.” in which the employees render the related service, From the above, the Committee is of the view that since the same would fall within the category of ‘short- earned leaves and half pay leaves are to be accounted term employee benefits’. However, the Committee for as ‘other long-term employee benefits’ instead of notes from the Facts of the Case that both the leave ‘short-term employee benefits’, as being done by the entitlements of the employees of the company can company, same is an error and accordingly, it should be be carried forward for more than twelve months after treated as ‘Prior period item’, the nature and amount of the end of the period in which employees render the which should be included and disclosed separately in related service. Further, the Committee notes from the profit and loss account of the period in which such the Annexure provided by the querist that both the error is revealed. types of leaves, which were accrued during the year 2008-09 and 2009-10, have been accumulated and 20. The Committee also notes from the Facts of the carried forward by the employees. Therefore, the Case and the wordings of the accounting policy Committee is of the view that the benefit on account of the company as reproduced by the querist in of both types of leaves does not fall within the paragraph 7 above, that the company has made a category of ‘short-term employee benefits’. Rather, distinction between the terms ‘accrual’ and ‘acturial THE CHARTERED ACCOUNTANT NOVEMbEr 2011 57
    • OPINION 714 valuation’. The Committee wishes to clarify that employee benefit’ by the company is not correct. the acturial valuation is also based on ‘accrual Such treatment is not in line with the requirements basis of accounting’. Accordingly, the Committee of AS 15 (revised 2005). Refer to paragraphs 17 is of the view that the wording of accounting and 20 above. policy of the company should also be changed in this respect. (ii) The change in the accounting treatment of leave liability, in the extant case, from ‘short-termD. Opinion employee benefits’ to ‘other long-term employee benefits’ should be treated as ‘prior period item’.21. On the basis of the above, the Committee is of the Accordingly, the nature and amount thereof should following opinion on the issues raised by the querist be included and disclosed in the profit and loss in paragraph 13 above: account for the period in which such error is (i) No, the treatment of leave liability as ‘short-term revealed as discussed in paragraph 19 above. Annexure A DETAIL OF LEAVE BALANCES – THE COMPANYNO. OF EMPLOYEES - 46274 as on 31.03.2010 (In No. of days) F.Y. 2009 – 10 F.Y. 2008 – 09DESCRIPTION NATURE OF RETIRED OTHER TOTAL RETIRED OTHER TOTAL LEAVES EMPLOYEES EMPLOYEES EMPLOYEES EMPLOYEESOPENING BALANCE EL 332774 3084518 3417292 269548 3069913 3339461(No. of days) NEL 151459 1525442 1676901 127268 1473474 1600742 HPL 524933 5797895 6322828 478722 5775591 6254313Total number of Leaves EL 33216 876446 909662 26714 879407 906121 accrued during the NEL 10973 299107 310080 8299 293219 301518 year HPL 27679 884884 912563 23032 859770 882802 (No. of days)Total number of Leaves EL 365990 839457 1205447 296262 548713 844975 availed/ encashed by NEL 162432 246112 408544 135567 168568 304135 the employees during the year (No. of days) HPL 552612 289287 841899 501754 338280 840034 CLOSING BALANCE EL 3121507 3121507 3400607 3400607 (No. of days) NEL 1578437 1578437 1598125 1598125 HPL 6393492 6393492 6297081 6297081Leave avail/encash EL 95.78% 62.40%as %age to leave NEL 82.28% 57.49%accrued HPL 32.69% 39.35% 1 The Opinion is only that of the Expert Advisory Compendium of Opinions containing twenty eight Committee and does not necessarily represent volumes has also been released by the Committee. the Opinion of the Council of the Institute. These are available for sale at the Institutes office 2 The Opinion is based on the facts supplied and at New Delhi and its regional council offices at in the specific circumstances of the querist. The Mumbai, Chennai, Kolkata and Kanpur. Committee finalised the Opinion on 03.05.2011. 4 Recent opinions of the Committee are available The Opinion must, therefore, be read in the light on the website of the Institute under the head of any amendments and/or other developments ‘Resources’. subsequent to the issuance of Opinion by the 5 Opinions can be obtained from EAC as per its Committee. Advisory Service Rules which are available on the 3 The Compendium of Opinions containing the website of the ICAI, under the head ‘Resources’. Opinions of Expert Advisory Committee has been For further information, write to eac@icai.org. published in twenty eight volumes. A CD of n 58 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • AUDITING 716Benford Distribution - An Effective Audit ToolThe Benford analysis is a powerful and relatively simple tool for pointing out false or wrong accounts and can beeffectively used in auditing. In all phases of audit the application of this powerful tool enables the audit executive todischarge his duties effectively. The careful application of Benford analysis leads to useful conclusions. This articledemonstrates an effective method of locating mistakes in a very large-scale auditable data-set by applying statisticaltest on Benford distribution. The identification of abnormally behaved data and making in-depth analysis of thosedata will always lead to identify and prevent fraudulent transactions. The tool explained in this article helps the auditexecutive to identify objectionable data in order to perform their task more effectively, efficiently and economicallywithin a short span of time. Audit Control corrective action in order to Control is one of the important improve the performance of the managerial functions, which organisation. helps to check errors and take The executive, who is exercising corrective action so that deviation audit control has necessarily to from standards are minimised and conform, whether the activities of stated goals of the organisation an organisation are carried out in Dr. L. Kailasam are achieved in a desired manner. accordance with the plan, which (The author is working as Senior Audit Audit Control, which is one of has been adopted, the orders, Officer, Office of Principal Accountant organisational controls, consists which have been given, and the General (C&RA), Chennai. He can be of setting audit criteria, evaluating principles, which have been laid reached at lkailasam@yahoo.co.in) financial records and suggesting down, in order to identify deviations 60 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • 717 AUDITING Iand also recommend corrective After appropriate audit planning,measures for rectification, which the audit executive has to prescribe t is true thatfacilitate prevention and recurrence audit criteria by conducting not all dataof mistakes. preliminary survey, interview sets followed The audit executive adopts as well as making an in-depth Benfordsvarious analytical procedures analysis of previous case studies, law. Assignedwith the objective to reduce the etc. After fixing the audit criteria numbers, such as PAN cardaudit risk to the minimum level for and identification of critical areas numbers prescribed by theefficiently discharging this primary of auditing, he has to confirm the Income Tax Department,duty entrusted with him. The vertical, horizontal and dimensional PIN codes or Bank accountapplication of various tools and consistency of the accounts. The numbers will not conform totechniques from audit planning until ratio analysis, trend analysis, factor Benfords law, as they are prereporting will enable him to derive analysis, correlation analysis, as assigned. As an example, inscientific and useful conclusions. well as Benford analysis will enable the pre-determined refundThe audit executive has to estimate him to identify the abnormally given to the customers, thethe probable mistakes most likely behaved variables in order to haveto exist within the organisation at thorough check for the identification Benford law may not be valid.the time of audit planning itself of the reasons of the abnormal If the account balance hasby making an in-depth analysis behaviour. He has to vouch for all built-in maximum or minimumof inherent risk, control risk and the expenditure and income for the balance, the Benford test willother risks existing within the period of review. When complete not lead good results.organisation. In this audit-planning checking is not possible, the auditstage, the auditor has to adopt executive has to adopt appropriate Newcomb published an articlevarious techniques such as Design statistical techniques in order to in the said american journal andanalysis, Parato analysis, Zif’s derive scientific conclusions. concluded that more numbersanalysis, Benford analysis and other The distribution of leftmost exist, which begin with number oneanalysis in order to estimate the leading digits in data of an than with other numbers.efficiency- economy- effectiveness anomalous nature will conform to During 1938, Dr. Frank Benford,of the various functions of the a formula of logarithmic intervals a physicist of the General Electricentity. known as the Benford distribution. Company had rediscovered this M The Benford analysis is a powerful technique. He did a detailed any researchers and relatively simple tool for pointing mathematical analysis of more than analysed the out false or wrong accounts and can 20,000 sets of numbers such as indifferent be effectively used in auditing. In all stock quotations, tournament tennis phenomenon of phases of audit the application of scores, the electricity bills, etc. Benford law and this powerful tool enables the audit These unrelated sets of Anomalousoffered various explanations. executive to discharge his duties Numbers followed the same first-In 1976, Raimi has stated in his effectively. This simple and efficient digit probability pattern and in allarticle that this phenomenon tool, like Parato analysis, assists cases the number one turned upis the result of ‘the way we the audit executives to confirm as the first digit in about 30% of the correct recording of incomes, the time, more often than any otherwrite numbers’ and further expenditure, assets, and liabilities. number.stated that Benford law reflects The careful application of By this practical experience, hea profound harmonic truth of Benford analysis leads to useful derived a formula and concludednature. Boyle (1994) proved conclusions. The primary intention that in a given string of at least fourthat Benford distribution is of this article is to demonstrate, numbers sampled from one or more‘scale invariant’. He found how and where the Bendord’s of any data, the chance that the firstthat the first digit taken from principles could be effectively used digit 1 is 30.1%, but not 11.11%a sample is independent of in auditing. (i.e. not 1/9) as normally expected,the measuring units used. If but it is 30.1%. The chance that thethe entire data multiplied by History of Benford Law first digit 2 is in the string is onlya constant, the resultant data The principles of Benford law were 17.6%, and the probabilities thatalso obeys Benford’s Law. first published in American Journal successive numbers will be the of Mathematics during 1881. Simon first digit decline smoothly up to 9, THE CHARTERED ACCOUNTANT NOVEMbEr 2011 61
    • AUDITING 718which has only a 4.6% chance, as detailed below. Digit 1 2 3 4 5 6 7 8 9 Probability of obtaining as 1 digit st (%) 30.1% 17.6% 12.5% 9.7% 7.9% 6.7% 5.8% 5.1% 4.6% Many researchers analysed the and accordingly the official was duplicate purchase orders orindifferent phenomenon and offered punished. invoice numbers in audit executionvarious explanations. In 1976, Raimi The Benford analysis may reveal stage by adopting this technique.has stated in his article that this the peculiarity of the transactions. As majority of the accountingphenomenon is the result of ‘the In a particular case, while analysing data follow Benford distribution,way we write numbers’ and further the accounts payable data of a the audit executives could usestated that Benford law reflects a company it was found that there this technique. While applyingprofound harmonic truth of nature. was large first two-digit spike in Benford analysis, it is necessary toBoyle (1994) proved that Benford excess of the expected Benford consider the entire data. Samplesdistribution is ‘scale invariant’. He frequency. While analysing the taken from the data will not yieldfound that the first digit taken from reasons, it was found that the good results. As an example, if thea sample is independent of the company has directed to submit audit executive wants to check themeasuring units used. If the entire vouchers if the amount exceeds the accounts receivable or accountsdata multiplied by a constant, the prescribed amount. The employees payable, the entire transactionsresultant data also obeys Benford’s for avoiding the submission of have to be analysed. The auditLaw. In 1995, Hill provided proof for vouchers claimed lesser amount executive cannot ascertain exactBenford law and demonstrated how for which no vouchers need to be position, on the samples taken fromBenford analysis could be applied submitted. Similarly, the payments the accounts payable or accountsto stock data, census statistics might be split into 2 or 3 parts receivable.and accounting data too. If the for avoiding approval of higher The account size i.e. numberpopulation is small then Benford authorities; such spikes could be of transactions in an account haslaw is not valid. Varian (1972) easily identified by the Benford to be considered before applyingsuggests that Benford law could be analysis. Benford analysis. The large numberused as test of honesty or validity of of data or items will always lead topurportedly random scientific data Applications of Benford’s Law in good result. Therefore, the auditin a social science context. Auditing executive has to apply the Benford An interesting case was The audit executives are necessarily test on the transactions of the entirenoticed in the literature of Benford to apply various digital analysis year.analysis. In the State of Arizona, the and analytical procedures for It is true that not all data setsmanager of the State treasury was effective performance of their followed Benfords law. Assignedcharged that he had diverted funds duties. As the SIA-61 states that the numbers, such as PAN cardto bogus vendors. Benford analysis auditor has to employ analytical numbers prescribed by the incometest was applied in the said case procedures, the audit executives tax department, PIN codes or bankand it was found that the digits 7, 8 have to discover and employ various account numbers will not conformand 9 occur more than 90%, which analytical procedures for effectively to Benfords law, as they are preis much contrary to the Benford’s discharging their responsibilities. assigned. As an example, in thelaw. A detail analysis was made Benford analysis is one of the vital pre-determined refund given toand it was found that most of the tools and could be applied in almost the customers, the Benford lawamount were just below 1,00,000/- all phases of auditing i.e. from audit may not be valid. If the accountfor avoiding the check of higher planning stage to reporting stage. balance has built-in maximum orauthorities. It was also found that The correctness of information minimum balance, the Benfordnone of the amount was duplicated received from the auditee entity test will not lead good results. Ifand there were no round numbers. in audit planning stage could be the auditee entity has a policy thatHowever, the charged official checked by applying Benford’s the accounts have to be recordedrepeated some digits and digit analysis. It is also possible to if it has to achieve the ascertainedcombinations. The Benford test get clue for duplicate payments, materiality level before recordingrevealed the fraudulent payment missing data by identifying and has in built in minimum checks1 Standard On Internal Audit (Sia) 6 - Analytical Procedures* 62 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • 719 AUDITING Tsuch accounts will not satisfy the he first step identifying the first digit in theBenford test. is to confirm accounting balances, the next step Similarly, for the transactions whether the is to find the frequency of the firstsuch as thefts, kickbacks, contract digits identified from the accounting type of accountsrigging, etc, the Benford analysis balances. satisfy thecould not be effectively used. By Benford’s distribution. It isremoving the abnormal data stated Step 3- Comparison withabove, the remaining data will necessary to ensure whether predetermined frequenciesconfirm Benford test, if accounts the accounts consist of pre- The Benford law predeterminesreflects correct position. By assigned balances, or has the frequencies of first digit asadopting the appropriate strategies, inbuilt maximum or minimum mentioned in the Table 1. Theit is always possible to overcome balances or the transactions predetermined first digit freque-the limitations. As an example, this are in the nature of contract ncies have to be compared withtool will indicate that there may be rigging, kickbacks or of actual frequencies as found in thefraud or in built mechanism within theft types. As the Benford Step 2 and the difference betweenthe accounts. This could be easily distribution is not valid in such these could be found. The auditidentified by the auditor and in case cases, Benford test on these executive uses his discretion toif he identifies that there is no scope transactions will not yield any allow the difference. Normally thefor built-in mechanism, there may difference of 5% i.e. -2.5% to +2.5% required results.be possibility of mistakes/frauds/ is admissible. However, accordingirregularities in such areas, he could their unit prizes, insurance claims, to the circumstances of the casetake up a detailed audit. employee expenses, fixed assets and discretion of the auditors, it However, Benford analysis and liabilities, etc. normally follow could be increased or decreasedcould be used as a primary tool to Benford distribution and hence by the audit executives. The digit,be added to the audit executive’s Benford law could be effectively which does not confirm to theweapon store. Audit executive used in such cases. prescribed admissible difference,has to use additional tests, which has to be identified.include a personal awareness Step 2- Finding frequencies of firstof the examined observations of digit from the Account Balances Step 4- Analysis of the abnormalassets, as well as awareness of The next step is to extract the first digitscorporate culture, etc to derive digit from the account balances There may be many reasons for theuseful conclusions. of the data under scrutiny. After abnormal behaviour of the digitsSteps Involved in ApplyingBenford TestStep 1 - Check whether theaccounting balances confirmBenford distributionThe first step is to confirm whetherthe type of accounts satisfy theBenford’s distribution. It is necessaryto ensure whether the accountsconsist of pre-assigned balances,or has inbuilt maximum or minimumbalances or the transactions arein the nature of contract rigging,kickbacks or of theft types. As theBenford distribution is not valid insuch cases, Benford test on thesetransactions will not yield anyrequired results. The accountingdata relating to accounts payable,accounts receivable, refunds, sales,purchases, inventory cost and THE CHARTERED ACCOUNTANT NOVEMbEr 2011 63
    • AUDITING 720identified. The auditor has to listall the balances, which behavedabnormally and make detailed auditchecks on the balances identified.If case specific peculiarities of thetransactions are to be found or thepractice adopted is to be identified,such as consolidation of refundsand issue of one cheque insteadof several cheques, such accountbalances are to be removed. Afterremoving, the peculiar balances two parts and the Benford analysis transactions of the data underfrom the purview of Benford has to be done on both the parts consideration in detail. By adoptinganalysis, and making necessary in order to confirm whether they this technique, the workload ofcorrections after applying required satisfy the Benford analysis. If any the audit executive is reduced toaudit checks, the corrected balance half of the broken data does satisfy a minimum level and the auditaccount should be re-checked by statistical tests, that portion could executive could concentrate on fewadopting Benford analysis. The next be ignored and the remaining half records instead of entire records.stage is to adopt the appropiate has to be concentrated upon.statistical test to confirm whether This exercise has to be con- Step 7 – Refining the testsfrequencies of digit are consistent tinued until the data in half falls There is a possibility that the Benfordwith Benford’s distribution. below minimum of 100 or any test on first digit alone may not lower limit prescribed by the audit reveal correct results. The analysisStep 5 - Benford’s Distribution executive at his discretion. By this could be extended to the two digitsAnalysis exercise, the broken data which in order to identify the spikes in theThe auditor may use appropriate satisfy the Benford analysis could frequency. The same procedure astests to confirm the whether digits be left out and a detailed audit explained above could be adopted.in the data set under consideration analysis has to be undertaken on The first-two-digits test could beare distributed in accordance with the remaining data, which does fine-tuned to a first-three-digits testBenford law. The audit executive not satisfy the Benford analysis. also. In all cases, the sample sizecan use appropriate statistical test If the entire data does not satisfy should be manageable and couldfor deriving useful conclusions. the Benford analysis there is no not be excessive and extensive. alternative except to audit all theStep 6- Identification of the auditable Conclusion Tarea - Adoption of ‘Divide and Rule’ There is no effective audit tool here is aPolicy available as on date for identificationAfter exercising the procedures, possibility that of all types of mistakes/ frauds/mentioned in the above steps and the Benford irregularities. This new simpleremoval of abnormal terms, there test on first and easy analysing audit toolmay be chance that the data under digit alone helps the auditor to identify theconsideration may not conform to may not reveal correct abnormal transactions and assiststhe Benford test. In such cases, the results. The analysis could him to perform his task more effec-entire data set could be divided into be extended to the two digits tively, efficiently and economicallytwo parts and Benford test could be in order to identify the spikes within the short span of time. Thisapplied to both parts separately. in the frequency. The same new audit tool will identify the There may be chances that either procedure as explained above areas where the actual mistakes/half of the data may not satisfy the could be adopted. The first- frauds/irregularities might haveBenford test or either of the one half two-digits test could be fine- occurred. The new innovative ideamay not satisfy the analysis. If any of breaking the data and applying tuned to a first-three-digits testone-half of the data satisfies, such the Benford analysis will no doubt also. In all cases, the samplehalf could be left. reduce auditor’s precious time The other half of the data, which size should be manageable and could not be excessive and also improve the efficiency ofdoes not satisfy Benford analysis, the auditor in identification of themay again be broken into further and extensive. fault areas. n 64 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • 721 CORPORATE AND ALLIED LAWSForeign Contribution (Regulation)Act, 2010 – A Changing PerspectiveCurrently, acceptance and utilisation of foreign contribution or foreign hospitality is regulated by the ForeignContribution (Regulation) Act, 1976. Nearly after 35 years the Government has felt a need to replace the FCRA, 1976with the Foreign Contribution (Regulation) Act, 2010. Similar attempt of replacing the FCRA, 1976 was made in theyear 2005 when the Government of India introduced a Foreign Contribution (Management and Control) Bill, 2005which for unknown reasons never became the law. Thereafter, the Government, in the year 2006, introduced a billcalled Foreign Contribution (Regulation) Bill, 2006, which was nothing but the Foreign Contribution (Managementand Control) Bill, 2005 with some minor changes. Once again the Government has reintroduced Foreign Contribution(Regulation) Bill, 2010 with little changes in Foreign Contribution (Regulation) Bill, 2006. But this time the bill of 2010has been passed by both the Houses of the Parliament and is awaiting for the assent of the President to become law.Read on to know more… The Ideology contribution’. It means the The main focus of the FCRA donation delivery or transfer made 1976, as its preamble implies, is by any foreign source of any to regulate the acceptance and article, currency or any security. utilisation of foreign funds such It includes all types of foreign that these funds do not affect receipts. In the earlier FCRA 1976, the democratic structure of the any article having market value of country. However, in the new more than R1000 was considered Foreign Contribution (Regulation) as ‘foreign contribution,’ if received Bill 2010, the focus has been from any foreign source. The shifted to prohibit acceptance and monetary value of R1000 remained utilisation of foreign contribution unchanged since its inception and or foreign hospitality for any difficulties were faced by many as activities detrimental to the national any article received from foreign interest and for matters connected source having value of more than therewith or incidental thereto. R1000 was to be reported. But in There has been a pragmatic shift FCRA, 2010, this monetary value from regulatory framework to a of the article has been waived prohibitory framework. off and now it will be fixed by the Central Government in the rules CA. Anand Pagaria and that too may be changed from Changes in the Definition of (The author is a member of the Institute. He ‘Foreign Contribution’ time to time. This is a welcome can be reached at eboard@icai.org) Section 2(h) defines ‘foreign change in the definition of foreign THE CHARTERED ACCOUNTANT NOVEMbEr 2011 65
    • CORPORATE AND ALLIED LAWS 722contribution as this has not only trade or commerce is exempt. This owned by the Government;waived off the monetary limit from could have been in line with the (d) Member of any Legislature;the statute so that no amendment Section 2(15) of the Income-tax (e) Political party or office-bearersis required every time in the statute Act, 1961 which restricts business thereof;for changing the monetary limit, receipts to R10 lakh. (f) Organisation of a political naturebut also the monetary limit will be as may be specified under sub-specified from time to time so that Foreign Company and Foreign Section (1) of Section 5 by theeffect of changes in prices will be Source Central Government;taken care of. Explanation 3 to The term ‘foreign company’ has (g) Association or companySection 2(h) has also been added, been defined under Section 2(1)(g) engaged in the production orwhich carves out an exclusion of the FCRA, 2010. This definition broadcast of audio news orfrom ‘foreign contribution’ of the has been added under the new audio visual news or currentamount received from any foreign Act and was not present in the affairs programmes throughsource by way of fees or towards old FCRA, 1976. Contributions any electronic mode, orcost in lieu of goods and services received from foreign companies any other electronic form asrendered in the ordinary course of are considered as a foreign source defined in clause (r) of sub-business, trade or commerce. This under Section 2(1)(j)(iii) of the Section (1) of Section 2 of thewas a much awaited amendment FCRA 2010. Further if more than Information Technology Act,as many NGOs and associations 50% of the nominal value of share 2000 or any other mode ofcharge fee for their services, which capital of any Indian company mass communication;is received from foreign source, is held by foreign company then (h) Correspondent or columnist,and which was treated as ‘foreign contributions received from such cartoonist, editor, owner ofcontribution’ under FCRA, 1976. Indian company is also considered the association or companyThe change is a welcome step as foreign source. This is a very referred to in clause (g).for those associations charging harsh provision as in the timesome fees for services rendered of equity dilution many Indian Out of the above, category numberor selling some product to the multinational companies have (f), (g) and (h) have been addedforeign national as a part of their more than 50% of their equity in this FCRA, 2010 and thus moreactivities and to support there capital held by foreign companies/ number of persons have beendevelopmental activities. But the foreign citizens. Similarly, even if debarred from receiving foreignstatute has exempted foreign more than 50% of equity capital contribution under FCRA, 2010. Tcontribution to the extent of cost of of a company incorporatedgoods only. In many cases it is very outside India is held by an Indian he term ‘foreigndifficult to determine the cost in company the contributions flowing company’ hasthe voluntary sector. What is ‘cost’ from that foreign company to any been definedis also very difficult to define. The association/person in India will also under Section 2(1)term itself is very subjective and be considered as ‘foreign source’ (g) of the FCRA,relative. Different interpretations by virtue of Section 2(1)(j)(iii) read 2010. This definition has beenmay be given to the word ‘cost’. with Section 2(1)(g) of the FCRA, added under the new act andSimilar is the case with the terms 2010. was not present in the old‘business,’ ‘trade’ and ‘commerce’. FCRA, 1976. ContributionsThe act should have defined these Persons Prohibited from received from foreignwords in the statute itself. There Receiving Foreign Contribution companies are consideredis no logic to exclude only cost of The following persons have been as a foreign source undergoods from the foreign contribution restricted from accepting foreign Section 2(1)(j)(iii) of the FCRAin the course of business, trade contribution under Section 3 (1) 2010. Further if more than 50%or commerce. Nominal profits (a) Candidate for election; of the nominal value of shareare definitely charged by many (b) Correspondent, columnist, car- capital of any Indian companyassociations to become self- toonist, editor, owner, printer is held by foreign companysustained. Instead of excluding or publisher of a registered then contributions received‘cost’ the better option could have newspaper; from such Indian company isbeen setting out turnover limits say, (c) Judge, government servant or also considered as foreignan amount up to R10 lakh received employee of any corporation source.in the ordinary course of business, or any other body controlled or 66 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • 723 CORPORATE AND ALLIED LAWSEven the above category of Organisations of Political Nature insertion of this clause the transferpersons are also being allowed Political parties have been is permitted, but the transferor hasto receive foreign contribution in specifically debarred under to take permission from the Centralthese following cases - Section 3(1)(e) from receiving Government which will definitely(a) By way of salary, wages or other foreign contribution. Under the create many complexities for these remuneration due to him or to FCRA, 2010 as per new clause organisations and will increase the any group of persons working 3(1)(f) organisations of political work of the Government also. The under him, from any foreign nature are also debarred from Government has kept the bow in source or by way of payment in receiving foreign contribution. The their hands. There is no blanket the ordinary course of business Central Government can specify an permission to transfer foreign transacted in India by such organisation as an organisation of funds. Instead of obtaining prior foreign source; or political nature under Section 5(1) permission for subsequent transfer(b) By way of payment, in the as per the rules made by it and the a better option would have been to course of international trade or guidelines specifying the grounds set up a limit up to which transfer of commerce, or in the ordinary on which such organisation is foreign contribution is allowed and course of business transacted specified as an organisation of alternatively the Government could by him outside India; or political nature. have come out with a reporting(c) As an agent of a foreign source requirement for such transfer along in relation to any transaction Subsequent Transfer of Foreign with the annual return if they want made by such foreign source Contribution with Prior Approval to have a control on last utilisation with the Central Government or of Central Government of the foreign contribution. State Government; or A registered person or a person(d) By way of a gift or presentation who has obtained prior permission Utilisation of Funds in made to him as a member of to receive foreign contribution for Speculative Business and any Indian delegation, provided specific project is not allowed to Administrative Expenses that such gift or present was transfer foreign contribution to other Utilisation of foreign contribution in accepted in accordance with persons who are not registered speculative business is not allowed the rules made by the Central or who have not obtained prior both under FCRA, 1976 and FCRA, Government with regard to the permission under Section 7. Under 2010. However, what is speculative acceptance or retention of such FCRA 2010, a proviso to Section business has not been specified gift or presentation; or 7 has been inserted that provides under FCRA 1976. But in FCRA,(e) From his relative; or that such a transfer is allowed with 2010 what construes speculative(f) By way of remittance received in the prior permission of the Central business will be specified in the the ordinary course of business Government and in accordance rules. through any official channel, with the rules framed by the Central A new sub-clause (b) to Section post office, or any authorised Government. 8(1) has been added which restricts person in foreign exchange The Central Government has the utilisation of foreign contribution under the Foreign Exchange allowed the transfer of foreign in administrative expenses to the Management Act, 1999; or contribution from registered extent of 50% of total expenditure.(g) By way of any scholarship, organisation to an unregistered Administrative expenditure beyond stipend or any payment of the organisation, but with reluctance. 50% can only be defrayed with like nature. There are many small, village the prior approval of the Central level, grass root organisations Government. Further sub-Section The provisions of Section 4 which are working as mediator- (2) to Section 8 provides that theare also same as contained in cum-assistance provider between Government will prescribe theFCRA, 1976 except one change, the actual beneficiaries and the elements that shall be included ini.e., in case of amount of foreign big organisations. These small the administrative expenses and thecontribution received from relative organisations require and receive manner in which the administrativethere was a limit of R8000 per funds from big organisations for expenses shall be calculated.annum up to which no permission village level development activities, However, many organisations dowas required whereas in the new but they cannot receive foreign not report their expenses underAct there is no such limit and any contribution as they have no the administrative and projectamount may be received. This is a FCRA registration. This hinders the expenditure. Many a time projectwelcome change. development work. Now with the expenses and administrative THE CHARTERED ACCOUNTANT NOVEMbEr 2011 67
    • CORPORATE AND ALLIED LAWS 724expenses overlap. A clear cut or convicted for indulging neither been convicted underdistinction cannot be made. For in activities aimed at any law for the time beingexample, it is very difficult to conversion through indu- in force nor any prosecutionappropriate salary of an employee cement or force, either for any offence is pendingworking for both office and project directly or indirectly, from against himunder the administrative expenses one religious faith to (f) the acceptance of foreignand project expenditure. It is more another; contribution by the person isdifficult for the small organisations (iii) has not been prosecuted not likely to affect prejudiciallythat have less number of employees or convicted for creating (i) the sovereignty and inte-having multi-tasks. Another communal tension or dis- grity of India; orexample may be of bifurcation of harmony in any specified (ii) the security, strategic,conveyance expenses of a project district or any other part of scientific or economicworker sitting in the branch office the country; interest of the State; orand looking after a particular (iv) has not been found guilty of (iii) the public interest; orproject. The list may be endless. diversion or mis-utilisation (iv) freedom or fairness of ele-We hope that Government will of its funds; ction to any Legislature; orcome out with clear cut guidelines (v) is not engaged or likely (v) friendly relation with anyconsidering all the above factors. to engage in propagation foreign State; or of sedition or advocate (vi) harmony between religi-Registration and the New violent methods to achieve ous, racial, social, linguistic,Regime its ends; regional groups, castes orNo person having a definite (vi) is not likely to use the communitiescultural, economic, education, foreign contribution for (g) the acceptance of foreignreligious or social programme personal gains or divert it contributionis allowed to accept the foreign for undesirable purposes; (i) shall not lead to incitementcontribution without obtaining a (vii) has not contravened any of of an offence;certificate of registration from the the provisions of this Act; (ii) shall not endanger the lifeCentral Government (Section- 11). (viii) has not been prohibited or physical safety of anyFor registration under the new from accepting foreign person.FCRA 2010 application has to contribution;be made in prescribed form and (b) the person making an appli- If the Central Governmentmanner and with prescribed ‘fee’. cation for registration has does not grant a certificate or priorFor registration in FCRA 1976 no undertaken reasonable activity permission within 90 days, reasonsfee was payable for registration. in its chosen field for the benefit for refusal must be communicatedThe purpose for prescribing a of the society for which the to the applicant. Earlier under thefee for registration is not known foreign contribution is proposed FCRA, 1976 reasons for rejecting theand it may be assumed that the to be utilised application for registration were notGovernment wants to discourage (c) the person making an appli- communicated. The new processunwanted registrations. The new cation for giving prior per- of obtaining prior permission standsprocess of registration provides mission has prepared a on similar lines as of obtainingthat the Central Government may reasonable project for the permanent registration. However,ordinarily register the person benefit of the society for which instead of relaxation in grantingapplying for registration or prior the foreign contribution is prior permission, the statutepermission within 90 days from proposed to be utilised has eliminated the provisionthe date of receipt of application (d) in case the person being an of ‘deemed’ prior permission iffor registration or prior permission. individual, such individual has nothing is heard within 120 daysThe registration or prior permission neither been convicted under of the application for seekingis granted only on satisfying the any law for the time being in prior permission as contained infollowing conditions- force nor any prosecution for FCRA, 1976. This is again a great(a) The person making an any offence pending against hindrance in receiving foreign funds application for registration or him for definite, certain and earmarked grant of prior permission (e) in case the person being other projects. (i) is not fictitious or benami; than an individual, any of its The registration certificate, (ii) has not been prosecuted directors or office bearers has under FCRA 2010 will be granted 68 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • 725 CORPORATE AND ALLIED LAWS Afor a period of five years only as Firstly, the above provisions registered personcompared to permanent registr- will bring some sort of compulsion or a person whoation in FCRA 1976. Thereafter, for the organisations to conduct has obtainedrenewal of registration has to be some activities in the chosen field prior permissionmade after every five years. A for the benefit of the society from to receive foreignrelaxation to the already registered year to year basis. Secondly, when contribution for specificassociations has been given and the certificate is cancelled, the project is not allowed tothey have to renew their registration power to dispose off the assetsonly after five years from the date of created since inception from the transfer foreign contributionenactment this section. The renewal foreign contribution is a very harsh to other persons who are notapplication has to be made within provision. Imagine a situation when registered or who have notsix months before the expiry of the an organisation who has worked obtained prior permissionperiod of certificate. for so many years in development under Section 7. Under activities and has spent crores of FCRA 2010, a proviso toSuspension and Cancellation of rupees for benefit of the society Section 7 has been insertedRegistration and created assets from foreign that provides that such aUnder the new FCRA 2010 the contribution could not, due to one transfer is allowed withCentral Government is empowered or more reasons, conduct any the prior permission of theto cancel the certificate of activity for two consecutive years Central Government andregistration of any person on the and its registration is cancelled. in accordance with thefollowing grounds – Now, power to dispose off whole rules framed by the Central(i) If the holder of the certificate of the assets created in past by Government. has provided incorrect or that organisation vests with the false information at the time authority managing the affairs of the foreign funds. Still, opening of of application for grant of society due to cancellation. This will more than one bank account is registration. definitely bring arbitrariness among allowed for utilisation purposes(ii) If the holder has violated the the persons of the prescribed only and not for receipts of foreign terms and conditions of the authority managing the activities of funds. This is a dual edge sword. certificate. the organisation. When a bank account is opened(iii) If it is necessary in the public by an organisation it will have interest to do so, Multiple Bank Accounts Allowed credit from only main foreign(iv) If the holder of the certificate has Foreign contribution is to be designated bank account and violated any of the provisions of received in single designated disbursement for varied purposes. the Act. bank account as specified in the In many cases it will not be strictly(v) If the holder of the certificate application for registration. This possible as it may have credits has not done any reason- requirement is same as in FCRA as in the case of a micro finance able activity for the benefit of 1976. Under FCRA 1976, multiple institution. In such cases it will not the society for two consecutive bank accounts were not allowed, be possible to disburse the amount years. though in project accounts, for from one account and receiving utilisation purposes, more than back the amount in the main When the certificate is cancelled, one bank account was allowed foreign contribution designatedall the foreign contribution and in some cases. But this was not bank account. The receipt of foreignthe assets created out of the under the Statute and was through contribution in one designatedforeign contribution will vest with administrative directions. Under bank account is only anthe prescribed authority and the new FCRA 2010, opening of administrative convenience so thatit will manage the activities till more than one bank account for there can be a track on the foreignthe registration is subsequently utilisation of foreign contribution funds. It would have been verygranted. The prescribed authority is allowed under Section 17. This convenient for many small villagewill also have all the powers to will definitely help many small level development organisationsdispose off the assets of the organisations (like a micro finance if at least some credit (say up toperson created out of that foreign organisation) whose nature of a prescribed limit) to the bankcontribution if adequate funds are work is such that they have to account opened for utilisationnot available for managing the open different bank accounts for purposes would have beenactivities of the person. disbursement and utilisation of allowed. THE CHARTERED ACCOUNTANT NOVEMbEr 2011 69
    • CORPORATE AND ALLIED LAWS 726A Critical Note is subjective and will definitely cancelled. Prescribing fees forFCRA 2010 is a mixed bag. In many increase the litigation. Many of the the grant of registration as well ascases it has tried to solve out some provisions like considering Indian prior-permission will add to thegenuine problems of persons Companies having more than 50% cost of organisations genuinelyreceiving foreign contribution, equity holding by foreign company/ serving people and is not in linebut at the same time it has added foreign citizen as ‘Foreign Source’ with the registration of voluntaryto the rigours of many genuine will definitely hinder the growth of associations with Governmentorganisations receiving foreign the voluntary sector participating in departments. Renewal of registra-contribution. The provisions like nation building. tion after every five years will alsoexcluding receipt of amount from Similarly, provisions like adhe- add to the administrative cost of theforeign source as fees or cost ring to the below 50% benchmark organisations.in lieu of goods or services in of administrative expenses and In short we can say that withthe course of business, trade or cancellation of registration in case FCRA 2010, the Government hascommerce, statutorily allowing there is no reasonable activity for given something, but taken backmultiple bank accounts and freely the society for consecutive two many things. We can only hopeaccepting foreign contribution years are very harsh in nature and that the subjectivity in the statuteas stipend, scholarship are highly subjective. The Government will be used in favour of the personswelcome changes which were has also tried to become ‘manager’ receiving foreign contribution andmuch awaited. Apart from this, the instead of ‘regulator’ in cases then only the very purpose of theunder-current in the FCRA 2010 where registration has been enactment is served.FCRA 1976 and FCRA 2010 – A SynopsisS. No. FCRA, 1976 FCRA, 20101. Any article received from foreign source having market The value of articles which will be included in value of more than R1000 was foreign contribution. foreign contribution will be specified in rules framed.2. Interest accrued on foreign contribution was not Interest accrued on foreign contribution is Statutorily included in foreign contribution. Statutorily included in foreign contribution.3. Amount received in the ordinary course of trade, Amount received in the ordinary course of commerce or business from foreign source was trade, commerce or business from foreign included in foreign contribution. source is not a foreign contribution.4. No terms like organisations of political nature. Such organisations will be notified and debarred from accepting foreign contribution.5. Transfer of foreign funds to unregistered person not Foreign funds may be transferred to allowed. unregistered person after obtaining prior approval of the Central Government.6. No reference to administrative expenses and its Administrative expenses beyond 50% are not limits. allowed.7. Registration once granted was permanent and no Registration is granted for five years only and it renewal clause was there. has to be renewed after every five years.8. Conditions for registration were not set out in the Act. Conditions are Statutorily set out.9. No provision of suspension of registration certificate. There can be suspension of certificate for the time being as well as cancellation on certain conditions.10. In no case, management of foreign contribution lies In case of cancellation of registration, with Central Government. management of foreign contribution and assets created out of them lies with the Government.11. Multiple bank accounts were not permitted. Multiple bank accounts are permitted for utilisation of foreign contribution.12. No mention of disposal of assets created out of foreign In case of cessation, the Central Government funds. will notify the procedure of disposal of assets created out of foreign funds. n 70 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • CORPORATE AND ALLIED LAWS 728Justice is Important, Rules of Procedure areHandmaids: Discussion in View of SC VerdictThe purpose of various provisions relating to appeal, revision, rectification, etc. is to achieve justice and to avoidinjustice. Concerned appellate authorities, revision authorities, tribunals and courts are established towards the goalof rendering justice. In case of tax laws, it can be said that the ultimate purpose of all such proceedings should beconsidered as to impose tax correctly as per law and to refund excessive tax paid by assessee. It is true that one hasto seek remedy or relief in many situations and for that he should also be vigilant to get justice and to see that he isnot deprived of his privileges, and for that one should take his own actions to initiate proceedings towards availingjustice. Procedures are prescribed under general laws as well as specific laws. However, courts and authorities havesome inherent powers to serve purposes of judicial system to render justice and to avoid abuse of process of lawand courts. A litigant has power to withdraw his petition or appeal. He also has privilege to withdraw the petition forwithdrawal. Unless there are specific prohibitions or restrictions, the courts must be liberal in following or allowingprocesses to meet the end of justice and to render justice instead of denying justice. Suppose a person has withdrawnhis petition or appeal and subsequently he wants to seek justice by consideration of his appeal (which has beenwithdrawn) he should be allowed to have privilege to restore the appeal. However, the courts should be careful tofollow principals of natural justice so that while allowing justice there should not be injustice against other parties.The author discusses these aspects with reference to a latest judgment of the Supreme Court. Ground Reality – Laws are and reversed by larger benches of Complex the Supreme Court. These aspects It is assumed that everyone must be recognised while thinking generally knows law. However, it of any litigation. The finality of is true that laws are very complex litigation is generally a long distant and procedures make them more dream. Over long period of time, complex. This is evident from during which litigation lingers, the CA. Dev Kumar Kothari and CA. Uma Kothari the fact that many a time even law may become more complex (The authors are members of the Institute. judgements of the Supreme Court due to development of law by They can be reached at eboard@icai.org) are doubted and then reviewed amendments, clarifications and 72 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • 729 CORPORATE AND ALLIED LAWS Anew judicial pronouncements. fter filing of be necessary that the withdrawalIt is also unfortunate that our a petition to petition be withdrawn and originalgovernment has tendency to withdraw, the proceedings be restored. Thisunsettle settled legal positions by petitioner becomes more important whenfrequently amending laws and that appellant may the stake is high, the changedgives ground for further litigation. situation or legal position warrant find that he made a mistakeAll these result into uncertainty and that original petition or appeal by withdrawing the petition orcontingencies in our life and even should be properly prosecuted to appeal due to wrong reasonswhen we do not want to indulge seek justice and relief. like wrong advice or wronginto any litigation, many times weare forced to face litigation. It is an perceptions on the issue or it Restoration of Original Petition/established fact that wherever there might have been withdrawn Appealis intervention of governments, due to certain promises We find that in case of dismissalthere is more litigation. made by the opposite party. of petition or appeal for some Even otherwise due to technical or other reasons or forFiling of Petitions or Appeals changes in legal position non-attendance, one can apply forA litigant may file a petition or one may feel that he made restoration of petition or appeal andappeal on consideration of some mistake by withdrawing the proceed on the same after authorityaspects of the issue at hand as petition or appeal. In such concerned or court passes an orderper his understanding of law and circumstances, it may be to restore the petition or appeal.as may be advised by persons necessary that the withdrawal Similar will be effect in case ofconcerned. Before filing a petition petition be withdrawn and withdrawal of a petition to withdrawor appeal, one should also check original proceedings be is permitted. That is withdrawal ofbefore hand as to whether it is restored. withdrawal application results intopossible to withdraw petition or original petition or appeal beingappeal. Sometimes it may not be appeals where appellate authority restored. In such circumstances, theadvisable to file a petition or appeal or revision authority or other opposite party can raise objectionif the concerned authority has authority concerned has power to on withdrawal of withdrawalright to review other aspects also enhance demand, the withdrawal application because he has towhich are related to the matter. For may not be permitted. One should face litigation on a matter that wasexample CIT(A) has also powers consider these aspects more settled earlier. The courts should,to enhance assessment. In such carefully. For example, in case of therefore, provide opportunity ofsituation one may be exposed to appeal before CIT(A), the appellant hearing to opposite party to meetthe risk of enhancement on other /assessee may not be allowed the principal of natural justice.issues which have been settled in to withdraw appeal because the The opposite party can raise hisassessment. CIT(A) has power to enhance the objections and pray the court One should, therefore, check assessment. that the petition for withdrawalthe extensiveness of powers of of withdrawal petition should beconcerned authority/tribunal/court, Withdrawal of Withdrawal dismissed – he can show reasonspossibility of withdrawal of petition Application for such prayers.or appeal, etc. After filing of a petition to withdraw, the petitioner/appellant may find Principal of Natural JusticeWithdrawal of Petition or Appeal that he made a mistake by It is needless to mention that in anyAfter filing of a petition or appeal, withdrawing the petition or appeal proceeding, principal of naturalthe litigant may find that it is not due to wrong reasons like wrong justice should be followed. This isnecessary to pursue the petition/ advice or wrong perceptions applicable to original petitions orappeal and may think to withdraw on the issue or it might have appeal, application for withdrawalthe same. The withdrawal of petition been withdrawn due to certain of original petition or appeal andor appeal is generally permissible promises made by the opposite also withdrawal of withdrawalbut some enactments provide party. Even otherwise due to petition, etc. A withdrawal ofrestrictions on such withdrawal. If changes in legal position one may petition/ appeal, etc. can generallythere is restriction, the same may feel that he made a mistake by be with the permission of court ornot be permitted to be withdrawn. withdrawing the petition or appeal. authority concerned. A withdrawalIn case of revenue petitions or In such circumstances, it may can be prejudicial to other party. THE CHARTERED ACCOUNTANT NOVEMbEr 2011 73
    • CORPORATE AND ALLIED LAWS 730 TTherefore, the other party can raise not be just to indulge into litigation. heir lordshipsan objection. And the courts or Whether withdrawal is permitted: of the Supremeauthority should, therefore, provide Before filing a petition or appeal, Court expressedopportunity of hearing to opposite it should be ascertained as to the opinion thatparty to meet the principal of natural whether it can be withdrawn later the applicationjustice. This is equally applicable to on or that there can be situations in praying for withdrawal of thewithdrawal of appeal or petition as which withdrawal may be desirable. withdrawal application waswell as withdrawal of withdrawal Authorities having powers to take maintainable and accordinglypetition, which result into restoration views against the petitioner, which order has been passed.of appeal or petition. The opposite can result into harm, should be As such, the impugnedparty should get a copy of petition considered. judgement of the Allahabadand supporting documents and The petition should be with- High Court has been set asidealso an opportunity to represent drawn only if there are some and the Appeal has beenhis case. To be fair, it is always important reasons. The petition for is allowed by the Supremedesirable that copy of petitions withdrawal should contain such Court.and its supporting documents in reasons which should be supportedtotality should also be provided to by evidence, logic and reasoning. Nothing in this Code shall beall opposite parties at the stage of Efforts should be made to deemed to limit or otherwise affectfiling of petition or appeal. Copy of ensure that the court or authority the inherent power of the Courtdocuments subsequently filed can passes an order on such application to make such orders as may bealso be provided to all opposite for withdrawal after giving an necessary for the ends of justice orparties so that they can give opportunity to the opposite party or to prevent abuse of the process oftheir representations, However, the other party likely to be affected the Court.in practice we find that people like government. Presumption is From a reading of this Sectiontry to avoid providing copy of not proper. In case court finds that we find that court can exercisedocuments to the opposite parties the petition itself was frivolous, it can its inherent powers to (a) renderand then linger the case until the pass appropriate orders as to cost justice and (b) to avoid abuseget directions of court or authority. to compensate the opposite party. of the process of the court andThis is one of the main reasons This should also be considered that such powers are not curtailedfor pendency of cases in courts even while filing a petition or an by other provisions of theand cases taking long time for appeal. Code. This provision can alsodisposal. Withdrawal of the withdrawal be applied in relation to matters application should also be based dealt by other enactments whereinPractice Support on some reason and logic and specific procedures are alsoThe following care should be taken it should be in interest of justice. prescribed.as general rules: The petition should also be withinPetitions should be reasoned: a reasonable time. The withdrawal Examples of Some SpecificThere should be reason for making of the withdrawal petition should Proceduresa petition or appeal and it should be allowed only after giving an Under different enactments weW ithdrawal of opportunity of hearing to the find specific procedures including the withdrawal opposite party. forms prescribed there-under to application initiate progress and conclude should also Section 151 of the Civil proceedings. The procedures and be based on Procedure Code forms are prescribed to standardisesome reason and logic and Section 151 of the Code of Civil them and to provide guidelines toit should be in interest of Procedures 1908 is the section public, authorities and courts. For which was specifically under example, in relation to direct andjustice. The petition should consideration and on which a indirect tax laws, company law,also be within a reasonable recent judgement of the Supreme FEMA and SEBI, we find varioustime. The withdrawal of Court has been passed. The rules and forms for applications,withdrawal petition should be Section reads as follows (with appeals, certificates, etc. in relationallowed only after giving an highlights provided by author) to various matters. We also findopportunity of hearing to the “151. Saving of inherent powers procedures in relation to variousopposite party. of Court: matters. In absence of such specific 74 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • 731 CORPORATE AND ALLIED LAWSprocedures general procedures as by special leave was filed before Judge – so described by theirper Code of Civil Procedures can the Supreme Court. lordship) of the Allahabad Highbe applied. The High Court took the Court, noted the observations view that once the application therein as follows:-Recent Supreme Court Decision for withdrawal of the suit is filed, "Courts are not to act upon theIn Rajendra Prasad Gupta Vs. the suit stands dismissed as principle that every procedure is toPrakash Chandra Mishra & Ors withdrawn even without any order be taken as prohibited unless it isdecided on 12.01.2011, an appeal, on the withdrawal application and, expressly provided for by the Code,by special leave, was filed against therefore, the second application but on the converse principle thatthe judgement of the Allahabad High was not maintainable at all. every procedure is to be understoodCourt dated 06.02.2004 passed in The Supreme Court did not as permissible till it is shown to beFAFO No.2103/2003. The appellant agree with this view and observed prohibited by the law. As a matter ofRAJENDRA PRASAD GUPTA was and held on the following lines: general principle prohibition cannotthe plaintiff in Suit No. 1301 of 1997 a. Rules of procedure are be presumed."before the Court of Civil Judge handmaids of justice. The above view was followed by(Junior Division) Varanasi. b. Section 151 of the Code of a full bench of the Allahabad High He filed an application to Civil Procedure gives inherent Court in Raj Narain Saxena Vs. Bhimwithdraw the said suit. (As per powers to the court to do Sen & others, AIR 1966 Allahabadauthor, the withdrawal petition justice. 84 FB. The Supreme Court agreedwas pending without passing any c. That provision has to be with this view.order by the court when petitioner interpreted to mean that every Accordingly, their lordships ofapplied to withdraw the same as procedure is permitted to the the Supreme Court expressed theappears from facts). Later on he court for doing justice unless opinion that the application, pra-changed his mind and before expressly prohibited, ying for withdrawal of the withdra-an order could be passed in d. It is not that every procedure wal application was maintainablethe withdrawal application, he is prohibited unless expressly and accordingly order has beenfiled an application praying for permitted. passed. As such, the impugnedwithdrawal of the earlier with- e. There is no express bar in filing judgement of the Allahabad Highdrawal application. The second an application for withdrawal of Court has been set aside and theapplication (to withdraw the the withdrawal application. Appeal has been allowed by thewithdrawal petition) was dismissed f. Referring to the judgement in Supreme Court. (See Annexure I)and that order was upheld by the case of Narsingh Das Vs. MangalHigh Court. Therefore, the appeal Dubey, ILR 5 All 163 (FB) (1882) Rectification of Mistakes in TaxT and observation of Mr. Justice Matters he rules pronounced Mahmood, (the celebrated Tax authorities are empowered in relation to rectification of mistakes by Tribunal in case of HondaSiel (supra.) can fruitfullybe applied to any court orauthority. If an authorityor court has committed amistake, it should be allowedto be rectified so as to makethe order as per law. Thereshould be greater scopeof rectification even on thebasis of change in law due toamendments or subsequentjudgements of the SupremeCourt or the High Court havingjurisdiction in the matter. THE CHARTERED ACCOUNTANT NOVEMbEr 2011 75
    • CORPORATE AND ALLIED LAWS 732 Pto rectify the mistakes that are through over-sight it had missed rescribedapparent from records, for the judgement of coordinate bench procedures areexample, Section 154 and 254 while dismissing the appeal of with a view to(2) of the Income-tax Act, 1961, the assessee on that issue and, standardise steps,which empower tax authorities therefore, tribunal rectified its order procedures, formatsand tribunal respectively to rectify to make it confirming to the decision in which documents are tomistakes apparent from records. of coordinate bench, which was be prepared, presented andHowever, the provisions in this cited before it. Here, we can say served, etc. Procedures areregard are considered as very that the tribunal has adopted general guidelines. Ultimatelimited in scope to rectify mistakes a purpose seeking and justice and foremost purpose ofthat are apparent from records. In rendering attitude and rectified its courts and authorities is toreality if one goes by spirit, it can order to make it as per law. render justice and to ensurebe said that the purpose of such However, revenue took narrow that the subject matter isprovisions is to ensure correct technical view and preferred decided as per law. Theassessment and collection of tax. If appeal before the Delhi High Court. procedures are to helpassessee has paid lesser tax, then Delhi High Court allowed appeal of and they are not to createa rectification should be allowed revenue and held that the tribunal obstacles in the process ofto collect correct tax. Similarly under Section 254(2) has no law and en route the justice.if assessee has paid excessive power to review its order and the Therefore, procedures whichtax, then a rectification should mistake rectified was not a mistake help in rendering justice canbe allowed to refund excessively apparent from record. Therefore, be adopted and need not becollected tax. However, there is the High Court set aside the ordera lot of litigation on that aspect of in rectification petition passed denied by courts. A technicalwhat can be rectified itself. by the Tribunal and restored the defect in procedure is We also find that provisions are original order. also curable and can bemade to dispose-off rectification Therefore, the assessee rectified.petitions by the assessing officers, appealed before the Supreme assessee or the Department,and appellate authorities within Court and the Supreme Court should suffer on account ofprescribed time frame. However, reversed the decision of the High any mistake committed by thepractical experience shows that Court. The main reasons and the Tribunal.in case of tribunal, rectification law laid down by the Supreme C. This fundamental principle haspetitions are fixed for hearing and Court are as follows:- nothing to do with the inherentdecided quickly, however, other A. In case of Appeal before powers of the Tribunal.authorities do not take disposal of Appellate Tribunal fundamental D. If prejudice has resulted torectification petitions seriously and principle is that no party the party and the prejudice isquickly and many times assesses appearing before Tribunal attributable to the Tribunal’sare required to file fresh applications should suffer on account of mistake, error or omission, andto get extended limitation. mistake committed by the which error is a manifest error, In Honda Siel Power Products Tribunal. Failure to consider then the Tribunal would beLtd. Vs. CIT [2007] 295 ITR 466 decision of coordinate Bench justified in rectifying its mistake.(SC), the tribunal had decided the cited by assessee is a mistake. E. When prejudice results fromissue relating to enhancement of B. The purpose behind the an order attributable to thecost of depreciable assets against enactment of rectification Tribunal’s mistake, error orthe assessee. However, in a provisions like Section 254(2) omission, then it is the duty ofrectification petition, the assessee of the Income-tax Act, 1961, the Tribunal to set it right.pointed out that a decision of dealing with the power of the F. Atonement to the wrongedcoordinate bench cited by it, before Appellate Tribunal to amend party by the court or the Tribunalthe tribunal was not considered any order passed by it under for the wrong committed byand, therefore, the order suffered sub-section (1), if any mistake it has nothing to do with thefrom mistake apparent from record. apparent from the record is concept of inherent power ofOn consideration of the rectification brought to its notice, is based review.petition, the tribunal held that a on the fundamental principle G. “Rule of precedent” is andecision of a coordinate bench that no party appearing before important aspect of legalof tribunal was cited before it, but the Appellate Tribunal, be it an certainty in the rule of law. 76 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • 733 CORPORATE AND ALLIED LAWSH. “Rule of precedent” is not rectification even on the basis of Ultimate and foremost purpose of obliterated by Section 254(2). change in law due to amendments courts and authorities is to render or subsequent judgements of the justice and to ensure that the In view of the author, these Supreme Court or the High Court subject matter is decided as perrules pronounced in relation to having jurisdiction in the matter. the law. The procedures are to helprectification of mistakes by Tribunal and they are not to create obstaclesin case of Honda Siel (supra.) can Conclusion in the process of law and en routefruitfully be applied to any court Prescribed procedures are with the justice. Therefore, proceduresor authority. If an authority or a view to standardise steps, which help in rendering justicecourt has committed a mistake, it procedures, formats in which can be adopted and need notshould be allowed to be rectified documents are to be prepared, be denied by courts. A technicalso as to make the order as per law. presented and served, etc. defect in procedure is also curableThere should be greater scope of Procedures are general guidelines. and can be rectified. Annexure I IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION CIVIL APPEAL NO(s). 984 OF 2006 RAJENDRA PRASAD GUPTA Appellant (s) VERSUS PRAKASH CHANDRA MISHRA & ORS. Respondent(s) ORDER Heard learned counsel for the appellant and respondent Nos. 1 to 3. No one appeared for respondent No. 4. This Appeal, by special leave, has been filed against the impugned judgment of the High Court of Allahabad dated 06.02.2004 passed in FAFO No.2103/2003. It appears that the appellant was the plaintiff in Suit No. 1301 of 1997 before the Court of Civil Judge (Junior Division) Varanasi. He filed an application to withdraw the said suit. Subsequently, it appears that he changed his mind and before an order could be passed in the withdrawal application he filed an application praying for withdrawal of the earlier withdrawal application. The second application had been dismissed and that order was upheld by the High Court. Hence, this appeal by special leave. The High Court was of the view that once the application for withdrawal of the suit is filed, the suit stands dismissed as withdrawn even without any order on the withdrawal application. Hence, the second application was not maintainable. We do not agree. Rules of procedure are handmaids of justice. Section 151 of the Code of Civil Procedure gives inherent powers to the court to do justice. That provision has to be interpreted to mean that every procedure is permitted to the court for doing justice unless expressly prohibited, and not that every procedure is prohibited unless expressly permitted. There is no express bar in filing an application for withdrawal of the withdrawal application. In Narsingh Das Vs. Mangal Dubey, ILR 5 All 163 (FB) (1882), Mr. Justice Mahmood, the celebrated Judge of the Allahabad High Court, observed:- "Courts are not to act upon the principle that every procedure is to be taken as prohibited unless it is expressly provided for by the Code, but on the converse principle that every procedure is to be understood as permissible till it is shown to be prohibited by the law. As a matter of general principle prohibition cannot be presumed." The above view was followed by a Full Bench of the Allahabad High Court in Raj Narain Saxena Vs. Bhim Sen & others, AIR 1966 Allahabad 84 FB, and we agree with this view. Accordingly, we are of the opinion that the application praying for withdrawal of the withdrawal application was maintainable. We order accordingly. In the result, the impugned judgement of the High Court is set aside and the Appeal is allowed. No costs. The suit shall proceed and to be decided on merits, Expeditiously. .....................J. (MARKANDEY KATJU) .....................J. (GYAN SUDHA MISRA) n THE CHARTERED ACCOUNTANT NOVEMbEr 2011 77
    • TAXATION 734LLP to Be Subject to Alternate Minimum TaxLimited Liability Partnerships are now subject to Alternate Minimum Tax @18.5%, in line with Minimum AlternateTax in case of companies. However, the tax base in the case of Limited Liability Partnerships would be the AdjustedTotal Income computed under Section 115JC(2) and not Book Profit as in the case of companies. Prior to Finance Act,2011, Limited Liability Partnerships were considered as very tax effective business vehicle since it was not subjectto Minimum Alternate Tax, Dividend Distribution Tax and Surcharge. The introduction of Alternate Minimum Tax hasdented the attractiveness of Limited Liability Partnership but not to a large extent. The amendment will take effectfrom the Assessment Year 2012-2013, thereby giving businessmen a leeway of one year.Read on to know more… Limited Liability Partnership The Limited Liability Partnership Act, 2008 came into effect in the year 2009. The Limited Liability Partnership (hereinafter referred to as ‘LLP’) is a hybrid form of business. It has features of both a body corporate as well as a general partnership. The concept behind LLP was to encourage corporate culture in India by – ▪ Creation of LLP by small or medium business entities; ▪ Corporatisation of professional and consultancy firms so as to bring such professionals at par with global peers; and ▪ Allow conversion of companies into LLPs so as to reduce paper work and compliances. Taxation of LLP Prior to Finance Act, 2011 The Income-tax Act, 1961 provides for the same taxation regime for a LLP as is applicable to a partnership firm. It also provides tax neutrality [subject to fulfilment of six conditions laid down in the proviso to Section 47(xiiib)] to conversion of a private limited company or CA. Aadesh Kumar Agrawal an unlisted public company into an LLP . (The author is a member of the Institute. He can be Taxation provisions for LLP as per Income-tax Act, reached at eboard@icai.org) 1961 (before taking effect of amendments brought in 78 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • 735 TAXATIONby Finance Act, 2011) are summarised herein below: Section : Marginal Note : Applicable Summarised Provisions with effect from 2(23): Definitions : 1.4.2010 Firm shall include LLP Partner shall include a partner of a LLP Partnership shall include a LLP 35DDA: Amortisation of expenditure Amortisation of expenditure incurred under voluntary retirement incurred under voluntary retirement scheme will continue to apply in case where a company* is converted scheme: 1.4.2011 into a LLP satisfying all the six conditions laid down in the proviso to Section 47(xiiib) Explanation 13 to Section 43(1): The actual cost of any capital asset on which deduction has been Definitions of certain terms relevant allowed or is allowable under Section 35AD, shall be treated as NIL if to income from profit and gains of the capital asset is acquired by the LLP from company* on conversion business or profession : 1.4.2011 satisfying all the six conditions laid down in the proviso to Section 47(xiiib). Explanation 2C to Section 43(6): The actual cost of block of assets in case of a LLP shall be WDV of Definitions of certain terms relevant the block of assets as in the case of the company* on the date of to income from profit and gains of conversion, if such assets are acquired by the LLP from company* on business or profession: 1.4.2011 conversion satisfying all the six conditions laid down in the proviso to Section 47 (xiiib) 44AD: special provision for computing Unlike partnership firm, an LLP cannot claim presumptive taxation profits and gains of business on scheme under this section. However, companies are also not eligible presumptive basis: 1.4.2011 under this section. 47(xiiib): Transactions not regarded Capital Gain need not to be worked out on the following transfers, if as transfer: 1.4.2011 such transfers take place as a result of conversion of company* into LLP in accordance with the provisions of Section 56 or 57, as the case may be, of LLP Act, 2008 and on satisfaction of all the six conditions laid down in the proviso to this clause: ▪ Transfer of a capital asset or intangible asset by the company* to LLP ▪ Transfer of share(s) held in the said company* by a shareholder as a result of such conversion. 47A: Withdrawal of exemption in If any of the conditions laid down in the proviso to Section 47(xiiib) are certain cases: 1.4.2011 violated subsequently, capital gain not charged previously shall be chargeable to tax in the hands of LLP (successor) or the shareholder of the predecessor company, as the case may be, in the previous year in which such violation takes place. 49(1)(iii)(e): Cost with reference Where a company* is succeeded by an LLP satisfying all the six to certain modes of acquisition: conditions laid down in the proviso to Section 47(xiiib), cost of 1.4.2011 acquisition of the asset shall be deemed to be the cost for which the predecessor company* acquired it, as increased by the cost of any improvement incurred or borne by predecessor or the successor as the case may be. THE CHARTERED ACCOUNTANT NOVEMbEr 2011 79
    • TAXATION 736 Section : Marginal Note : Applicable Summarised Provisions with effect from 72A(6A), (7): Provisions relating Where a company* is succeeded by an LLP satisfying all the six to carry forward and set-off conditions laid down in the proviso to Section 47(xiiib), then the loss of accumulated loss and unab- not being a loss sustained in a speculation business, which such sorbed depreciation allowance in predecessor company* would have been entitled to be carried forward amalgamation or demerger, etc.: and set-off under Section 72 if the conversion had not taken place, and 1.4.2011 the unabsorbed depreciation of the predecessor company*, shall be deemed to be the loss or allowance for depreciation of the successor LLP for the purpose of the previous year in which conversion has taken place and other provisions relating to set off and carry forward of loss and unabsorbed depreciation shall apply accordingly. If any of the conditions laid down in the proviso to Section 47(xiiib) are violated subsequently, the set off of loss or allowance for depreciation made in any previous year in the hands of successor LLP shall be , deemed to be the income of the LLP in the year in which violation takes place. 115JAA(7): Tax credit in respect of By virtue of conversion of a company* into LLP MAT Credit which would , tax paid on deemed income relating have been available to the predecessor company* if the conversion to certain companies: 1.4.2011 had not taken place, shall lapse and not be available to the successor LLP. 140: Return by whom to be signed: Return of income of the LLP shall be signed by the designated partner 1.4.2010 of the LLP or where for any unavoidable reason such designated , partner is not able to sign and verify the return by any partner thereof. 167C: Liability of partners of limited Where any tax is due and cannot be recovered from the following, liability partnership in liquidation: in such case, every person who was a partner of the LLP at any time 1.4.2010 during the relevant previous year, shall be jointly and severally liable for the payment of such tax unless he proves that the non-recovery cannot be attributed to any gross neglect, misfeasance or breach of duty on his part in relation to the affairs of the LLP: 1. LLP - in respect of any income of any previous year, or 2. any other person - in respect of any income of any previous year during which such other person was an LLP* Unlisted Public Company or Private Company In addition to above, Finance Act, 2010 clarified that Now, LLPs are liable to pay Alternate Minimum Taxconversion of partnership firm into LLP shall have no (hereinafter referred to as ‘AMT’), akin to MAT in casetax implications subject to the rights and obligations of company and thus one of the advantages has beenof the partners remaining the same after conversion, taken away to some extent.and if there is no transfer of any asset or liability, afterconversion. Reasons for introduction of new Chapter XII-BA The economic rationale to impose AMT is to take awayBenefits Available to LLP Over Companies the arbitrage that has been used by some corporateAn LLP being treated as a firm for taxation has the for saving tax. Since Income-tax Act,1961 provides taxfollowing tax advantages over a company under the neutrality [subject to fulfillment of six conditions laidIncome-tax Act, 1961: down in the proviso to Section 47(xiiib)] to conversion(i) LLP is not subject to Dividend Distribution Tax; of a private limited company or an unlisted public(ii) LLP is not subject to MAT; and company into an LLP there was a scope of tax saving ,(iii) LLP is not subject to surcharge. for the corporate bodies falling under the MAT net. In 80 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • 737 TAXATIONorder to preserve the tax base vis-à-vis profit-linked income tax provisions in normal course, that is, beforedeductions, new Chapter XII-BA has been inserted in giving effect any of the provisions of the Chapter XII-the Income-tax Act, 1961, containing special provisions BA, as increased by -relating to certain LLP However, the said provisions . (i) Deductions claimed, if any, under any Sectionshall have effect only on LLPs claiming deduction under included in Chapter VI-A under the heading "C -Chapter VI-A (C), that is, income based deductions or Deductions in respect of certain incomes" (Sectionunder Section 10AA (deduction available to SEZ units) 80HH to 80RRB); andand not to all LLPs in general. (ii) Deduction claimed, if any, under Section 10AA in respect of SEZ units.CommencementThe new Chapter has been made operative from C. Income Based Deductions1.4.2012 and will, accordingly, apply in relation to the Income based deductions given under Chapter VI-Aassessment year 2012-2013 and subsequent years. (C), which are applicable on LLPs, are tabulated here-Hence, there will be no AMT levy in the assessment in-under:year 2011-2012. Section: Marginal Applicability on projects Note in respect of LLPApplicabilitySince the method given for computation of ‘Adjusted 80IA: Deductions in 1. Undertaking whichTotal Income’ does not add back all the deductions respect of profits and develops, develops andclaimed by an LLP into its Total Income, but only gains from industrial operates or maintainsincome based deductions given under Chapter undertakings or ent- and operates anVI-A (C) or under Section 10AA. Therefore, proposed erprises engaged in industrial park; orprovisions of AMT shall only affect the LLP claiming infrastructure deve- 2. Undertaking which is setany of these deductions. lopment, etc. up for generation and distribution of power,New Chapter XII-BA etc.The Finance Act, 2011 seeks to tax certain LLPs 80IAB: Deductions Undertaking engaged indifferently. New Chapter XII-BA titled ‘Special Provisions in respect of profits development of SEZ.Relating to Certain Limited Liability Partnerships’ and gains by ancontains four sections, viz. - undertaking or enter- S l . Section Marginal Note prise engaged in No. development of 1. 115 JC Special provisions for payment special economic of tax by certain limited liability zone partnerships 80IB: Deduction in 1. Industrial undertaking in 2. 115 JD Tax credit for alternate minimum respect of profits the state of Jammu & tax and gains from Kashmir; or certain industrial 2. Undertaking engaged in 3. 115 JE Application of other provisions of undertakings other commercial production this Act than infrastructure or refining of mineral 4. 115 JF Interpretation in this chapter development under- oil or engaged in takings. commercial productionAnalysis of New Chapter of natural gas; orA. Regular Income Tax: 3. Undertaking engaged inAs defined under Section. 115JF(d) regular income-tax processing, preservationis the tax payable by an LLP on its total income for a and packaging of fruitsprevious year in accordance with the normal provisions or vegetables or meatof the Income-tax Act, 1961 (i.e. before giving effect any and meat productsof the provisions of the Chapter XII-BA). or poultry or marine or dairy products orB. Adjusted Total Income handling, storage andAdjusted total income as specified under Section transportation of food-115JC (2) shall be the total income of the LLP as per grains; or THE CHARTERED ACCOUNTANT NOVEMbEr 2011 81
    • TAXATION 738Section: Marginal Applicability on projects Rest of the deductions given under Chapter VI-A (C) areNote in respect of LLP either omitted or made inoperative by sunset clause or not applicable on LLP or irrelevant due to applicability 4. Undertaking engaged on old projects. in operating and maintaining a hospital D. Alternate Minimum Tax: located anywhere in As defined under Section 115JF(b) AMT is the tax India, other than the computed on adjusted total income by applying 18.5% excluded area. rate of tax. The effective rate of AMT after considering80IC: Special pro- Undertaking or enterprise education cess will be 19.055%.visions in respect of engaged in manufacture orcertain undertakings production of certain article E. Determination of Adjusted Total Income and AMTor enterprises in or thing in Himachal Pradesh Total Income (as per normal provisions) ***certain special cate- or Uttaranchal. Add: Deductions under Sectiongory States 80HH to 80RRB or under Section 10AA *** ------------80ID: Deduction in 1. Undertaking engaged Adjusted Total Income ***respect of profits and in the business of hotel ------------gains from business of of two-star, three-star AMT (18.5% of Adjusted Total Income) ***hotels and convention or four-star category ------------centres in specified located in the specifiedarea area or specified district F. Credit of AMT having a world heritage ▪ Meaning: Credit of AMT for an assessment year site; or which is to be allowed shall be the excess of the 2. Undertaking engaged in AMT paid over the regular income tax. the business of building, ▪ Set off and Carry Forward owning and operating ▫ The amount of tax credit determined shall be a convention centre, allowed to carry forward and set-off. Such located in the specified carry forward shall be allowed up to the 10th area. assessment year immediately succeeding the80IE: Special pro- Undertaking in any of the assessment year for which tax credit becomesvisions in respect of North-Eastern States - allowable.certain undertakings (i) Engaged in or undertake ▫ If in any assessment year regular incomein North-Eastern substantial expansion tax payable exceeds the AMT, the broughtstates to manufacture or forward credit of AMT shall be allowed to be production of any article set off to the extent of the such excess of or thing excluding article regular income tax over the AMT and the or thing specified under balance of the tax credit, if any, shall be carried Section 80IE(7)(iv); or forward for the rest of the years. (ii) Carry on any of the ▫ Thus, AMT paid could be adjusted in 10 businesses specified following assessment years – but no refund under Section 80IE(7) is possible. If the assessee fails to utilise (v). credit within 10 years, the same shall lapse. No interest is allowable on AMT credit to the80JJA: Deduction in Business of collecting and assessee.respect of profits and processing or treating ▫ If the amount of regular income tax or thegains from business of bio-degradable waste AMT is reduced or increased as a result ofof collecting and for generating power or any order passed under this Act, the amount ofprocessing of bio- producing bio-fertilisers, bio- tax credit allowed under this Section shall alsodegradable waste. pesticides or other biological be varied accordingly. agents or for producing bio- gas or making pellets or G. Determination of Tax Liability of LLP briquettes for fuel or organic ▪ LLP on which the new chapter applies shall work manure. out its regular income tax and AMT every year.82 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • 739 TAXATION▪ Where the regular income tax payable for a previous there are certain differences between AMT provisions year by any LLP is less than the AMT payable for and MAT provisions. Comparative study for the same such previous year, LLP shall be liable to pay such is as under:- AMT. Sl. AMT MAT▪ Every LLP liable to pay AMT shall obtain a report, No. from a chartered accountant in prescribed form, certifying that the adjusted total income and the 1. It is applicable on It is applicable on AMT have been computed in accordance with the LLP . Companies. provisions of this Chapter and furnish such report 2. It is calculated It is calculated on Book on or before the due date of filing return of income on Adjusted Total Profit. under Section 139(1). Income.▪ Where the regular income tax payable for a previous 3. Adjusted total in- Book Profit means the year by any LLP is more than the AMT payable for come means the profit as per profit and such previous year, LLP shall be liable to pay such total income as loss account of the regular income tax after setting off credit of AMT, if per income tax company prepared any, there from. provisions in normal in accordance with course as increa- Schedule VI of theH. Advance Tax Liability on AMT Paying LLP: sed by deductions Companies Act, 1956Section 115JE claimed, if any, as increased/decrea-▪ Section 115JE states that unless otherwise provided under Chapter sed by certain items in the Income-tax Act, 1961, all other provisions of VI-A (C) or Section specified in Explanation the Act shall apply to an AMT paying LLP Section . 10AA. to Section 115JB. 115JE is on the same line as Section 115JB(5) for the MAT paying companies. 4. Rate of AMT is Rate of MAT is 18.5%.▪ Supreme Court held in Jt. CIT Vs. Rolta India Ltd. 18.5%. However, However, surcharge (2011) 330 ITR 470 (SC) while deciding question surcharge shall shall apply, if book profit as to whether interest under Section 234B can be not be appli- exceeds one crore charged on the tax calculated on the Book Profit – cable, irrespective rupees. of the quantum “It is clear from reading Sections 115JA and 115JB of adjusted total that the question whether a company which is liable income. to pay tax under either provision does not assume 5. AMT paying LLP MAT paying companies importance because specific provision(s) is made can claim its credit can claim their credit for in the section saying that all other provisions of for ten assessment ten assessment years. the Act shall apply to the MAT company (Section years. 115JA(4) and Section 115JB(5)). 6. Change in con- Once an LLP is stitution, that is, incorporated there is no The evaluation of current income and the conversion of priv- “u turn” available down determination of the assessed income had to be ate limited com- the road to reconvert made in terms of the statutory scheme comprising pany or unlisted back into a partnership Section 115J/115JA of the Act. Hence, levying of public company or a company or any interest was inescapable. The assessee was bound into LLP shall result other form of business to pay advance tax under the said scheme of in lapse of MAT from LLP Therefore, . the Act.” credit which would issue of lapse of AMT have been available credit in case of change▪ Ratios laid down in the above case is equally to be set off to the in constitution does not applicable on AMT paying LLP and thus such an company if such arise. LLP shall be liable to pay advance tax as per the conversion had not provisions of the Act. It shall also be liable to pay taken place. interest under Sections 234B and 234C in the case of default. 7. LLP will not be Companies are liable to liable to pay AMT pay MAT on the incomeAMT v. MAT on incomes exempt exempted under SectionThough the concept of AMT is similar to MAT, however, to tax. 10(38). THE CHARTERED ACCOUNTANT NOVEMbEr 2011 83
    • TAXATION 740 TSl. AMT MAT hough the concept of AMT isNo. similar to MAT, however, there are certain differences between AMT8. While computing While computing provisions and MAT provisions. AMT, brought MAT, what is allow- AMT is applicable on LLP while forward losses able to be deducted MAT is applicable on Companies. AMT is and unabsorbed is brought forward depreciation both loss or unabsorbed calculated on Adjusted Total Income while MAT shall be taken into depreciation whichever is calculated on Book Profit. account. is less and not both. to reduce the amount on which interest is to be [DCIT Vs. Costal Resorts charged by the amount of tax credit, if any, allowed (I) Ltd. (2010) 125 ITD to be set off in accordance with the provisions of 170 (Cochin)] Section 115JD.9. For the calculation For the calculation of ▪ If the company is converted into an LLP MAT credit , of AMT brought MAT brought forward which would have been available to be set-off to forward loss loss and unabsorbed the company if such conversion had not taken and unabsorbed depreciation liable to place shall lapse due to specific provision in this depreciation liable be set off shall be in regard under Section 115JAA (7). However, these to be set-off shall be accordance with books provisions were made when there was no AMT levy in accordance with of account. on LLP As of now, AMT paying LLP (successor . normal provisions LLP) shall be hit by both, lapse of MAT in one hand of the Income-tax and payment of AMT on the other. Such a provision Act, 1961. shall discourage the companies to be converted into LLP .10. Such set-off of loss- Such set off of losses ▪ There are provisions under the Income-tax Act, 1961 es or depreciation or depreciation shall for continuation of deductions/exemptions under shall reduce the not affect the amount Chapters III or VI-A, if companies are amalgamated amount of loss or of loss or depreciation or demerged. But if a company is converted into an depreciation to be to be carried forward in LLP there are no such provisions. , carried forward in next year. ▪ There are certain provisions under LLP Act, 2008 next year. in pursuant to which LLP can opt for amalgamation or demerger, etc. There are detailed provisions11. Deductions, reb- Deductions, rebates, under Income-tax Act, 1961 providing tax neutrality ates, allowances allowances and adjus- to amalgamation or demerger of companies, both and adjustments ex- tments except to the in the hands of companies and in the hands of cept that provided extent covered by the shareholders. However, provisions providing tax in Chapter VI-A Explanation to Section neutrality to amalgamation or demerger of LLPs in under the heading 115JB are not available the same way are still awaited. "C - Deductions in in computation of Book respect of certain Profit. Conclusion incomes" and [Growth Avenue Secu- LLPs that are engaged in hotel business or are carrying Section 10AA rities (P Ltd. Vs. DCIT .) on IT related business or are otherwise eligible for profit are available in (2010) 126 ITD 179 linked deductions will be badly hit by the applicability computing Adjus- (Del.)] of AMT, as till now they were exempt from payment ted Total Income. of MAT but they will have to shell out AMT from their pockets. It is clear that Government’s intention to bringSerious Consideration of Lawmakers Required this amendment is to protect revenue which would▪ Amount on which interest is to be computed otherwise have to be foregone in cases of conversion under Sections 234A, 234B and 234C is reduced, of companies into LLPs. Imposition of AMT may be besides other, by the amount of tax credit allowed justified on the theory – to be set off in accordance with the provisions of Section 115JAA. After insertion of new Chapter “Legislation should not give tax advantage to a tax XII-BA, it is recommended to amend Sections assessee, just because he carries out his business 234A, 234B and 234C so as to allow the assessee using a different form of organisation.” n 84 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • 741 INTERNATIONAL TAXATIONSpecial Measures in Respect ofTransactions with Persons Located inNotified Jurisdictional AreaThe Central Government may, having regard to the lack of effective exchange of information with any countryor territory outside India, specify by notification in the Official Gazette such country or territory as a notifiedjurisdictional area in relation to transactions entered into by any assessee. This article analyses special measures inrespect of transactions with persons located in Notified Jurisdictional Area with reference to Section 94A, which hasbeen inserted by Finance Act, 2011 with effect from 1st June, 2011. It would apply to resident as well as non-residentassessee. Hence, if a PE of a non-resident in India enters into a transaction with a party in notified jurisdictional area,then it could be subject to the transfer pricing provisions. Read on to know more… Section 94A, Inserted by Finance Act 2011 w.e.f 1.6.2011 (1) The Central Government may, having regard to the lack of effective exchange of information with any country or territory outside India, specify by notification in the Official Gazette, such country or territory as a Notified Jurisdictional Area (NJA) in relation to transactions entered into by any assessee.  Comments CA. Thakur Repudaman A) Applicability to Non-Residents: The Memorandum (The author is a member of the ICAI. He can be reached states that the provisions have been enacted to at eboard@icai.org) discourage transactions of a resident assessee THE CHARTERED ACCOUNTANT NOVEMbEr 2011 85
    • INTERNATIONAL TAXATION 742 N with persons located in NJA. However, this is not otwithstanding anything to the borne out from the language of the provision – contrary contained in this Act, “entered into by any assessee.” On a literal reading if an assessee enters into a of the term “any assessee,” it is apparent that it transaction where one of the would apply to resident as well as non-resident parties to the transaction is a assessee. Hence, if a PE of a non-resident in India person located in a notified jurisdictional area, enters into a transaction with a party in notified then all the parties to the transaction shall be jurisdictional area, then it could be subject to the deemed to be associated enterprises within the transfer pricing provisions. As per Section 94A(6) meaning of Section 92A. (ii): PE : “Permanent Establishment” shall have the same meaning as defined in Section 92F(iiia); and the provisions of Sections 92, 92A, 92B,B) Pre-Conditions for Applicability: The section is 92C [except the second proviso to sub-Section applicable only if the following pre-conditions are (2)], 92CA, 92CB, 92D, 92E and 92F shall apply fulfilled: accordingly.i) There is a country or territory outside India with  Comments whom India does not have effective exchange of A) If the aforesaid pre-conditions, supra, are fulfilled, information on taxation matters; then:ii) Such country/area is a specified by notification in i) All the parties to the transaction shall be deemed the Official Gazette as a NJA, having regard to the to be associated enterprises within the meaning of lack of effective exchange of information with such Section 92A: [Section 94A(2)(i)]. In other words, country or territory. once a transaction is entered into by an assesseeiii) An assessee enters into a transaction where one with a person located in NJA, all the parties to of the parties to the transaction is a person located the transaction shall be deemed to be associated in NJA. enterprise, notwithstanding non-satisfaction of anyC) Whether a Country with Whom India Has a DTAA condition in Section 92A. Can Be Notified under Section 94A? ‛Effective’ ii) The transaction as defined in Section 94A(2) has been defined as ‘existing in fact; actual’ (www. (ii) shall be deemed to be an international thefreedictionary.com). Hence, what is required is transaction within the meaning of Section 92B; actual exchange of information in fact, with a treaty  Section 94A(6)(iii) : “transaction” shall have the country and not a merely contractual legal ability same meaning as defined in Section 92F(v) to obtain information. In view of this, on a literal  Section 92F(v) “transaction” includes an reading, a DTAA country could also be notified, if arrangement, understanding or action in there is lack of effective exchange of information. concert,—(2) Notwithstanding anything to the contrary contained (a) whether or not such arrangement, in this Act, if an assessee enters into a transaction understanding or action is formal or in where one of the parties to the transaction is a writing; or person located in a notified jurisdictional area, (b) whether or not such arrangement, then— understanding or action is intended to be (i) all the parties to the transaction shall be deemed enforceable by legal proceeding. to be associated enterprises within the meaning iii) The provisions of Sections 92, 92A, 92B, 92C of Section 92A; [except the second proviso to sub-Section (2)], (ii) any transaction in the nature of purchase, sale 92CA, 92CB, 92D, 92E and 92F shall apply to or lease of tangible or intangible property or such transaction, and accordingly, the income provision of service or lending or borrowing or expenditure, as the case may be, shall be money or any other transaction having a computed having regard to the ALP Hence, the . bearing on the profits, income, losses or assets principles laid down by courts/tribunals under the of the assessee, including a mutual agreement aforesaid provisions and the principles of Transfer or arrangement for allocation or apportionment Pricing should equally apply to Section 94A. of, or any contribution to, any cost or expense incurred or to be incurred in connection with Some of the above referred provisions are briefly a benefit, service or facility provided or to be summarised below: provided by or to the assessee, shall be deemed I) Deemed international transaction under Section to be an international transaction within the 92B(2): whether covered under Section94A? meaning of Section 92B, Section 92B(2) deems transactions between an 86 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • 743 INTERNATIONAL TAXATION enterprise and a person other than associated accordingly’. Thus, the applicability of Section 92B enterprise as transaction entered into between is in relation to a transaction between the assessee two associated enterprises, if any of the following and a person located in NJA. It is not meant to circumstances exist: apply in relation to a transaction with a person noti) there exists a prior agreement in relation to the in NJA. relevant transaction between such other person d) Section 297(2)(d) states that ‘all the provisions and the associated enterprise; or of this Act shall apply accordingly’. Interpretingii) the terms of the relevant transaction are determined this, it was observed in Govinddas Vs. ITO (1976) in substance between such other person and the 103 ITR 123(SC) that these words merely refer associated enterprise. to the machinery provided in the new Act for the An issue arises as to whether a transaction with a Assessment of the escaped income. They dothird party outside the NJA could also be covered, if not import any substantive provision of the newthe conditions of Section 92B(2) are satisfied? Answer Act which creates rights or liabilities. It could beis No for the following reasons: argued that in the same way, Section 94A cannota) Section 94A(2) applies only to a transaction between be construed to result in any substantive provision the assessee and a person located in NJA. creating new liabilities.b) In the context of Section 176(4), which uses the e) If the language is plain, the fact that the consequence expression “accordingly”, it was observed in CIT Vs. of giving effect to it may lead to some absurd result R.M. Datta (1989) 180 ITR 86 (Cal.) that the fiction is not a factor to be taken into account in interpreting introduced by Section 176(4) of the Act cannot be a provision. It is for the legislature to step in and pressed into service as indicative of the head of remove the absurdity. On the other hand, if two charge, namely, whether it should be treated as the reasonable constructions of a taxing provision income of the business or profession chargeable are possible, that construction which favours the under Section 28 of the Act. In the absence of assessee must be adopted. This is a well-accepted any such fiction, it cannot be presumed that the rule of construction recognised by this court in legislative intention was to introduce a further several of its decisions - CIT Vs. Vegetable Products fiction for the purpose of treating the said receipt as Ltd. (1973) 88 ITR 192 (SC). the income of the business or profession. In the same way, the deeming fiction under Section II) No Relief for Prescribed Variation 92B(2) cannot be further imported in Section 94A(2) The second provision to Section 92C(2) provides (which itself is a deeming provision) to consider two that if the variation between the actual price of enterprises as associated enterprises, although transaction and the ALP does not exceed such they are otherwise non-associated. percentage as may be notified by the Centralc) Further, Section 94A(2) provides that if an assessee Government in this behalf, then no adjustment will enters into a transaction with a person located be made and the actual price shall be treated as in NJA, then the parties shall be deemed to be the ALP This provision is not applicable in the case . associated enterprises, the transaction shall be of a transaction falling under Section 94A. As a deemed to be international transaction and the consequence, the ALP shall be considered as the provisions, inter alia, of Section 92B ‘shall apply expenditure or income, as the case may be. S III) Maintenance of Information and Documentation ection 94A(2) provides that if an All the parties to a transaction covered under assessee enters into a transaction Section 94A will be required to maintain information with a person located in NJA, and documentation in accordance to Section 92D then the parties shall be deemed and the prescribed rules. to be associated enterprises, the IV) Accountant’s Reporttransaction shall be deemed to be international All the parties to a transaction covered undertransaction and the provisions, inter alia, of Section 94A will have to obtain a report from anSection 92B ‘shall apply accordingly’. Thus, accountant in terms of Section 92E.the applicability of Section 92B is in relation V) Non-Applicability to Past Transactionto a transaction between the assessee and a The provision states that it is applicable only if anperson located in NJA. It is not meant to apply assessee “enters” into a transaction with a personin relation to a transaction with a person not who is located in NJA. The use of the presentin NJA. tense in the word “enters” and “is” suggests that the provision should apply to a transaction after THE CHARTERED ACCOUNTANT NOVEMbEr 2011 87
    • INTERNATIONAL TAXATION 744 1-6-2011 and after the jurisdictional area is notified. definition. He will, of course, have to establish that he is not having a permanent establishmentB) As per Section 94A(6)(i), “person located in a and/or is not established in the NJA and he is notified jurisdictional area” shall include — not otherwise ‘located’ in the NJA. The definition (a) a person who is resident of the notified does not cover subsidiaries or affiliates or holding jurisdictional area. The term resident has not company of such persons if they do not satisfy been defined. Generally speaking, a person, the definition. To illustrate, a holding company who is regarded as a resident under the of an entity in an NJA will not be covered if it is domestic tax law of an NJA, would be regarded incorporated in some other country or territory as a resident for the purposes of Section 94A. and it is not a resident of the NJA or does not (b) a person, not being an individual, which is have a PE in such area or cannot be otherwise established in the notified jurisdictional area; or regarded as located in NJA. (c) a permanent establishment of a person not falling in sub-clause (a) or sub-clause (b), in Example the notified jurisdictional area. Practically, a X Ltd., an Indian company, owns a computer certificate from the Tax Authorities of NJA to the manufacturing unit in Noida. During the quarter ending effect that a particular person is not its resident 31st December, 2011, it sells 500 units to P Ltd. and may be helpful in establishing that such a 600 units to Q Ltd. The following data is noted from the person is not a resident for the purposes of the records of X Ltd. – Transaction with P Ltd. Q Ltd. Where P Ltd. and Q Ltd. are situated NJA Non-NJA Status of P Ltd./Q Ltd. Not an associated An associated enterprise enterprise of X Ltd. of X Ltd. under Section under Section 92A 92A Sale price or transaction price R67,000 per unit R66,800 per unit ALP under Section 92C R69,000 per unit R69,000 per unit Variation notified by the Central Government between 4% of transaction price 4% of transaction price Arm’s Length Price and the transaction price under second proviso to Section 92C(2) [Assumed for the purpose of this case study] Transaction price + variation R69,680 per unit R69,472 per unit [67,000 + 4%x 67,000] Difference between ALP and transaction price R2,000 per unit R2,200 per unit Notified variation, i.e., 4% of transaction price R2,680 per unit R2,672 per unit Whether difference between ALP and transaction price No No exceeds notified variation, i.e., 4% Whether ALP will be considered for calculating income ALP would be Not to be considered of X Ltd. considered  Comments be ignored (and income will be calculated by P Ltd. is situated in NJA. Consequently, P Ltd. will considering the actual transaction price of R66,800be treated as “Associated Enterprise” of X Ltd. In the per unit), as the difference between transaction pricecase of sale of 500 units to P Ltd., ALP of R69,000 per and ALP does not exceed the notified variation of 4%unit will be considered to determine the taxable income and Q Ltd. is not situated in an NJA.of X Ltd., as P Ltd. is situated in a NJA, even if thedifference between the ALP and transaction price does (3) Notwithstanding anything to the contrary containednot exceed the notified variation of 4%. However, in the in this Act, no deduction,—case of sale of 600 units to Q Ltd., ALP of R69,000 will (a) in respect of any payment made to any financial 88 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • 745 INTERNATIONAL TAXATION institution located in a notified jurisdictional area 94A(3)(a), a deduction in respect of any payment shall be allowed under this Act, unless the assessee made to any financial institution shall be allowed: furnishes an authorisation in the prescribed form i) only to the extent of the ALP; and authorising the Board or any other income-tax ii) only if the assessee has furnished the stipulated authority acting on its behalf to seek relevant authorisation. information from the said financial institution on There is no prescribed time limit within which the behalf of such assessee; and authorisation has to be furnished.(b) in respect of any other expenditure or allowance  What would happen if the law of NJA stipulates (including depreciation) arising from the transaction that the application for such information has to with a person located in a notified jurisdictional be made by the assessee himself and a general area shall be allowed under any other provision of authorisation will not do? this Act, unless the assessee maintains such other It appears that so far as the assessee is concerned, documents and furnishes such information as may he would be complying with the condition in the section be prescribed, in this regard. once he furnishes the authorisation; the deduction cannot be denied to him if the laws of NJA do not  Comments allow such information to be given on the basis of an authorisation.A) Deduction: The section classifies all deductions  Payment: The section provides for deduction in into the following: respect of any “payment” made to any financial i) Payments made to financial institution. institution. It appears that in the context the word ii) Any other expenditure or allowance ‘payment made’ would include ‘payment to be made’ and the deduction will not be allowedB) Payments Made to Financial Institution: On a in respect of amounts payable to a financial combined reading of Section 94A(2) and Section institution, unless the conditions of the section are satisfied. Further, the use of the term “allowed” suggests that the payment should result in deductible expenditure before the section could be applied. Finally, the payment should be made to a financial institution for its own benefit. To illustrate, if a payment is made to a bank in an NJA on behalf of a party which is not a person located in NJA, such a payment could not be subject to disallowance under this provision.  Deduction for Other Expenditure or Allowance On a combined reading of Section 94A(2) and Section 94A(3)(b), a deduction in respect of any expenditure or allowance (other than payment to a financial institution) shall be allowed: i) only to the extent of the ALP; and T he second proviso to Section ii) only if the assessee maintains the prescribed 92C(2) provides that, if the documentation and furnishes the prescribed variation between the actual price information. of transaction and the ALP does The documents required to be maintained and the information required to be furnished could be in not exceed such percentage as addition to information/documentation required to bemay be notified by the Central Government in maintained under Section 92D.this behalf, then no adjustment will be made There is no time limit for maintenance of theand the actual price shall be treated as the ALP . documents or within which the information has to beThis provision is not applicable in the case of furnished.a transaction falling under Section 94A. As a The provision applies to all expenditure including (a)consequence, the ALP shall be considered capital expenditure and (b) salaries. Thus, depreciationas the expenditure or income, as the case will be allowed only if the conditions in the said sectionmay be. are fulfilled. THE CHARTERED ACCOUNTANT NOVEMbEr 2011 89
    • INTERNATIONAL TAXATION 746 SExample: ection 94A(4) provides that if anX Ltd. pays a sum of R10, 00,000 as technical fees to assessee has received or creditedB, a non-resident. B is resident of NJA. Technical fees any sum from any person locatedpertains to a project of X Ltd. situated in Nasik. In this in NJA, the assessee shall offercase: explanation about the source ofa) X Ltd. will have to maintain documents prescribed the said sum in the hands of such person or under Section 94A(3)(b). Moreover, X Ltd. will have in the hands of the beneficial owner (if that to furnish prescribed information. If such documents person is not the beneficial person of the are not maintained and/or prescribed information owned sum). If the assessee does not offer any is not furnished, the payment of technical fees of explanation or the explanation offered by him is R10,00,000 will not be allowed as deduction. not satisfactory, in the opinion of the Assessingb) X Ltd. will have to deduct tax at source @ 30% by Officer, then such sum shall be deemed to be virtue of Section195, read with Section 94A(5). If tax the income of the assessee for that previous is deducted at the normal rate of 10.3% or if tax is not deducted or after deduction tax is not deposited, year. the payment of R10,00,000 will be disallowed under Section 40(a)(i). Debentures are allotted in June, 2011. One of(4) Notwithstanding anything to the contrary contained the debenture holders is P Ltd., which is situated in this Act, where, in any previous year, the assessee in a NJA and holds debentures of face value of has received or credited any sum from any person R5 crore. located in a notified jurisdictional area and the In this case, X Ltd. will have to offer an explanation assessee does not offer any explanation about the about the source of R5 crore in the hands of P Ltd. source of the said sum in the hands of such person If no such explanation is offered or the explanation or in the hands of the beneficial owner (if such offered by X Ltd., in the opinion of the Assessing person is not the beneficial owner of the said sum) Officer, is not satisfactory, then R5 crore will be deemed or the explanation offered by the assessee, in the as income of X Ltd. for the previous year 2011-2012. opinion of the Assessing Officer, is not satisfactory, Moreover, in respect of interest payable to P Ltd., X Ltd. then, such sum shall be deemed to be the income will have to maintain notified documents and furnish of the assessee for that previous year. such information to the Assessing Officer (otherwise  Comments payment of interest will not be allowed as deduction). On payment of interest to P Ltd., X Ltd. will have toA) Income: Section 94A(4) provides that if an assessee deduct tax @ 30%. has received or credited any sum from any person B) Deeming Consequences: The deeming located in NJA, the assessee shall offer explanation consequence is mandatory and once the assessee about the source of the said sum in the hands of does not offer an explanation or his explanation such person or in the hands of the beneficial owner is not satisfactory, the Assessing Officer has no (if that person is not the beneficial person of the discretion but to deem the sum as income. This is owned sum). If the assessee does not offer any unlike Section 68/Section 69 where the Assessing explanation or the explanation offered by him is not Officer has a discretion and even if the assessee satisfactory in the opinion of the Assessing Officer, does not provide an explanation, or provides then such sum shall be deemed to be the income unsatisfactory explanation, it is not mandatory for of the assessee for that previous year. the Assessing Officer to make an addition – CIT Vs. Smt. P Noorjahan (1999) 237 ITR 570 (SC). .K.Examples  The assessees offer no explanation (CIT Vs.i) If an assessee receives share capital of R100 P Mohanakala (2007) 291 ITR 278 (SC) . million from ‘X’ a person located in NJA, then The expression "the assessees offer no explanation" the assessee has to give an explanation about means where the assessees offer no proper, reasonable the source of the said sum of R100 million in the and acceptable explanation as regards the sums found hands of ‘X’. Further, if ‘Y’ and not ‘X’ is a beneficial credited in the books maintained by the assessees. owner, then the assessee has to give an explanation However, It is true that the opinion of the Assessing about the source of the said sum of R100 million Officer for not accepting the explanation offered by the in the hands of ‘Y’. assessees as not satisfactory is required to be basedii) On 31st May, 2011, X Ltd. announces public issue on proper appreciation of material and other attending of 11% debentures aggregating to R500 crore. circumstances available on record. The opinion of the 90 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • 747 INTERNATIONAL TAXATIONAssessing Officer is required to be formed objectively As per ACIT Vs. Bhaumik Colour (P) Ltd. (2009) 118 ITDwith reference to the material available on record. 1 (Mum. – ITAT), A trustee is not a beneficial owner ofApplication of mind is the sine qua non for forming the shares.opinion.C) Source of Source: The explanation is required F) Opinion of the Assessing Officer: about the source of the said sum in the hands of i) Subjective consideration Vs. Objective consid- the payer or in the hands of the beneficial owner. eration in decision making: Subjective considera- Thus, the assessee is required to explain ‘source of tion depends on the mood and leanings of the source’. This is unlike Section 68 where he can be decision maker. In objective consideration, personal asked to explain source of credit in his own books leanings have no place and the purpose and object of account but not ‘source of source’ – Tolaram of the particulars provision or relevant law is the Daga Vs. CIT (1966) 59 ITR 632 (Assam); Sarogi guiding factor. In this connection, Circular: No. Credit Corpn. Vs. CIT (1976) 103 ITR 344 (Pat.). 14(XL-35), dated 11-4-1955, instructing the staff isD) Capital Receipt: The Section applies to any sum as under: including share capital, loans, deposits, distribution “Officers of the Department must not take advantage by a trust to a beneficiary, etc. It would apply to of ignorance of an assessee as to his rights. It is sums which are otherwise capital receipts. one of their duties to assist a taxpayer in everyE) Beneficial Owner: Advance Ruling No. P-9 of reasonable way, particularly in the matter of claiming 1995, In Re. (1996) 220 ITR 377 (AAR): Generally, and securing reliefs and in this regard the Officers the terms beneficiary or beneficial owner are used should take the initiative in guiding a taxpayer to designate a person who benefits financially from where proceedings or other particulars before property held by another - such as by a trust. them indicate that some refund or relief is due to A beneficial owner is one who is free to decide him. This attitude would, in the long run, benefit the(1) whether or not the capital or other assets department for it would inspire confidence in himshould be used or made available for use by that he may be sure of getting a square deal fromothers or (2) on how the yields therefrom should be the departments.”used or (3) both. Further, in S.R. Koshti Vs. CIT (2005) 276 ITR 165 (Guj.), there is a word of caution. The authorities under the Act are under an obligation to act in accordance with law. Tax can be collected only as provided under the Act. If an assessee, under a mistake, misconception or on not being properly instructed, is over-assessed, the authorities under the Act are required to assist him and ensure that only legitimate taxes due are collected. This court, in an unreported decision in the case of Vinay Chandulal Satia Vs. N. O. Parekh, CIT, Special Civil D Application No. 622 of 1981, rendered on 20th iscretion means according to the August,1981, has laid down the approach that rules of reason and justice, not the authorities must adopt in such matters in the according to private opinion, but following terms: according to law and not humour. "The Supreme Court has observed in numerous It is not to be arbitrary, vague and decisions, including Ramlal Vs. Rewa Coalfieldsfanciful, but legal and regular to be exercised, Ltd., AIR 1962 SC 361; State of West Bengal Vs.not capriciously but on judicial grounds and for Administrator, Howrah Municipality, AIR 1972 SC 749, and Babhutmal Raichand Oswal Vs. Laxmibalsubstantial reasons. If an authority cast with R. Tarte, AIR 1975 SC 1297, that the State authoritiesa public duty of exercising discretion takes into should not raise technical pleas if the citizens haveaccount matters which the court considers to a lawful right and the lawful right is being deniedbe improper for guidance of the discretion, then to them merely on technical grounds. The Statein the eye of law, it is an improper authorities cannot adopt the attitude which privateexercise of the discretion. Inappropriate litigants might adopt."exercise of discretion is not an exercise of ii) Discretion means (Golam Momen Vs. DCIT(2002)discretion at all. 256 ITR 754(Cal.) THE CHARTERED ACCOUNTANT NOVEMbEr 2011 91
    • INTERNATIONAL TAXATION 748 N Discretion means according to the rules of reason otwithstanding anything contained and justice, not according to private opinion, but in any other provisions of this according to law and not humour. It is not to be Act, where any person located arbitrary, vague and fanciful, but legal and regular to be exercised, not capriciously but on judicial in a notified jurisdictional area grounds and for substantial reasons. If an authority is entitled to receive any sum or cast with a public duty of exercising discretion takes income or amount on which tax is deductible into account matters which the court considers to under Chapter XVII-B, the tax shall be deducted be improper for guidance of the discretion, then at the highest of the following rates, namely in the eye of law, it is an improper exercise of the (a) at the rate or rates in force; (b) at the rate discretion. Inappropriate exercise of discretion is specified in the relevant provisions of this Act; not an exercise of discretion at all. (c) at the rate of 30%.iii) No place for surmise, suspicions or probabilities As per CIT Vs. Daya Chand Jain Vaidya (1975) 98 (a) at the rate or rates in force; ITR 280 (All), mere rejection of good explanation (b) at the rate specified in the relevant provisions does not convert good proof into no proof. of this Act; In Sreelekha Banerjee and Others Vs. CIT (c) at the rate of 30%. (1963) 49 ITR 112 (SC), it was decided that  Comments the department cannot by merely rejecting unreasonably a good explanation, convert good “Rates in force” has been defined in Section 2(37A) of proof into no proof. the Act. It is well settled that an assessment made on However, it may be noted that the recipient would be conjectures and surmises would be void – CIT Vs. entitled to offer such income to tax at a lower rate. (1) Ms. Monica Oswal (2) Jawahar Lal Oswal (3) Ruchika Oswal (2004) 267 ITR 308 (P&H). Examples In Dhakeswari Cotton Mills Ltd. Vs. CIT [1954] a) Although a payment of royalty or fees for technical 26 ITR 775 (SC), Omar Salay Mohamed Sait Vs. services to a person located in NJA (with whom CIT [1959] 37 ITR 151 (SC) and Lalchand Bhagat India does not have a DTAA) will be subject to TDS Ambica Ram Vs. CIT [1959] 37 ITR 288 (SC), it has @ 30%, the recipient will be liable to tax at the rates clearly been held by the apex court that there must specified in Section 115A. be something more than mere suspicion in support b) On 15th September, 2011, X Ltd. borrows a sum of of an assessment and mere suspicion cannot take US$10 crore @ 6% p.a. from P Ltd., being situated the place of proof for the purpose of passing an in NJA. order of assessment. In this case, X Ltd. will have to offer an explanation about the source of US$10 crore in(5) Notwithstanding anything contained in any other the hands of P Ltd. If no explanation is offered provisions of this Act, where any person located in or if the explanation is not satisfactory in the a notified jurisdictional area is entitled to receive any opinion of the Assessing Officer, US$10 crore sum or income or amount on which tax is deductible (in equivalent Indian currency) will be added to under Chapter XVII-B, the tax shall be deducted at the income of X Ltd. for the previous year 2011- the highest of the following rates, namely:— 2012. Moreover, in respect of interest on loan 92 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • 749 INTERNATIONAL TAXATION payable to P Ltd., X Ltd. will have to maintain of the Assessing Officer, R50 crore will be added notified documents and furnish such information to the income of X Ltd. for the previous year 2011- to the Assessing Officer (otherwise payment of 2012. However, income of X Ltd. is exempt from interest will not be allowed as deduction). On tax under Section 10(47). Consequently, addition payment of interest to P Ltd., X Ltd. will have to of R50 crore in the hands of X Ltd. will not have deduct tax @ 30%. any impact. Moreover, in respect of interest on However, the provisions of Section 115A units payable to P Ltd., X Ltd. will have to maintain have not been amended and, consequently, in notified documents and furnish such information the hands of P Ltd. interest income will be taxable to the Assessing Officer (otherwise payment of under Section 115A(1)(a)(ii) @ 21.012% (i.e., 20% interest will not be allowed as deduction). As + SC + EC + SHEC). P Ltd. can claim refund of income of X Ltd. is exempt under Section 10(47), excess tax deducted by A Ltd. (along with interest) disallowance of interest will not have any tax from the Assessing Officer. effect. On payment of interest to P Ltd., X Ltd. willc) X Ltd. is incorporated on 1st June, 2011 and it have to deduct tax @ 30%. sets up an infrastructure debt fund in accordance However, a newly inserted clause (iia) in with prescribed guidelines notified by the Central Section 115A(1)(a) will be applicable in the hands of Government under Section 10(47). Units of face P Ltd.[such case is not excluded from the value of R50 crore are allotted to P Ltd., which is operation clause (iia)]. Consequently, interest situated in a NJA. income of P Ltd. will be taxable @ 5.253% [i.e., In this case, X Ltd. will have to have to offer 5% under Section 115A(1)(a)(iia) + SC + EC an explanation about the source of R50 crore in + SHEC)]. P Ltd. can claim refund of excess tax the hands of P Ltd. If no explanation is offered or deducted by X Ltd. (along with interest) from the if the explanation is not satisfactory in the opinion Assessing Officer. n THE CHARTERED ACCOUNTANT NOVEMbEr 2011 93
    • INTERNATIONAL TAXATION 750Attribution of Profits to PermanentEstablishment – The Indian ExperienceGlobalisation has created a controversy between the tax payers and tax authorities on the emergence of PermanentEstablishment (‘PE’) as well as the attribution of profits to PE. The PE concept is used in international taxation todetermine whether the particular income shall or shall not be taxed in the state from which the income originates.In a recent decision of Rolls Royce Singapore Pvt Ltd Vs. ADIT, the Delhi High Court, while dealing with the issue ofattribution of profits to PE, inter alia, held that the Transfer Pricing analysis to determine the “arm’s length” pricehas to be done by taking the “Functions, Assets used and Risk involved” (FAR) and in case the same has not beendone, the argument on ‘arm’s length’ price would not be acceptable. The purpose of this article is to highlight theimportance of complying with the arm’s length principle when remunerating the enterprise constituting the PE and theissues in relation to the same. However, readers would need to also analyse the taxability under the Income-tax Act,1961 (‘Act’) before arriving at a conclusion. Currently, the international tax correct interpretation of Article principles for attributing profits to 7 may result in double taxation a PE are provided in Article 7 of for such foreign entity. In a recent the OECD model tax treaty, which decision of Rolls Royce Singapore forms the basis of the extensive Pvt Ltd Vs. ADIT, the Delhi network of tax treaties between High Court, while dealing with OECD countries and also between the issue of attribution of profits several OECD and non-OECD to PE, inter alia, held that the Tran- countries. Variations in domestic sfer Pricing analysis to determine (Contributed by the Committee on Interna- tax laws regarding taxation of PEs the “arm’s length” price has to be tional Taxation of the ICAI. Comments can be sent to citax@icai.org) and lack of consensus as regards done by taking the “Functions, 94 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • 751 INTERNATIONAL TAXATION IAssets used and Risk involved” n a recent dispute over a period of years and(FAR) and in case the same has decision of Rolls there are various judicial preced-not been done, the argument on Royce Singapore ents which have tried to relate the‘arm’s length’ price would not be Pvt Ltd Vs. ADIT, attribution of profits and the arm’sacceptable. the Delhi High length principles. Accordingly, we Court, while dealing with the have discussed below some of theConcept of Attribution of Profits issue of attribution of profits decisions which have dealt with theUnder the provisions of the tax issue of profit attribution: to PE, inter alia, held that thetreaties, if a foreign enterprise carries Transfer Pricing analysis toon business in India through a PE, ▪ Rolls Royce Singapore Pte Ltd determine the “arm’s length”then the profits of such enterprise Vs. ADIT (Delhi High Court) price has to be done by takingmay be taxed in India but only somuch of them as are directly or the “Functions, Assets used Facts:indirectly attributable to such PE. and Risk involved” (FAR) and Rolls Royce Singapore Pte Ltd in case the same has not been (‘assessee’ or ‘RRSL’), a tax resident As per Article 7(2) of the OECD done, the argument on ‘arm’s of Singapore, was engaged in theModel Convention 2010, the profits length’ price would not be business of supply of spare partsto be attributed to the PE would be acceptable. for oil field equipment and renderingthe profits which the PE might be repairs/overhauling services ofexpected to make if it were a distinct certain equipment. Furthermore, theand separate enterprise engaged in assessee had obtained the servicesthe same or similar activities under of ANR Associates (ANR) in India,the same or similar conditions, which was engaged in receiving/taking into account the Functions soliciting orders.performed, Assets used and Risksassumed (FAR) through the PE and The assessee argued thatother parts of the enterprise. ANR should be treated as a person working in an independent Para 16 of the OECD of the business it carries on capacity and, therefore, should notcommentary on Article 7 further through the PE. constitute a Dependent Agent inprovides that profits that are India. Alternatively, even if ANR isattributable to the PE are to be ▪ Step 2: Determine the pricing treated as a Dependent Agent ofdetermined under the fiction that on an arm’s length basis, which RRSL, the payment of US$40,000PE is a separate enterprise and that determines an arm’s length per annum that was paid, beingsuch an enterprise is independent return for the FAR attributed to an arm’s length price, no furtherfrom rest of the enterprise of which the PE. income was attributable in India init is a part as well as from any other the hands of RRSL for the reasonperson. The second part of the Thus, the OECD has developed that ANR was already liable to taxfiction corresponds to the arm’s a working hypothesis as regards in India.length principle. the approach for attribution. It has examined the feasibility of treating The AO, CIT (A) and tribunal OECD 2010 report on the a PE as a hypothetical distinct took the view that the assessee hadattribution of profits to PE provides and separate enterprise and has a “permanent establishment” onfor a two-step process to apply an reviewed ways in which transfer the basis that it had a “dependentarm’s length separate enterprise pricing principles could be applied agent” in India under Article 5(9)principle in attributing profits to a by analogy in order to attribute of the India-Singapore DTAAPE: profits to a PE in accordance with and that the income earned from the arms length principle. supplying spare parts was taxable▪ Step 1: Undertake a functional in India. The AO held that 25% of analysis and factual analysis, Thus, method of attribution the profits on sales of spare parts which attributes to the PE the of profits to the PE has become were chargeable to tax which was Functions performed, Assets one of the major concerns for the reduced to 10% by the CIT (A) and used and Risks assumed (FAR) global multinational enterprises. the tribunal. Aggrieved by the ITAT’s by the enterprise in respect The attribution has been a matter of order, RRSL appealed before the THE CHARTERED ACCOUNTANT NOVEMbEr 2011 95
    • INTERNATIONAL TAXATION 752 B ombay High been fixed was usually not done MSCO in India is that whether Court, in case between independent parties MSAS had been remunerated for its of SET Satellite in an uncontrolled transaction. services at arm’s length. The AAR (Singapore) The assessee was in a position ruled that “so long as MSAS was Pte Ltd (218 to dictate terms to the agent and remunerated for its services at arm’sCTR 452), has held that if the so it could not be said that the length, no further income could becorrect arm’s length price commission was at “arm’s length” attributed in the hands of the PE ofis applied and paid, then within the meaning of Article 7 (2) the applicant.” This decision wasnothing further would be of the DTAA. The Transfer Pricing challenged by the tax authorities in analysis to determine the “arm’s the Supreme Court.left to be taxed in the hands length” price has to be done byof the foreign enterprise. taking the “Functions, Assets used Ruling:The Bombay High Court and Risk involved”. As this hasrestored the CIT(A) order not been done, the assessee’s Supreme Court held that the AARin the taxpayer’s case and argument on “arm’s length” price was correct in principle in its rulingheld that in case the agent is is not acceptable [(Morgan Stanley in as much as there was no needremunerated at arm’s length 292 ITR 416 (SC) & Set Satellite to attribute further profits to the PEby the foreign principal, the tax (Singapore) 307 ITR 205 (Bom) of the foreign company where theliability of the foreign principal distinguished]. transaction between the two was(which would arise in case it is held to be at arm’s length, taking intoregarded to have a PE in India) As the commission paid by the account all the risk-taking functionswould stand extinguished. agent to the DAPE is not at “arm’s of the enterprise. The Supreme length,” the estimation that 10% of Court further held that the situation the profits on sales of spare parts would be different if transfer pricing were attributable to the activities analysis did not adequately reflect carried out by the agent in India the functions and risks assumed by and taxable, is reasonable. the enterprise. In such a case, there would be need to attribute profits to ▪ Supreme Court judgement in the PE for those functions/risks that case of DIT (Intl Taxation) Vs. have not been considered. It also Morgan Stanley and Co Inc held that the entire exercise was (292 ITR 416) to ascertain whether the serviceDelhi HC with respect to existence charges payable or paid to theor otherwise of a PE in India on Facts: service provider fully representedaccount of the activities of ANR and Morgan Stanley & Co. Inc., the value of profit attributable tothe subsequent income attribution United States (MSCO) was its services. In each case, the datain India. engaged in the investment banking placed by the taxpayer had to be (MSAS) to support its main office examined as to whether the transfer Ruling: functions in equity and fixed income pricing analysis was exhaustive of The High Court, while dealing research, account reconciliation attribution of profits and that wouldwith the above issue, inter alia held and provision of information depend on the functional andthat while in principle it is correct that technology (IT) enabled services. factual analysis to be undertaken inif a fair price is paid by the assessee MSCO outsourced some of its each case.to the agent for the activities of activities to MSAS. MSCO sought athe assessee in India through the ruling from the AAR on issues, inter ▪ Relying on the above SupremeDependent Agent PE and the said alia, whether it had a PE in India and if Court decision, Bombay Highprice is taxed in India at the hands so, the amount of profits attributable Court, in case of SET Satelliteof the agent, then no question of to such PE. MSCO contended (Singapore) Pte Ltd (218 CTRtaxing the assessee again would that if MSAS was remunerated for 452), has held that if the correctarise; this is subject to a Transfer its services at arm’s length, no arm’s length price is appliedPricing Analysis being undertaken further income should be attributed and paid, then nothing furtherunder Section 92. The facts in the hands of the PE (i.e. MSAS). would be left to be taxed in theshowed that the manner in which The important issue in this case hands of the foreign enterprise.the commission/remuneration had related to the taxability of the The Bombay High Court has 96 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • 753 INTERNATIONAL TAXATION restored the CIT(A) order in the length basis, and the foreign enterprise, attribution taxpayer’s case and held that in 2. By FAR (Functions perfor- to PE is called for, which takes case the agent is remunerated med, Assets used and Risks these factors into account. The at arm’s length by the foreign assumed) analysis, nothing relevant observations are as principal, the tax liability of the more can be attributed to under: foreign principal (which would PE.” arise in case it is regarded to “Indian entity and Indian PE are have a PE in India) would stand The ITAT further held that as two separately assessable entities. extinguished. eFunds India is not remunerated Indian entity, i.e., eFunds India for functions performed, risks is assessable with reference to▪ In the case of BBC Worldwide assumed and assets utilised by incomes it received from foreign Ltd Vs. DDIT (2010-TIOL-59-ITAT- enterprises, i.e., eFunds Corporation DEL), the Delhi ITAT applying and eFunds IT Solution Inc. and any the principles laid down in the other income it might have earned. decisions of Supreme Court This assessment will be in the status in the case of Morgan Stanley of ‘resident and as per ‘domestic (supra) and decision of the tax law. The foreign enterprise is Bombay High Court in the case taxable in India as PE with reference of SET Satellite (Singapore) to profits, which are attributable to Pvt Ltd (supra) held that where Indian PE. This assessment will be an agent is compensated on in the status of ‘non-resident and an arm’s length basis for its as per ‘Article 7 of Indo-USA DTAA agency services in India, there where the assessable income will should be no additional income be determined after FAR analysis as attribution in the hands of the per provisions of Article 7(2). Taxpayer which is a foreign enterprise. It may be pertinent In these cases, Indian entity I to note that in the facts of this eFunds India is having either n the case of BBC case, the agent received a nil or minimal risk and all the Worldwide Ltd commission of 15% of the relevant assets required for Vs. DDIT (2010- revenues as compensation for carrying out business activities services. TIOL-59-ITAT- are provided by eFunds DEL), the Delhi Corporation, USA. Whatever▪ Delhi ITAT in the case of eFunds ITAT, applying the principles payments it gets from foreign Corporation Vs. ADIT (134 laid down in the decisions of enterprise, represent the price TTJ 1) has adopted the dual Supreme Court in the case of services provided by it to taxpayer approach whereby of Morgan Stanley (supra) the foreign enterprise and it will the Indian subsidiary and the and decision of the Bombay not get any remuneration for PE of Foreign enterprise were High Court in the case of the functions performed, risks regarded as two separate SET Satellite (Singapore) Pvt assumed and assets utilised assessable entities. The ITAT, Ltd (supra) held that where by the foreign enterprise in referring to SC decision in case an agent is compensated India. Clearly, the second limb of Morgan Stanley, observed as on an arm’s length basis for of judgement of Supreme Court under: its agency services in India, referred to supra is applicable there should be no additional in this case, which says that “From perusal of these income attribution in the something has to be attributed observations of Honble hands of the taxpayer which to PE if risk and assets belong to Supreme Court, it is clear that is a foreign enterprise. It foreign enterprise as a whole.” the assessment of PE gets may be pertinent to note that extinguished only if following in the facts of this case, the Landmark Principles Laid Down two conditions are cumulatively agent received a commission in Relation to Profit Attribution met- Thus, the crux of all the decisions of 15% of the revenues as 1. The associate enterprise has discussed above is that where compensation for services. been remunerated on arms the transactions are held to be at THE CHARTERED ACCOUNTANT NOVEMbEr 2011 97
    • INTERNATIONAL TAXATION 754arm’s length, nothing further can length basis, and discussion, while there is a generalbe attributed to the PE, provided consensus in the judicial decisionsthat the transfer price takes into ▫ By FAR (Functions performed, on the need to apply transfer pricingaccount all the risk-taking functions Assets utilised and Risks principles for income attribution,of the foreign enterprise. Thus, assumed) analysis of Indian there is some ambiguity on howassessment of PE gets extinguished and foreign enterprise, nothing these principles should be applied.only if following two conditions are more can be attributed to PE. Hence, depending on the facts ofcumulatively met: the case, the following possible Possible Income Attribution scenarios could exist on income▫ The associate enterprise has Scenarios attribution in case foreign enterprise been remunerated on arms As may be discerned from the above is regarded as having a PE in India: Alternate Situations Possible Scenarios Judicial Precedents/Other Guidance/ Comments Situation 1 Scenario 1 ▪ Based on OECD’s dual taxpayer approach Indian entity is compensated As compensation to Indian ▪ SC decision in Morgan Stanley on arm’s length basis taking entity does not take into ▪ Delhi High Court in case of Rolls Royce into consideration only account functions/risks of PE, functions performed assets additional income needs to be owned and risks assumed by attributed to the PE based on Indian entity. arm’s length principles. Scenario 2 ▪ Even though most case laws support application of transfer pricing Tax Authorities could principles, the ultimate determination attempt to apply formulary has often been based on a formulary apportionment (either apply apportionment (could result in a foreign enterprise’s worldwide arbitrary apportionment, say, 10% profit margin to India revenues or 15% of profits, depending upon and attribute part of it to PE activities performed in India) or apportion a percentage of ▪ Motorola Inc Vs. Deputy Commissioner India revenues to PE) of Income Tax1 ▪ Galileo International Inc. Vs. DCIT2 Situation 2 Scenario 1 ▪ Consistent with OECD’s dual taxpayer Indian entities arm’s length approach as all functions/risks of the PE compensation considers its No additional Income have been compensated in the transfer own functions/risks as well Attribution price as functions/risks of foreign ▪ DIT Vs. Morgan Stanley enterprise that relate to the PE ▪ Practical risk of tax authorities seeking to apply formulary apportionment does existWay ForwardThere is a high risk that the tax account the FAR analysis of the Thus, it is advisable that robustauthority could attempt to attribute foreign principal as well. In other transfer pricing documentation shouldprofits to a PE in the absence words, liability of foreign company be maintained and benchmarkingof adequate documentation to in India may not be extinguished should be done in a manner wherebyapply arm’s length principles for unless the transfer pricing takes the Functions performed, Assetsattribution. Given the same, it is into account the FAR analysis of utilised and Risk assumed (FAR) ofimperative that the transfer pricing Indian Company as well as foreign both the foreign entity and Indianbetween two associates takes into company. entity are taken into account. n1 95 ITD 269 (Delhi ITAT)2 19 SOT 257 (Delhi ITAT) 98 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • PARTICIPATION MID CAREER CAMPUS 9th December 2011 Hotel Bangalore International, BangaloreOBJECTIVEAs a measure to develop employment opportunities for Chartered Accountants, Committee for Members in Industry (CMII)of The Institute of Chartered Accountants of India (ICAI) has been successfully organizing placement programmes twice ayear for Newly Qualified Chartered Accountants, wherein prospective employers and new members interact and explorethe possibility of taking up employment careers in various organisations.Career Ascent is a step ahead as an extension to the same programme but with a different objective. It aims at providingthe experienced Chartered Accountants with a platform to assess their potential and refinement in work, which they haveacquired during their working tenure.CAREER ASCENT– A GREAT ADVANTAGE FOR CORPORATESIf you are looking for complete business solution provider, then end your search by participating in Career Ascent forexperienced Chartered Accountants, wherein you would have access to a vast database of Chartered Accountants.ELIGIBILITY OF CANDIDATES FOR CAREER ASCENT-MID CAREER CAMPUSChartered Accountants who have 1 year or more than one year of Industry experience, passed C.A. final examination on orbefore May, 2010 and having the membership of Institute as on 31st October, 2011 are eligible to participate. Also themembers who have got placements through the placement programmes organized by the Institute between 01.11.2010 to31.10.2011 are not eligible to apply.Campus Interview Dates Centre Last Date of Registration for Last Date of Short-listing by Consent sending by Interview Dates Companies Upto 05:00 PM Companies Upto11:00 PM Candidates Upto 11:00pm Bangalore 1st December, 2011 5th December,2011 6th- 7th December,2011 9th December 2011Participation Fees for Career Ascent For Organisations other than Firms of CAs For Firms of CAs Rs. 1,50,000/- + Service Tax @ 10.3% Firms with more than 10 partners: Rs. 1,50,000/- + Service Tax @ 10.3% Firms with less than 10 partners: Rs. 1,20,000/- + Service Tax @ 10.3%
    • Payment Terms: Participation fee shall be payable by way of Cheque / Demand Draft in favour of The Secretary, The Institute of Chartered Accountants of India payable at New Delhi and should be sent to The Secretary, CMII, The Institute of Chartered Accountants of India, ICAI BHAWAN, Indraprastha Marg, New Delhi- 110 002 so as to reach on or before last date of registration. Kindly also note that the PAN No. of Institute is AAAAT7798M and Service Tax Registration No. is AAAAT7798MST003 (DL-I/ST/MP/R-II/1530/ICA/2006). The payment may also be made through Net Banking, the details are available at www.cmii.icai.org. Norms for Allotment of Day Slots for participating companies in Career Ascent: Allotment of slot(s) would be based on CTC and number of participants. However, it shall also be based on first come first serve basis.GUIDELINES FOR THE PARTICIPATING ORGANISATIONSTimings of the event: 10.00 a.m. to 6.00 p.m. • The companies participating will have to register online on placement portal http://www.cmii.icai.org. • The participation fees should be remitted at ICAI Head office, New Delhi only. The fee is non- refundable. • Access to the candidate database shall be allowed only after the receipt of participation fee by CMII Secretariat. Fee is chargeable in case a recruiting organization withdraws after confirming the participation and data access has been given. • The companies can access the database through the placement portal http://www.cmii.icai.org. • Participating companies will have to provide the list of shortlisted candidates online on placement portal http://www.cmii.icai.org. • Final list of candidates appearing for interview will be available online on placement portal http://www.cmii.icai.org one day after consent date by candidates. • Shortlisting of the candidates by the company is restricted to 10 times of the number of vacancies in that particular organization. • Once a company has selected any candidate and the offer is accepted by the candidate it is the responsibility of the company to inform the organizers and providing the offer letter duly signed by them to the candidate who had accepted the offer. • The companies participating have to offer a minimum CTC of Rs. 6.00 lakhs p.a. to the candidates in the Career Ascent Programme. • Only one room will be provided to each company for the conducting of Interview process. • Kindly note that no Written Test/Psychometric Test shall be conducted prior to Interview Process on the scheduled day. • The entire process above would be done online on placement portal http://www.cmii.icai.org.For details contact:CA. K. Raghu, Chairman, CMII of ICAI, Email: cmii@icai.inOfficial Contact :Dr. Surinder Pal, Secretary, CMIIorMr. Ajeet Nath Tiwari, Placement Coordinator CMII of ICAI  Tel: +91 (11) 30110548/450/430Email: placements@icai.in,mii@icai.in, campus@icai.in,Website: www.icai.org, www.cmii.icai.orgBasicTerms:ICAI does not guarantee that the candidates who have filled in the data will be actually present in the interview or after selection would join theorganization.Disclaimer: The CMII of ICAI reserves the right to change its policy or change the programme at any given point of time at its own discretion.
    • 757 MANAGEMENTBenchmarking- A Strategic Tool for CFOsBenchmarking is a strategic tool to compare the performance of an organisation against other organisations (mayor may not be competitors) with an object to analyse the reasons for variance in performance level and initiateshort term and long term strategic plans to enhance the performance level. Benchmarking Study (BMS) thus helpscompanies to improve their performance standards to the desired levels. In a wider sense, Benchmarking analysesare conducted not only on the Critical Success Factors ( CSF) or Key Performance Indicators (KPIs) but also onthe key processes, policies , business strategies and the like to ascertain the root causes of variance. SometimesBenchmarking studies can help companies to stay afloat and survive in the cut throat competition market. The term benchmarking was first used in relation to shoemakers whereby they measure peoples feet for shoes by placing customers’ feet on a "bench" and mark it out to make the pattern for the shoes. The Benchmarking Exchange (TBE), an online benchmarking practices network, defines benchmarking as the process of measuring an organisations internal processes and then identifying, understanding, and adapting outstanding practices from other organisations considered to be best-in- class. Sometimes benchmarking studies (BMS) can help companies to stay afloat and survive in the cut throat competition market. For example, companies operating in airlines industry or sugar industry which are perennially in difficult circumstances need to undertake BMS more frequently than their counterparts in other industries. BMS are also conducted by Regulators or Government before mandating sector CA. Sanjay Banka guidelines or providing subsidies or other support (The Author is member of the ICAI and ICSI and Professional Member to industries. Similarly, BMS are also conducted of Chartered Institute for Securities and Investment (London), All India by prospective investors while making informed Management Association and Indian Council of Arbitration. He can be investment decisions and finalisation of valuation of the contacted at sbanka9@gmail.com) target companies. THE CHARTERED ACCOUNTANT NOVEMbEr 2011 101
    • MANAGEMENT 758Approaches to BenchmarkingDepending on the objectives of benchmarking study, the scope of benchmarking study is decided. There are,however, four broad facets in any benchmarking study: Fig 1: The diagram showing four integrated cubes Fig 2: Another presentation of benchmarking in any benchmarking study. The next diagram categories indicating that the results are achieved shows the inter-se relationship of the four cubes. by product, process and strategy. Hence, BMS must cover all the four cornerstones to achieve the desired resultsAs we would see later, a BMS carried out in isolation Results Suggested KPI for benchmarkingwith only one or two boxes, will not yield the final Customers complaints per customer per month,objective of “how”. The benchmarking team must cost of service per customer.adopt a holistic approach to benchmarking by coveringthe above four aspects. A study with number focussed Human Revenue per employee, asset perapproach is too narrow to be called a benchmarking Resources employee, units produced perstudy; it can never unearth the strategic advantages employee, EBITDA per employee,and disadvantages of other market participants. CTC per employee per month, staff In most of the cases, BMS covers the financial or turnover, teeth tail ratio, employee costresults benchmarking, which involves comparison as % of revenue, training man days perof profitability and opex components as percentage employeeof revenue. The above are merely results or numbers; in orderResults Suggested KPI for benchmarking to deep dive into the “reasons” for variance in theseRatio based Turnover ratio, liquidity ratio, coverage results, the management needs to conduct BMS on ratio, profitability ratio. products, processes and strategies. These can beFinancial Gross margin%, NPAT%, return on conducted by subject matter experts or functional investment, return on capital employed managers under the overall guidance of a core team. (ROCE), SGA cost as % of revenue, opex as % of revenue, EPS, PAT, Scoping & Steps EBITDA, WACC, ROI, capital gearing. A BMS process can be segregated in four broad stages as follows:Operational Production or sales per unit (units may vary depending on industry say revenue per minutes, realisation per kms, per pcs), profit per unit of production (say per machine, per spindle, per aircraft), downtime, capacity utilisation (depending on Industry), sales growth.102 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • 759 MANAGEMENT T he companies and geographies to regulators. In addition, the other usual sources be selected for benchmarking thus of information are always available like industry play a very crucial role and have associations, investors presentation on websites, to be done carefully to achieve published financials, etc. The core team must also the desired results. The selection have a thorough knowledge of its internal processeswill also be linked to the objective management as well as process control concepts.has set for itself. For example, if your company Professor W. Chan Kim and Professor Renéeis market leader in Indian Market and you do Mauborgne, co-authors of Blue Ocean Strategy, havebenchmarking only locally, then you may not always insisted that instead of focussing too muchgain any insight into better practices adopted on numbers, the executive should focus on the strategy part. Especially in case of companiesby market leaders globally. that are operating in red ocean (operating in highly The companies and geographies to be selected for competitive and loss making environment), theirbenchmarking thus play a very crucial role and have BMS will not yield any dramatic conclusion, if theyto be done carefully to achieve the desired results. don’t focus on strategic and functional excellence ofThe selection will also be linked to the objective competitors.management has set for itself. For example, if yourcompany is market leader in Indian market and you do Some Benchmarksbenchmarking only locally, then you may not gain any The below table provides an indicative list of specificinsight into better practices adopted by market leaders benchmarks used in some industries in addition toglobally. The problem is that any given company in the standard to standard KPIs for the sake of illustration:benchmarking pool may be facing some exceptional Sl Industry Benchmarksevent or may be organised in an exceptional way so Noas to its ratios may be vastly different from others in thesame classification. By including such firms, the global 1. Telecommunication ARPU, ARPAU, MOU,benchmarks can be overly skewed. In many countries, Services RPM, traffic per site,firms are organised into holding groups. These groups calls per customer,nominally have very few employees, e.g. 4 to 25 EBITDA %, opex peremployees, but have extremely large assets, liabilities, site, customer marketor revenues. As such, the inclusion or exclusion of firms share, revenue markethaving this form of management can affect the ratios share, HLR/ VLR ratio,and benchmarks reported. Finally, in some countries, network availability, SACdetailed or comparative financials are not available per acquisition, etc.and hence extreme caution has to be exercised inmoderating the numbers before considering the same 2. Retail Revenue psft per month,for study. stock psft, same store The size and level of operations is equally important revenue growth, foot-in selecting the sample. The performance metrics of falls, private labels (nos,a small company single location will be diametrically sales, % of total sales),different from large multi-geography and any inter firm SKU nos, shrinkage %,comparison will not lead to achievable targets. While % sale at sale-throughit is recommended to conduct benchmarking studies rates (non-discountintra-industry, sometimes benchmarking studies can rates), same storesalso be instituted inter-industry for analysing trends sales growth, etcthat are industry agnostic like salary cost, borrowingcost, etc. 3. Software Industry Revenue by geogra- A very obvious difficulty which arises in the minds phical segments, %of a BMS team is regarding availability of data and its utilisation of billablequality. This will depend on the nature of industry and employees, revenuethe regulatory framework in which the company from on shore and offoperates. Companies which are operating in finance, shore services, softwareinsurance, telecom, and pharma are governed by development expenses/sectoral regulators and hence a large part of their total revenue,operational metrics are regularly published by the THE CHARTERED ACCOUNTANT NOVEMbEr 2011 103
    • MANAGEMENT 760 Sl Industry Benchmarks benchmarking studies across same Industry only to No get comparable results. Telecom companies continue to be benchmarked 4. Airlines Industry Load factor, average by TRAI against the stringent call quality and network gross revenue per congestion criteria. Internally telecom companies passenger, available benchmark themselves on customer satisfaction, seat kilometers (ASKM) call drop, and such other benchmarks against global -The sum of the products telecom leaders. In case of new operators, the obtained by multiplying subscribers acquisition cost (SAC) is as high as R350 the number of passenger to R400 while the ARPU is as low as R30 pm, thus the - seats available for sale minimum period for which the customer should be on on each flight stage by the network and not port is at least 12 to 14 months. the corresponding stage Imagine if the CFO or the CMO of such new telecom distance, cost per ASKM companies does not benchmark its SAC cost, how will (CASK) represents total they enhance SAC efficiency while ensuring that its cost divided by the channel partners remain motivated? Among telecom ASKMs, revenue per companies, there is an urgent need for companies like ASKM, seat factor (ratio MTNL and BSNL to consistently pursue benchmarking of used to available studies against their successful private counterparts, capacity: passenger- more specifically on network uptime and customer kilometres/available satisfaction. seat-kilometres), yield In case of electricity trading companies, the (passenger revenue CERC has fixed a trading margin of 4 paisa to 7 paisa earned per kilometer per unit (based on price of R3 per unit or above) on flown.), number of electricity trading which is a major benchmarking passengers flown, for electricity trading companies. However, it should number of flights per also be noted that where margins are fixed as per day, no. of airports regulatory mandate, no action plan can be conducted operated. to increase margins except without regulatory intervention. Every Industry has its own set of benchmarking The result of BMS should be carefully reviewed byrules. For example, in retail Industry, space utilisation management for the possible causes of variance. Theis one of the most important parameters for operational BMS will always provide an indication of “what”. But toperformance, hence several operational benchmarks find out “Why” variances and “How” to bridge the gapare linked to space utilisation. The better a retail is most important. This requires the commitment of topcompany can utilise its space, the higher its profitability management and engagement of a strategic team tois. Another major issue in retail industry is shrinkage revert with the suggested action plans.(caused by losses arising out of theft and wastages) Thus companies can adopt a sponsor-basedwhich ranges from 2% to 5% of gross sales. A high strategy and co-opt a few functional heads. Oshrinkage ratio causes havoc on the profitability and nce the benchmarking study hassometimes on the survival of the company itself. been completed, it obviouslySubhiksha faced major losses on account of shrinkagesand it became one of the main contributory factors in leads us to next question— Howthe closure of this company. to achieve the benchmark of the For example, Infosys tracks benchmarks like net “best in class” companies. This isforeign earning as % of earning (NFE/ earning), which perhaps the most critical part of the process.is in the range of 50% for 2011 and 2010. Infosys also Unless you get an insight into strategic thoughttracks R&D expense as % of total revenue which is in process of your competitors, their success andthe range of 2%. The revenue realisation of software failure stories, how they met market challenges,companies is higher in case of on shoring services and how their strategic decision points werethe ratio is almost 50:50. In software industry, employee tweaked, what difficulties they faced in marketcost as % of revenue can be as high as 50%, while in place, or what pressure it brought on theira traditional asset based Industry it is in the range of profit margin, then perhaps the benchmarking4% t0 6%. Thus, it is extremely important to conduct study will remain a paper only.104 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • 761 MANAGEMENTBenchmarking Strategies planned and implemented in a time bound mannerThis leads us to focus on what benchmarking as indicated belowstrategies a company should follow to ensuresuccess. Firstly, the selection of benchmarks should notbe a random sample or a large number; rather itshould cover best companies in three to fourgeographies or markets which match the marketbehaviour and ecosystem in which your company isoperating. The strategy must focus on “what next”and “how” instead of “what”. The finding of “what” isa process, whereas the “what next” is a strategic call.Also, in presenting the final report, the benchmarksshould be few and the final derivative of several KPIs.Thus, the focus should be on top five or top ten items The above diagram shows a typical execution planto be benchmarked. post a successful BMS. The companies benchmarked Secondly, the benchmarking process should have been categorised in four levels as against thecontinue to be revisited in view of dynamic changes in target company. While the management has plannedcompetition and market scenario. The target set to reach for execution for action plan for top priority KPI andor exceed the benchmarks should be quantifiable and CSF in Q1 itself and target is to exceed the Level 4 ofmeasurable instead of abstract visionary statements company (highest level), the action plan to implementlike “enhancing customer satisfaction to next level” or the low priority KPI is a staggered and to reach the“leveraging the capital structure to optimise the finance industry median points at Level 2. Such a plan cancost drastically. be made based on optimum allocation of resources Thirdly, the team conducting benchmarking must available at the disposal of management. This executionbe broad-based with executives who have experience strategy reflects a very prudent approach, however,of multi cultural and diverse industry and should be it can be criticised on the ground that managementinvolved from the inception stage. For example, if a has not planned for achieving “Industry Best” KPI onsmall Indian FMCG is conducting such study, it all counts. There are thus pros and cons attached toshould make sure to include the executives who have every execution plan and the “best fit” will depend onexperience of having worked in large FMCG companies case to case.especially in rural markets. This will ensure their buy-in and if people own the problem, they will definitely The Benchmarking Trapsresolve it. Many a time, the benchmarking process loses its track and ends up in a fault finding mission. That’sHow to Achieve the Benchmarks one of the reasons that many companies executivesOnce the BMS has been completed, it obviously leads do not participate in the benchmarking process forus to next question— how to achieve the benchmark of fear of witch hunting. Before the studies start, the topthe “best in class” companies. This is perhaps the most management must take into confidence employeescritical part of the process. Unless you get an insight at all levels and assure that the result of the study willinto strategic thought process of your competitors, purely be used for performance improvement and fortheir success and failure stories, how they met market rewarding the employees who implement the actionchallenges, how their strategic decision points were plan. Further, the benchmarking exercise should nottweaked, what difficulties they faced in market place, become an “industrial tourism” for the core group toor what pressure it brought on their profit margin, visit several countries.then, perhaps, the benchmarking study will remain Also, a common mistake which people make isa paper only. The management may need to lead lack of caution while taking benchmarking numbers.several initiatives including changes in organisational For example, while conducting employee relatedstructure and performance ethic, changes in core benchmarks, the employee numbers as disclosedprocesses, changes in tariff and prices, changes in should be carefully weighed. It may so happen thatchannel margin in line with industry trend, enhancing while your company operates on an “in sourced”capability of customer facing or production team or model and the manpower numbers in your case arecultural performance ethic with its strategy, capability, fully on-roll, while the competitor may be working onand skill requirements. Such action must be properly an outsourced model. Thus, it becomes important THE CHARTERED ACCOUNTANT NOVEMbEr 2011 105
    • MANAGEMENT 762to get correct details of on roll and outsource staff; should be preferred. The team must agree on aelse the entire HR benchmarking may end up giving time bound action plan. The team must selecta misleading result. Sometimes, due to differences in five to ten leading companies in the edible oilaccounting standards or company specific policies, the field in India and five to ten from global rank.revenue may include pass through expenses, which The companies selected should preferably beshould be excluded to arrive at comparable revenue. in same product line, customer segment, with The results of cost benchmarking should always similar volume in terms of sales and revenue.be carefully interpreted and any strategy around Any other company selected should be“cost saving” or “cost optimisation” must consider considered purely for academic purposes, sincethe resultant effects. For example, any shortsighted issues like profitability, quality, margins will bestrategy to cut down the customer relationship (CRM) intricately linked to economies of scale.cost or quality assurance cost can boomerang and ▪ The next stage is data collection of the sample. Thismay lead to customer dissatisfaction and loss of will be from the information available in public domaincustomer market share. Thus, the strategy should be for the listed companies and in case of unlistedcarefully reviewed while ensuring that service levels companies attempt can be made to collect it fromare not compromised. government and regulatory authorities. One can also use the RTI tool to get some of this information. VeryDo it Yourself (DIY) valuable sources of information are ex-employees,In the light of above discussion, let’s see how a channel partners, common bankers.new organisation can take up real BMS in the field. ▪ Detailed comparison should be made on all the fourSuppose, ABC Limited is an SME engaged in FMCG aspects: Product> Process> Strategies> Resultsindustry, say edible oil, and is facing a real crisis in the ▪ The fourth and final stage is based on results ofmarket due to falling market share, rising customer BMS, initiate short term and medium term executioncomplaints and pressure on margins, while the plan and allocates necessary resources for same.competitors in the market are not feeling any such externalpressure. The management thus decides to form a core Chartered accountants in practice can alsoteam for conducting BMS and recommend action plan. undertake such strategic assignments for theirThe following action plans would thus emerge: small and SME customers and help enhance the▪ The management first has to decide the objective(s) competitive advantages of their clients while generating of the study which may be one or more of the additional sources of revenues. following - analysing the reasons for fall in market share, or reduction in profit margin, or increase Conclusion market share or improve quality. Globalisation and competitiveness are posing major▪ The core team must be broad based challenges in almost all organisations and managers with nominees from key functions including are seeking modern approaches to gain more finance, marketing, HR, sales and quality competitive advantages. With the help of BMS, CFOs assurance. The members with large market can continuously review their performance against the and having handled diverse product portfolio industry leaders and prompt it to set short and long M any a time the benchmarking terms strategies to improve performance. BMS helps process loses its track and ends companies to adopt a more scientific, data driven up in fault finding mission. That’s approach based on market dynamics instead of “island one of the reasons that many approach”. The CFO as the chief strategy officer can companies executives do not take a lead role for institutionalising the Benchmarking process and solicit enhanced performance at allparticipate in the benchmarking process for levels of organisation. Management must supportfear of witch hunting. Before the studies start, the BMS process, create internal competition amongthe top management must take into confidence employees and design suitable reward programmes toemployees at all levels and assure that the seamlessly implement the plans.result of the study will purely be used for Benchmarking aims at improving performance,performance improvement and for rewarding enhancing productivity - a search that never ends.the employees who implement the action plan. Therefore, benchmarking is not a single action but aFurther the benchmarking exercise should not continuous, cyclical process. Finally, the best benchmarkbecome an “industrial tourism” for the core is one which continues to show the need of improve-group to visit several countries. ment based on Japanese principle of “Kaizen”. n 106 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • PARTICIPATION 10th December, 2011 BangaloreOBJECTIVEThe Committee for Members in Industry (CMII) of The Institute of Chartered Accountants of India (ICAI) provides opportunity tothe employers to interact with Members and Newly Qualified Chartered Accountants through its Campus PlacementProgramme.Gulf Campus Placement Programme is a step ahead as an extension to the same programme but with a different objective.CMII is organizing a separate Placement Programme through video conferencing mode for Chartered Accountants. CharteredAccountants are getting placed not only within the country but are also taking up jobs abroad. Many CAs are providing theirservices to the organizations in GCC and Middle East. To facilitate employment for Chartered Accountants in the GCC, CMII ofICAI is organizing Gulf Campus Placement Programme.This programme would enable the corporates working in Gulf Council Countries (GCC) to recruit Chartered Accountantsthrough video conferencing mode from Bangalore.GULF CAMPUS – A GREAT ADVANTAGE FOR CORPORATES FROMGULF COUNCIL COUNTRIES (GCC)/MIDDLE EASTCorporates working in Gulf Council Countries (GCC)/ Middle East can now end their search by participating in PlacementProgramme wherein they would have access to a vast database of Chartered Accountants of The Institute of CharteredAccountants of India.The event would provide an opportunity to companies to select Chartered Accountants as per their requirement criterion.ELIGIBILITY OF CANDIDATES FOR GULF CAMPUSChartered Accountants who have 1 year or more than one year of Industry experience, passed C.A. final examination on orbefore May, 2010 and having the membership of Institute as on 31st October, 2011 are eligible to participate. Also themembers who have got placements through the placement programmes organized by the Institute between 01.11.2010 to31.10.2011 are not eligible to apply.
    • Interview Schedule Centre Maximum No. of companies Last Date of Registration for Shortlisting Consent sending Interviews in any single slot Companies Upto 05:00 PM by Companies by Candidates Bangalore One each in a slot 1st December, 2011 5th December, 6th- 7th December, 10th December, 2011 2011 2011Participation Fees*(INR) Centre Day 1-Slot 1 (11.00 AM-2.00 PM IST) Day 1-Slot 2 (3.00 PM – 6.00 PM IST) Bangalore Rs.1,20,000 Rs.1,15,000*Participation Fees (in Rs.) plus service tax @ 10.3 % applicableAbove payment includes the facility for video conferencing arrangements in India and also include public IP or singledial out charge that will be borne by CMII of ICAI. Companies have to make arrangements at their own end to stayconnected in video conferencing mode and they can have only one dial in facility. Payment Terms: Participation fee shall be payable by way of Credit Card / Cheque / Demand Draft in favour of The Secretary, The Institute of Chartered Accountants of India payable at New Delhi and should be sent to Secretary, CMII, The Institute of Chartered Accountants of India, ICAI BHAWAN, Indraprastha Marg, New Delhi-110 002 so as to reach on or before 1st December, 2011. Kindly also note that the PAN No. of Institute is AAAAT7798M and Service Tax Registration No. is AAAAT7798MST003 (DL-I/ST/MP/R-II/1530/ICA/2006). The payment may also be made through Net Banking, the details are available at www.cmii.icai.org. Norms for Allotment of Day Slots for participating companies in Gulf Placement Programme: Allotment of slot(s) would be based on CTC and number of participants. However, it shall also be based on first come first serve basis.GUIDELINES FOR THE PARTICIPATING ORGANISATIONSTimings of the event: 11.00 a.m. to 6.00 p.m.• The companies participating will have to register online on placement portal http://www.cmii.icai.org on or before 1st December 2011.• The participation fees should be remitted at ICAI Head office, New Delhi only. The fee is non- refundable.• Access to the candidate database shall be allowed only after the receipt of participation fees by CMII Secretariat latest by 1st December, 2011. Fee is chargeable even in case a recruiting organization withdraws after confirming the participation and data access has been given.• Final list of candidates appearing for interview will be available online on placement portal http://www.cmii.icai.org one day after consent date by candidates.• Shortlisting by individual recruiting entities shall be restricted to maximum ten times of the number of vacancies in that particular organisation, which are expected to be filled up.• The companies participating have to offer the minimum take home salary INR 1 lac per month to the candidates in Gulf Campus.• Kindly note that no Written Test/GD/psychometric Test shall be conducted.• The entire process above would be done online on placement portal http://www.cmii.icai.org and in video conferencing mode.For details contact:CA. K. Raghu, Chairman, CMII of ICAI, Email: cmii@icai.inOfficial Contact :Dr. Surinder Pal, Secretary, CMIIorMr. Ajeet Nath Tiwari, Placement Coordinator CMII of ICAI  Tel: +91 (11) 30110548/450/430Email: placements@icai.in,mii@icai.in, campus@icai.in,Website: www.icai.org, www.cmii.icai.orgBasicTerms:ICAI does not guarantee that the candidates who have filled in the data will be actually present in the interview or after selection would join the organization.Disclaimer: The CMII of ICAI reserves the right to change its policy or change the programme at any given point of time at its own discretion.
    • 765 NATIONAL UPDATE Direct Taxes Code Will Come Next Year: Finmin RBI Announces Standard Rating Symbols The government recently expressed optimism that the The Reserve Bank has announced uniform andDirect Taxes Code (DTC) would come into force from the standard rating symbols to be used for indicating financialnext financial year. Finance Minister Pranab Mukherjee health of a bank. The change in rating symbols andsaid he was confident of the DTC being recommended by definitions, however, does not effect, in any manner, thethe standing committee in the coming (winter) Parliament rating methodology followed by the credit rating agenciessession. “I hope that I will get the legislation by the (CRAs) for rating such instruments and will have no bearingBudget session,” he told an economic editors conference on the existing ratings assigned by the CRAs under therecently, answering a question. Mukherjee said he had a Basel-II framework, the Reserve Bank of India said in agood discussion with the pertinent standing committees statement. Under the revised standardised system, therechairman (Yashwant Sinha) on whether it was possible to is no change in the long term rating symbols except thatpass certain legislations with his help. But that is at the they will henceforth display the rating agency’s name as acommittee level and the chairman’s level. What would prefix, it said. “In case of short term ratings, a rating scalehappen on the floor of the House would be decided denoted by ‘A’ on a scale of ‘1’ to ‘4’ (i.e. A1, A2, A3 andby others, he added. The Direct Taxes Code will come. A4) and ‘D’ has been prescribed,” it said.The DTC Bill introduced in Parliament on August 30 last (Source: http://timesofindia.indiatimes.com/)year, proposes to replace the 50-year old Income TaxAct. The Act was initially proposed to come into force at SEBI Panel Rejects Plan to Raise MF Net Worththe start of the ongoing financial year. The deadline was Capthen extended to April next year, as the draft Bill has A SEBI-constituted panel on mutual funds has retainedbeen referred to the Parliamentary Standing Committee. the minimum capital requirement to start a fund house atRevenue department officials doubt if they will get sufficient R10 crore, rejecting a proposal to increase the net worthtime to get the legislative work completed in the time left criterion, officials at the stock market regulator said. Thefor implementation of DTC from 2012-2013. move comes as a breather for smaller fund houses and(Source: http://www.indianexpress.com/) firms planning to enter the asset management business in Asia’s third-largest economy. Last year, the mutual fund Firms Get Government Breather on Forex advisory committee had proposed to raise the capitalEarnings base of asset management companies to R50 crore from The Ministry of Corporate Affairs, or MCA, has given R10 crore to ward off ‘non-serious players’ and to ensureIndian firms another year to spread their liabilities on higher safety for investorsaccount of foreign exchange borrowings accruing from (Source: http://www.economictimes.com)fluctuations in foreign exchange, or forex, rates. Whilegetting more time to amortise such liabilities will come SEBI to Probe High Volatility in IPOsas a breather for a large number of companies that have The high fluctuation in share prices of a number ofraised loans abroad, it has raised eyebrows of some companies on the listing day has caught the attention ofobservers, who say this is the government’s way of the Securities and Exchange Board of India (SEBI). SEBIsignaling a delay in the implementation of International had initiated an enquiry into possible price manipulation inFinancial Reporting Standards (IFRS). They also contend the stock price of some of the recently-listed companies,that the government should refrain from tinkering with senior officials said. SEBI is looking into the subscriptionIFRS-compliant accounting standards that have been and trading details of these stocks. An enquiry hasnotified, but are yet to be implemented. IFRS guidelines been initiated. The idea is to find out if there is a trendare more stringent and allow accounting for such gains of systematic manipulation by a set of players in theor losses to be charged in the profit and loss account. An stock price, confirmed the official. Senior officials said theobserver said that there is a need to take a long-term view market regulator would look into the subscription detailson adopting global standards, and that ad hoc changes and trading pattern. The subscription details would helpdon’t help. The rupee has been weakening against the it get cues about the names of investors who subscribeddollar in the past few months because of global economic to these issues. If the same people had applied in mostturmoil. It has dropped 10.5% against the US currency issues, there could be a trend. Similarly, looking into thesince July 2011. He said that deferring losses because of trading pattern would indicate if there was a concentrationforex fluctuation under Indian GAAP (generally accepted of volumes from a particular segment of brokers.accounting principles) will only provide temporary relief, (Source: http://www.hindustantimes.com)which is neither desirable nor justified. MCA last weekextended the date for amortising gains or losses on money Revised Tax Treaty with Switzerland Will Helpraised overseas on or after December 2006 till March 2012, Seek Specific Information on Illegal Fundsagainst the previous deadline of March 2011. In a statement, the Swiss Federal Department of(Source: http://www.thehindubusinessline.com/) Finance said the revised agreement contains provisions on the exchange of information in accordance with THE CHARTERED ACCOUNTANT NOVEMbEr 2011 109
    • NATIONAL UPDATE 766international standards applicable at present. As per DK Jain and Justice SJ Mukhopadhaya in its judgement.the latest data from the Swiss National Bank, the total The court said, “Where the department has a `reason todeposits of Indian individuals and companies in Swiss doubt’ the truth or accuracy of the declared value, it maybanks at the end of 2010 is pegged at about $ 2.5 billion. ask the importer to provide further explanation to the effectCuriously, while the Swiss government has said that India that the declared value represents the total amount actuallycan seek tax information on cases dating from January paid or payable for the imported goods. Needless to addthis year, the Central Board of Direct Taxes pointed out that ‘reason to doubt’ does not mean ‘reason to suspect’.”that information can be sought in specific cases starting (Source: http://www.economictimes.com)from 1st April, 2011. Also, while the treaty will be applicablein Switzerland on income originating in tax years starting EC Ropes in I-T Dept to Check Poll Fundingon or after 1st January, 2012, in matters pertaining to In a bid to check suspicious transactions, the Electionexchange of information, the provisions in the treaty will Commission has rolled out fresh guidelines for monitoringapply to information referring to tax years which start on of poll funding during the forthcoming elections in fiveor after 1st January, 2011, the Swiss statement said. Under states, including Uttar Pradesh, and has roped in thethe revised accord with the Alpine tax haven, India will be income tax department and the financial intelligence unitallowed to seek information on tax evasion cases whereas, for this purpose. The directives to create a database ofunder the earlier agreement, the country could only seek doubtful transactions and dubious movement of cashbank details in relation to tax fraud cases. were recently issued by the EC to chief electoral officers of(Press Trust of India) the five states that go to the polls. “The EC guidelines on poll expenditure monitoring have been operationalised,” Services Negative List Likely in Next Budget a senior official privy to the development said. This is The Finance Ministry may announce a negative list for for the first time that the EC has asked the elite financialservices in the next Budget, despite suggestions from intelligence unit, functioning under the finance ministry, tothe industry it be introduced alongside the Goods and sift through their records for any instance of informationServices Tax (GST). Currently, the Centre has a positive about the assets and liabilities of candidates participatinglist of services, in which a detailed description is provided in the polls. “Besides, the I-T (investigation) and FIU willfor each taxable service. Services not specified are not download from EC website the copies of affidavits declaringliable to be taxed. In a negative list approach, barring a few assets and liabilities by the candidates. The FIU will alsoservices listed by the government, all others will be taxed. verify the information available with them pertaining to theThe idea behind moving to a negative list is to ensure there candidates and send the report to the director general ofare no unintended tax exemptions. The ministry is of the income tax (investigation) of the state through the Centralview that moving towards a negative list by next year itself Board of Direct Taxes,” the EC said.will prepare the government as well as the industry for a (Source: http://beta.profit.ndtv.com/news)new system before the GST is introduced. The industry,on the other hand, has told the government it is in favour E-filing of Excise, Service Tax Returns Mandatoryof a negative list, but introducing it only at the Central level Assistant Commissioner of Central Excise Customs andwill defeat its purpose. States do not have the power to Service Tax G. Sudhakar has said that all the service taxtax services in the existing regime. But, the Constitutional and central excise assesses, who were filing their ST-3Amendment Bill for the introduction of GST being vetted returns manually, will have to file online from now onwards.by a Parliamentary Standing Committee will empower This new rule is implemented as per the instructions ofstates to do so. the Central Board of Customs and Central Excise as on(Source: http://www.business-standard.com/india/) October 1, 2011, he added. Mr. Sudhakar said a hassle- free procedure for filing the returns online has been Suspicion No Basis for Invoice Rejection, Says prescribed. The assesses have to create a user ID forSupreme Court them in ACES website and can proceed to file through The Supreme Court has ruled that the customs the website. Those who have already given their e-maildepartment cannot reject the authenticity of the invoice ID to the concerned Central Excise or Service Tax Rangeproduced by the importers of the consignment on the basis Officers are provided with a TPIN number through e-mail.of a mere suspicion. Any doubt about the value of such They can log on to the ACES website using the saidinvoice has to be based on some material evidence and not TPIN number and create a user ID, he said. He said theon a mere suspicion or speculation of the authorities, the assessees who have not given their active or new e-mailapex court said. “A mere suspicion upon the correctness to the concerned officers should give them immediatelyof the invoice produced by an importer is not sufficient to so that e-mails containing TPINs can be sent to them forreject it as evidence of the value of imported goods. The enabling them to create user ID. Everyone should file onlydoubt held by the officer concerned has to be based on online as the manual filing has been dispensed with.some material evidence and is not to be formed on a mere (Source: http://www.thehindubusinessline.com/)suspicion or speculation,” said a bench comprising Justice 110 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • 767 INTERNATIONAL UPDATE IFRS Resources’ List is Updated to be addressed decisively to restore confidence, financial The IFRS Foundation Education Initiative has updated stability and growth. The communiqué released outlines variousthe list of English language resources about International responses and reforms in the financial sector, including in relationFinancial Reporting Standards (IFRSs) available to accounting to over the counter (OTC) derivatives, Basel reforms on bankingpractitioners, educators, students, and others who wish to study regulation and reducing over-reliance on external credit ratings.IFRSs. The list includes resources available from accounting The communiqué also notes the reaffirming of the objective tofirms, professional bodies, government agencies, commercial achieve a single set of high quality global accounting standards,publishers, and the IASB itself. The list includes IFRS-based without providing any documented deadlines for achieving thetextbooks, is not copyrighted and may be freely reproduced objective.and distributed (without alteration). The latest version may be (Source: http://www.iasplus.com/)downloaded from the IFRS Learning Resources page.(Source: http://www.ifrs.org/News) IESBA 2011-2012 Strategy and Work Plan Approved The 2011-2012 International Ethics Standards Board for IFAC Releases Revisions to Policy Position Papers Accountants (IESBA) Strategy and Work Plan, which sets theOne and Three direction and priorities for the activities of the International Ethics The International Federation of Accountants (IFAC) recently Standards Board for Accountants (IESBA), has been approvedreleased revised versions of Policy Position Paper 1, Regulation by the IESBA, the IESBA Consultative Advisory Group, andof the Accountancy Profession, and Policy Position Paper 3, the Public Interest Oversight Board. The IESBA plans to buildInternational Standard Setting in the Public Interest. Policy upon the strong base established by the revised Code of EthicsPosition Paper 1, Regulation of the Accountancy Profession, for Professional Accountants (the IESBA Code) issued in Julywas first issued by IFAC in December 2007. The revised paper 2009. The 2011-2012 Strategy and Work Plan is focused onincludes a new section titled “Current Regulatory Environment.” three strategic areas: development of standards; adoption andThe section highlights the importance of global regulatory implementation; and convergence. The IESBA plans to developconvergence, including the adoption and implementation of additional guidance for professional accountants on identifyinghigh-quality standards. It describes recent developments in and addressing a conflict of interest, responding to suspectedregulation and makes reference to the Independent Forum of illegal acts, and dealing with a breach of an independenceIndependent Audit Regulators (IFIAR) Core Principles. Lastly, requirement of the IESBA Code. The plan may be accessedthe revised Policy Position Paper 1 includes a description of from www.ifac.org/Ethics.what would typically be included in shared regulation of auditing (Source: http://press.ifac.org/news)at a national level. Policy Position Paper 3, International StandardSetting in the Public Interest, was issued by IFAC in December Cross-Industry Taskforce Calls on G-20 to Promote2008. The revised and updated paper describes how current Economic Stability Through Regulatory Convergencegovernance arrangements and independent standard-setting IFAC has released the Private Sector Taskforce (PSTF)boards supported by IFAC operate in the public interest and Report to G-20 Deputies. The PSTF report presents a set ofaddress the need for legitimacy, transparency, and performance. recommendations on how to promote regulatory convergenceIt further includes discussion of the 2010 Monitoring Group (MG) from the perspective of a number of financial professionsreview. and industries. The PSTF was established in May 2011 at the(Source: http://press.ifac.org/news) request of the Presidency of the G-20. The report provides the G-20 with an analysis of the development of financial policy and Comments Invited on 5 Draft Q&As for the IFRS for regulation, with the aim of facilitating economic stability in theSMEs world’s capital markets. The benefits of regulatory convergence The SME Implementation Group (SMEIG) recently published are identified, as well as the inefficiencies and associated costsfive draft Questions & Answers (Q&As) on the IFRS for SMEs. created by regulatory gaps. A range of possible scenariosThese draft Q&As are open for comment until 30th November, and associated risks are thoroughly analysed and explored,2011 and cover the following topics: Application of the IFRS specific examples are given, and a set of recommendations arefor SMEs for financial periods ending before the IFRS for provided. Coordinated by the IFAC, the taskforce includes CFASMEs was issued Interpretation of ‘undue cost or effort’ and Institute (CFA I); INSOL International; Institute of International‘impracticable’, Jurisdiction requires fallback to full IFRSs, Finance (IIF); International Accounting Standards Board (IASB);Departure from a principle in the IFRS for SMEs, Prescription of International Actuarial Association (IAA); International Corporatethe format of financial statements by local regulation. The SMEIG Governance Network (ICGN); International Insurance Societyis responsible for assisting the IASB on matters relating to the (IIS); and International Valuation Standards Council (IVSC).implementation of the IFRS for SMEs, which is a self-contained The report stresses the necessity of open communicationstandard designed to meet the needs and capabilities of small and transparent processes, as well as continued cooperationand medium-sized entities. The SMEIG is currently reviewing between national and regional regulators and professional andcomments received on three other draft Q&As, for which the industry groups, in order to further develop global standards.comment period ended in June 2011. The PTSF report with the full recommendations is posted on the(Source: http://www.ifrs.org/News) IFAC website. (Source: http://press.ifac.org/news) G20 Finance Ministers Focus on Global EconomicRisks, Re-affirm Commitment to Global Standards IASB Updates June 2011 Editorial Corrections to The G20 Finance Ministers and Central Bank Governors, in IFRSsa recent meet in Paris, focused on heightened tensions and The IASB has posted to its website a revised version of thesignificant downside risks for the global economy that need batch of Editorial Corrections to IFRSs originally issued on THE CHARTERED ACCOUNTANT NOVEMbEr 2011 111
    • INTERNATIONAL UPDATE 76829th June, 2011. This batch makes editorial corrections and risks, procedures auditors should perform to address fraud riskschanges to IFRS for SMEs (issued July 2009), Conceptual and other items auditors should consider when performing anFramework for Financial Reporting (issued September 2010), audit of an entity with operations in emerging markets.Bound Volume (Red Book) 2011, Bound Volume (Blue Book) (Source: http://www.iasplus.com)2011, IFRS 10 Consolidated Financial Statements (issued May2011), IFRS 11 Joint Arrangements (issued May 2011), IAS 19 UK Government Considers Reducing SME ReportingEmployee Benefits (issued June 2011) and Presentation of Items Requirementsof Other Comprehensive Income (issued June 2011). The UK government has issued a proposal that would see(Source: http://www.iasplus.com/) reduced financial reporting requirements for SMEs in order to save companies on accounting fees and administrative costs. IFAC Updates Policy Statements on Regulation and The consultation Audit Exemptions and Change of AccountingStandard Setting Framework by the Department for Business, Innovation and Skills The International Federation of Accountants (IFAC) has sets out plans to allow more small companies and subsidiariesreleased revised versions of its Policy Position Papers on the to decide whether or not to have an audit. The government isregulation of the accountancy profession and international also proposing to introduce legislation in 2012 to exempt moststandard setting. Policy Position Paper 1, Regulation of the subsidiary companies from mandatory audit, provided theirAccountancy Profession, was first issued by IFAC in December parent is prepared to guarantee their debts. Currently in the2007. The revised paper includes a new section highlighting UK, SMEs have to meet turnover and balance sheet thresholdsthe importance of global regulatory convergence, including to be exempt from audit. Under the new proposals, UK SMEsthe adoption and implementation of high-quality standards. would be eligible for audit exemption by meeting any two ofIFAC recognises that regulation of the accountancy profession the three criteria - turnover, balance sheet total and number ofis primarily conducted at a national level. Therefore, in IFAC’s employees. The Minister for Corporate Governance said that theview, to achieve international convergence, national regulation volume and costs of reporting requirements for UK companiesshould aim to endorse and implement principles, approaches, have increased and businesses have stressed the need forand obligations outlined in material issued by authoritative more flexible and targeted rules.international bodies. Policy Position Paper 3, International (Source: http://www.vrl-financial-news.com/)Standard Setting in the Public Interest, was issued by IFAC inDecember 2008. The revised and updated paper describes how Study Finds the Global Financial Crisis has Increasedcurrent governance arrangements and independent standard- Support for IFRSssetting boards supported by IFAC operate in the public The Association of Chartered Certified Accountants (ACCA)interest and address the need for legitimacy, transparency, has published a survey showing among other results that theand performance. The paper includes a brief history of IFAC’s International Financial Reporting Standards (IFRS) are moregovernance structure (such as the ‘IFAC Reforms’) and notes that favourably viewed following the global financial crisis. 163the IFAC Board is considering amendments to the governance senior executives from a wide range of industries, includingprocess of the International Public Sector Accounting Standards the financial sector, from the US, Europe, the Middle East andBoard (IPSASB), including the possibility of public oversight by Asia took part in the survey that was designed to gauge supportthe Public Interest Oversight Board (PIOB). for of global standards. The findings were complemented with(Source: http://www.iasplus.com) in-depth interviews with nine executives and investors. The US Securities and Exchange Commission should adopt the IFRSs 28th session of UNCTAD’s Intergovernmental Working is a clear sign as commented in the foreword of the study.Group of Experts on ISAR (Source: http://www.iasplus.com) The twenty-eighth session of the Intergovernmental WorkingGroup of Experts on International Standards of Accounting FRC to Improve Corporate Reportingand Reporting (ISAR) was recently held in Geneva. ISAR The UK Financial Reporting Council (FRC) has launched aassists developing countries and economies in transition Financial Reporting Lab intended for Corporates and investorsto implement best practices in corporate transparency and to develop pragmatic solutions to current reporting needs. Theaccounting in order to facilitate investment flows and economic project aims help enhance the current reporting model that hasdevelopment. ISAR’s annual sessions regularly involve over been criticised by some stakeholders and investors, who said200 government authorities, regulators, standard-setters and company reports are sometimes leaving them struggling toacademic representatives. Speeches and presentations at the understand the underlying performance of an entity. FRC saidsession included contributions from ACCA, IAESB, IFAC, IFRS the participants in the project will be drawn from a diverse rangeFoundation and the World Bank. They are available on this of sectors and will include investors and representatives from aUNCTAD website. range of companies. The Financial Reporting Lab will present a(Source: http://www.iasplus.com) safe environment where companies and stakeholders can help improve the efficiency of corporate reporting and the project Audit Alert on Audit Risks in Certain Emerging will take a large part of the cost and risk out of the process ofMarkets innovation and reduce the need for regulatory intervention as The US Public Company Accounting Oversight Board per a chief executive of FRC. Disclosure requirements were also(PCAOB) has issued a Staff Audit Practice Alert to discuss a topic broached at the launch with many questioning whetherthe auditor’s responsibilities regarding the risk of fraud when certain parts of the annual report, such as governance and riskauditing companies with operations in emerging markets. Staff management could be moved online.Audit Practice Alert No. 8 Audit Risks in Certain Emerging Markets (Source: http://www.vrl-financial-news.com/)discusses examples of conditions that may indicate greater fraud 112 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • REFERENCE 770 ACCOUNTANT’S BROWSER ‘PROFESSIONAL NEWS & VIEWS PUBLISHED ELSEWHERE’ Index of some useful articles taken from Periodicals/Newspapers received during September-October 2011 for the reference of Faculty/Students & Members of the Institute.1. ACCOUNTING UK Investors Perceptions of Auditor Independence by Accounting Standards: Gaps in GAAP – What is Substantial Eleanor Dart. The British Accounting Review, Vol.43, 2011,Period of Time? by Dolphy D’souza. BCAJ, Sep. 2011, pp.89- pp.173-185.90. Camouflage Accounting by Anand Adhikari. Business 3. ECONOMICSToday, Sep. 18, 2011, pp.144-150. Corporate Investment: Growth in 2010-11 & Prospects for Critical Accounting Policy Disclosures by C.B. Levine & 2011-12 by Department of Statistics & Information management.M.J. Smith. Journal of Accounting, Auditing & Finance, Vol.26 RBI Bulletin, Sep. 2011, pp. 1223-1231./3, 2011, pp.39-75. Global Capitalism at Risk: What Are You Doing About It ? Discussion of “The importance of Accounting Information by Joseph L. Bower, etc. Harvard Business Review, Sep. 2011,in Portfolio Optimization” by Suresh Govindaraj. Journal of pp. 105-110.Accounting, Auditing & Finance, Vol.26 /3, 2011, pp. 35-38. Liberalization, Privatization & Globalization of Education: Financial Reporting Quality & Investment Efficiency of An Assessment by Hema Raghavan. University News, Sep. 12-Private Firms in Emerging Markets by Feng Chen, etc. The 18, 2011, pp.8-10.Accounting Review, Vol.86/4, 2011, pp.1255-1288. From Published Accounts by H.V. Kishnadwala. BCAJ, 4. INVESTMENTSep. 2011, pp. 91-99. Demutualisation of Stock Exchanges: A Study of MCX-SX IFRS 13 : Part 1 by Stephen Spector. CGA Magazine, Sep. by S.N. C. Sastry & Nandini Seth. Company Law Journal, Vol.3,– Oct. 2011, pp.36-37. 2011, pp. 127-139. IFRS Introduces Framework for Measuring Fair Values by Participatory notes & their resultant impact on Stock MarketsJamil Khatri & Akeel Master. BCAJ, Sep. 2011, pp. 85-88. by A.S. Dalal. Company Law Journal, Vol.3, 2011, pp.97-98. Modeling Discretionary Accrual Reversal & The BalanceSheet as an Earnings Management Constraint by W.R. Baber, 5. MANAGEMENTetc. The Accounting Review, Vol. 86/4, 2011, pp. 1189-1212. Corporate Governance & board equity ownership by T.M. XBRL – Future Financial Language by Anik R. Koria. BCAJ, Pergola & G.W. Joseph. Corporate Governance, Vol.11/2, 2011,Sep. 2011, pp.9-13. pp.200-213. Corporate Governance & Capital Flows by Giuseppina2. AUDITING Talamo. Corporate Governance, Vol.11/3, 2011, pp. 228-243. Audit Regulatory Reform with a Refined Stakeholder Model Corporate Governance in a Developing Economy: Barriers,to Enhance Corporate Governance: Hong Kong Evidence by Issues, & Implications for Firms by John O. Okpara. CorporatePhilip Law. Corporate Governance, Vol.11/2, 2011, pp. 123- Governance, Vol.11/2, 2011, pp. 184-199.135. Corporate Governance: MCA’S Green Initiative by S. The Effects of Corporate Governance & Audit & Non-audit Balakrishnan. Consolidated Commercial Digest, 15/09/2011,Fees on IPO Value by Salim Chahine. The British Accounting pp.10-12.Review, Vol.43, 2011, pp. 155-172. Corporate Governance Then & Now by Andrew Ewe. Public Internal Control Disclosures, Monitoring, & The Cost of Accountants, Aug.-Sep. 2011, pp.22-24.Debt by Dan Dhaliwal, etc. The Accounting Review, Vol.86/4, The Four Steps to Corporate Sustainability by Om Prakash2011, pp.1131-1156. Dani & M.S. Srinivasan. Chartered Secretary, Sep. 2011, Monitoring by Auditors: The Case of Public Housing pp.1197-1201.Authorities by Barbara Murray Grein & S. L. Tate. The Accounting The Incorporation of Ethics by Mindy Abramowitz. CGAReview, Vol.86/4, 2011, pp.1289-1319. Magazine, Sep.-Oct. 2011, pp. 50-51. Regulating Audit Beyond the Crisis: A Critical Discussion of New Perspective for the Management of M&A Process:the EU green Paper by Christopher Humphrey, etc. European A Merger Case of a Japanese Pharmaceutical Company byAccounting Review, Vol.20/3, 2011, pp. 431-457. Sotaro Shibayama, etc. Corporate Governance, Vol.11/1, 2011, Risk-based Auditing, Strategic Prompts, & Auditor pp.77-89.Sensitivity to the Strategic Risk of Fraud by Kendall Bowlin. The Speculative Expectations & Financial Instabilities: WhenAccounting Review, Vol. 86/4, 2011, pp. 1231-1253. the Competitive Environment Matters by Miia Parnaudeau. Small & Large Firm Regulatory Costs: The Case of the Corporate Governance, Vol.11/3, 2011, pp.285-292.Sarbanes-Oxley Act by James A. Millar & B. Wade Bowen. Universal Standards in CSR: Are We Prepared by AdefolakeCorporate Governance, Vol.11/2, 2011, pp. 161-170. Adeyeye. Corporate Governance, Vol.11/1, 2011, pp.107-119. Full Texts of the above articles are available with the Central Council Library, ICAI, which can be referred on all working days. For further inquiries please contact on 011-23370154 or by e-mail at library@icai.org 114 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • 771 KNOW YOUR ETHICSKnow Your Ethics*Ethical Issues in Question-Answer Form in which he, his firm or a partner in his firm has substantial interest. (vide amendment in the CAQ. Whether an auditor is required to provide the client Act in 2006, even after disclosure of interest by the or other auditor of the same enterprise access to his member, expression of opinion is not allowed.) The audit working papers? meaning of the word “substantial interest” shall be the same as are contained in the Resolution passedA. No, working papers are the property of an auditor. An by the Council in pursuance to Regulation 190A auditor is not required to provide the client access of CA Regulations (Pl. refer Appendix-9 of the CA to his audit working papers. The main auditors of an Regulations, 1988.) enterprise do not have right of access to the audit working papers of the branch auditors, except in Q. Whether a member in practice will be held liable for case it is required by the regulatory norms. failing to keep moneys of his client in a separate banking account or to use such moneys forQ. Whether a joint auditor will be responsible for the purposes other than they are intended for? work done by other joint auditor? A. Yes, as per Clause (10) of Part I of Second ScheduleA. Council direction under Clause (2) of Part I of the to the CA Act, a member in practice shall be Second Schedule to the CA Act prescribes that deemed to be guilty of professional misconduct, if in respect of audit work divided among the joint he fails to keep monies of his client other than fees auditors, each joint auditor is responsible only for or remuneration or money meant to be expended in the work allocated to him, whether or not he has a separate banking account or uses such monies prepared a separate report on the work performed for purposes other than they are intended for. by him. However, on the other hand, all the joint auditors are jointly and severally responsible for Q. Can an auditor write the books of accounts of the the work which is not inter se divided among the auditee? auditors, and also for compliance of requirements of relevant statutes. A. No, Council directions under Clause (4) of Part I of the Second Schedule to the CA Act prescribesQ. Whether the member in practice will be liable if that an auditor is not permitted to write the books of he permits his name or the name of his firm to be accounts of his auditee clients. used in connection with an estimate of earnings contingent upon future transactions in a manner Q. Whether a statutory auditor can accept the system which may lead to the belief that he vouches for the audit of same entity? accuracy of the forecast? A. Yes, the statutory auditor can accept the assignmentA. Yes, he shall be liable under Clause (3) of Part I of of a system audit of the same entity, provided it did the Second Schedule to the CA Act. not involve any scrutiny/review of financial data and information.Q. Can a member in practice express his opinion on financial statements of any business or enterprises Q. Whether a member who is carrying out statutory in which he, his firm or a partner in his firm has a audit and also rendering management consultancy substantial interest? services to his auditee clients can receive fees for such other services, which are in excess of the auditA. No, as per Clause (4) of Part I of the Second fees? Schedule to the CA Act, a Chartered Accountant in practice shall be deemed to be guilty of professional A. Yes. However, in exercise of the powers conferred misconduct, if he expresses his opinion on financial by Clause (1) of Part II of the Second Schedule to statements of any business or any enterprise the CA Act, the Council of the Institute has issued* Contributed by the Ethical Standards Board of the ICAI THE CHARTERED ACCOUNTANT NOVEMbEr 2011 115
    • KNOW YOUR ETHICS 772 Guidelines which specify that a member of the interest” shall have the same meaning as Institute in practice shall be deemed to be guilty are assigned under Appendix (10) to the of professional misconduct, if he accepts the CA Regulations. appointment as statutory auditor of Public Sector Undertaking(s)/ Government Company(ies)/ Listed 3. In regard to taking up other work(s) or service(s) Company(ies) and other Public Company(ies) or assignment(s) of the undertaking/company having turnover of R50 crore or more in a year referred to above, it shall be open to such and accepts any other work(s) or assignment(s) associate concern or corporate body to render or service(s) in regard to the same Undertaking(s)/ such work(s) or service(s) or assignment(s) Company(ies) on a remuneration which in aggregate so long as aggregate remuneration for such exceeds the fee payable for carrying out the statutory other work(s) or service(s) or assignment(s) audit of the same Undertaking/company. Provided payable to the statutory auditor/s together with that in case appointing authority(ies)/regulatory fees payable to its associate concern(s) or body(ies) specify(ies) more stringent condition(s)/ corporate body(ies) do/does not exceed the restriction(s), the same shall apply instead of aggregate of fee payable for carrying out the the conditions/restrictions specified under the statutory audit. Guidelines. Q. Can a Chartered Accountant receive his professional Explanation: fees in advance partly or in full? 1. The above restrictions shall apply in respect of fees for other work(s) or service(s) or A. Yes, as such there is no bar in the CA Act or in the assignment(s) payable to the statutory auditors CA Regulations as well as Code of Ethics in taking and their associate concern(s) put together; the fees in advance. 2. For the above purpose, (I) The term “other work(s)” or “service(s)” or Q. Whether a member of the Institute will be liable, if he “assignment(s)” shall include Management contravenes any of the provisions of CA Act or the Consultancy and all other professional Regulations or the Guidelines? services permitted by the Council pursuant to Section 2(2)(iv) of the CA Act, but shall A. Yes, as per Clause (1) of Part II of Second Schedule not include: to the CA Act, a member in practice shall be (i) audit under any other statute; deemed to be guilty of professional misconduct, (ii) certification work required to be done if he contravenes any of the provisions of CA Act by the statutory auditors; or the Regulations made under or any Guidelines and issued by the Council. (iii) any representation before an authority. Q. Is there any ceiling on the number of tax audit assignment that can be taken up by a member in (II) The term “associate concern” means any practice? corporate body or partnership firm which renders the Management Consultancy and A. Yes, in exercise of the powers conferred by Clause all other professional services permitted (1) of Part II of the Second Schedule to the CA by the Council wherein the proprietor and/ Act, the Council of the Institute has issued General or partner(s) of the statutory auditor firm Guidelines, 2008 which specify that a member and/or their “relative(s)” is/are Director/s of the Institute in practice shall be deemed to be or partner/s and/or jointly or severally hold guilty of professional misconduct, if he accepts, in “substantial interest” in the said corporate a financial year, more than the specified number of body or partnership; tax audit assignments under Section 44AB of the Income-tax Act, 1961. The number specified for tax (III) The terms “relative” and “substantial audit is 45. n116 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • 773 TECH FOR YOU TECH FOR YOU Mobile Computing: Business Applications and Chartered Accountants1The Mobile Revolution in India list of the 10 most strategic tech trends Business Applications of MobileMobile computing is a new paradigm of 2012 and the top two in the list are: Computingof computing, which is rapidly gaining Media Tablets and beyond and Mobile Mobile devices provide the capability tomomentum. Mobile computing is not Centric Applications and interfaces. The conduct business anywhere and enablejust about using mobile phones but it prediction is that the growth of media users to seamlessly communicateis about computing on the move using tablets will result in replacement of the and access information whether theywireless connectivity. The National era of PC dominance with windows as are in the office or anywhere. MobilePolicy for Electronics 2011 states the single platform in a post-PC era computing is changing the businessthat IT and Telecommunications are where Windows will become one of a landscape. The change driven largelythe twin sectors that best epitomise variety of environments IT will need to by video, web-browsing, gaming, andwhat modern, resurgent and young support. Mobile-centric applications other entertainment related applicationsIndia is capable of accomplishing. and interfaces would lead to building is one of the hottest trends in theThe policy lauds the achievements in of user interfaces for multiple screen consumer sector. Mobile computing isthe recent past in the IT and Telecom sizes and operating systems increasing rapidly moving from gadget status to aas spectacular and unprecedented in the need for new types of tools that can must-have for consumers compellingIndia’s history and forecasts that the accept data from various applications more and more business servicesfuture holds even more breathtaking and usable on multiple devices. By to be offered through this mode. Aspossibilities. This is opening out new 2014 mobile web users are expected enterprises rush to encash the costopportunities hitherto not envisaged. As to surpass desktop web users. The benefits of global business operations,of September, 2011, India has over 850 proliferation of smart phones, tablet mobile devices become increasinglymillion mobile subscribers with over computers, and mobile devices in the indispensable.90% of villages having mobile coverage. workplace emerged for the first time as Mobile computing enables enterprisesA growing number of private sector the top business technology concern to connect with their employees at allservices are now being provided either for CPAs and financial executives, times resulting in increased productivityonline or via mobile phone. The National according to the 2011 Top Technology and a better return on investments. Somee-Governance Plan, is facilitating Initiatives Survey by AICPA. examples of business applications are: Cincreasing number of government • There is increase in workforceservices to be provided online. An hartered productivity as mobile devicem-governance policy has also been Accountants as enables employees to work fromdrafted covering services provided via knowledge workers anywhere, anytime by accessingmobile phone. Core banking enables and updating information asbanking from anywhere and basic at a personal level required. For example: employeesbanking services can be accessed are using mobile can read/respond to emails usingvia the mobile phones. E-Services are computing in their own way laptops, PDAs or smart phonesbecoming seamlessly linked through through smart phones, tablets and from office, residence and evenmobile, Internet and other modes of broadband wireless connectivity. when on the move.delivery. A pan India Broadband Plan • Customer service can be improvedhas been initiated with the objective However, it is important to take by responding to customer queriesof providing broadband connectivity the use of mobile devices to next on site or off site. For example:across the country by 2014, which will level of using it within their firm customer complaints can bepropel the mobile revolution in a big and also for providing consulting/ accessed and responded byway. assurance services to clients. accessing past/latest information of client as required.Evolution of Mobile Computing This requires understanding how • Incident management can beMobile computing is enabled by use mobile devices are changing improved by resolving problemsof mobile devices (portable and hand the way every type of business faster without limitation of time asheld computing devices) such as operates and how mobile com- the concerned employees canPDA, laptops, mobile phones, MP3 puting can be used to improve attend to these regardless of theirplayers, digital cameras, tablet PC and location. Further, escalations canPalmtops on a wireless network. At its business processes and offer new be updated in real time whichannual symposium, Gartner unveiled its products and services. ensures timely resolution of1 Contributed by CA A. Rafeq (The Author is a member of the Institute. He can be reached at rafeq@vsnl.com.) THE CHARTERED ACCOUNTANT NOVEMbEr 2011 117
    • TECH FOR YOU 774 I problems. For example: Computer The key issues to be considered relate t’s only a matter of breakdowns can be serviced by to the mobile devices or gadgets to time before mobile service engineers from their desks/ be used/accessed, programming, connectivity is as outside by logging into the specific databases, networking, security, and computer, identifying problem and architecture of information systems indispensable as resolving it online. including wireless networking and the telephone.• Business processes can be security. It is important to prioritise Chartered Accountants are transformed by using mobile these technical drivers as per their impacted by usage of this devices. Enterprises can reengineer relative importance while planning the technology by their clients. As core business processes. The migration. The process dimension has new and reengineered processes to focus on the “how” aspect and has to increasing number of software can focus on ‘utilise the key’ consider the new of model of conducting applications on accounting, features of location and time business transactions by ensuring compliance and office automation independence. Enterprises can quality and managing the changing are available through mobile focus on providing customers relationships of the business with the technology, chartered Accountants and employees with access to customers and employees using mobile information in different ways and technology. The social dimension has have to acquire the requisite skill- provide the latest information. This to focus on “who” aspect and has to sets to ride this technology wave enables employees, customers, consider key players involved such as to make effective transition to a and businesses to be available to clients, employees, and other users of successful future. one another as per their choice. For the business and how they influence, example: billing can be done by and are influenced by the transition to device security policy which clearly employees using hand held devices mobile platform. defines the data classification permitted at customer site and the information on each type of mobile device, control updated online and deliveries to Mobile Computing and Chartered mechanisms required based on the data customers can be speeded up. Accountants classification, extent to which general• Enterprises can dynamically modify IT has created the knowledge worker use of personal devices is permitted and update their offerings and and this workforce is significantly more within work-place, technical controls, offer new products and services mobile and enterprises need to create back up of data, data management, altogether. For example: enterprises ways for their employees to get the security features, etc. can implement telecommuting with work done. Mobile computing enables flexible working hours and locations the knowledge worker to work as per Conclusion allowing for cost savings and better their timetable, anywhere, anytime. Mobile computing gives users the efficiency. Chartered Accountants as knowledge freedom to roam with access to data workers at a personal level are using and services at any time and place.Implementing Mobile Computing mobile computing in their own way Most of the high-end ERPs and businessEnterprises implementing mobile com- through smart phones, tablets and software applications for SMEs have in-puting have to focus not only on their broadband wireless connectivity. built capabilities of mobile computingemployees but also on their customers, However, it is important to take the use enabling users to access data. Usedbusiness partners and service providers of mobile devices to next level of using with proper security, enterprises canto realise the benefits. The key con- it within their firm and also for providing harness the power of this technologysideration in implementing mobile consulting/assurance services to to create innovative opportunities forcomputing is to focus on improvements clients. This requires understanding improving the quality and efficiency ofin core business processes and fun- how mobile devices are changing the business processes and services. Mobilections. This could cover: customer way every type of business operates devices are increasingly acquiring therelationship management, supply chain and how mobile computing can be must-have status for enterprises onmanagement, procurement process, used to improve business processes account of the increasing acceptancehuman resource and payroll systems, and offer new products and services. as business tools. Surveys have shownsystem and business process integration, Mobile computing involves some that forward-thinking CA firms areknowledge management, etc. unique security considerations that already connecting to their professional Enterprises planning to implement can be mitigated through appropriate colleagues and clients with mobilemobile computing have to consider it security measures such as configuration, devices, their staff are bringing themat a strategic decision rather than as policy and training. Mobile devices offer into the office, and it’s is expected thattechnology or operational decision. The a wealth of connectivity, delivering it’s only a matter of time before mobilefour key aspects to be considered are great opportunities if used with proper connectivity is as indispensable as thethe economic, technical, process, and security measures. Mobile devices tend telephone. Chartered Accountants aresocial dimensions. to be even more personal than personal impacted by usage of this technology The economic dimension has to computers. However, most enterprises by their clients. As increasing numberfocus on the “why” aspect such as the are permitting usage of mobile devices of software applications on accounting,business drivers, costs, competition, for accessing enterprise data. This compliance and office automation arecustomers, employees, convenience, requires an effective system of mobile available through mobile technology,and cost benefit analysis. The technical device management as these devices chartered Accountants have to acquiredimension has to focus on the “what” hold both personal and corporate data. the requisite skill-sets to ride thisaspect and consider the underlying Hence, it becomes critical for auditors to technology wave to make effectivetechnologies and the key deliverables. determine if the enterprise has a mobile transition to a successful future. n 118 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • ICAI NEWS 780 Certificate Course on Enterprise Risk Management Delhi Mumbai Kolkata Kanpur Chennai CPE hrs: Course 100 hrs Fees : November November December December January (50 hrs R25,000 5&6, 12&13, 12&13, 3&4, 10&11, 10&11, 7&8, 14&15, structured and 19&20,2011 19&20, 17&18,2011 17&18, 21&22,2012 50 unstructured) 26&27,2011 24&25, 2011 The Internal Audit Standards Board (IASB) of the ▪ Eligibility: A candidate will have to attend aInstitute of Chartered Accountants of India (ICAI) has minimum of 40 hours of classes and complete thebeen constituted to reinforce the role of the Institute as entire E-learning module, failing which, he/she willa promoter and source of knowledge relating to internal not be entitled to appear in the evaluation.audit. Having regard to the need for further educating ▪ Weightage: the following weightage is assignedthe members of the Institute in the area of the Enterprise during evaluation:Risk Management and as part of capacity building of ▫ Class room learning and tests : 50%members, the Internal Audit Standards Board of the ▫ E-learning : 20%ICAI is pleased to offer Certificate Course in “Enterprise ▫ Case study presentation : 20%Risk Management” to enable the members to develop ▫ Class room attendance : 10%competence in this emerging field and offer value ▪ Number of attempts: There is no limit on theadded services. permissible number of attempts for the evaluation tests. A candidate will be allowed to re-appearCourse Objectives for the evaluation test only after six months of theThe Certificate Course on ERM has been designed to previous attempt.help the members:▪ To appreciate the risk as opportunity rather than a Further Details and Registration Form Link: threat. http://www.icai.org/post.html?post_id=4287▪ To gain in-depth knowledge of ERM under guidance of renowned ERM specialist. Course Registration is on First-Come-First Served▪ To gain insights in ERM implementation from basis on receipt of duly filled-in and signed application experienced faculties. along with course fee.▪ Bring upto date on current thinking on risk management. Address for sending the Registration Form :▪ To design and implement ERM. Internal Audit Standards Board Secretriat The Institute of Chartered Accountants of India This Certificate Course on ERM initiates the members ICAI Bhawan, A-29, Sector 62,to structural approach toward risk management and NOIDA – 201 309manage intricacies of dynamic business environment. Further Details and AssistanceEligibility Course Chairman Course DirectorOnly the Members of ICAI and the Student of the CA. Rajkumar S. Adukia CA. Rajendra Kumar P . Chairman, Internal Audit Vice Chairman, Internal AuditInstitute who have passed the CA Final Examination Standards Board Standards Boardare eligible to pursue this Course. Mobile: 09820061049, Mobile: 093823 03403 09323061049 Phone: 0120-3045949Evaluation Phone: 0120-3045949 Email: auditing@icai.org; iasb. Email: radukia@icai.org; cia@ program@icai.inParticipant who successfully completes the course in icai.orgline with the evaluation criteria mentioned below andqualifies the evaluation test will be awardedCertificate. 124 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • 781 ICAI NEWS Certificate Course on Internal Audit Delhi Mumbai Chennai Hyderabad Kanpur Kolkata CPE hrs: Course November November January November November January 100 hrs Fees : 19 & 20, 26 & 14 & 15, 5 & 6, 26 & 27 7 & 8, 14 (50 hrs structured R25,000 26 27 and 21 &22, 12 & 13, and & 15, 21 & and & 27 and December 28 & 29, 19 & 20, December 22, 28 50 unstructured) December 3&4 and 26 & 27 3 & 4, & 29, 3 & 4, 10 10 &11, February and 10 & 11, and &11, 17 17 & 18, 4 & 5, December 17 & 18, February &18, and 11 & 12, 3 & 4, 2011 and 4 & 5, 2011 24 & 25, 2012 24 & 25, 2012 2011 2011 The Internal Audit Standards Board of the ICAI is ▫ Class room learning and tests : 50%pleased to offer Certificate Course on “Internal Audit” ▫ E-learning : 20%to enable members to understand the various issues ▫ Case study presentation : 20%relating to the internal audit and in developing the ▫ Class room attendance : 10%necessary skills to provide value added services in this ▪ Number of attempts: There is no limit on thearea. permissible number of attempts for the evaluation tests. A candidate will be allowed to re-appearCourse Objectives for the evaluation test only after six months of theThe Certificate Course on Internal Audit has been previous attempt.designed to help the members:▪ Disseminating knowledge on the theory and Further Details and Registration Form Link: practice of Internal Audit and allied functions. http://www.icai.org/post.html?post_id=7606▪ Reflect current internal audit thinking and practices and how they impact contemporary business Course Registration is on First-Come-First Served enterprises. basis on receipt of duly filled-in and signed application▪ Enhancing the role of chartered accountants in the along with course fee. area of Internal Audit and allied functions.▪ Building up Internal Audit as a core competence Address for sending the Registration Form : area of chartered accountants. Internal Audit Standards Board Secretriat The Institute of Chartered Accountants of IndiaEligibility ICAI BhawanOnly the Members of ICAI are eligible to pursue this A-29, Sector 62,Course. NOIDA – 201 309Evaluation Further Details and AssistanceParticipants who successfully completes the course Course Chairman Course Coordinatorin line with the evaluation criteria mentioned below CA. Rajkumar S. Adukia CA. Rajendra Kumar P .and qualifies the evaluation test will be awarded Chairman, Internal Audit Vice Chairman, Internal Audit Standards Board Standards BoardCertificate. Mobile: 09820061049, Mobile: 093823 03403▪ Eligibility: A candidate will have to attend a 09323061049 Phone: 0120-3045949 minimum of 42 hours of classes and complete the Phone: 0120-3045949 Email: auditing@icai.org; iasb. Email: radukia@icai.org; cia@ program@icai.in entire E-learning modules, failing which, he/she icai.org will not be entitled to appear in the evaluation.▪ Weightage: the following weightage is assigned during evaluation: THE CHARTERED ACCOUNTANT NOVEMbEr 2011 125
    • ICAI NEWS 782 Articles requested for new feature, Professional Opportunities, of the JournalThis is to inform you that the Editorial Board has retention of talent, office administration, infrastructuredecided to start a new feature, Professional set-up, meeting initial capital requirement,Opportunities, specifically for the use of small and documentation, office procedures like filing of clientmedium practitioners (SMPs) of the CA profession data, etc.covering approximately one to two pages of the In view of the above, you are requested to kindlyJournal, i.e. in 1200 words. This feature will have contribute a relevant write-up in about 1200 words forwrite-ups including relevant information on the consideration of the Editorial Board for publication in theareas which could be targeted by the SMPs for Journal.their capacity-building and professional growth.This may also cover particular aspect of problems - Editor, The Chartered Accountant, ICAIthat SMPs face in their day-to-day affairs, e.g. Committee on Public Finance and Government Accounting Invitation to Contribute Articles for E-NewsletterThe Committee on Public Finance & Government not be reproduced, whether in part or in whole,Accounting of The Institute of Chartered Accountants without the consent of Editorial Board ofof India is regularly coming up with its E-Newsletter Committee. Authors may only submit original-‘Prudence’ featuring various articles on economic work that has not been appeared elsewhere inissues and measures on bi-monthly basis. The any publication.August-September 2011 issue of the E-Newsletter isavailable at the URL http://www.icai.org/new_post. The articles (500 to 700 words) may be sent tohtml?post_id=3825&c_id=241. us latest by 10th November, 2011 in the form of soft copy through mail/CD or in printed format through post The Committee invites experts, researchers and giving details of the subject matter.writers to contribute articles in different areas ofPublic Finance and Government Accounting Those desirous may please contact at the followingpreferably on Public Debt, Public Expenditure, Fiscal address:Policy, Monetary Policy, Accounting Reforms, AccrualAccounting, Accounting for Intangible Assets and The SecretaryRestructuring of Chart of Accounts in Accrual System Committee on Public Finance andin Public Sector for publication in the October- Government AccountingNovember 2011 issue of its E-newsletter. If the The Institute of Chartered Accountants of Indiaarticle is published, a token honorarium of R3000/- ‘ICAI Bhawan’, A-29, Sector-62,per article shall be paid. Discretion of the Committee Noida - 201 309regarding publication/non-publication of the article Phone: 0120-3045950(O)shall be final and abiding therewith under copyright Email: cpf_ga@icai.orgof the Committee. Material of this E-Newsletter may126 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • 783 ICAI NEWS Invitation for Contribution of Questions for ISA-AT Question Bank The Information Systems Audit Assessment Test to prepare the questions for individual modules in(ISA-AT) is an objective type test having multiple choices separate files/documents. The questions should coverand contains 200 questions carrying 200 marks. The all the sub chapters or aspects of the syllabus andtime allowed for answering 200 questions is four be free from any ambiguity, doubt etc. The questionhours. The aforesaid Test is meant for the members of should convey the same meaning which you intend tothe Institute to enable them to develop understanding convey. It is also essential that proper care is taken inin the field of Information Systems Audit. framing the questions and options (answers) provided With a view to develop the Question Bank for the below the questions. The solution (correct answer) tovarious Modules spread over the Syllabus of the ISA-AT, each option (answer) given as per the above format.it has been decided to invite questions from Chartered The copyrights of the questions as well as answersAccountants/experts working in various organisations/ so submitted shall vest with the Council of the Institute.institutions. The titles of these Modules prescribed in The contributor of the questions shall ensure that thethe Syllabus are given hereunder: questions so submitted to the Institute are not parted with by him/her to any other Body/Person and shall be Module Module Title meant only for the exclusive use by the Council of the No. Institute. It may please be noted that the questions framed 1. Information Technology Infrastructure & by you should be original and not already published Communication/Networking Technology in some books or journals or study material of the 2. Protecting Information Assets Institute or reference/text books available in the market or also from question papers of any other examinations 3. Systems Development. Life Cycle & or material distributed by any coaching institution. Application Details The requirement is the questions that are original and 4. Business Continuity Planning framed with the meticulous care and genuinely. 5. Information Systems Organisation & For each question framed and forwarded and Management accepted by the Council of the Institute for developing a Question Bank of ISA-AT, R500/- per question 6. Information Systems Control & Audit selected/accepted will be paid as honorarium. In Process addition to honorarium payable towards questions The contributor can contribute as many questions selected, R100/- (fixed) will be paid for other servicesas he/she can, but in a lot of minimum of 50 questions also. The questions may be sent in a sealed envelopeon the aforesaid modules in the following manner:- superscribed “Question Bank – ISA-AT” to Shri G.Name of the module: Somasekhar, Additional Secretary (Exams), The Q.No. Question and answer Answer Institute of Chartered Accountants of India, “ICAI options (For example) Bhawan”, Indraprastha Marg, New Delhi – 110002 by 01 Question description….. name or by e-mail to srdd_exam@icai.in. While sending A) Option A the questions by post/mail, please mention your name B) Option B C and complete postal address alongwith contact details C) Option C including mobile number. All correspondence on the D) Option D subject should be treated as secret. Interested persons may kindly contribute to the 02 Question Bank of ISA-AT. ........ Sd/- 50 (G. Somasekhar) Additional Secretary (Exams.)While framing the questions, the contributors have THE CHARTERED ACCOUNTANT NOVEMbEr 2011 127
    • ICAI NEWS 784 Contribution to the Question Bank of CPTThe Common Proficiency Test (CPT) is an entry framed in such a manner that each one of the fourlevel test meant for 10+2 students to the Chartered answers given for a particular question, per se, appearAccountancy Profession having multiple choice to be the right answer thereby requiring the candidateobjective questions. The level of knowledge expected to use his analytical ability to find the correct answer.is basic knowledge with the objective to develop ▪ The language of the questions to be sent shouldconceptual understanding of the subject concerned. be English only and is clear, correct, unambiguous With a view to augment the Question Bank in and free from any doubt. The language conveysthe Subjects of Accounting/Mercantile Laws/General the same meaning as was intended by you.Economics/Quantitative Aptitude of Common ▪ The copyrights of the questions so submitted shallProficiency Test, it has been decided to invite questions vest with the Council of the Institute. The contributorfrom Chartered Accountants/Subject experts working of the questions shall ensure that the questions soin various Colleges/Universities/Public/Students submitted to the Institute are not parted with bypursuing Chartered Accountancy Course etc. him/her to any other Body/Person and shall be The contributor can contribute as many questions meant only for the exclusive use by the Council ofas he/she can, but in a lot of minimum of 20 questions the Institute.in the subjects of Accounting/Mercantile Laws/General ▪ It may please be noted that the questionsEconomics/Quantitative Aptitude in the following framed by you should be original and notmanner:- already published in some books or journals▪ The questions should be of objective with four or study material of the Institute or reference/ probable answers for each question. The correct text books available in the market or also from answer for each question is also required to be question papers of any other examinations or given. material distributed by any coaching institution.▪ Fill in the blanks having four alternative answers. The requirement is the questions that are▪ Small paragraph containing two to three lines original and framed with the meticulous care followed by a question having four alternative and genuinely. answers. ▪ For each question framed and forwarded and▪ Numerical having four alternative answers (in accepted by the Council of the Institute for Fundamentals of Accounting, Mathematics and augmentation of the Question Bank of CPT, R250/- Statistics). per question selected/accepted will be paid as▪ Simply worded Case studies involving multiple honorarium. In addition to honorarium payable concepts be also prepared. The case study towards questions selected, R100/- (fixed) will be could be something like a practical situation paid for other services also. The questions may be described in 3 to 4 lines in simple language sent in a sealed envelope superscribed “Question with application of single/multiple concepts and Bank – CPT” to Shri G. Somasekhar, Additional requiring students to choose one answer from Secretary (Exams),The Institute of Chartered amongst four answers whereby the analytical/ Accountants of India, Indraprastha Marg, New Delhi logical ability and intelligence of the students is – 110002 by name or by e-mail to srdd_exam@ tested. icai.in While sending the questions by post/mail, please mention your name and complete postal Since the CPT is an entry level Test meant for 10+2 address alongwith contact details including mobilestudents, the level of knowledge expected is basic number. All correspondence on the subject shouldknowledge and the questions should be aimed at testing be treated as secret.the conceptual understanding and fundamentals of thesubject than merely testing the memory of candidates. Interested persons may kindly contribute to theThe difficulty level of the questions should be of 10+2 Question Bank of CPT.level and capable of being answered/solved in less (G. Somasekhar)than one minute. Additional Secretary(Exams) While framing the questions, the questions be128 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • 785 ICAI NEWS E-learning Courses on Service Tax and Transfer PricingThe Committee has introduced e-Learning/Computer at http://elearn.icai.org. After completion of theseBased Training (CBT) courses to enable members to courses, member will get two CPE hours for each oflearn and develop at their convenience, considering these two courses. These courses are restarted andthe potential, reach and benefits of e-Learning. updated till April 2011.These courses aim to promote greater level of quality Please contact 0120-3045961 or elearn@icai.in foreducation and training medium on an All India basis. further details/clarifications/registration.Further details are available on the Institute website THE CHARTERED ACCOUNTANT NOVEMbEr 2011 129
    • ICAI NEWS 786 CMII forms 50th CPE Study Circle for Members in Industry It is always the endeavour of ICAI to update SR. Name Of the CPE Study Circle Locationits members about the changes taking place in No.various statutes, share the knowledge on various 17 Pharma Sector CPE Study Circle Noidanew techniques and sharpen their skills on various 18 Sriperumbudur CPE Study Circle Tamil Naduprofessional matters. So, the ICAI in 2008 made 19 Udyog Vihar CPE Study Circle Gurgaon 20 kandivali (E) CPE Study Circle MumbaiContinuing Professional Education mandatory for 21 Rishra CPE Study Circle KolkataMembers in Industry to earn minimum number of 22 MG Road, Bangalore CPE Study Circle BangaloreCPE Credit Hours by attending the programmes of 23 Automobile Industry CPE Study Circle Gurgaonacademic/professional interest organized by ICAI and 24 Cybercity IV, Magarpatta CPE Study Puneits organs. Circle ICAI has notified the norms for CPE Study Circles, 25 Santacruz CPE Study Circle Mumbaiwhich caters exclusively for the members in Industry. 26 Kanjur Marg (E), Mumbai CPE Study MumbaiThese CPE Study Circles are being contemplated to Circlehelp Members who are in Industry in industry to achieve 27 Kailasapuram CPE Study Circle Tamil Naduthe objectives of maintaining their core competencies 28 Naurang House, CPE Study Circle New Delhi 29 Ukkunagaram CPE Study Circle Visakhapatnamand exchange professional knowledge amongst 30 NTEC CPE Study Circle Kolkatathe members apart from fostering and developing 31 Rajaji Salai, Chennai CPE Study Circle Chennaifellowship. Please visit http://www.cmii.icai.org/cpe. 32 Gurgaon, DLF, Phase II CPE Study Gurgaonasp to see the entire norms of the CPE Study Circle for Circle.Members in Industry. 33 Automotive CPE Study Circle delhi The Committee for Members in Industry (CMII) has 34 Veera Desai CPE Study Circle Mumbaibeen empowered to approve, guide and supervise 35 Gachibowli CPE Study Circle Hyderabadthe CPE Study Circles for Members in Industry, which 36 Mumbai Vikroli, ITES CPE Study Circle Mumbaiwill conduct Continuing Professional Education 37 Life Insurance, Mumbai CPE Study MumbaiProgrammes for the Members in industry. The norms Circle 38 Sushant Lok, Gurgaon CPE Study Circle Gurgaonprovide for the minimum number of members required 39 T. Nagar, Chennai (Irevna) CPE Study Chennaiand the application procedure, rules for functioning, Circle.administration and accounts of these CPE Study 40 Defence Electronics CPE Study Circle BangaloreCircles. 41 Bannerghatta Road Information Chennai 50 CPE Study Circle for Members in Industry have Technology CPE Study Circlealready been formed so far by the CMII. 42 Vadodra CPE Study Circle Ahmedabad 43 Power Sector CPE Study Circle New DelhiList of CPE Study Circles formed so far 44 Leela Business Park CPE Study Circle MumbaiSR. Name Of the CPE Study Circle Location 45 Worli Mumbai CPE Study Circle MumbaiNo. 46 Powai CPE Study Circle Mumbai1. Reay Road CPE Study Circle Mumbai 47 Siri Fort CPE Study Cirle New Delhi2 Nungambakkam CPE Study Circle Tamil Nadu 48 Banking & Financial Services CPE Study Mumbai3 Electronic City, Bangalore CPE Study Bangalore Circle Circle 49 Saket CPE Study Circle New Delhi4 Vittal Mallya Road, CPE Study Circle Bangalore5 WCS-IT PARK-PUNE CPE Study Circle Pune 50 Sarjapur Road CPE Study Circle Bangalore6 North Delhi Hudson Line CPE Study Delhi Circle. We request the members serving in industry to come7 Cenotaph CPE Study Circle Chennnai forward to form CPE study circle in their organisation/8 Perungudi CPE Study Circle. Chennai locality.9 Urja CPE Study Circle Noida For further clarification, kindly contact Dr. Surinder10 Barakhamba Road CPE Study Circle New Delhi11 Surat (Hazira) CPE Study Circle Surat (Hazira) Pal, Secretary, Committee for Members in Industry at12 Gulmohar Road, Mumbai CPE Study Mumbai 011-30110491, cmii@icai.in Circle13 Power Transmission CPE Study Circle Mumbai Chairman14 Bangalore Outer Ring Road ITES Bangalore Committee for Members in Industry, ICAI Industry CPE Study Circle15 Dairy Circle, CPE Study Circle Bangalore16 Lodhi Road CPE Study Study Circle New Delhi130 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • 787 ICAI NEWS New Publications from the Auditing and Assurance Standards Board2011 Edition of the Handbook of Auditing Ordering InformationPronouncements The publication can be purchased directly from the Sales Counters at the ICAI’s Regional Offices or at the Head Office. To order by post, requisition may be sent to the Postal Sales Department of the ICAI at postalsales@icai.org or postalsales@icai.in Guide to Audit of Complex Financial Instruments Significant features of the Guide are: ▪ Simple and easy to understand language. ▪ Detailed guidance on various intricacies involved with complex financial instruments. ▪ Covers the basic concepts of complex financial instruments and the▪ Contains text of the Engagement and Quality audit considerations Control Standards, Statements and Guidance and procedures for Notes on auditing, issued by the ICAI as on October complex financial 1, 2011. instruments.▪ Divided in three volumes: ▪ Comprehensively ▫ Volume I.A: Compendium of Standards deals with various (approx. 1200 pages) aspects relating (Contains text of the Preface, Glossary of Terms, to valuation, Framework for Assurance Engagements, presentation and disclosure of complex financial Standards on Quality Control, Standards on instruments. Auditing, Standards on Review Engagements, ▪ Illustrative disclosures requirements for complex Standards on Assurance Engagements and financial instruments in the Appendix. Standards on Related Services) ▪ Illustrative procedures for audit of complex financial ▫ Volume I.B: Compendium of Statements on instruments in the Appendix. Auditing (approx. 280 pages) ▪ It comes with a CD of the entire guide to provide (Contains text of the Statements on Auditing) ease of reference. ▫ Volume II: Compendium of Guidance Notes (approx. 620 pages) Price (Contains text of the Guidance Notes on R150/- (including CD)Auditing) Ordering InformationMAJOR ADDITIONS VIS A VIS 2010 EDITION The publication can be purchased directly from the▪ Text of the Standard on Assurance Engagements Sales Counters at the ICAI’s Regional Offices or at (SAE) 3402, Assurance Reports on Controls at a the Head Office. To order by post, requisition may Service Organisation. be sent to the Postal Sales Department of the ICAI at▪ Text of the Guidance Note on Audit of Property, postalsales@icai.org or postalsales@icai.in Plant and Equipment. Guidance Note on Certification of XBRL FinancialPrice StatementsAll the three volumes of the Handbook come in a single Objective of the Guidance Note:box pack alongwith a CD containing text of the entire To provide guidance to the practitioners in certificationHandbook. The complete Box pack of the Handbook of XBRL financial statements in terms of theis priced at R900/-. requirements of the MCA’s General Circular No. 57/ THE CHARTERED ACCOUNTANT NOVEMbEr 2011 131
    • ICAI NEWS 7882011 dated July 28, 2011 read with MCA’s General certification and the various procedures forCircular No. 43/2011 dated July 07, 2011 which require certification.certification of financial statements prepared in XBRL ▪ The Appendices to the Guidance Note contain:mode for filing vide Forms 23AC-XBRL and 23ACA- ▫ glossary of XBRL related terms.XBRL on MCA-21 portal by, inter alia, a Chartered ▫ text of relevant circulars of MCA.Accountant. ▫ XBRL tool features. ▫ illustrative engagement letter for theSignificant features of certification engagement.the Guidance Note are: ▫ illustrative management representation letter.▪ Written in simple and ▫ illustrative format of certificate on XBRL financial easy to understand statements. language. ▫ Forms 23AC–XBRL and 23ACA- XBRL prescribed▪ Comprehensive by MCA for filing returns by companies. guidance on ▪ The Guidance Note comes with a CD of the entire various aspects of guidance note to provide ease of reference. certification of XBRL financial instruments. Price▪ Guidance on R100/- (including CD) responsibility of the management Ordering Information for XBRL financial The publication can be purchased directly from the statements, the Sales Counters at the ICAI’s Regional Offices or at the general approach Head Office. To order by post, requisition may be sent to preparation of XBRL financial statements, to the Postal Sales Department of the ICAI at responsibility of the practitioner regarding postalsales@icai.org or postalsales@icai.in New Publication from the Research CommitteeStudy on Manner of IFRS Implementation in EU and like Australia, Canada, Brazil etc.Current Status of IFRS Implementation in Select Ordering Information:Countries Price R230/-The Research Committee Postal Charges R35/- (plus R17/-, if required byhas brought out the Available at registered parcel)publication “Study Sale counters of the Institute ofon manner of IFRS Chartered Accountants of IndiaImplementation in EU at New Delhi, Chennai, Mumbai,and Current Status of Kolkata and Kanpur. Copies canIFRS Implementation in also be obtained by post. To orderSelect Countries”. This by post, request may be sent alongpublication is a study of with a demand draft for the amountthe manner of adoption of the price of the publication plusof IFRSs in select the postal charges in favour ofeconomies, specifically “The Secretary, The Institute ofEU, with a view to Chartered Accountants of India”,provide an insight of payable at New Delhi, to the Postalthe processes that were Sales Department, The Institute ofadopted for the purpose Chartered Accountants of India, ICAIof IFRS implementation Bhawan, A-29, Sector-62, Noida –by the countries covered in the study. It also provides 201301 (U.P).the status till the year 2010, of IFRS implementationby key EU member countries and few select countries 132 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • 789 ICAI NEWS Announcement regarding compliance with paragraphs 61 and 62 of the Standard on Review Engagements (SRE) 24101. The Council of the Institute of Chartered results or that despite the said agreement, Accountants of India, at its 308th meeting, the management had not complied therewith. considered an issue relating to difficulties The Council noted that in the latter cases, the being faced by the members of the Institute in auditor would be penalised under the requirements compliance with paragraphs 61 and 62 of the of SRE 2410 even when the default/ breach SRE 2410, Review of Interim Financial Information had been committed by the management. Performed by the Independent Auditor of the Entity, 4. The Council was of the view that it is not raised by the Auditing and Assurance Standards practically feasible for the auditor to ensure that Board of the Institute. every document released by the management2. The Council noted that paragraphs 61 and 62 of containing the interim financial information SRE 2410 require as under: indicating that such information has been “61. The terms of the engagement include reviewed by the entity’s auditor, the management’s agreement that where any review report has been included in the document containing interim financial information said document. indicates that such information has been reviewed 5. On a consideration of the matter, the Council by the entity’s auditor, the review report will also is of the opinion that paragraphs 61 and 62 did be included in the document. If management not envisage the auditor to take steps to ensure has not included the review report in the that on every occasion when the review results document, the auditor considers seeking legal were published by the management, it advice to assist in determining the appropriate also published the review report therewith. course of action in the circumstances. The responsibility of the auditor was upto 62. If the auditor has issued a modified issuance of the review report on the results, at review report and management issues the most till the time the interim results, along with the interim financial information without including review report, were filed by the company with the the modified review report in the document concerned stock exchange. Further, since such containing the interim financial information, filing led to the concerned interim results and the the auditor considers seeking legal advice to review report thereon becoming available in the assist in determining the appropriate course of public domain, the same would be construed action in the circumstances, and the possibility as sufficient compliance by the auditor with the of resigning from the appointment to audit the requirements of paragraphs 61 and 62 of SRE annual financial statements.” 2410.3. The Council noted that a number of entities 6. The Council, however, felt that if, subsequent were publishing interim financial results with a to the issuance of the review report, the declaration that the “results have been approved auditor became aware of situations where the by the Board of Directors at its meeting held on management had not published the review report xxxxx and have been subjected to limited review especially where the review report contained by the statutory auditors.” The companies, auditor’s reservations, he would need to bring however, were not publishing the review report the same to the attention of the management along with such published results. Accordingly, it and, if considered necessary, take was either that the auditors had not obtained an legal advice. agreement with the management that they would publish the review report along with the reviewed THE CHARTERED ACCOUNTANT NOVEMbEr 2011 133
    • ICAI NEWS 790 Commencement of Certificate Course on Indirect Taxes at Chennai Next batch of Certificate Course on Indirect taxes may convey their interest and send the duly filledis starting from 3rd December, 2011 at Chennai. The Registration Form along with the demand draft forcomplete schedule of the class room is available at R20,000/- towards the prescribed fee at the earliest towww.icai.org the Secretary, Indirect Taxes Committee, The Institute of Chartered Accountants of India, ICAI Bhawan, 4thEligibility Floor, Research Block, A-29, Sector 62, Noida - 201Members of ICAI 309, Uttar Pradesh OR may contact at 0120-3045906 and send mail at ccidt@icai.orgCourse Duration Demand Draft should be made in favor of ‘The12 days Secretary, The Institute of Chartered Accountants of India’ payable at New Delhi. Alternatively, membersFaculty may register by making online payment of theEminent experts of the field and erudite speakers prescribed fees of R20,000/- at ICAI website anddrawn from all over the country will share their sending the hard copy of the duly filled registrationknowledge and wisdom with the participants of this form to the address mentioned above.Certificate Course. For further detailsFees for the Course The Course Coordinator CA. Rajendra Kumar P ,R20,000 [Including fees for the immediate examination Central Council Member and Member Indirect Taxesto be held after completion of the Course] Committee can also be contacted for further details at 09382303403 / 09444017087 or his email at rk@Certificate ssaca.inA certificate will be awarded to the members onsuccessful completion of course and passing the Please visit : www.icai.org for further informationexamination. Note: The commencement of certification course is subject to the minimum number of participants asCPE Hours prescribed by the Committee. It may be noted that70 Hours (50 Structured and 20 Unstructured) due to limitation of seats, the registration will be on ‘first come first serve’ basis.RegistrationMembers desirous of attending the said Course Classifieds4873 Required CA’s as partners in experienced 4876 CA with CWA, CIA, CISA qualification seeks C.A.firm in Mumbai with good arrangement / assignments/sub-contract in practice or terms and freedom for personal practice, place employment in Bangalore. Contact 735305895 and age no bar. Contact:glen.office@gmail. email: arvs64@hotmail.com com/26254421/9920317933. 4877 Chartered Accountants with interest in ERP4874 23 year established Lucknow based Firm Consulting are invited as implementation requires full time/part time COP holders ACA/ partners for an ERP developed for Indian FCA as Partners. Contact CA. S.N.Gupta market. Established product with a sound at+919415101759, shivnarainabha@yahoo.co.in consulting business. Contact CA. PCK, pc@ coral.in4875 Our firm is 30yr old, at Hyderabad, with multiple practice including Central Statutory Audit of 4878 A reputed Chartered Accountant firm Banks and PSU’S: looking for Practicing CA’s requires fresh Chartered Accountant based / firms with 2/3 CA’s and 5/10yrs standing, in in Hyderabad to join as a partner of the firm Hyderabad to merge with us for mutual benefit. for our branch office at Hyderabad. Contact: CA’s assuming responsibility, possessed tax.erode@gmail.com, 98427 50391, 90950 with planning, execution and reporting 75000” skills are invited to contact: 09949149549, email: kyesrk@yahoo.com134 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • 791 ICAI NEWS ICAI OFFERS Campus Placement DECEMBER 2011 FIRST MBF … DELHI & MUMBAI Genius Inside CMII & CMA JOINTLy BRING TO yOu * Master indicates the depth of knowledge, coverage as well as capability and do not refer to a post graduate degree. Why MBF* is better than any other MBA Finance course offered by other Institutes? 1. Providing cutting edge finance skills to Qualified & Experienced Chartered Accountants with an average experience of 10 Years 2. Preparing for Global Economy with special focus on Live Case Studies practised in class room 3. Providing and exploring opportunity to interact with eminent faculty from B-School like Harvard Business School, Stern School of Business, New York, IIMs, MDI, Management Schools of IITs Premier Universities 4. Create Interactive classroom led by Industry leaders in Private Equity, Fund raising, Banking, Mutual Fund, Forex Management, Merchant Banking 5. 360 degree overview of business finance domain with comprehensive course content similar to what they teach you in Top 10 B-Schools 6. More than 100 Books prescribed for reference the latest and the best 7. Focus on practical & managerial approach towards Business Finance to prepare student for CFO and top Managerial positions 8. Special training sessions on International Taxation, Business Restructuring, Trusts, Intellectual Property etc to prepare for International Assignments 9. Course is designed to amplify the business finance skills of Chartered Accountants and enabling them to become Business leaders 10. Well-equipped libraries at ICAI Bhawans at New Delhi, Mumbai & Centres of Excellence, Hyderabad 11. An in built 7 days residential internship/training programme at ICAI’s Centre of Excellence, Hyderabad. Knowledge mix for your business needs Who should recruit MBF? ▪ Comprehensive Finance Curriculum ▪ Bank - operations and credit. ▪ Unique mix of faculty ▪ Investment Bankers, Fund & Treasury Mangers ▪ Focus on Indian market ▪ Merchant Bankers ▪ Innovative practical application ▪ Equity Analysts, Private Equity, Mutual Funds, ▪ Healthy combination of students Hedge Funds, Venture Capital Funds ▪ Rigorous testing procedures ▪ Corporates for Core Finance, Treasury & Projects, as CFOs How to recruit? Work Experience ▪ Register on www.cmii.icai.org ▪ Mr. A. P Kar, Secretary, CMA . Email: ap.kar@icai.org Phone: +91 – 9350799912 ▪ Mr. Surender Pal Email: cmii@icai.org; spal@icai.in Phone: +91 – 9350799931 Course Content LEVEL I Paper I - Financial Planning & Analysis Paper II - Fund Raising, Structuring & International Finance LEVEL II Paper III - Financial Markets & Portfolio Management <04 years 11-13 years Paper IV - Forex, Treasury & Risk Management 04-08 years >13 Years LEVEL III Paper V - Valuations, Acquisitions and Risk Analysis 09>10 years Paper VI - Banking & Trade Finance THE CHARTERED ACCOUNTANT NOVEMbEr 2011 135
    • PARTICIPATION 9th and 10th December 2011 Hotel Lalit Ashok, BangaloreINVESTMENT AND BUYING OPTIONS FOR THE DISCERNING INVESTORAn exhibition to showcase financial and investment products and services to Chartered Accountants,Corporate leaders and decision makers.
    • WHY PARTICIPATE?Financial Services Expo is organized as a part of the Corporate Forum, a platform where Chartered Accountants andCorporates from all over India would mark their presence. This would enable various organizations ranging fromBanking, Insurance, Mutual Funds, Capital Markets, Real Estate, Information Technology products and services andother technological products to interact with Chartered Accountants, Investors, Finance fraternity, and CorporateDecision Makers.Chartered Accountants in todays Corporate scenario are the major financial advisors. They have the completeunderstanding of the latest market trends as they have with them a thorough training blended with analyticalapproach and research of years.Being at the event in the midst of all these key decision makers would provide your company with a big businessopportunity as these Chartered Accountants play an important role in the decision making process with their vastknowledge of Finance, Accounting and Market understanding.EXHIBITORS PROFILEThe participation is restricted to the first 50 companies from the following sectors • Banking • Insurance • Mutual Funds • Capital Market • Real Estate • Information Technology • Software development • Other Tecnological Products.Invitations would be sent to over 1,50,000 Chartered Accountants in Industry or in practice as well as leadingdecision makers from the Corporate world.PAYMENT TERMS All payments accepted by way of Cheque / Demand Draft in favour of The Secretary, The Institute of Chartered Accountants of India payable at New Delhi.PARTICIPATION FEESRs. 2, 00,000/- + 10.3% Service Taxfor two days i.e. 9th and 10th December 2011THE PACKAGE WOULD INCLUDEFully furnished booth to each Company: 9 sq. mtr. (approx. 100 sq. ft.)Facilities: Fascia, table with 2 chairs, lighting, plug point etc.Two Complimentary invitations to the ICAI Awards 2011 function to be held on 10th December 2011 at Bangalore.For Details ContactCA. K. Raghu, Chairman, CMII of ICAITel: +91 (11) 30110491 | Email: cmii@icai.inMr. Jagadish Kumar NS, Assistant Secretary, BangaloreContact No. +91(80) 30563500, 09342732548, Email: bangalore@icai.org, dcobangalore@icai.org, Jagadish.ns@icai.orgORDr. Surinder Pal, Secretary, CMIIContact No.: 011-30110430, Email: cmii@icai.in, service_mii@icai.in, mii@icai.in
    • EVENTS 794 For Members CPE ▪ Per Participant – (on twin sharing basis) R6500/- Three Days Residential Refresher ▪ Per Participant – (single occupancy) R10000/- 12 CPE Course at Alleppey ▪ Accompanying person: ▫ For Spouse (including child below age 5 years): Hours R6000/- ▫ Per Child (with out extra bed) R1900/- Date 2nd, 3rd & 4th December, 2011 (age up to 12) Venue ▫ Per Child (with extra bed) R2900/- (age up to 12) Pagoda Resorts, Alleppey, Kerala For Non Members Organised by R7500 (on twin sharing basis)Committee for Capacity Building of CA Firms and Small Non Residential ▪ Members R3800/-& Medium Practitioners, ICAI (including ▪ Members (ARS Alleppey) R3000/- Hosted by lunch, dinner ▪ Non Members R4500/- Alleppey Branch of SIRC of ICAI and house boatDay 1: 2nd December, 2011 cruise)12 p.m. to 03.00 Registration of Participants and Fees payable by DD/Cheque in favor of ‘Alleppeyp.m. Inaugural Session Branch of SIRC of ICAI’ payable at Alleppey.Session- I Indian Accounting Standards - An Send it to: The Chairman, Alleppey Branch of SIRC of03.00 P – .M. Update- CA. Jomon K. George, Kochi ICAI, “ICAI Bhavan”, Behind District Co-operative Bank05.00 P.M Building Lane, M.O. Ward, Opp. Town Hall, Alleppey,Session-II Reopening of assessments and Kerala – 68800105.10 P – .M. recent developments in 40(a) (ia) of Programme Chairman Programme Convener07.10 P.M. the IT Act - CA. R. Krishnan, Alleppey CA Vijay Kumar Garg CA. Antony M. MalayilDay 2: 3rd December, 2011 Chairman, Committee for Chairman, Alleppey BranchSession-III Revised Schedule VI under Capacity Building of CA of SIRC of ICAI,09.30 A.M. – Companies Act - CA. Sumantra Guha, Firms and Small & Medium Phone: 0984705770010.45 A.M. Central Council Member Practitioners (CCBCAF & Email: antonymalayil@Session-IV Capacity Building Measures: SMP), ICAI gmail.com10.55 AM - Networking, Merger- Demerger & Email: chairman.ccbcaf@12.15 P M Corporate Form of Practice - CA. icai.org Pankaj Tyagee, Central Council Member For Registration & Information, contact details:Session-V Improving Quality of Audit CA. Biju Narayanan, Secretary, Alleppey Branch of SIRC12.15 A.M. – Documentation - CA. Pankaj I. Jain, of ICAI, Email:alleppey@icai.org, bijunarayanan05@01.30 P.M. Central Council Member gmail.com, Phone: 09895214442Day 3: 4th December, 2011Session-VI An overview on CA. H.R. Iyer, New08.45 A.M XBRL and recent Delhi CPE–10.45 A.M. developments in Workshop on CapacitySession-VII Companies Act Contemporary CA. H.R. Iyer, New 6 Building Measures of Practitioners & CA Firms10.55 A.M. – Internal Audit and Delhi12.55 P.M. Hours ReportingOpen House Session Chairman Dateand Valedictory CA Vijay Kumar Garg, Chairman, 19th November, 2011Session CCBCAF & SMP ICA , Venue01.15 P.M. Hotel Rangoli Park Vartej; Bhavnagaronwards Organised byDelegate Fee: Residential (Including Committee for Capacity Building of CA Firms and Small accommodation, breakfast, lunch, & Medium Practitioners, ICAI dinner, all other compliments and Hosted by Bhavnagar Branch of WIRC of ICAI course material) 138 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • 795 EVENTS 19th November, Registration and Inaugural Session Organised by 2011, 9.00 a.m. Committee for Capacity Building of CA Firms and Small to 10.30 a.m. & Medium Practitioners, ICAISessions Topics to be discussed Hosted bySession- I Structuring Merger and Demerger Kota Branch of CIRC of ICAI10.30 a.m. to through LLP1.30 p.m. Opportunities in ERP 17th November, Registration of participants andSession-II Capacity Building Measures: 2011 Inaugural session2.30 p.m. to 5.30 Networking, Merger-Demerger and 9.30 a.m. top.m. Corporate Form of Practice 10.30 a.m. SMP Initiative and Capacity Building through I T Tools Sessions Topics to be discussed and ▪ K-Doc & e-Sec Speakers ▪ ICAI-Tax Suite Software Session- I Assessment of Charitable trust & ▪ ICAI-ROC Software 10.30 a.m. to NGOs under Income Tax Open House and Valedictory Session 1.30 p.m. Critical issues on HUF under Income 5.30 p.m. to 6.00 p.m. Registration Fees Tax - CA. Divyanshu Agrawal R600/- for Members; R400/- for Students Session-II Session ChairmanCheque/DD should be Drawn in Favour of “Bhavnagar 2.30 p.m. to 5.30 CA Vijay Kumar Garg, Chairman,Branch of WIRC of ICAI” and sent to Bhavnagar Branch p.m. CCBCAF & SMP ICAI ,of WIRC of ICAI, Sanghavi & Co. Chartered Accountants, ICAI- ROC Software - CA. Sourav“Bulbul” First Floor, Crescent Road, Bhavnagar 364 Mishra001. Phone Nos: 0278-242 3434, 242 6151 e-mail ID: ICAI-Tax Suite Software - CA. Vinodbhavnagar@icai.org KhandelwalLimited Seats, Registration on First Come FirstServed Basis. Advance confirmation of registration is Open House & Valedictory Session Chairmanrequired.Programme Chairman Programme Coordinator Session CA Vijay Kumar Garg, 5.30 p.m. to 6.00 p.m. Chairman, CCBCAF & SMP,CA Vijay Kumar Garg CA. Manoj Ganatra ICAIChairman, Committee for Chairman, BhavnagarCapacity Building of CA Branch of WIRC of ICAI Registration Fees:- R300/- per participantFirms and Small & Medium Phone: 98250 66110 Cheque/DD should be Drawn in Favour of “Kota BranchPractitioners, ICAI Email: manojganatra@ of CIRC of ICAI” and sent to ICAI Bhawan, 65, NewEmail: chairman.ccbcaf@ hotmail.com Grain Mandi, KOTA - 324 007 Phone Nos: 0744 –icai.org 2365272 E-mail Id: kota@icai.org,Phone: 9414041872 kpicai@kappa.net.inFor Registration & Information, contact details:CA. Rajesh P Langalia, Secretary, Bhavnagar Branch . Limited Seats, Registration on First Come Firstof WIRC of ICAI; Phone: 98982 16200, Email: rajuca9@ Served Basis. Advance confirmation of registration isrediffmail.com required Programme Chairman Programme Coordinator CPE Workshop on Capacity CA Vijay Kumar Garg CA. Dinesh Jain 6 Building Measures of Practitioners & CA Firms Chairman, Committee for Capacity Building of CA Chairman, Kota Branch of CIRC of ICAI Hours Firms and Small & Medium Phone: 09414182822 Practitioners, ICAI Email: dkj_fca@icai.org Date Email: chairman.ccbcaf@ 17th November, 2011 icai.org Venue Phone: 9414041872 Rotary Binani Sabhagar, Shopping Centre Kota ( Raj.) THE CHARTERED ACCOUNTANT NOVEMbEr 2011 139
    • EVENTS 796 CPE CPE Workshop on Capacity Workshop on Capacity Building Building Measures for 6 Measures of Practitioners & CA Firms 6 Practitioners & CA Firms Hours Hours Date Date 19th November, 2011 5th November, 2011 Venue Venue Marchad Residency, Double Road, Beside Old KRSTC ICAI Bhavan, 20/1, Behind Vijayanand Society, Bus Stand, Bellary Dhantoli, Nagpur 440 012. Organised by Organised byCommittee for Capacity Building of CA Firms and Small Committee for Capacity Building of CA Firms and & Medium Practitioners, ICAI Small & Medium Practitioners, ICAI Hosted by Hosted by Nagpur Branch of WIRC of ICAI Bellary Branch of SIRC of ICAI19th November, Registration of participants and 5th November, 2011 Registration and Inaugural2011 Inaugural session 9.30 a.m. to 10.30 a.m. session Sessions Topics to be discussed9.30 a.m. to Session- I Capacity Building Measures-10.30 a.m.Sessions Topics to be discussed 10.30 a.m. to 12.00 p.m. Networking, Merger andSession- I Capacity Building through initiatives of Corporate Form of Practice10.30 a.m. to the Committee Session-II Strategies for Wealth Creation,1.30 p.m. 12.00 p.m. to 1.30 p.m. Wealth Maximization and Capacity Building Measures: Wealth Management Session-III Frequently found shortcomings Networking, Merger & Corporate form 2.30 p.m. to 3.30 p.m. in Auditing Annual Statement of of Practice Accounts Session-IV Small & Medium Practitioners – Issues on Service Tax 3.30 p.m. to 4.30 p.m. The FutureSession-II Issues on Income Tax Session-V Modus operandi for calculation2.30 p.m. to 5.30 4.30 p.m. to 5.30 p.m. of professional charges - Waysp.m. Capacity Building through IT Tools Open House & Valedictory Session and Difficulties Registration Fees:- R750/- per participant 5.30 p.m. to 6.00 p.m. Cheque/DD should be Drawn in Favour of “Nagpur Registration Fees:- R600/- per participant Branch of WIRC of ICAI” and sent to Nagpur Branch of Cheque/DD should be Drawn in Favour of “Bellary WIRC of ICAI, ICAI Bhawan, 20/1, Behind Vijayanand Branch of CIRC of ICAI” and sent to Bellary Branch Society, Dhantoli, Nagpur 440 012. Phone Nos:- 0712 of SIRC of ICAI,No. 7/16, II Floor, Balaji Rao 2443968, 2441196 Road,Vaddara Banda,Bellary – 583 101, Ph: (8392) E-mail Id: nagpur@icai.org 277123,Email: bellary@icai.org Limited Seats, Registration on First Come First Served Basis. Advance confirmation of registrationLimited Seats, Registration on First Come First is required.Served Basis. Advance confirmation of registration is Programme Chairman Programme Coordinatorrequired. CA Vijay Kumar Garg CA. Satish SardaProgramme Chairman Programme Chairman, Committee Chairman, Nagpur Branch, CoordinatorCA Vijay Kumar Garg CA. Y. Ramesh for Capacity Building of WIRC of ICAIChairman, Committee for Chairman, Bellary CA Firms and Small & Phone: 09822229601Capacity Building of CA Branch of SIRC of ICAI Medium Practitioners, ICAI Email: info@sardasoni.comFirms and Small & Medium Phone: 09448781630 Email: chairman.ccbcaf@Practitioners, ICAI Email: yerur_ramesh@ icai.orgEmail: chairman.ccbcaf@icai. rediffmail.com Phone: 9414041872 For Registration & Information, contact details:org, Phone: 9414041872For Registration & Information, contact details: CA. Abhijit Kelkar, Vice-Chairman, Nagpur Branch ofCA K V Chandrappa, Phone:08392 277123 Email: WIRC of ICAI Phone: 09422126890, 09096021215icaibellarybranch@yahoo.co.in Email: abhikelkar@yahoo.com 140 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • 797 EVENTS CPE CPE Workshop on Capacity Building Workshop on Capacity Building 6 Measures of Practitioners & CA Firms 6 Measures of Practitioners & CA Firms Hours Hours Date Date 26th November, 2011 6th November, 2011 Venue Venue The Auditorium, ICAI Bhawan, Baroda, Gujarat. Hotel President Park Organised by MIDC, Jalgaon.Committee for Capacity Building of CA Firms and Small Organised by & Medium Practitioners, ICAI Committee for Capacity Building of CA Firms and Small Hosted by & Medium Practitioners, ICAI Baroda Branch of WIRC of ICAI Hosted by Jalgaon Branch of WIRC of ICAI26th November, Registration of Participants and2011 Inaugural Session 6th November, 2011 Registration of Participants and9.30 a.m. to 9.00 a.m. to Inaugural Session10.30 a.m. 10.00 a.m.Session Topics to be discussed Session Topics to be discussedTimings Session- I Structuring Merger and DemergerSession- I Capacity Building Measures- 10.00 a.m. through LLP10.30 a.m. to Networking, Merger-Demerger & to 1.00 p.m. Opportunities in ERP1.30 p.m. Corporate Form of Practice Professional Opportunities in Session-II Capacity Building Measures: Information System Audit 2.00 p.m. to Networking, Merger-Demerger and 5.00 p.m. Corporate Form of PracticeSession-II Professional Opportunities in Valuation SMP Initiative and Capacity Building2.30 p.m. to 5.30 Areas through I T Toolsp.m. Knowledge Management through IT ▪ K-Doc & e-Sec Tools ▪ ICAI-Tax Suite Software Open House & Valedictory Session ▪ ICAI-ROC Software 5.30 p.m. to 6.00 p.m. Registration Fees:- R600/- per participant upto 23rd Open House and Valedictory Session 5.00 p.m. to 5.30 p.m. November, 2011 and R700/- per participant after 23rd Registration Fees:- R750/- per participant November, 2011. Cheque/DD should be Drawn in Favour of “ Jalgaon Branch of WIRC of ICAI” and sent to Jalgaon BranchCheque/DD should be Drawn in Favour of “Baroda of WIRC of ICAI, D-11, 2nd Floor, Above ChandulalBranch of WIRC of ICAI” and sent to ICAI Bhawan, Raswanti, Golani Market, Jalgaon 425 001. Phone Nos:Kalali-Tandalja Road, Atladra, Vadodara. Phone Nos:- 0257-2224305 E-mail Id: jalgaon@icai.org0265-2680593, 2681115. E-mail Id:- baroda@icai.org Limited Seats, Registration on First Come FirstLimited Seats, Registration on First Come First Served Basis. Advance confirmation of registration isServed Basis. Advance confirmation of registration is required.required. Programme Chairman Programme CoordinatorProgramme Chairman Programme Coordinator CA Vijay Kumar Garg CA. Kantilal BadaleCA Vijay Kumar Garg CA. Manilal J. Parsiya Chairman, Committee for Chairman, JalgaonChairman, Committee for Chairman, Baroda Branch Capacity Building of CA Branch of WIRC of ICAICapacity Building of CA of WIRC of ICAI Firms and Small & Medium Phone:09822250393Firms and Small & Medium Phone: 09825110620 Practitioners, ICAI Email:kkbadale@gmail.Practitioners, ICAI Email: mjparsiya@gmail. Email: chairman.ccbcaf@icai. comEmail: chairmanccbcaf@ com org, Phone: 9414041872icai.org, Phone:9414041872 For Registration & Information, contact details:For Registration & Information, contact details: CA. Parikshit Bhadade, Secretary, Jalgaon Branch ofCA. Parikh Ashish Dilip Phone: 09825223545 Email: WIRC of ICAIdilip_Parikh@sify.com Phone:09890029333 Email:parikshitkb@rediff.com THE CHARTERED ACCOUNTANT NOVEMbEr 2011 141
    • EVENTS 798 Registration Fees:- R500/-( Rupees five hundred) per CPE participant Workshop on Capacity Building Cheque/DD should be drawn in favour of “ Himachal 6 Measures of Practitioners & CA Firms Pradesh Branch of NIRC of ICAI ” and sent to Himachal Pradesh Branch of the NIRC of the Institute Hours of Chartered Accountants of India, First Floor, Sidhi Vinayak Apartments, Near Petrol Pump, Vikas Date Nagar, SHIMLA – 171009 (Himachal Pradesh) 28th November, 2011 Venue Limited Seats, Registration on First Come First Hotel Holiday Home, Shimla Served Basis. Advance confirmation of registration is required. Organised byCommittee for Capacity Building of CA Firms and Small Programme Chairman Programme Coordinator & Medium Practitioners, ICAI CA Vijay Kumar Garg CA Umesh Walia Chairman, Committee Chairman, Himachal Pradesh Hosted by for Capacity Building of Branch of NIRC of ICAI Himachal Pradesh Branch of NIRC of ICAI CA Firms and Small & Phone:094181-52278 Theme Medium Practitioners, ICAI Email: waliaumesh@gmail.With advent of globalisation and challenges posed by Email: chairman.ccbcaf@ com orthe liberalization process taking place worldwide, a icai.org chairman@himachalicai.orgneed is felt for strengthening competencies of CA firms Phone: 9414041872and small practitioners. ICAI’s initiative is to enlarge For Registration & Information, contact details:visibility of CA profession and to rejuvenate practice CA. Rohit Karol, Secretary, H P Branch of NIRC of ICAI,portfolio of Small and Medium Practitioners. ICAI has Phone: 09816020702, E-mail: carohitkarol@gmail.comformed CCBCAF & SMP Committee for popularizing or secretary1@himachalicai.orgeffective union of CA firms by facilitating consolidationthrough Networking, Mergers and setting upManagement Consultancy Services etc. Committee’sfocus is on enriching SMPs through Capacity Building CPEmeasures for bringing up world class competency and Workshop on Capacity Buildingbrand image. This workshop will concentrate on issues& impediments related to capacity building as well as 6 Measures of Practitioners & CA Firmshighlight emergent issues of profession. Hours28th November, 2011 Registration of participants and9.30 a.m. to 10.30 Inaugural session Datea.m. 20th November, 2011 VenueSessions Topics to be discussed Hotel Sai ShradhaSession- I Capacity Building Measures: Near Railway Station, RAIGARH (Chhattisgarh) 49600110.30 a.m. to Networking, Merger & Corporate Organised by1.30 p.m. Form of Practice Committee for Capacity Building of CA Firms and Small & Medium Practitioners, ICAI Recent Issues under Service Tax Hosted bySession-II Knowledge management through Raigarh CPE Study Chapter of CIRC of ICAI2.30 p.m. to IT Tools-5.30 p.m. • ICAI Tax Suite software 9.30 a.m. to Registration of participants and • KDOC & eSecretary software 10.30 a.m. Inaugural session Sessions Topics to be discussed • ICAI-ROC software Session- I Capacity Building through initiatives of Recent Issues under Income Tax 10.30 a.m. to the Committee 1.30 p.m. Capacity Building Measures:Open House & Networking, Merger & Corporate formValedictory Session of Practice5.30 p.m. to 6.00 p.m. Issues on Service Tax & VAT142 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • 799 EVENTSSession-II Issues on Income Tax Sessions Topics to be discussed2.30 p.m. to Session-I Critical issues on Income Tax5.30 p.m. Capacity Building through IT Tools 10.30 a.m. to Critical issues on Service Tax Open House & Valedictory Session 1.30 p.m. 5.30 p.m. to 6.00 p.m. Session-II K-Doc & e-Sec Software Registration Fees:- R600/- per participant 2.30 p.m. toCheque/DD should be Drawn in Favour of “Raigarh CPE 5.30 p.m. ICAI- ROC SoftwareChapter of CIRC of ICAI” and sent to either of : ICAI-Tax Suite Software(1) CA Ravi Kumar Agrawal, G-3 Sarla Villa, Open House and Valedictory Session Chakradharnagar, Raigarh - 496001 [C.G.] 5.30 p.m. to 6.00 p.m.(2) CA. Manish J. Agrawal, Nand Bhawan, Gandhi Ganj, Registration Fees:- R300/- per participant Raigarh - 496001 [C.G.] Cheque/DD should be Drawn in Favour of “SriLimited Seats, Registration on First Come First Ganganagar Branch of CIRC of ICAI” and sent to SriServed Basis. Advance confirmation of registration is Ganganagar Branch of CIRC of ICAI, 107, Varindavanrequired. Vihar, Gagan Path, Sri Ganganagar – 335001,Programme Chairman Programme Coordinator Rajasthan Phone Nos: 0154-2465141E-mail Id:CA Vijay Kumar Garg CA. Ravi Kumar Agrawal sriganganagarbranch@icai.orgChairman, Committee for President, Raigarh C.A.Capacity Building of CA Association Limited Seats, Registration on First Come FirstFirms and Small & Medium Phone: 09425251252 Serve Basis. Advance confirmation of registration isPractitioners, ICAI Email:ats.ca.rgh@gmail. required.Email: chairman.ccbcaf@ com Programme Chairman Programme Co-ordinatoricai.orgPhone: 9414041872 CA Vijay Kumar Garg CA. Pawan Mittal Chairman, Committee for Chairman, Sri GanganagarFor Registration & Information, contact details: Capacity Building of CA Branch of CIRC of ICAICA. Manish J. Agrawal, Deputy Convenor, Raigarh CPE Firms and Small & Medium Phone:09414203944Chapter, Phone:09425251861, Email:camanishagrawal@ Practitioners, ICAI Email:pawanmittalsgnr@hotmail.com Email: chairman.ccbcaf@ yahoo.com, chairmansgnr@ icai.org icai.org Phone: 09414041872 CPE For Registration & Information, contact details: Workshop on Capacity Building CA. Neeraj Chawla (Convenor) Phone: 09414210450 6 Measures of Practitioners & CA Firms Email: ncca@indiatimes.com Hours CPE Date Workshop on Capacity Building 23rd November, 2011 Venue 6 Measures of Practitioners & CA Firms Hotel Vikramaditya, Suratgarh Bypass Road, Sriganganagar Hours Organised by DateCommittee for Capacity Building of CA Firms and Small 26th November, 2011 & Medium Practitioners, ICAI Venue Hosted by Hotel K C Residency , Sriganganagar Branch of CIRC of ICAI Residency Road, Jammu Tawi – 180001 Organised by23rd November, Registration of participants and Committee for Capacity Building of CA Firms and Small2011 Inaugural session & Medium Practitioners, ICAI9.30 a.m. to 10.30a.m. Hosted byChief Guest Jammu & Kashmir Branch of NIRC of ICAIShri B. P Meena, Commissioner of Income Tax, Bikaner . 9.30 a.m. to 10.30 Registration of participants andRange, Bikaner (Rajasthan) a.m. Inaugural session THE CHARTERED ACCOUNTANT NOVEMbEr 2011 143
    • EVENTS 800Session Topics to be discussed 12th November, 2011 Registration of participants andSession- I Capacity Building Measures: 08:45 a.m. to 09.30 Inaugural session10.30 a.m. to Networking, Merger-Demerger & a.m.1.30 p.m. Corporate Form of Practice Sessions Topics to be discussed and Speakers Critical Issues on Income Tax Session- I Practice Management – CA.Session-II Capacity Building Through IT tools 09.30 a.m. to Abhishek Nagori2.30 p.m. to • K-Doc & e-Sec Software 01.30 p.m. Capacity Building Measures:5.30 p.m. • ICAI- Tax Suite Software Networking, Merger & Corporate • ICAI-ROC Software form of Practice - CA. Roopin PatelOpen House & Session Chairman Emerging Opportunities forValedictory Session CA Vijay Kumar Garg Chartered Accountants in Practice5.30 p.m. to Chairman, CCBCAF & SMP ICAI, - CA. Rahul Parikh6.00 p.m. Session-II Capacity Building Through IT Tools Registration Fees:- R600/- per participant 02.30 p.m. to - CA. B.C. ChechaniCheque/DD should be Drawn in Favour of “ Jammu & 04.30 p.m. Networking & Use of I T Tools -Kashmir Branch of NIRC of ICAI” and sent to Jammu CA. Kamlesh Parikh& Kashmir Branch of NIRC of ICAI, 3rd Floor, Ayakar Open House & Valedictory SessionBhawan, Rail Head Complex, Jammu Tawi 180 04.30 p.m. to 05.00 p.m.001 Phone No: 0191-2471027 E-mail Id: jammu_ Registration Fees:- R500/- per participantkashmir@icai.org Cheque/DD should be Drawn in Favour of “AnandLimited Seats, Registration on First Come First Branch of WIRC of ICAI” and sent to Anand Branch ofServe Basis. Advance confirmation of registration is WIRC of ICAI,3rd floor, Paris Tower,Near Sardargunjrequired. Bank, Sardar Gunj,ANAND - 388 001,Ph: (2692) 267080,Programme Chairman Programme Co-Chairman Email: anand@icai.org Limited Seats, Registration on First Come FirstCA Vijay Kumar Garg CA. Pankaj Tyagee Served Basis. Advance confirmation of registration isChairman, Committee Central Council Member, required.for Capacity Building of ICAI Programme Chairman Programme CoordinatorCA Firms and Small & Email: pankajtyagee@gmail.Medium Practitioners, ICAI com CA Vijay Kumar Garg CA. Roopin PatelEmail: chairman.ccbcaf@ Phone: 09313976289 Chairman, Committee Chairman, Anand Branch oficai.org, for Capacity Building of WIRC of ICAIPhone: 9414041872 CA Firms and Small & Phone:09825585845 Medium Practitioners, ICAI Email: roopin.patel@gmail.For Registration & Information, contact details: Email: chairman.ccbcaf@ comCA. Ajay Sawhney, Chairman, Jammu & Kashmir icai.orgBranch of NIRC of ICAI, Phone:09419185051, Phone: 9414041872Email:caajaysawhney@rediffmail.com For Registration & Information, contact details: CA. Ravi Shah, Secretary, Anand Branch of WIRC of ICAI, Mobile: 9825271171 CPE Workshop on Capacity Building CPE “Auto Connect”- CMII National 6 Measures of Practitioners & CA Conference on Auto Industry Hours Firms 12 Pune Date Hours 12th November, 2011 Venue Date ICAI Bhawan, Anand Branch of WIRC of ICAI, Anand 4th and 5th November (Friday, Saturday), 2011 Venue Organised by PuneCommittee for Capacity Building of CA Firms and Small Organised by & Medium Practitioners, ICAI Committee for Members in Industry of ICAI Hosted by Hosted by Anand Branch of WIRC of ICAI Pune Branch of WIRC of ICAI144 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • 801 EVENTS Theme and Programme Outline Conference Director Conference ConvenerPune is the hub of automobile industry in India. CMII CA K. Raghu CA S. B. Zaware,is organising this conference to bring together leaders Chairman, Committee Central Council Member, ICAIfrom the industry to discuss the current state of the for Members in and Member, CMIIindustry and vision for the future. The conference is Industrydivided into four broad themes. Each theme will becovered in a half-day session consisting of speeches For Registration and Further Detailsby eminent speakers followed by panel discussion by Fees: R3,000 for members, R4,000 for non-membersindustry veterans. Payment should be made by Cheque / DD in favour of “Pune Branch of WIRC of ICAI” payable at PuneInaugural Session CA G. Ramaswamy, President, and should be sent to - Pune Branch of Western India-9:00 am to 10.30 am ICAI Regional Council, CA. Jaydeep N Shah, Vice – The Institute of Chartered Accountants of India, ICAI President , ICAI Bhawan, Plot No.8, Parshwanath Nagar, CTS No. 333,Timings Topics to be discussed Sr. No. 573,Munjeri, Opp. Kale hospital, Near MahavirDay 1: 4th November 2011 Furniture, Bibawewadi, Pune 411 037. Phone No. - 020-Technical Session 1- Vision for Auto industry in India 24212251/52 Email : pune@icai.org, punecpe@gmail.10.30 am to 1:00 pm ▪ Vision from the Government com of India (Government perception) ▪ Vision from Maharashtra State government ▪ Global outlook towards auto CPE industry in India NATIONAL RRC on CA Profession ▪ Panel discussion on vision.Technical Session 2 – Regulatory Environment 15 towards Excellence through Capacity Building2:00 pm to 5:00 pm ▪ Current regulatory matters Hours ▪ Compliance beyond regulations ▪ Direct Tax, Indirect Tax and Date International Tax issues for 11th, 12th and 13th November 2011 Auto Industry VenueSpecial Session Auto Industry as Growth Engine Shree Balaji Seva Sadan, Salasar, Churu(Rajasthan) of the EconomyDay 2: 5th November, 2011 Organised byTechnical Session 4 - Financing, including corporate Committee for Capacity Building of CA Firms and Small10:00 am to 1:00 pm finance, private equity, working & Medium Practitioners, ICAI capital and also auto financing Hosted by ▪ Effectiveness of supply chain Jaipur Branch of CIRC of ICAI management (component automobiles) Day 1: 11th November, 2011 ▪ Finance to Auto Industry 12 p.m. to 2.30 Registration of participants and ▪ Auto consumer finance- p.m. Inaugural Session trends Chief Guest ▪ Panel discussion Shri Namo Narain Meena, Union Minister of State ofTechnical Session 5 - Accounting and internal controls Finance2:00 pm to 5:00 pm with specific reference to auto Session Chairman industry CA Jaydeep N. Shah, Vice President, ICAI ▪ Beyond internal controls/ audit – Risk management Sessions Topics to be discussed and ▪ Key accounting matters/ Speakers IFRS/ Issues in Accounting Session- I Critical issues in Direct Taxes Standards impacting Auto 2.30 p.m. to 4.30 Session Chairman : CA. S. C. Jain Industry p.m. Practical Issues in Income Tax – ▪ Opportunities for Chartered CA. (Dr.) Girish Ahuja Accountants in auto industry Taxation and accounting in Real ▪ Panel discussion. estate transactions – CA. Vijay Goyal THE CHARTERED ACCOUNTANT NOVEMbEr 2011 145
    • EVENTS 802Session-II Panel Discussion on New Open House and Chief Guest4.45 p.m. to 6.45 Challenges in CA Profession Valedictory Session Shri Rajendra Pareekp.m. Session Chairman : CA Amarjit 1.50 p.m. to Cabinet Minister-Industry, Chopra, Past President , ICAI 2.30 p.m. Government of Rajasthan ▪ CA Satish Gupta Session Chairman ▪ CA Ravi Raniwala CA Vijay Kumar Garg ▪ CA Prakash Sharma Chairman, CCBCAF & SMP ICAI, ▪ CA Sudhir BhansaliDay 2: 12th November, 2011 Registration With WithoutSession-III Critical Issue in Indirect Taxes Fees Accommodation Accommodation8.00 AM to 10.00 Chairman: CA Ravindra Holani, Particulars in Rupees In RupeesAM Council Member, ICAI Practical issues in Service Tax – CA. FCA 3000 2500 Ashok Batra ACA 2800 2300 Critical Issues in Rajasthan VAT - Accompanying 1800 1300 Shri K B Gupta PersonSession-IV Panel Discussion on Audit Child(3-12 Yr) 1200 70010.15 a.m. Documentations for SMPsto 12.15 p.m. Chairman: CA Rajkumar Adukia, Child(above 1800 1300 Central Council Member, ICAI 12 Yr) ▪ CA K L Jhanwar ▪ CA Shyam Lal Agarwal Note ▪ CA Pawan Goel, Past Chairman ▪ Payment may be made by Cheque / Demand Draft CIRC in favour of Jaipur Branch of CIRC of ICAI & ShouldSession-V Panel Discussion on Profession be sent to-Jaipur Branch of ICAI, The Institute of12.30 p.m. to 2.00 with Ethics Chartered Accountants of India, ICAI Bhawan, D-1,p.m. Chairman: CA Subodh Kumar Jhalana Institutional Area, JLN Marg, Jaipur-302004 Agarwal, Chairman, ESB, ICAI ▪ Special Attraction: ▪ CA Devaraja Reddy M, Central a) Special Darshan Salasar Balaji(Churu), Rani Sakti Council Member, ICAI Dadi Mandir (Jhuujhunu),Khatu Shyam ji (Sikar), ▪ Special Address by CA. S S Reengus Bheru Ji Bhandari, Past Council Member, b) Pick up & Drop facility from Jaipur ( Pickup on ICAI 11/11/2011 at 7.00AM from ICAI Jaipur Branch and ▪ CA Vimal Chopra, Past Chairman, Drop on 13/11/2011 at 8.00 PM at Jaipur) CIRC ▪ Limited Seats, Registration on First Come First ServedDay 3: 13th November, 2011 Basis.Session-VI Office Management & Corporate Programme Programme Convenor8.00 AM to 11.00 form of Practice ChairmanAM Chairman: CA. Sanjeev CA Vijay Kumar CA. Rakesh Jhalani Maheshwari, Central Council Garg Chairman, Jaipur Branch of CIRC Member, ICAI Chairman, of ICAI Office Management - CA. Nilesh Committee for Phone: 09829064513 Vikamsey, Central Council Member, Capacity Building Email: rrc.salasarbalaji@icai.org, ICAI of CA Firms and jaipur@icai.org Corporate form of Practice Small & Medium CA. Atul C. Bheda, Vice-Chairman, Practitioners, ICAI CCBCAF & SMP ICAI , Email: chairman.Session-VII Capacity Building through IT ccbcaf@icai.org11.15 a.m. Tools Phone: 9414041872to 1.45 p.m. Chairman: CA Atul C. Bheda, Vice- Chairman, CCBCAF & SMP ICAI , For Registration & Information, contact details: K-Doc & e-Sec Software - CA. B C CA. C. L. Yadav, Past Chairman, Jaipur Branch Chechani of CIRC of ICAI, Email:clyadav1@yahoo. ICAI- ROC Software - CA. Manu com,Phone:09829291148 or CA. Sunil Mor, Email: Agarwal mor_sk@yahoo.com, Phone:09414039265 ICAI-Tax Suite Software – CA. Kapil Goyal146 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • 803 EVENTS CPE CPE 6 Workshop on Capacity Building Measures of Practitioners & CA 10 Residential Refresher Course Firms Hours Hours Date Date 27th November, 2011 17th and 18th December, 2011 Venue Venue ICAI Bhawan, Durgapur Branch of EIRC of ICAI, Shree Vilas Hotel, Bus Stand, N.H.8, Nathdawara Durgapur (Rajsamand), Rajasthan. Organised by Organised byCommittee for Capacity Building of CA Firms and Small Committee for Capacity Building of CA Firms and Small & Medium Practitioners, ICAI & Medium Practitioners, ICAI Hosted by Hosted by Durgapur Branch of EIRC of ICAI Bhilwara Branch of CIRC of ICAI27th November, 2011 Saturday,17th December, 2011 9:30 a.m. to 11:00 Registration of participants and08:45 a.m. to Registration of participants and a.m. Inaugural session09.30 a.m. Inaugural session Chief GuestSessions Topics to be discussed Dr. C. P Joshi*, Union Cabinet Minister for Road .Session- I A Roadmap to Direct Tax Code Transport & Highway, Government of India10.00 a.m. to A Roadmap to GST Vice Presidential Address01.00 p.m. CA Jaydeep N Shah, Vice President- ICAISession-II Capacity Building Through Special Address02.00 p.m. to IT Tools Shri Madan Lal Paliwal, M.D., Miraz group05.00 p.m. Capacity Building Measures: Sessions Topics to be discussed and Networking, Merger & Corporate Speaker form of Practice Session-I Capacity Building & Office Open House & Valedictory Session 11:00 am to Management 05.00 p.m. to 05.30 p.m. 02:00 pm Capacity Building of Practitioners Registration Fees:- R300/- per participant - CA. Dhinal Ashvinbhai Shah,Cheque/DD should be Drawn in Favour of “Durgapur Central Council Member, ICAIBranch of EIRC of ICAI” and sent to Durgapur Branch of Office Management & OpportunityEIRC of ICAI, ICAI BHAWAN, Priyadarshini Indira Sarani, in Stock Market - CA. C. S. Nanda,Durgapur - 713 205, Ph: 0343-2566754, Email: durgapur@ Central Council Member, ICAI Session-II Importance of Auditicai.org 03:00 pm to Documentation & XBRLLimited Seats, Registration on First Come First 05:00 pm XBRL- Overview - CA. RajkumarServe Basis. Advance confirmation of registration is Adukia, Central Council Member,required. ICAIProgramme Programme Coordinator Documentation & SMP’s -Chairman CA. Shyam Lal Agarwal, JaipurCA Vijay Kumar Garg CA. Sumit Sarkar Sunday,18th December, 2011Chairman, Committee Chairman, Durgapur Branch of Session-III Critical Issues & Opportunities Infor Capacity Building EIRC of ICAI 10:00am to Direct & Indirect Taxof CA Firms Phone: 09434792230 01:00pm Interpretation of Law - CA. Ravindraand Small & Medium Email: ssarkar5@yahoo.co.in Holani, Central Council Member,Practitioners, ICAI ICAIEmail: chairman. Critical Aspects in Direct Taxes &ccbcaf@icai.org Issues in TDS and Assessment –Phone: 9414041872 CA. (Dr.) Girish Ahuja Critical Aspects in Service Tax - CA.For Registration & Information, contact details: Manoj Jain, JaipurCA. Amit Kumar Ram, Secretary, Durgapur Branch of Critical Aspects in Rajasthan VAT -EIRC of ICAI, Mobile: 09434792024 CA. Ajay Saria, Udaipur THE CHARTERED ACCOUNTANT NOVEMbEr 2011 147
    • EVENTS 804Session-IV Capacity Building through IT02:00pm to Tools CPE04:00pm K Doc & E-Secretary - CA. B.C. Two Days Workshop on Chechani ICAI-Tax Suite software - 9 Auditing CA. Vinod Khandelwal, Jaipur Hours ICAI-ROC software - Mr. Amit MehtaOpen House Session Chairman Date& Valedictory CA. Vijay Kumar Garg, Chairman, 19th and 20th November, 2011Session CCBCAF & SMP ICAI , Venue04:00 p.m. to ICAI Bhawan, Indore04:30 p.m. Registration With Without Theme Fees Accommodation Accommodation Standard on Audit- Practical Insight Particulars in Rupees In Rupees Organised by Auditing and Assurance Standards Board FCA 1500.00 1100.00 Hosted by ACA 1400.00 1000.00 Indore Branch of CIRC of ICAI Accompaning 1100.00 900.00 Day 1, 19th November, 2011 Person Child(3-12 Yr) 900.00 700.00 09:30 AM – 11:00 AM Registration of participants and Inaugural session Child(above 1100.00 900.00 12 Yr) Sessions Session Details and Speaker Cheque/DD should be drawn in favour of “Bhilwara Technical Session I Standards on Auditing Branch of CIRC of ICAI” and sent to Bhilwara Branch of 11.00 AM – 01.30 PM – An Overview of Recent CIRC of the ICAI, ICAI Bhawan, Opp. Hotel Surya Mahal, Developments Shastri Nagar, Bhilwara, Rajasthan-3011001, Phone: 01482-252434 E-mail: icaibhl@gmail.com, CA. Abhijit Bandyopadhyay, bhilwara@icai.org Chairman AASB Limited Seats, Registration on First Come First Served Fundamental concepts in Basis. Advance confirmation of registration is required. auditing - Framework forProgramme Programme coordinator assurance engagements andChairman SA 200,CA Vijay Kumar CA Ajay Kasliwal CA. Rajkumar S. Adukia,ViceGarg Chairman, Bhilwara Branch of CIRC Chairman AASBChairman, of ICAI Technical Session II ▪ Identifying & Assessing Risk ofCommittee for Email: kasliwal.ajay@gmail.com 02.00 PM – 04.00 PM Material Misstatement -SA 315Capacity Building Phone: 09828146872 ▪ Auditor’s Response toof CA Firms and Assessed Risk- SA 330Small & Medium ▪ Special Consideration in AuditPractitioners, ICAI of Public Sector EnterpriseEmail: chairman.ccbcaf@icai.org CA K. L. Jawahar, JaipurPhone: 9414041872 Technical Session III ▪ Issues in CAROFor further details, contact: 04.15 PM – 05.45 PM ▪ Issues in Bank AuditCA Naveen N Vagrecha, Past Chairman, BhilwaraBranch of CIRC of ICAI Email: nvagrecha@gmail. CA. Amarjit Chopra , Pastcom, jathliya@gmail.com Phone: 09414112304, President ICAI.09414112165* Subject to the consent 148 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • 805 EVENTSDay 2, 20th November, 2011 Timings Topics to be discussedTechnical Session IV ▪ Audit Planning Day 1: 5th November, 201110.00 AM – 11.30 AM ▪ Going concern assessment Technical Session I XBRL – Opportunities for 04:00 pm to 06.00 pm Chartered CA Aseem Trivedi, Indore AccountantsTechnical Session V ▪ Communications with those Day 2: 6th November 201111.30 AM – 01.00 PM charged with governance ▪ Management representations Technical Session II Sustainability- Corporate 09:30 am to 11:30 am Citizenship as a foundation of CA Aseem Trivedi, Indore Corporate GovernanceWorkshop Chairman Chairman, Auditing & Assurance Technical Session III Risk Management Standards Board, ICAI 11:45 am to 01:45 pm Phone: +91 983105 9999 Email: babhijit@deloitte.com Technical Session IV Withholding Tax of Foreign 02:45 pm to 04:45 pm PaymentsWorkshop Director CA Manoj Fadnis Central Council Member, ICAI Day 3: 7th November 2011 Phone: +91 93022 17716 Technical Session V Relevant issues relating to Email: manojfadnis@icai.org 08:00 am to 10:00 am Service TaxWorkshop CA Vikas JainCoordinator Chairman, Indore Branch of CONCLUDING SESSION: 10.00 AM TO 11.00 AM CIRC of ICAI Phone: +91 9300099960 Programme Chairman Programme Director Email: vikas_jain_ca@yahoo. CA K. Raghu CA. Pankaj Tyagee com Chairman – Committee Vice Chairman - Committee forRegistration Fee For ACA- R1,000/- & for FCA- for Members in Members in Industry R1,250/- Industry Phone: 09811902889 Phone: 09341219091 Email: pankajtyagee@gmail. Email: cakraghu@ com kraghu.com CPE For Registration and Further Details--- Fees (Residential): 12 Residential Refresher Course ▪ For Members: R10,000/- (on Single Sharing basis) ▪ For Members: R8,000/- ( on Twin Sharing basis) Hours ▪ For Spouse/Accompanying Person: R6500/- (on Twin Sharing basis) ▪ Kids below 07 yrs. are complimentary. ▪ Children 07 – 12 yrs @ R2600/- per child in parents Date sharing room with meals 5th to 7th November (Saturday, Sunday ▪ Children 12 - 16 yrs. @ R3000/- per child in parents & Monday), 2011 Venue sharing room with meals Tarika’s Jungal Retreat – Chail Payment should be made by Cheque/DD in favour Organised by of “Chandigarh Branch of NIRC of ICAI” payable Committee for Members in Industry at Chandigarh and should be sent to - Chandigarh Hosted by Branch of Northern India Regional Council, The Institute Chandigarh Branch of NIRC of ICAI & Himachal of Chartered Accountants of India, ICAI Bhawan, Pradesh Branch of NIRC of ICAI Sector-35-B(Near Gurdwara), Opposite CommunitySaturday November 12, 2011 Centre, Chandigarh-160035, Phone: 0172-5067756Inaugural Session CA G. Ramaswamy, Email: chandigarh@icai.org-03:00 pm to 04.00 pm President, ICAI CA. Jaydeep N Shah, Sightseeing may be organised for Spouse, Children Vice – President , ICAI and Accompanied Person on request. THE CHARTERED ACCOUNTANT NOVEMbEr 2011 149
    • EVENTS 806 CPE Monday November 14, 2011 Three Days Residential Technical Role of Internal Auditor in 12 Workshop on Internal Audit Session VII 10.00 a.m. to Strengthening Corporate Governance 11.30 a.m. Hours Technical Fraud – Internal Auditor’s Role in Date Session VIII Prevention and Detection Saturday, 12th, 13th, 14th November, 2011 12.00 noon to 1.30 p.m. Venue Participation Fee: R.J.Resort, The Mall, Darjeeling R8000/- per person ( Including accommodation (on twin sharing basis), breakfast, lunch, dinner, Organised by course material, sightseeing and to & fro travel from Internal Audit Standards Board & Continuing Siliguri to Darjeeling) Professional Education Committee of ICAI Delegate fee by way of Cheque/DD drawn in favour of ‘Siliguri Branch of EIRC of ICAI’ payable at Siliguri shall Hosted by be sent to Chairman, Siliguri Branch of EIRC of ICAI, ICAI Siliguri Branch of EIRC of ICAI Bhawan, Near Overbridge, Tinbatti More,Saturday November 12, 2011 Siliguri Jalpaiguri Highway, P Siliguri, .O.Registration and Inauguration Session Dist.: Jalpaiguri PIN– 743005.01.00 p.m. to 02.30 p.m. Phone: 0353-2560445; 2562984 Email: siliguri@icai.orgTiming of DetailsSessions Limited Seats, Registration on First ComeTechnical Professional Opportunities for First Serve Basis.Session I Chartered Accountants in Internal Audit02.30 p.m. to For registration, please contact:04.00 p.m. Seminar Seminar Seminar Chairman Director Co-ordinatorTechnical Standards on Internal Audit – CodifyingSession II the Best Practices CA. Rajkumar CA. Sumantra CA. Aditya Kumar04.30 p.m. to S. Adukia Guha Maheshwari06.00 p.m. Chairman, Chairman, Chairman, Siliguri Internal Audit Continuing Branch of EIRC ofSunday November 13, 2011 Standards Professional ICAITechnical Internal Audit of Specific Functions Board Education Phone:Session III Phone: 0120- Committee 0973304455010.00 a.m. to 3045 949, Phone: 0120- Email: siliguri@icai.11.30 a.m. 09820061049 3045 957, org Email: cia@icai. 09831015331 org Email: cpehours@icai.Technical Internal Audit of IFRS Convergence orgSession IV Process12.00 noon to1.30 p.m.Technical Internal Audit Report WritingSession V For Further details, please contact02.30 p.m. to Siliguri Branch of EIRC of ICAI04.00 p.m. ICAI Bhawan, Near Overbridge, Tinbatti More, Siliguri Jalpaiguri Highway, P Siliguri, .O.Technical Internal Control Framework – ASession VI Practical Approach Dist.: Jalpaiguri PIN– 73440504.00 p.m. to Phone: 0353-2560445; 256298406.00 p.m. Email: siliguri@icai.org150 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • 807 EVENTS CPE 6 National Seminar on Taxation CPE Certificate Course on Arbitration of the ICAI at Mumbai Hours 20 (Scheduled to be held on 12th, 13th, 19th, 20th, 26th & 27th Date Hours November, 2011- Weekends i.e. Saturday, 19th November, 2011 Saturdays & Sundays) Venue Hotel Dream, S.A. Road, Kochi The objective of the Certificate Course on Arbitration Organised by is to familiarise the members with the relevant laws Continuing Professional Educational Committee which impact the arbitration process and the practical Hosted by procedural aspects and to build the competency Ernakulam Branch of SIRC of ICAI level of the members of the ICAI to position them as multidisciplinary consultants in the global service market.Particulars Topics The Committee on Economic, Commercial Laws &Technical 1. Taxation of real estate WTO of ICAI is organising the next batch of the 6 DaysSession I transactions Certificate Course on Arbitration at Mumbai as per the9.00am to 2. Taxation of Charitable Trusts following schedule; Days & Dates for the Course10.15pm Speaker : CA. Gopalakrishnan A , Saturdays & Sundays Kochi 12th, 13th, 19th, 20th, 26th & 27th November, 2011Technical Assessment & Reassessment Time: 10.00 A.M to 6.00 P on each day .MSession II procedures in Income tax10.15am to Speaker: CA R Bupathy, Chennai, Past Evalutation Test11.30am President, ICAI The Evaluation Test will be held on 27th November, 2011 (Tentative) Session Chairman: CA Sumantra Guha, Venue Chairman, CPE Committee of ICAI Hotel Orchid ,Vile Parle (East), MumbaiTechnical Changing Paradigm of Tax Policy-Session III Direct Tax Code Programme Chairman: CA. Sanjeev Maheshwari, Chairman, Committee on Economic, Commercial Laws12 noon to Speaker: CA R Bupathy, Chennai, Past &WTO, M: 09821119043, Email: sm@gmj.co.in1.30pm President, ICAI Programme Coordinator: CA. Shriniwas Y. Joshi,Technical Legal Issues in TDS Chairman, WIRC, M: 09821096079 Email: syjoshi@cvk-Session IV Speaker: Adv. Chythanya K K , ca.com2.00pm to Bangalore For Registration and Further Details, please contact:4.00pm Secretary, Deputy Secretary,Registration Fee : Committee on Economic, Western India RegionalMembers : R750/- Commercial Laws & WTO, Council of the ICAI, ICAI The Institute of CharteredNon-members : R900/- Accountants of India, Bhawan,Cheque/DD should be drawn in favour of “ERNAKULAM ICAI Bhawan, Indraprastha 27, Cuffe Parade, Colaba,BRANCH OF SIRC OF ICAI Marg, New Delhi-110002 Mumbai-400005 Ph: 011 30110499/443, Ph: (022) 39802923/22,Seminar Seminar Seminar Coordinator Mb: 09312085029Chairman Convener E-mail: cecl@icai.in, Email: wro@icai.org; wirc@CA. Sumantra CA. Saji Mathew, N.K. Bansal ctlwto@icai.org; icai.in ,Guha, Chairman Secretary, Website: http://www.icai. Website: http://www.wirc-icai.Chairman, Ernakulam Continuing org orgContinuing Branch of SIRC Professional Registration Fee - R20,000/-(includes breakfast, tea, lunchProfessional of ICAI Education and Study Material)Education Phone: +91 Committee of ICAI The interested members may register online (http://Committee of 09847 212121 Phone: +91 www.icai.org/ccm.html?progid=184) or/and send theICAI 9312089135 Registration Form duly filled in along with the requisite fee by way of online acknowledgement receipt /Cheque/Phone: +91 Demand Draft/ drawn in favour of “The Secretary, The9831015331 Institute of Chartered Accountants of India” payableFor Registration & Information, contact details: at New Delhi. The same can be deposited either atERNAKULAM BRANCH OF SIRC OF ICAI Secretariat, Committee on Economic, Commercial LawsICAI Bhawan, 57/3146, Dewan’s Road, & WTO, New Delhi or at WIRC Office of ICAI at Mumbai as per the convenience of the Members.Ernakulam, Kochi - 682016Telephone Board :+91 484 2369 238, 2372 953, 2369 *The holding of batch is subject to minimum number of 30258 participants THE CHARTERED ACCOUNTANT NOVEMbEr 2011 151
    • GENERAL 810Understanding the ‘Aadhaar’ AADHAAR CAMPTo reap the benefits of demographic dividends and revitalise the rotten part of economy, the Government of Indiahas launched its most ambitious project ‘Aadhaar’, which aims at issuing UID numbers to all Indians. The UniqueIdentification Authority of India (UIDAI) has been established to oversee and implement the project. UID number is a12-digit unique number issued by UIDAI. With an estimated cost of R1.5 lakh crore, the authority plans to issue 600million UIDs by 2014. There will be centralised store of demographic and bio-metric information of all individualscovered under the project. The benefits of the project (if successfully implemented) include financial inclusion of all,single national identity proof, improvement in social benefits schemes and PDS systems and strengthening of scoresof institutions. However, privacy issue, technical wherewithal and glitches and actual coverage of all are some of thesnags which may pose questions about its viability. A famous film actor said in a movie, “India is not a place of Indians. The people here are Gujarati, Bihari, Kannad, Marwari or Telgu and so on. The only thing which binds them as Indians is ‘Cricket’.” Just as we have reached at the pinnacle in World Cricket, the Government of India is also trying to address the identity challenge by issuing a single identity number; Unique Identification Number (UID number) or ‘Aadhaar’. First UID Recipient: Ranjana Sonawane of Tembhli village (in tribal Nandurbar district of Maharashtra) had her day of fame when she received the first UID number from our Prime Minister Dr. Manmohan Singh. On the occasion, Dr. Singh had said the UID rollout symbolises a new and modern India. "We are making rapid progress in the field of technology. Nowhere in the world, has technology been used in such a big way. I hope every citizen will get this number very soon”. ‘Aadhaar’, the most ambitious and envisioned project of the Government of India, launched in February, 2009 with the establishment of Unique Identification Authority of India (UIDAI). This authority is tasked with issuing the UID number to all Indians. It is headed by the renowned first-generation entrepreneur, CA. Gagan Jain Mr. Nandan Nilekani, who has been given the rank of (The author is a member of the Institute. Cabinet Minister following his appointment. Mr. Ram He can be reached at eboard@icai.org) Sewak Sharma is the Director General of the UIDAI. 154 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • 811 GENERAL The source of power for UIDAI is the proposed issued on 29th September, 2010. Over the next five‘National Identification Authority of India (NIAI) Bill, years, UIDAI plans to issue 600 million UIDs through2010’. registrar agencies across the country.What Is Aadhaar/UID Number? Estimated CostAadhaar is a 12-digit1 number to be issued by UIDAI. Considering the vast coverage and security concerns,The number will be stored in a centralised database the cost of project is estimated to be around R1.5 lakhand linked to the basic demographic and biometric crore by the Frontline magazine. The cost is justifiedinformation. Some key points of Aadhaar are: considering that a London School of Economics’▪ It is not a card, but a randomly generated number; analysis of a similar venture mulled over by the British▪ It is voluntary, i.e., one may or may not apply for Government projected the cost between £10 billion UID number. Further, it will be issued irrespective and £20 billion. However, replying to this question, of existing documents; Mr. Nilekani said, “I don’t agree with that estimate. I▪ It will not have information regarding caste, religion don’t know what the exact figure is, but it is much less and language. than that by a factor of ten.”The Logo Budget Allocation: UID was allocated R1900 crore The logo comprises a sun in red and in the Union Budget 2010-2011 and R1470 crore in yellow, with a fingerprint traced across 2011-2012. its centre. It represents a new dawn of equal opportunity for all. The logo How Are Various Entities Involved in UID was designed by Mr. Atul S. Pande of Connected to UIDAI? Pune. UIDAI is headquartered in Delhi and has a technology centre in Bangalore. It also has regional offices inThe Timelines Chandigarh, Delhi, Lucknow, Ranchi, Guwahati,The first UID numbers were planned to be launched Mumbai, Hyderabad and Bangalore. A lot of agencies,over the next 12 to 18 months, starting August 2009. State Governments and officers have been involvedIn keeping with the time frame, the first number was with the project. The following diagram depicts the position and role of various entities involved: Planning Commission of India UIDAI Authorises Registrar Rs.50 per successful to enroll people. generation of Aadhaar. CIDR REGISTRAR Registrar includes Government, Public Sector and Private Sector Organisations. CIDR is resposible to process & Empanel for One year store data collected by registrar. Further, Authenticity of indentity is also con�imed by CIDR. Enrolling Agencies Enrolment Centres Enrolment Centres Enrolment Centres Enrolment Station Enrolment Station Enrolment Station1 Actually the total digits are 16. Last four digits are residence/address related number. These will be hidden and irrelevant for the applicant. Further, these would change with the change in address) THE CHARTERED ACCOUNTANT NOVEMbEr 2011 155
    • GENERAL 812 ‘It is estimated that ‘18,000 application progra- more and more people under the UID coverage withmmers, 36,000 business process reengineers and its vast network. The enrolment trend is shown in the1,500 consultants will be required as UID spreads following chart:through the economy.’* * (Sources: Unique Identification Authority of India;CLSA Asia-Pacific Markets) The database will be maintained in English. Thecommunication between resident and UIDAI will be inEnglish and the local language.Who Can Apply For Aadhaar? What is the Processof Getting UID Number?An individual, who is a resident2 of India and satisfiesthe verification process, can apply for UID NumberProcess of Getting UID Number (Source: Aadhaar portal) About 45 lakh UID numbers have been issued till March, 2011. It is estimated that from 1st October, 2011, ten lakh numbers will be generated per day. Information to be Stored in Database— Biometric MysteryA person, after seeing the advertisement for the UID There are two types of information which are to beenrolment, goes to the enrolment station. His/her provided by an individual:demographic details are entered and/or scanned ▪ Demographic Detail: Name, gender, date of birthby the appointed persons. These details, along with (DoB), address, parent/guardian details, contactdocuments, if any, submitted by the applicant are details - phone and email (Optional).sent to the registrar who passes the details to CIDR ▪ Biometric Details: Photo, ten finger prints and Iris(Central Identification Data Repository). The physical scan.documents are kept at registrar’s office for records. CIDR executes the de-duplication process and The inclusion of biometric information will be averifies other prescribed criteria. If the results show non- tough task as handling of various high technologicalexistence of these data, a UID number is issued to the instruments will raise a big question mark on theperson concerned. Otherwise, a letter of non-issuance, precise collection of information.along with the reasons, is sent to the applicant. Despite these possible impediments, UIDAI has The UIDAI is working hard and speedily to bring chosen a set of biometrics because: A adhaar authentication process will ▪ Many Indians, particularly the underprivileged, don’t have the documents needed to establish enable residents to prove identity their identity; and service providers to confirm ▪ Even if a person has an identity proof, it will be the identity to supply services tough for him/her to avail the attached benefits on and give access to the benefits. moving from one state to another as the identityThe UIDAI confirms either proof of identity or proof is issued by local administration.verifies the information provided by a residentbased on the data available in the CIDR at the How Will the Identity be Confirmed?time of authentication. Aadhaar authentication Aadhaar authentication process will enable residentsservice only responds with a ’yes/no’ and no to prove identity and service providers to confirm thepersonal identity information is returned as part identity to supply services and give access to theof the response. benefits. The UIDAI confirms either proof of identity2 It is also proposed to issue a 16 digit UID number to every individual above 15 years of age, including NRIs, and foreigners residing in India. But it is still unclear, how the Government will take their biometric details. 156 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • 813 GENERAL A adhaar enabled bank accounts to voter Id and PAN card. Further, the UID number will be opened free for every resident be enough to establish the identity of a person and if he/she agrees to the same. This validate of his (any) identity proof. consent will be requested from the Recently, the Election Commission proposed to link all Voter IDs with the UID. This will help in resident at the time of enrolment. resolving the problem of duplicate Voter ID.The accounts would be opened for everyone, ▪ Social Benefit Schemes and PDS Systemincluding children. Such accounts will speed up The sorry state of our social benefits schemes andthe process of disbursement of social benefits PDS system was aptly captured by former Indian(e.g., pension, payment under various schemes Prime Minister Rajiv Gandhi when he said, “Onlysuch as NREGA). It is estimated that 500 million a mere 16 paisa of Re 1 spent by the Governmentadults could enter the banking system through reaches the poor.”UID-linked basic banking accounts serviced With the UID number, benefits under variousthrough local grocery stores and cell-phone government schemes can directly be linked toservice providers. the target person’s account. This will correct the irregularities in the current database. (It is ironicalor verifies the information provided by a resident to have more Below Poverty Line – BPL cards thanbased on the data available in the CIDR at the time the number of BPL people)of authentication. Aadhaar authentication service only Finance Minister Pranab Mukherjee proposedresponds with a ’yes/no’ and no personal identity direct cash subsidy to BPL people for LPG,information is returned as part of the response. kerosene and fertilisers in the Union Budget 2011-(Source: www.UIDAI.gov.in) 2012. UID will help in this task.‘Aadhaar is Going to Revolutionise the Life ofCommon Man’ Birds Eye View on Economic Gains toSome of the benefits of Aadhaar are as follows: Exchequer from UID Project.▪ Aadhaar Enabled Bank Accounts ▪ $10 billion is the projected value of the UID’s Aadhaar enabled bank accounts to be opened free annual commercial opportunity by 2016. for every resident if he/she agrees to the same. This ▪ Indian Government can save $100 billion over consent will be requested from the resident at the the next five years if social services schemes time of enrolment. The accounts would be opened use UID to eliminate bureaucratic layers, for everyone, including children. Such accounts stem corruption and pay the poor directly. will speed up the process of disbursement of social ▪ One-third of the subsidies paid by the benefits (e.g., pension, payment under various Government can be saved if UID is universally schemes such as NREGA). implemented and schemes tightened. Further, the Micro-ATM network will cover ▪ $5 billion is the estimated value of new IT every nook and corner of India. A Micro-ATM is services and reengineering of business a hand-held device with biometric authentication processes around UID over the first five years capability. It will allow cash withdrawal and deposit, of the project. balance enquiry and remittances. It is estimated that 500 million adults could ▪ Aadhaar To Strengthen the Base of Institutions enter the banking system through UID-linked basic a. Banks: UID will provide vast data regarding banking accounts serviced through local grocery present and potential customers. Every bank can stores and cell-phone service providers. participate in the Universal Bank Access Mission▪ Synchronisation of Identity Proofs of the government. They can also be a part of ‘A person was denied of his identity because UID-enabled bank. Further, credit information Bihar Government refused to accept the driving services providers, such as CIBIL, can integrate license issued by the Rajasthan Government. their database with UID’s which will iron out the Another person could not open a bank account in problems of fake/duplicate IDs, etc. Maharashtra because he has address proof of his b. Hospitals: Indian Medical Association, with the home in Tamil Nadu.’ A common Indian confronts help of UIDAI, can create a central database that such problems everyday. will contain all the medical details of the residents The UID number can eventually make it easier at a single place. This will save a patient’s cost to get a passport, driver’s licence, bank account, on check-up and various tests. Apart from this, THE CHARTERED ACCOUNTANT NOVEMbEr 2011 157
    • GENERAL 814 I ndian Medical Association, with are not benefited by the low fare. (Source: Business the help of UIDAI, can create a Standard) central database that will contain The UID may help in overcoming problems relating all the medical details of the to immigrants and foreigners. Major problems of residents at a single place. This corruption, and even inflation, can be solved with thewill save a patient’s cost on check-up and implementation of Aadhaar project.various tests. Apart from this, database can be Indian army can also use UID to enhance security.an information hub for medical and scientificresearch. The government could also identify Obstacles in the Waythe type and severity of diseases spreading The UID does have some negatives too, which mayacross the country. have an effect on the potential fruits of the project. Some of them are: database can be an information hub for medical 1. Civil Liberty and Security Breach: There are no and scientific research. The Government could also ‘safeguards’ for preventing violation of civil liberties identify the type and severity of diseases spreading and security breaches. There are also serious across the country. issues of e-surveillance. In this regard, the UIDAIc. Telecom Service Providers: With nearly 720 has laid down protocols, regulations and standards million subscribers (Wireless and landline), to be adhered by registrars, enrolling agencies, UID India has the second largest telecommunication personnel and everyone involved in the project. network in the world. With UID, the access to As the cyber war intensifies, the fear of telecom services will be greater and faster. It hacking is worrying a lot of people. Any leakage of is estimated that 60 million new cell phone information will have unimaginable repercussions. subscribers, most of whom cannot currently prove 2. Privacy Safeguard: The UID itself only collects their identity, can be added through UID. The standard attributes, but since the enrolling system benefits will also be felt in the Internet space. is through partnership with existing agencies suchd. Employee PF Organisations: A recent news as LIC, banks, PDS shops, etc. the full board of article mentioned, ‘the retirement fund manager UIDAI may have additional data fields related to EPFO plans to replace PF account number with identity. This information could compromise privacy unique identification number, a move which will and leave it open for misuse with racial profiling help in speedy transfer of a subscribers funds in being an obvious threat. Countries such as the UK, case of job change and allow them to track their Australia and the US have found similar measures accounts online.’ unworkable with serious probability of abuse. Thee. Tax Authorities: Duplicate identity proofs, benami state will have the means to track every transaction accounts, minute changes in the spelling of made using the UID. name have been big snags for tax authorities. 3. Voluntary Vs. Mandatory: Although the UID team It is proposed to align PAN and other personal stresses that the number is voluntary, it seems identification numbers with the UID. This will help mandatory for all practical purposes. A similar the authorities to follow the trail easily and quickly. thing happened with PAN (Permanent Accountf. Financial and Regulatory Institutions: The Number) too. Theoretically, PAN is not mandatory T Ministry of Finance has sought the views of capital market regulator Securities and Exchange here are no ‘safeguards’ for Board of India (SEBI) on making the UID number preventing violation of civil mandatory for all securities transactions, a move liberties and security breaches. that, if implemented, could help SEBI track There are also serious issues of incidents of frauds and money laundering in market e-surveillance. In this regard, the transactions. UIDAI has laid down protocols, regulations andg. Indian Railways: ‘Financial problems have forced standards to be adhered by registrars, enrolling Indian Railways to look at restricting subsidy and agencies, UID personnel and everyone involved concessions to the deserving. It is looking to in the project. As the cyber war intensifies, the UIDAI for ensuring accurate identification of the fear of hacking is worrying a lot of people. Any beneficiaries of its low-cost services.’ This will help leakage of information will have unimaginable the railways to ensure that people who are not repercussions. entitled to discount services such as ‘Izzat Scheme’ 158 THE CHARTERED ACCOUNTANT NOVEMbEr 2011
    • 815 GENERAL T but virtually, it has become an identity proof in the he mere issuance of UID number financial world. would not be enough. The real4. Power Entrusted with UIDAI: The UIDAI is an benefits will come after integrating executive body of this project. Generally, the it with other government systems executive bodies are entrusted with routine and and scaling it up to a level where some other important power. The remaining ‘red tapes’ become red carpets. If we look powers are retained with legislative body. The globally, Social Security Number (SSN) has judiciary takes care of matters in conflict with or become mandatory for obtaining driving licence against the executive body. However, NIAI Bill, and opening bank accounts, etc, in the US. 2010 has delegated at least 25 functions to the It is virtually playing the role of UID number. proposed authority including crucial legislative According to Privacy International, currently functions. (For example, the definitions of close to a hundred sovereign nations have ‘demographic information’ and ‘biometric National Identification Cards (NIC). information’ are to be decided by the authority). Further, the authority has the sole power to establish be compatible with UID database. This may involve dispute resolution mechanism on matters related substantial cost. to the project. Finally, let’s remember, like with most things, the5. Conflict with Other Acts: The proposed bill UID model is only as good as its application. has several provisions which overlap with the Information Technology Act, 2001. Similarly, this Conclusion project is expected to invite protests from several All new systems carry potential benefits as well quarters on issues such as legal authority, database as consequential dangers. We may confront with management and technical collaborations. several technical, financial and physical snags. But6. Coverage of All: The UID aims to cover everyone what matters is how we tackle them during in its database to realise the dream of inclusive implementation. growth. As Mr. Nilekani has said, “the inclusivity that this project would provide for the 700 million people in this ‘But is it possible to get information from an country, who were outside the system, was immenseilliterate living in a remote tribal area, where the entry enough to justify doing it.”of strangers is considered as an attack on the privacy The mere issuance of UID number would not beof the community?’ enough. The real benefits will come after integrating it with other government systems and scaling it up to a level where ‘red tapes’ become red carpets. If we look globally, Social Security Number (SSN) has become mandatory for obtaining driving licence and opening bank accounts, etc, in the US. It is virtually playing the role of UID number. According to Privacy International, currently close to a hundred sovereign nations have National Identification Cards (NIC). Finland, Germany, Australia, Colombia and Israel also have their national ID cards. China and Bangladesh are instituting biometric ID cards. European Union is also considering the possibility of having a pan-Europe E-Identity Card. Considering the overall perspective, an Indian should get his/her unique Identity. India’s much talked Many NGOs are promoting eye donations. If a about demographic dividends may become its major UID registered person donates his/her eyes (after liabilities, if not handled properly. So let us bring a new death) to an unregistered blind person, how will and powerful tool which has immense potential to the latter establish his/her unique identity? enrich the life of a common Indian.Apart from these, the project entails a huge burden Go to the below link to get your UID form:on the exchequer. All institutions need to upgrade h t t p : / / u i d a i . g o v. i n / i n d e x . p h p ? o p t i o n = c o m _or change their technologies or database system to wrapper&view=wrapper&Itemid=217 n THE CHARTERED ACCOUNTANT NOVEMbEr 2011 159
    • BACKPAGE 816 065ACROSS 6. Name of the1. In the context of Information security company and risk management, ‘________’ recently replaced means ensuring that data remains the Reliance unchanged while in storage or Capital in S&P transmission. (9) CNX Nifty4. Full form of MICR is ________ Sensex. (7) _______ Recognition Code. (8,3) 7. MIBOR in India5. CABF of ICAI has a tie up with is known as ______for Group Term Insurance _________in Scheme for Chartered Accountants London. (5) and their spouses. 9. Origin of word8. The process of extracting previously ‘Governance’. (9) unknown information typically in the 10. ____Value form of patterns and associations Adjustments is NOTe: Members can claim one hour – from large databases. (4,6) a measure that adjusts the risk-free CPe Credit – Unstructured Learning for11. Top recruitments have been made value of an instrument to incorporate attempting this crossword by filling the by this company during the August- counterparty credit risk. (6) details in the self-declaration form to be submitted to your regional office annually September 2011 Campus interviews 13. A Person Resident in India is liable to avail CPe hours credit for Unstructured of the ICAI. (7) to pay tax on his _______ income Learning activities under the activity12. In Pakistan, the auditors are required earned anywhere in the world. (5) ‘Providing Solutions to Questionnaires/ to comment whether any ______ puzzles available on Web/ Professional is deductible at source under the Journals’. There is no need to individually statutory provisions in their audit send this crossword in hard copy or email. report. (5)14. ________ Accounting is the application of accounting principles, theories and discipline to facts or hypothesis at issues in a legal dispute and encompasses every branch of accounting knowledge. (8)15. ________ has been recognized as a ‘Capital Asset’ for purpose of computing capital gains in the Income-tax Act. (8)DOWN2. Cheque is a _________Instrument. (10)3. Number of elected Council Members in the Council of ICAI. (6,3) SOLUTION CROSSWORD 0 6 4 1 Bidding One day a man went to an auction. While there, he bid on a beautiful parrot. He really wanted this bird, so he got caught up in the bidding. He kept on bidding, but kept getting outbid, so he bid higher and higher and higher. Finally, after he bid way more than he intended, he won the bid. The price was high but the fine bird was finally his! As he was paying for the parrot, he said to the Auctioneer, “I sure hope this parrot can talk. I would hate to have paid this much for it, only to find out that he can’t talk!” “Don’t worry,” said the Auctioneer, “He can talk. Who do you think kept bidding against you?” 160 THE CHARTERED ACCOUNTANT NOVEMbEr 2011