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volume 60 no. 5 november 2011 r100

ICAI International Conference

6 - 8 January, 2012 at Chennai Trade Centre, Chennai

Accountancy Profession: Leveraging Emerging Challenges For Inclusive Growth

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, which is fast industrialising, is very great indeedHe 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]

JOURNAL

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EDITORIAL

Global Economic Turbulence and India

he ongoing global economic turbulence, which, in a sense, is a continuation of the financial crisis that began in 2007, is threatening to become another major global recession. The grim situation has created panic in the developed world, so much so that Londons The Economist has already predicted a double-dip global recession led by America. The turbulence, mainly triggered by the sovereign debt crises in many European countries followed by the unprecedented downgrading of the US sovereign long term credit rating by Standard & Poor, saw the world stock exchanges going into a tailspin. The sovereign credit crisis in the Eurozone has led to virtual insolvency of Greece, Ireland and Portugal. The crisis is now threatening Spain and Italy and is unlikely to stop there. Adding fuel to the fire, the turbulence has laid the seeds of a more fundamental crisis. As the burden of sovereign debt is passed on to the common people, their purchasing power correspondingly declines and combined with the growth of unemployment, leads to a sharp contraction in domestic demand. Indias Finance Minister Pranab Mukherjee recently rightly warned the world community that if not managed with an iron hand, the crisis will have a contagion effect and indeed lead to a double-dip global recession. This crisis has already drastically reduced global trade and slowed down the world economy, with Europe and the US growing just over 1%. In this background, the International Monetary Fund in its recent report has trimmed its economic growth forecasts for Asia to average 6.3% in 2011 from its earlier forecast of 7%. India remains no exception to this widening trend. The global economic turbulence has been one of the main reasons for Indian growth prospects being downgraded to below 8% this fiscal from 9% projected in the Budget 2011-2012. The World Bank has also recently said that Indias growth was likely to slow to 7% to 8% in the next two years as a result of uncertainties weighing on investment, tighter macroeconomic policies intended to fight inflation and the base effect of the strong agricultural rebound last year. If the world economy goes into a double-dip recession, it will have considerable negative impact on FDI inflows, flow of money into Indian bourses, and employment. The initial symptoms are already evident in the stock markets, where share values and wealth are eroding. FIIs have sold more than $2.2 billion worth

of Indian shares between August and September this year. Europe is one of Indias largest trading partners. Austerity measures in European countries and falling consumer expenditure may affect Indian exports, especially in services. If European banks collapse due to exposure to countries such as Greece, Ireland and Portugal, the supply of foreign credit to emerging markets, including India, will dry up. That will put pressure on investment spending in emerging markets already struggling with high capital costs due to tight monetary policies. Early warning signs, such as low investor confidence and falling consumer demand across the board, signal a crisis at Indias doorstep, which it cannot completely avoid. But India can considerably minimise the damage. And for that it is imperative that India looks inward and boost domestic demand to compensate for the shrinking world market. Huge domestic demand within India provides a buffer to global economic turbulence. In fact, India does have a significant control over its own destiny. Domestic consumption accounts for around 70% of its GDP . India can reinvigorate itself with domestic structural reform. The key is to spur business investment. However, a major problem is that India is sacrificing growth to fight inflation, with the Union Finance Minister hinting that India may continue to tighten monetary policy, in contrast to most other major emerging economies, to keep stubbornly-high inflation in check despite fears of a broader economic slowdown. Every crisis offers opportunities as well. Indian policymakers need to maintain domestic demand and work towards gaining investors confidence. The government must explore export markets like Africa and the ASEAN countries, and continue to reduce dependence on Europe and the US. Special tax incentives for exporters to Europe and the US may help them retain their competitiveness in these markets. Some of the pending reforms, whether they are FDI in retail, labour or financial and insurance sector reforms, need to be pushed ahead to maintain growth and investment. It is time to show that India is a safe haven for investment, and to do this, bold governance reforms are needed to improve the overall competitiveness of the Indian economy. -Editorial Board ICAI-Partner in Nation Building

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EDiTORiaL BOaRD
EDITOR JOINT EDITOR MEMBERS CA. G. RAMASWAMY, President CA. JAYDEEP N. SHAH, Vice-President CA. ATUL C. BHEDA CA. K. RAGHU CA. M. DEVARAJA REDDY CA. MADHUKAR N. HIREGANGE CA. MANOJ FADNIS CA. NAVEEN N.D. GUPTA CA. NILESH S. VIKAMSEY CA. P RAJENDRA KUMAR . CA. RAJKUMAR S. ADUKIA CA. RAVINDRA HOLANI CA. SUBODH K. AGRAWAL CA. SUMANTRA GUHA CA. V. MURALI CA. ANIL S. DANI CA. R. GIRI CA. S. SUNDARRAMAN CA. NITIN JAIN NADEEM AHMED SUSANTA K. SAHU DR. N. K. RANJAN NIMISHA SINGH

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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, which is fast industrialising, is very great indeedHe 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.

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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]

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EvENTS 794 Three Days Residential Refresher CPE Course, Alleppey 794 Workshop on Capacity Building Measures of Practitioners & CA Firms, Bhavnagar, Kota, Bellary, Nagpur, Baroda, Jalgaon, Shimla, Raigarh, Sriganganagar, Jammu Tawi, Anand and Durgapur 800 Auto Connect- CMII National Conference on Auto Industry, Pune 801 803 804 805 806 807 807 National Residential Refresher Course on CA Profession towards Excellence through Capacity Building, Churu(Rajasthan) Residential Refresher Course, Rajasthan Two Days Workshop on Auditing, Indore Residential Refresher Course, Chail Three Days Residential Workshop on Internal Audit, Darjeeling National Seminar on Taxation, Kochi Certificate Course on Arbitration of the ICAI, Mumbai

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iNTERNaTiONaL CONfERENCE
6TH 8TH JaNuaRy, 2012 aT CHENNai TRaDE CENTRE

iNTERNaTiONaL TaxaTiON 741 Special Measures in Respect of Transactions with Persons Located in Notified Jurisdictional Area CA. Thakur Repudaman 750 Attribution of Profits to Permanent Establishment The Indian Experience Committee on International Taxation of the ICAI

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In the context of integrated and diversified financial operations, our profession is undergoing a sea change in its fundamentals, including a need for 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

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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: It is true that we are at crossroads between volatile business 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 responding Dear Friends, for quite some time to the needs of the contemporary business environment of our nation. Our membership 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. Internationally our headquarters in Delhi, on the occasion of the First too, we have been growing in all possible directions Conference of Chartered Accountants of India, on 5th logically while carrying CSR attitude all the time with April, 1954, to deliver the last distinguished talk of the us. I, along with the ICAI Vice-President CA. Jaydeep Conference on the Role of an Accountant and Auditor in N. Shah, visited the Abu Dhabi, Dubai, Muscat and National Economy. Through his words of wisdom and Doha Chapters of the Institute recently towards with his underlying objective to secure independence leveraging our international linkages and initiatives and integrity for the profession, Shri Rao had urged with regard to our profession: the members to remain responsible and courageous during 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 an considering the formative years that the profession IT-training (ITT) centre, our first such initiative outside was passing through. Quite humbly, on behalf of our the country, which was inaugurated by the Indian forefathers 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 our with a just sense of integrity, and we have come really nation while appreciating our proactive partner-ina long way following the same courage and integrity nation-building endeavours including that for new through 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 India to explore how to bridge this gap and achieve a in Dubai, H. E. Shri Sanjay Verma. They appreciated hundred percent correspondence between them. that the Dubai Chapter of ICAI is among the most Our 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, in exist in a graceful cohesion. To me, the culmination empowering our students abroad in completing their

International Initiatives

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articleship and IT training outside India. The Indian Business Professional Council (IBPC) also hosted a programme in the honour of Dr. Moily. Knowledge Sharing Forum in Doha: Our Doha Chapter recently organised a well-conceptualised and well-attended annual knowledge-sharing forum event and held a seminar on Strategic Decision Making, Project Financing and Green Building Concept. The event further strengthened the esteemed position that Indian professionals occupy in Qatar in particular and the entire Gulf region in general. On the occasion, I updated the gathering on the proposed reforms in the regulations governing the profession in India and abroad and bright possibility of ICAI partnering with the Qatari authorities in forming an accounting body that will regulate the profession of accounting and auditing in Qatar. I emphasised on the need of corporate social responsibility and putting something back into the society in line with Qatars 2030 Vision of diversifying the local economy. Vice-President CA. Jaydeep N. Shah was also the Guest of Honour on the occasion. International Seminar on Sustainability and Growth in Abu Dhabi: In Abu Dhabi, we attended the 23rd Annual International Seminar with the theme Towards Sustainability and Growth of our Abu Dhabi Chapter held recently at the Armed Forces Officers Club, where the Ambassador of India in U.A.E., H. E. Shri M. K. Lokesh, was the Guest of Honour and Dr. Tayab Kamali, Vice Chancellor, Higher College of Technology, and Group CEO, Centre of Excellence for Applied Research and Training, was the Chief Guest. I acknowledged that the words sustainability and growth were important in the context of bringing transparency through corporate governance, and that we would play an important role in the implementation of corporate governance. I asserted that we chartered accountants, known for quality services, were fully committed and involved in the countrys growth. Other speakers included ICAI past-President CA. Amarjit Chopra, among others, who spoke on the status of IFRS implementation in India. Issues affecting the corporate world, including leadership, sustainable growth, etc., were discussed too. The Seminar also included an interesting panel discussion on The Shift of Power from West to East. Seminar on Economic Growth in Muscat: We were also at the Muscat Chapter of the Institute to attend a one-day CPE event recently, where I delivered a key note address at the seminar titled Adding Value to Economic Growth. CA. Shah also addressed the

participants on the occasion.

Initiatives towards Nation-Building

Meeting with SEBI Chairman: I had the opportunity to meet the SEBI Chairman Shri U. K. Sinha recently. We requested him to prescribe, through the listing agreement, independent internal audit by the external professional firm of chartered accountants for all listed companies. Alternatively, in case the corporate entity has its own internal audit department, we suggested him to mandate for external monitoring of the compliance of standards of the internal audit system by independent firm of chartered accountants. Further, we also made a suggestion regarding the need for a Standard Audit Manual for inspection of mutual funds, which could address the shortcomings and improve quality in the inspection of mutual funds and bring uniformity in reporting the same. Independent Directors Meeting in Mumbai: I also attended the interactive meeting of independent directors organised by the ICAI from public- and private-sector banks, and financial institutions along with the Vice-President CA. Jaydeeep N.Shah and various Council members. Shri T. M. Bhasin, Chairman & MD, Indian Bank, was the Chief Guest and meeting was attended by the 30 independent directors of various banks and financial institutions. This meeting, successfully hosted by WIRC of the Institute, provided a platform to independent directors to share their rich experiences on new emerging concepts in banking sector like risk management, internal control system, effectiveness of audit committee, etc. Workshop on Financial Statements of Corporates in Mumbai: I along with the Vice-President CA. Jaydeep N. Shah, past-President CA. Amarjit Chopra, and my Central Council colleague CA Manoj Fadnis, among others, attended the Workshop on Analyzing Financial Statements of Corporates under IFRS recently held at the RBI Central Office in Mumbai, which was organised by the Centre for Advanced Financial Research and Learning, promoted by RBI. I addressed the efforts made by the Institute in formulation of the Ind ASs (Indian Accounting Standards) converged with the IFRSs and the steps being taken towards the preparation of frequently asked questions on Ind AS. Smt. Usha Thorat, Director, CAFRAL, and CA. Prabhakar Kalavacherla, Board Member, International Accounting Standards Board, also addressed at the Workshop. Presentations on would-be financial statements under Ind ASs were made. An interesting observation was that the companies which were

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hitherto following the correct accounting principles will not have a significant impact on their top line and the bottom line on adopting the Ind AS. I sincerely acknowledge the efforts of Shri Ravi Mohan, Chief General Manager, RBI and member, Accounting Standards Board of ICAI. Dr. M. S. Ahluwalia Delivered V. Sankar Aiyar Memorial Lecture at ICAI: I wish to inform you that I attended the V. Sankar Aiyar Memorial Lecture in Chennai recently, which was delivered by Dr. Montek Singh Ahluwalia, Deputy Chairman, Planning Commission. Dr. Ahluwalias lecture on Economic Reforms for Inclusive Growth, was well-appreciated, especially his thought-provoking references to the mission to serve the society, particularly its economically-weaker sections. I am confident that our country will touch great heights of glory under his noble guidance. Dr. Ahluwalia suggested us not to change minds about market economy just because there was a loss of faith in the industrialised countries. Shri Mani Shankar Aiyar, Member of the Rajya Sabha, in the memory of whose father this Lecture was organised, presented the introductory remarks. We suggested on the occasion that all flagship programmes of the government should be audited by the chartered accountants. Dr. Isher Judge Ahluwalia, Chairperson, Board of Directors, Indian Council for Research on International Economic Relations, was also present on the occasion. More Training Programmes in Accounting Concepts: I find it professionally gratifying to communicate that, in line with our joint endeavour with the office of C&AG of India to organise training programmes on accounting concepts for the officials of autonomous bodies, we recently conducted a training programme in Ahmedabad. Shri K. P Sasidharan, Director General, Autonomous . Bodies, Office of C&AG of India, among others, was present during the programme, which was attended by more than 120 participants including the officials of autonomous bodies of Rajasthan and Gujarat, and members of the profession. Another such programme was conducted in Bangalore, which was inaugurated by Shri K. P Sasidharan and attended by about 185 . participants including the officials of autonomous bodies of Tamil Nadu, Karnataka and Puducherry. Two Publications for Investor Awareness Programmes: I am glad to inform that, with regard to our responsibility towards the investors of our country, we have got the two informative booklets, First steps to Investing -A Beginners Guide and Primer for First time and Existing Investors, translated in Punjabi, Gujarati,

Telugu and Assamese languages under the guidance of my Central Council colleague CA. Vinod Jain, which were developed by the Ministry of Corporate Affairs for distribution in the investor awareness programmes. We have brought out the same in English version too. Copies of those translations were presented by the Institute to Dr. M. Veerappa Moily, Honble Minister of Corporate Affairs, during an Investors Meet 2011 held recently.

Professional Developments

Meeting with CBDT Chairman: As you are aware, the CBDT had recently issued a discussion paper on Tax Accounting Standards that are proposed to be followed for the purpose of computing taxable income. In order to discuss the issues arising from that, I recently had a meeting with the CBDT Chairman Shri M. C. Joshi, along with my Central Council colleague CA. Sanjay Agarwal. Concerns that I raised during the meeting were well-received by the CBDT Chairman, who requested us further to submit the detailed suggestions in this regard. We will submit the same shortly. Delhi High Court Upholds ICAI Decision: I wish to acknowledge before our stakeholders with satisfaction that Delhi High Court has upheld Institutes decision to bar an auditor of Global Trust Bank (GTB) from practising accountancy for five years. We had found him guilty of professional misconduct as auditor during 2000-2001. As you know, it was then that the 1993-formed bank was on the verge of collapse due to reckless lending. Although, a single bench of the High Court had quashed our order in the past. After our appeal against the same, the verdict eventually came out in support of our disciplinary proceedings against him. The Court has also clarified that the procedures prescribed by the unamended Chartered Accountants Act, 1949, i.e. Sections 21, 22 and 22A, would be applicable to all pending proceedings in information case and not the procedure prescribed after the amendment made by the Chartered Accountants (Amendment) Act, 2006. We can now initiate an inquiry against an accused on the basis of information or complaint. ICAI Proposes Norms in Internal Audit: Realising that quality is one of the fundamental assumptions of internal audit and there has been a steep rise in attention on internal audit, we have till date issued 17 Standards on internal audit to cover the basic principles and practice of internal audit and establish the basis for its performance evaluation. To enable the internal auditors in performing quality audit, I wish to inform

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our stakeholders that the Council of the Institute has recently decided that wherever the Standards on internal audit are being complied with, internal audit reports may mention that the audit has been conducted in accordance with the Standards issued by the Institute. We are also in dialogue with the Ministry of Corporate Affairs in this regard and have recommended making it mandatory for all companies to mention in their internal auditors report that the audit has been conducted in accordance with the Standards on internal audit issued by the Institute. I am sure that this change would promote credibility and consistency in the internal audit reports. ISA Faculty Meet at Centre of Excellence Hyderabad: I am happy to inform our stakeholders that we recently organised the ISA Faculty Meet at Centre of Excellence Hyderabad, where eminent and expert faculties from all over the country participated. This event gave me an opportunity to interact personally with each of the faculty participants there. Hopefully, a new revised and an updated curriculum of the ISA course will be released shortly to help our members at large. ICAI Corporate Forum to be held in Bangalore: To provide our members in profession and industry a platform to interact, and to appreciate our members who have done exceptionally well in professional/ social milieu, I wish to inform our stakeholders that we will now be organising our 5th Corporate Forum in December 2011 in Bangalore, which will have a series of events like Career Ascent, Gulf Campus, Financial Services Expo, Corporate Conclave, ICAI Awards, etc. The Infosys Chief Mentor, Shri N. R. Narayana Murthy, has agreed to head the jury for the ICAI Awards. The Awards ceremony will take place at the magnificent and historic Bangalore Palace. Details about

application process for nomination, deadline, etc., can be collected online from the Institutes website and also published elsewhere in the journal. In this regard, I wish to acknowledge the efforts made by my Central Council colleague CA. K. Raghu in planning and conceptualising this mega event. Guidance Note on Certification of XBRL Financial Statements: The Ministry of Corporate Affairs had vide their circulars of July 2011 required that the XBRL financial statements be certified by a professional, inter alia, a chartered accountant. This certification requirement is appearing in the Forms 23AC-XBRL and 23ACA-XBRL notified by the Ministry to upload the XBRL financial statements under MCA 21. I am glad to inform you that we have recently released the Guidance Note on Certification of XBRL Financial Statements, which has been developed to help the chartered accountants effectively and efficiently carry out these certification engagements in the most value added manner. The Guidance Note, among other things, provides guidance on the duties and responsibilities of the management vis a vis the chartered accountant with respect to the XBRL mode financial statements as well as the detailed procedures to be undertaken by the chartered accountants to provide the assurance sought under Forms 23-AC XBRL and 23ACA XBRL. This is also been hosted on the Institutes website.

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Residential Certificate Course on Internal Audit: I am pleased to inform you that we recently launched the first batch of the Residential Certificate Course on Internal Audit at the Centre for Excellence in Hyderabad, which aims to deliver a programme dealing with the issues that impact internal audit profession at present and in future. The Course will help our members in acquiring knowledge on the theory and practice of internal audit and its allied functions and on our role in them, and how these impact contemporary business enterprises. Duration of the Course is 200 hours comprising ten classroom days, case-study preparation, self study and e-learning. Classroom sessions will cover contemporary topics including internal controls, corporate governance, risk management, etc. To strengthen the content and add value to the course, group assignments and case studies have also been incorporated.

or in the process of our education. Carl Rogers, one of the founding fathers of psychotherapy research, is ready to call a person educated on a condition if we have learnt how to learn and change. In the same context, now, we will be able to understand why Al McGuire, a well-known basketball coach, said: I think everyone should go to college and get a degree and then spend six months as a bartender and six months as a cabdriver. Then they would really be educated. Education is in fact a patient and an ongoing process where we simply are required to be diligent. All educational degrees or diplomas should prepare us to be ready to learn for the rest of our lives. Acclaimed social psychologist Erich Fromm justifiably asks: Why should society feel responsible only for the education of children, and not for the education of all adults of every age? Education is not just about books, colleges or institutions. We start feeling the presence of education in our lives when we finish up with our formal education and we deal with the realities of life. We will never precisely realise its presence in our life unless we reflect on the way we carry out our work, the way we approach a problem, or, the way we think about the processes that run around us. I am sure this is what Albert Einstein meant by when he said: Education is what remains after one has forgotten everything he learned in school. I would like to advocate this understanding and propagate this around us and among all my readers: let us not miss a chance to learn after our formal learning is over. We are a country of numerous faiths and beliefs, and, with pride, I admit that we quite agreeably always celebrate and rejoice with the people of all faiths in their moments of joy. In keeping up with the true spirit of celebrations, I would like to extend my best wishes on behalf of the Institute to all towards the celebrations on Id-ul-Zuha (also Id-ul-Aha or Bakr-Id) and on Guru Nanank Jayanti (founder of Sikh faith Guru Nanak Devs birthday). May the prayers offered and greetings shared by the devotees bring further happiness and peace to the people of our nation! Amen! Best wishes

Infrastructure Initiatives

Ahmednagar Branch Building Inaugurated: I am happy to inform that I recently inaugurated the building of the Ahmednagar Branch of the WIRC in the presence of the ICAI Vice-President CA. Jaydeep N. Shah and my Central Council colleagues, among others.

Laying Foundation Stone of Trichur Branch: I am glad to inform our stakeholders that I happened to lay the foundation stone for the building of the Trichur Branch of the Institute recently. CA. K. Shanmukha Sundaram, SIRC Chairman, was also present on the occasion.

Best Wishes for Forthcoming CA Examinations

When this issue reaches you, an estimated two and half lakh students might have started appearing at the November 2011 Chartered Accountants Examinations of our Institute at 345 examination centres in India as well as abroad. I would like to extend my heartiest wishes to them and hope that they would perform well and come out with flying colours.

Acclaimed ontologist G. K. Chesterton associates education with the soul of a society. Will Durant calls it a transmission of civilization. Political activist Emma Goldman considers it our effort to unlock the wealth of sympathy, the kindness and generosity hidden in the soul of a child. To me, education must enable us to deal with the existing differences and indifferences in our society and with the situations that drive us away from the world of sympathy, kindness and generosity. If we are educated, we will always move towards a unified society. Therefore, if we are not united, there has to be some flaw somewhere in our being educated

CA. G. Ramaswamy President, ICAI October 24, 2011

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READERS WRITE

670

October 2011 Issue WellPacked with Knowledge The range and level of our journal is continuously increasing and I am very thankful to institute for providing us a useful key to knowledge in the form of journal. In the October 2011 issue of the journal, the column From the President was very informative and updated us on the latest developments pertaining to our Institute and the profession. The various informative features like Editorial, ICAI News, Events, Know Your Ethics, Legal Update, National and International Update, Economic Update, Accountants Browser and Tech for You, Crossword, etc. are all very useful and highly commendable. Further, I would like to suggest the feature Speech, which carries on the words of wisdom from eminent personalities, should be published regularly. -Aman Daga, CA Final Student In the October 2011 issue of the journal, the Editorial titled Concept of Independence in Independent Auditor was really thought provoking and informative. The Editorial rightly says that often it is believed that auditors report to the shareholders but work for the management and this myth lays the stress and strain for the independence, excellence and integrity of the auditors. Indeed, the auditors, in order to preserve their reputation for independence, should not have any commercial or conflict of interest in the company in which they are the auditors.
Editor

The articles titled Taxability of Software Payments under the ActThe Controversy Continues (International Taxation) and How to Succeed in Life Against All Odds (General) were also highly informative and useful. Congrats for the same. -CA. S. Gulati September 2011 Illuminated the Readers The September 2011 Chartered Accountant Journal has illuminated the readers with the latest developments in the Companies Act especially revised schedule VI. The articles written about Information technology and chartered accountants are noteworthy. Index of volume of the one year issue will definitely help the users for a snapshot reference if required in case of urgency. Hearty congratulations to the Editorial Board for the efforts made in terms of content as well as design. Further, I would request you to include more articles of Indian Miscellaneous Laws so that our professional colleagues can enhance their area of work and meet their client requirements. -CA Jomon C.V., Mumbai Unique Document Identification Number Identification and application of Unique Document Identification Number is a stepping stone in the process of establishing authenticity of document. Though a lot of considerations and measures

taken in this regard will evolve over time. One of the best visible examples of evolution over a period of time is Microsoft Office. Some things come to my mind which I would like to share. The registration of a firm should be linked with its partner data base. Thus, the time of registration of UDIN, signing date field input value allows drop down list of active partner for the firm. Essentially the signing partner name shall also get captured in the data base. The system can be built up so that where there is statutory limits individual, firm and partner who are eligible to sign the document, system shows pop error message and even generates list for cross checking on given value. Where individual is acting and partner as well as have individual capacity, the system shall check data base to put check on upper ceiling on partner and firm at the time of registration. Another important input value could be for every document at registration is PAN in case of Indian entity for purpose of identification. Foreign entities do not have PAN and they shall have extra field name of country to register document without PAN value. -CA. Sanjeev Vijayvargia
n

Corrigendum readers please note that in the credit line of the article titled Forensic AccountingAnother Feather in the Hat of Accounting published on pages 568-571, the title Dr. was erroneously prefixed with the name of the author Indrani Ghosh. The error is regretted.

For the Attention of Readers Readers attention is specifically invited to the fact that the views and opinions expressed or implied in The Chartered Accountant journal are those of the respective authors only, and not of the ICAI. The ICAI bears no responsibility of any sort whatsoever in case of any action taken by any reader based on any article published in the Journal.

The Editor, The Journal Section, ICAI, A-29, Sector 62, Noida (UP) - 201309

Write to Editor Information is Power and our ever-evolving profession needs more and more of that today than ever before. Do you have any relevant points to make, experiences to share, and views to spread among the CA fraternity? If yes, e-mail us at eboard@icai.org/nadeem@icai.org or write to:

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PHOTOGRAPHS

672

Inauguration of IT Training Lab in Dubai

Union Minister of Corporate Affairs Shri Veerappa Moily with ICAI President CA. G. Ramaswamy and ICAI Vice President CA. Jaydeep N. Shah at the inauguration of IT Training lab of Dubai Chapter of ICAI. (1st October, 2011)

Convocation Ceremony
Union Minister of Coal Shri Shriprakash Jaiswal with ICAI President CA. G. Ramaswamy and ICAI Vice President CA. Jaydeep N. Shah at the convocation ceremony of the newly qualified chartered accountants of CIRC at Kanpur. (24th September, 2011)

V. Sankar Aiyar Memorial Lecture

Deputy Chairman of Planning Commission Dr. Montek Singh Ahluwalia and Member of Rajya Sabha Shri Mani Sankar Aiyar with ICAI President CA. G. Ramaswamy, Central Council member CA. P Rajendra Kumar, SIRC Chairman . CA. K. Shanmukha Sundaram and other dignitaries on the occasion of V. Sankar Aiyar Memorial Lecture in Chennai. (19th October 2011)

Meeting with CBDT Chairman

ICAI President CA. G. Ramaswamy in a meeting with Chairman of Central Board of Direct Taxes Shri Mukesh Chand Joshi at New Delhi. (21st October, 2011)

International Seminar in Abu Dhabi

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 Kamali, Indias ambassador in U.A.E. Shri M. K. Lokesh and other dignitaries on the occasion of 23rd Annual International Seminar on Towards Sustainability and Growth organised by Abu Dhabi Chapter of ICAI. (13th -14th October, 2011)

Knowledge Sharing Forum in Doha

ICAI President CA. G. Ramaswamy and ICAI Vice President CA. Jaydeep N. Shah with other dignitaries at the Annual Knowledge Sharing Forum event and Seminar organised by Doha Chapter of ICAI in Doha. (12th October, 2011)

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32nd Regional Conference of CIRC

ICAI President CA. G. Ramaswamy, ICAI Vice President CA. Jaydeep N. Shah, Central Council Members CA. Anuj Goyal and CA. Ravindra Holani, CIRC Chairman CA. Vivek Khanna and other dignitaries at the inauguration of 32nd Regional Conference of CIRC at Kanpur. (8th October, 2011)

Diamond Jubilee Conference of WIRC

CA. G. Ramaswamy, President, ICAI presenting a memento to Shri V. B. Haribhakti, Past President of the ICAI during the WIRC Diamond Jubilee Conference while ICAI Vice-President CA. Jaydeep N. Shah and WIRC Chairman CA. Y. Shriniwas Joshi sharing the moment.

Workshop for Practitioners and CA Firms

ICAI President CA. G. Ramaswamy with Justice Dinesh Singh, Central Council Members CA. Vijay Garg and CA. Ravindra Holani, and other dignitaries at the Workshop on Capacity Building Measures for Practitioners and CA Firms at Patna. (18th September, 2011)

Foundation Stone Laying Ceremony

ICAI President CA. G. Ramaswamy, SIRC Chairman CA. K. Shanmukha Sundaram and other dignitaries during the foundation laying ceremony of Trichur branch of ICAI. (28th September, 2011)

Ahmednagar
Inauguration of ICAI Bhawan, Ahmednagar Branch of WIRC. ICAI President CA. G. Ramaswamy, Vice-President CA. Jaydeep Shah, Central Council member CA. S.B. Zaware, WIRC Chairman CA. Y. Shriniwas Joshi, Founder Chairman of the Branch, CA. Mohan Barmecha and Branch Chairman CA. Vijay Marda are seen in the photograph among other dignitaries. (20th October, 2011)

Udaipur
ICAI President CA. G. Ramaswamy, Vice-President CA. Jaydeep N. Shah and Central Council member CA. Vijay Garg lighting the lamp to inaugurate National Conference on Excellence in Profession through Capacity Building hosted by Udaipur Branch of CIRC.

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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 regions 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.

International Conference

CPE Hours
Delegate Fees

How to make payment Program Details

Organisers

For registration and other details please contact

Members (ACA) R2000 Members (FCA) R2500 Non Members R3000 Foreign Delegates US$ 125 On the spot Registration Members R3000 Pay online at www.icai.org or by Demand Draft in favour of Secretary ICAI, Chennai International Conference 2012 A/c, Payable at Chennai Significant Thematic Issues: 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 Profession 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 Member Shri D. Vijayaragavan, Deputy Secretary (044-30210325), email: vijayaragavan@icai.in Shri T. V. Srinivasan, Sr. Assistant Secretary (044 -30210320), email: tvsrinivasan@icai.org 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.org Dr. Surinder Pal, Sr. Dy. Director ( 011-3011 0430) Email: spal@icai.in; 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 ICAIs 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 ICAIs Journal (January/February Edition)

12 hours

For sponsorship related details please contact Sponsorship Avenues

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 ICAIs 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 ICAIs 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 ICAIs 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 TeaCoffee 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

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: Membership No:
CATEGORY MEMBER (ACA) MEMBER (FCA) ICAI NON-MEMBERS FOREIGN DELEGATES ON THE SPOT REGISTRATION MEMBERS FEES R2000 R2500 R3000 $ 125 R3000

Registration Form

6 8 January, 2012 at Chennai Trade Centre

Yes:

No:

Mode of payment: DD/Cheque No. dated drawn on 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

for R

in the name of

LEGAL UPDATE

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680

Legal Decisions1
LD/60/49 The Scientific Instrument Co. Ltd. Vs. CIT August 12, 2011 (ALL) [Assessment Years 1989-90, 1990-91, 1992-93 & 1993-94] Section 28(i) read with Section 22 of the Income-tax Act, 1961 Business and Professional Income Chargeable as Where assessee continued its business while renting out one of business properties to bank in lieu of which it received relatively higher income in form of rent and interest free loan, income from leasing would be assessed as business income The assessee is carrying on business of import and sale of scientific instruments. The assessee rented out its property to Citibank on Leave and Licence basis and received a huge deposits as advance free of interest which was to be adjusted by Citibank. The Assessing Officer assessed the income from said property under the head Income from house property. The High Court held that all the assets of the business were not rented out by the assessee company. It was doing the main business of manufactures, imports, purchases and dealing in scientific apparatus, chemicals, chemical products, articles of glass, metal, wood, paper etc., more or less connected with science, as given in the memorandum of association. Out of the three properties at Mumbai, the property in dispute was being used for its Regional Office. In the interest of the company, it decided to let out one of its properties, to the City Bank, by way of exploitation of business assets, for making profit. The assets were let out, while carrying out other business activities. There was nothing on record, to show that the appellant had sold away the properties or abandoned its business activities. In the circumstances, in order to exploit business assets, as a prudent business decision, the appellant took interest free loan from the City Bank and rented out, one of its properties to it, and shifted its Regional Office. In this commercial venture, the appellant received a higher income regularly from its commercial assets. Therefore, the whole income from renting of property would be assessed as business income, and not income from property. DIRECT TAXES LD/60/50 Commissioner of Income-tax Vs. Khemchand Motilal Jain August 23, 2011 (MP-Jabalpur) Section 37(1) of the Income-tax Act, 1961 Business
1

Income-tax Act

Expenditure Allowable as Ransom money paid to kidnappers for release of a whole time Director was an allowable deduction The assessee, an private limited company, whose main income is from manufacturing and sale of bidis. One S was whole time Director of the assessee company. He was looking after the purchase, sales and manufacturing of bidis. He was kidnapped for ransom by a dacoit gang while he had gone to for purchase of tendu leaves. Immediately complaint and FIR were lodged with Police. The police were unsuccessful to recover him from the clutches of dacoit. Ultimately a sum of R5,50,000 was paid by way of ransom for his release. Assessees claim for deduction of this ransom amount under the head of 'General Expenses' was disallowed by the Assessing Officer. The High Court of Madhya Pradesh held that section 37(1) provides that kidnapping a person for ransom is an offence and any person doing so or compelling to pay, is liable for the punishment as provided in the section, but nowhere it is provided that to save a life of the person if a ransom is paid, it will amount to an offence. No provision is brought to notice that payment of ransom is prohibited by any law. In absence of it, the Explanation of sub-section (1) of section 37 would not be applicable in the present case and the aforesaid expenditure was to be allowed as business expenditure. LD/60/51 iPolicy Network (P Ltd. .) Vs. Income-tax Officer June 17, 2011 (ITAT-DEL) [Assessment Year 2006-07] Section 92C of the Income-tax Act, 1961 - Transfer Pricing - Computation of Where difference in arms length price determined by TPO and price charged by assessee was less than 5 per cent, applying unamended proviso, addition had to be deleted If the unamended proviso is compared with the amended proviso to section 92C(2), then, it is clearly noticed that there is a substantial change in the relief given to the assessee. By the unamended proviso, an option was given to the assessee to have its price of international transaction in variation of (+/-) 5 per cent of arithmetical mean through which the arms length price is determined by the TPO by adopting most appropriate method in a case where more than one price is determined by the said appropriate method. By the amended proviso, firstly it has been provided that in a case where more than one price is determined by the most appropriate method, the arms length price will be the price as determined by adopting arithmetical mean of such prices. It is further provided that

Readers are invited to send their comments on the selection of cases and their utility at eboard@icai.org.
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if the variation between arms length price so determined and price at which international transaction has actually been undertaken and it does not exceed 5 per cent of the latter, then, the price at which the international transaction has actually been undertaken shall be deemed to be the arms length price. Thus, a deeming provision has been created to adopt an arms length price if the price actually undertaken by the assessee does not exceed 5 per cent of the amount at which international transaction has actually been undertaken. Thus, 5 per cent difference has to be reckoned from the price at which international transaction has actually been undertaken instead of reckoning from price which is determined by the TPO, which was the position under unamended proviso. Thus, there is a basic difference in both the provisos i.e., pre-amended and post amended. A bare reading of the pre amended proviso will clearly reveal that in a case where more than one price is determined by the most appropriate method, the arms length price shall be taken to be the arithmetical mean of such prices, or at the option of the assessee, a price which may vary from the arithmetical mean for an amount not exceeding 5 per cent of such arithmetical mean. The arithmetical mean in the present case was 15.64 per cent and by adopting the same, the arms length price had been determined at R15,08,43,128/-. The arithmetical mean in the present case had been computed on the basis of three comparables; therefore, it was a case where more than one price was determined by the most appropriate method which is TNMM. If it is so, then, 5 per cent of a price which was determined by calculating the arithmetical mean was to be taken as the relevant difference for computing the benefit of safe harbour of +/- 5 per cent. In other words, the safe harbour had to be computed with reference to arms length price determined by the TPO. The 5 per cent difference of arms length price determined by the TPO came to R75,42,156 and if the same was included in the revenue shown to be received by the assessee, the total would come to R15,08,75,869, which was in excess of arms length price determined by the TPO. Therefore, the difference in the arms length price determined by the TPO and charged by the assessee was less than 5 per cent. Therefore, applying the unamended proviso the addition on that very ground had to be deleted and was accordingly deleted. LD/60/52 Titanor Components Ltd. Vs. Assistant Commissioner of Income Tax June 9, 2011 (BOM-GOA) [Assessment Year 1997-98] Section 147 read with Section 80-IA of Income-tax Act, 1961 - Income escaping assessment There is a well known difference between a wrong claim made by an assessee after disclosing all true and material

facts and a wrong claim made by assessee by withholding material facts fully and truly; it is only in latter case that Assessing Officer would be entitled to proceed under Section 147 The Petitioner filed return of Income for the assessment year 1997-98 along with the duly audited Accounts Tax Audit Report, etc. in respect of its income from the manufacturing fabrication and servicing of components. After the assessment, the petitioner's income for the said year was assessed by an Order under Section 143(3) of the Act on 29-12-1999. An appeal against that was decided on 31-7-2000 by the Commissioner of Income Tax of Appeals. On 18-3-2004, the Respondents issued the impugned notice for re-opening of assessment under Section 147. The notice under section 148 stated that the Assessing Officer had reasons to believe that income had escaped assessment because the assessee had wrongly claimed deduction under Section 80-IA in respect of income which was not derived from the income of the Petitioner's Unit. Further, that long term capital gains had been wrongly claimed by the assessee which had been wrongly considered for the set off of the said Unit which had resulted in escapement of income. Nowhere has the Assessing Officer stated that there was any failure on the part of the assessee to disclose fully and truly all material facts necessary for assessment. The Bombay High Court held that having regard to the purpose of the section, the power conferred by Section 147 does not provide a fresh opportunity to the Assessing Officer to correct an incorrect assessment made earlier unless the mistake in the assessment so made is the result of a failure of the assessee to fully and truly disclose all material facts necessary for assessment. Indeed, where the assessee has fully disclosed all the material facts, it is not open for the Assessing Officer to re-open the assessment on the ground that there is a mistake in assessment. Moreover, it is necessary for the Assessing Officer to first observe whether there is a failure to disclose fully and truly all material facts necessary for assessment and having observed that there is such a failure to proceed under Section 147. It must follow that where the Assessing Officer does not record such a failure he would not be entitled to proceed under Section 147. In the instant case the Assessing Officer had not recorded the failure on the part of the Petitioner to fully and truly disclose all material facts necessary for the assessment year. What was recorded was that the Petitioner had wrongly claimed certain deductions which he was not entitled to. There is a well known difference between a wrong claim made by an assessee after disclosing all the true and material facts and a wrong claim made by the assessee by withholding the material facts fully and truly. It is only in the latter case that the Assessing Officer would be entitled to proceed under Section 147.

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LD/60/53 Status Home and Enclaves (P Ltd. .) Vs. CIT August 12, 2011 (CAL) [Block Period from 1992-93 to 1997-98] Section 158B of the Income-tax Act, 1961 Block assessment in search cases Block Period/ Undisclosed income Any promissory note promising to pay an amount to a Director of company cannot be deemed to be an amount payable to company; company cannot deny tax liability of equal sum disclose in search A search was conducted against the appellant in course of which a promissory note in original was seized from the residence of the appellants director. The Assessing Officer initiated block assessment proceeding pursuant to the said search against the appellant. The case of the appellant, a real estate businesscompany was that it undertook a project and invested diverse amounts in the said project. The appellant claimed that due to paucity of fund, a development agreement was entered into between the appellant and a construction firm TC. In terms of the said agreement, the said firm agreed to complete the project at its own cost and, in turn, to provide a portion of the constructed area to the appellant by way of consideration. The appellant claimed that the said firm also agreed to pay the appellant a sum of R4 lac towards reimbursement of part of the construction cost and preliminary expenses incurred by the appellant. In order to secure the payment of the said sum of R4 lac, it had obtained from the said firm a promissory note. Since the said firm did not pay the said sum of R4 lac to the appellant within the financial year ending on March 1997 and in the account for the relevant financial year, the said sum of R4 lac was reduced from the cost of work-in-progress relating to the project and an identical amount together with interest of R18,000/- was shown as receivable from the said fund. According to the appellant, the said firm had also shown the said sum of R4 lac together with interest of R18,000/- as payable to the appellant during the relevant financial year ending on March 31, 1997. The appellant further claimed that in the financial year ending on March 31, 1998, the said firm allotted additional constructed area to the appellant in the project and adjusted the said sum of Rs.4 lac against the same. The Assessing Officer treated the said sum of R4 lac as the appellants undisclosed income for the block period on the ground that the promissory note did not indicate that the payment had not been made to the appellant and further that the appellant could not furnish the agreement with the said firm. The Commissioner (Appeals) allowed the appeal of the appellant and held that the sum of R4 lac could not be

considered in the appellants block assessment and the matter was required to be examined in the subsequent year. The Tribunal allowed the Revenues appeal. The High Court of Calcutta held that it would appear that the promissory note in question on the face of it did not disclose that the same was payable to the appellantcompany. On a plain reading of the said promissory note, it appears that on demand the firm TC promised to pay to the director of the appellant company a sum of R4 lac being the premium amount for development agreement. On the basis of such promissory note, the amount was not payable to the appellant but was payable to its director. Any promissory note promising to pay an amount to a Director of the company cannot be deemed to be an amount payable to the company and thus, the authorities below acted illegally in treating the amount payable under that promissory note to be an amount receivable by the appellant, the Company. However, having regard to the fact that in the promissory note itself, the development agreement being indicated and the appellant itself having taken the plea that the same was a security to the appellant, and the Commissioner (Appeals) having relied upon such document, the matter was to be remanded back. LD/60/54 Deputy Commissioner of Income-tax Vs. Summit Securities Ltd. August 10, 2011 (ITAT-MUM-SB) [Assessment Year 2006-07] Section 255 of the Income-tax Act, 1961 - Appellate Tribunal Procedure of Reference to Special Bench cannot be withdrawn merely for reason that High Court has admitted identical question of law in another case There should be consistency in the approach of various Benches of the Tribunal. Once a case has been decided by an earlier Bench, the subsequent Bench should respect such decision and should not endeavour to make departure therefrom unless the facts are different or the legal position appreciated by the earlier Bench has undergone change because of some statutory amendment or enunciation of law by the Supreme Court or the jurisdictional High Court. Consistency in the judicial approach removes the sword of uncertainty hanging over the heads of litigants. The Income-tax Appellate Tribunal is an all India Body working through its Benches across the country. The judicial discipline requires that the view taken by one Bench should be respected and ordinarily followed by the others. This type of approach results into consistency in the administration of justice as the parties can reasonably predict the decision of a subsequent Bench when the same issue has been decided by an earlier Bench.

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It is however not the end of the road. As the Tribunal is a quasi-judicial body, its Members cannot work mechanically by following the view taken by the earlier Co-ordinate Bench when they strongly believe that the earlier decision was not rendered by appreciating the legal position in correct perspective. Naturally there cannot be any fetters on the powers of the subsequent Bench of the Tribunal to dispute the correctness of the earlier order in justifiable cases. To presume that a subsequent Bench, despite having strongly entertained the doubt about the accuracy of the earlier decision should follow the same, would make a mockery of the judicial system and act as a speed breaker on the thinking process and flow of thoughts. The Members have freedom to doubt the correctness of an earlier decision in deserving cases from their own point of view. If after due application of mind the subsequent Bench comes to the conclusion that it cannot agree with the earlier view, it should not straight away proceed to record a conflicting decision. In such a situation the subsequent Bench is empowered or rather duty bound to make a reference to the President on the point they perceive to be an error of law in the earlier decision. The Larger Bench is then made up to consider the correctness of the earlier decision on the facts and circumstances of the case before it. The decision thus arrived at by the larger wisdom becomes a binding precedent for all other Benches across the country unless there is a contrary judgment of the jurisdictional High Court on the point. After such order, no Division Bench can or should question the correctness of view taken by the Special Bench. Where the High Court has neither decided the point on merits nor blocked hearing of cases involving identical question of law by the Tribunal till the disposal of appeal pending before it, the mere fact that a superior authority is seized of an issue identical to the one before the lower authority, there cannot be any impediment on the powers of the lower authority in disposing off the matters involving such issue as per prevailing law. The first appellate authorities in all subsequent cases shall be debarred from hearing the matters involving a question

against which either the Revenue or the assessee have preferred appeal before the Tribunal and the matter is still undecided. The same consequences will follow if the Tribunal is proscribed from hearing the matters on the admission of identical question of law by the High Court till a final decision is rendered, which may take a couple of years. Where the substantial question of law was admitted by the High Court in another case of Zuari Industries Ltd. Vs. ACIT [2007] 105 ITD 569 (MUM) and many years have elapsed and the matter has still not been taken up for consideration and final disposal. No objection to continuation of Special Bench of the Tribunal can be raised on ground that similar question of law has been admitted by High Court in another case. If such an argument is accepted and further advanced then all the High Courts will have to bring to an end the hearing of appeals before them involving a question of law on which SLP has been admitted by the Supreme Court, which may again take a number of years. The consequences of such a course of action would lead to a chaotic situation. The entire working of the Tribunal will come to standstill if a reference to the Special Bench is withdrawn simply on the ground that identical question of law has been admitted by the High Court. Contemplate a situation in which an earlier Bench decides an issue in favour of one party, be it the Revenue or the assessee and the aggrieved party appeals against the said Tribunal order which is admitted by the High Court. Suppose similar issue comes up before a subsequent Bench which finds itself unable to endorse the view taken by the earlier Bench. The only course open to the subsequent Bench is to make a reference to the President for the constitution of a Special Bench instead of recording a contrary decision at its own. On the constitution of the Special Bench if an argument is taken that since the substantial question of law has been admitted by the High Court against the earlier order of the Tribunal and hence such reference be withdrawn, there would be a deadlock. The subsequent Bench would land itself in a quagmire, being neither in a position to swallow the earlier view nor spit it out. Following the earlier

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decision of the Co-ordinate Bench would be difficult because of its non-concurrence with it. In the like manner it would find its hands tied to directly record a contrary conclusion because of the prevalence of the aforestated legal position expressed by the Supreme Court and other High Courts prohibiting adopting such a course of action. Disposal of appeal against the earlier order by the High Court may take several years and during the currency of these years the Tribunal would become defunct on such issues. In order to come out of such a tricky situation, the Legislature has provided a solution by enshrining section 255(3) empowering the President of the Tribunal to constitute the Special Bench. A bare perusal of the relevant part of sub-section (3) of section 255 transpires that the President may for the disposal of any particular case constitute a Special Bench consisting of three or more members. The President is empowered to constitute a Special Bench under section 255(3) on his own volition if he considers any issue of a greater significance affecting large number of taxpayers or due to the importance of the issue even if it does not affect several assessees or otherwise. The powers of the President in forming the Special Bench at his own will are plenary, unfettered and unlimited. Apart from making a Special Bench on the President's own choice, such a Bench can also be constituted by the President on a representation made either by the assessee or by the Revenue. Further if a Single Member Bench of the Tribunal or a Division Bench hearing a particular case considers it expedient to have opinion of the Larger Bench on the issue because of its vital implications or they feel themselves unable to agree with the view expressed by an earlier Bench on similar point, they can request the President for the making of a Special Bench on such issue. Besides that there may be certain other circumstances also in which the President can constitute Special Bench under section 255(3) consisting of three or more members for the disposal of any particular case. Thus it can be noticed that the constitution of the Special Bench eases the situation in a case where the subsequent Bench finds itself unable to endorse the view taken by the earlier Bench on the point. The order of the Special Bench helps in providing consistency qua different Benches of the Tribunal until the matter receives consideration of the higher judicial forums. It is further pertinent to note that the practice, similar to the constitution of Special Bench by the Tribunal to resolve a possible conflict in the views amongst various Benches of the Tribunal and not waiting till the matter is finally decided by the High Court, is also uniformly followed by the High Courts as well. Whenever a view is taken on a point by a Bench of a High Court and the subsequent Bench of the same High Court finds it difficult to accept the same, the practice is to refer the matter to the Chief Justice of the concerned High Court for constitution of a Larger Bench.

Notwithstanding the fact that SLP against the judgment of its earlier Bench has been admitted by the Supreme Court, the High Court does not stop its functioning to wait for the outcome before the Supreme Court for an indefinite time. The Larger Bench so constituted hears the matter and gives its conclusion, which becomes final qua various Benches of that High Court until the final judgment is rendered by the Supreme Court. If a subsequent Bench of the Tribunal is disinclined to follow the view taken by an earlier Bench on a particular issue, the only course open before it, is to make a reference to the President for the constitution of Special Bench so that the issue may be finally decided by a Larger Bench. Notwithstanding the fact that the substantial question of law raised in the order of the earlier Bench has been admitted by the High Court, there are no fetters on the Tribunal in hearing the case in Special Bench and rendering the decision which would prevail upon and become a binding precedent for the other Benches of the Tribunal. The justice delivery system has to take its own course and cannot wait in eternity for a higher judicial body to decide the issue first. Situation may be different where the said substantial question of law receives consideration by the High Court and a final verdict is given. In such a case the parties before the Tribunal may apply for the withdrawal of the reference before the Special Bench provided the facts and circumstances of such case are similar to the one decided by the jurisdictional High Court. Such withdrawal may sound justified as proceeding with the matter would be an exercise in futility in the face of the judgment of the jurisdictional High Court. But where only a substantial question of law has been admitted by the High Court and the case is yet to come up for hearing, which may take several years, there is no reason whatsoever for any party to approach the Tribunal for the withdrawal of the reference to the Special Bench on the point. Therefore, the reference to the Special Bench cannot be withdrawn merely for the reason that the High Court has admitted the identical question of law in another case. Service Tax LD/60/55 Home Solutions Retails (India) Ltd. Vs. Union of India September 23, 2011 (DEL-FB)

TAXES

INDIRECT

Section 65(105)(zzzz) read with Section 66 of the Finance Act, 1994 Renting of Immovable Property Imposition of service tax under Section 65(105)(zzzz) read with Section 66 is not a tax on land and building which is under Entry 49 of List II of the Constitution, and what is being taxed is an activity of letting or leasing fundamentally for commercial or business purpose; therefore, section

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65(105)(zzzz) of Finance Act, 1995 and section 66 as amended by Finance Act, 2010 are constitutionally valid The renting of immovable property has been defined to include renting, letting, leasing, licensing and other similar arrangements of immovable property for use in the course of furtherance of business or commerce including use as factory, building, warehouse, exhibition halls, multiple use building, etc. The said provision came into force with effect from 1.6.2007. It was urged that contrary to the express words of the provisions of the Act, the Legislature, placing an erroneous interpretation on section 65(105)(zzzz) as it stood in 2007, issued a notification No.24/2007 dated 22.5.2007. After the notification was issued, a circular dated 4.1.2008 was issued by the Ministry of Finance of the Union of India. The constitutional validity of the notification and the circular was questioned before this Court in the case of Home Solution Retail India Ltd. Vs. Union of India, 158 (2009) DLT 722 (DB). In the case of Home Solution's case (supra) it was contended that the notification and circular had come into existence by absolute fallacious interpretation placed on Section 65(105)(zzzz) and Section 65(90)(a) inasmuch as an attempt has been made to levy service tax on renting of immovable property as opposed to the levy of service tax on the service provided in relation to renting of immovable property. The Division Bench has held that section 65(105)(zzzz) could not have brought in its ambit and sweep the renting out of immovable property for use in the course of furtherance of business or commerce to constitute a taxable service and thereby exigible to service tax and, accordingly, the notification dated 22-5-2007 and circular 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 amendments have been brought with retrospective effect from 1-62007. Challenging the validity of the amendments, the petitioner submitted that the Parliament has no authority to enact the impugned legislation as renting of immovable property is a tax on lands and buildings which squarely comes within Entry 49 of List II of the Seventh Schedule of the Constitution of India. It was further submitted that the use of the word taxes in Entry 49 connotes a multitude of taxes imposable on land when the renting of an immovable property would squarely fall within Entry 49 of List II. The Full Bench of the Delhi High Court held that section 65 is the provision which deals with the charging of service tax. Section 66(105) defines taxable service to mean any service provided or to be provided to any person, by any other person by renting immovable property or any other service in relation to such renting for use in the course of or furtherance of business or commerce. Section 65(90a) has been amended in 2010 to mean renting of immovable property which includes renting, letting, leasing, licensing or other similar arrangements of immovable property for use in the course or furtherance of business or commerce but does not include certain aspects. Explanation No.1

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to the said provision provides that for use in the course or furtherance of business or commerce includes the use of immovable property as factories, office buildings, warehouses, theatres, exhibition halls and multiple-use buildings. Explanation 2 further declares that for the purposes of this said clause, renting of immovable property would include allowing or permitting the use of space in an immovable property, irrespective of the transfer of possession or control of the said immovable property. The earlier provision had introduced the definition of renting of immovable property including renting, letting, leasing, licensing or other similar arrangements in the course or furtherance of business or commerce. The hub of the matter is when a premise is let out for use, should a person who rents an immovable property or renders any other service in relation to such letting for use in the course or furtherance of business or commerce be liable to service tax. The terms which are significant are renting, letting, leasing and licencing for use in the course or furtherance of business or commerce. The legislature has not merely said renting of immovable property. It has used the terminology renting of property or any service in relation to such renting and that too in the course or furtherance of business or commerce, the last part being important. While understanding the concept of service tax, it is to be kept in mind that it is both a general tax as well as a destination based consumption tax levied on services. Sometimes services can be property based services and performance based services. The architects, interior designers and real estate agents would come in the category of performance service providers. Whether when a property is leased or rented, the element of service is absolutely absent? In this context, the concept of rent has to be appositely understood. A rent is basically a reward paid for the use of the land. The tenant or the occupant pays the same to use the premises. In the economic concept, rent can be categorized into two heads, namely, contract rent and economic rent. Contract rent fundamentally refers to the total amount of money paid for use of the land and economic rent is a part of the total payment which is made for the use of land and it is estimated on many a ground. The economic rent can be contract rent minus interest on the capital invested. The concept of economic rent can also represent an amount which a factor can earn in its next best alternative use. Be it noted, the rent varies depending upon advantages. The value difference comes into play because of transport charges. The surplus arises because of the location and availability of facilities. Appreciated in this context, economic rent is a surplus which arises on account of natural differential advantages and can be treated as service. That apart, scarcity of premises, the pressure of demand and the increase of population are also contributory factors. Consequently, any land
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or building situated in a particular place does possess certain inherent qualities which distinguishes it from land or building at other places. The factors which really weigh are location, accessibility, goodwill, construction quality and other advantages. A land or building in one area may fetch more rent than in another area. When a particular building is rented or leased or given under arrangement for commercial or business purposes, many factors are taken into consideration. Every building or premises cannot be utilised for commercial or business purposes. When a particular building or premises has the effect potentiality to be let out on rent for the said purpose, an element of service is involved in the immovable property and that tantamounts to value addition which would come within the component of service tax. To further clarify, an element of service arises because a person who intends to avail the property on rent wishes to use it for a specific purpose. The value of the building gets accentuated because of scarcity of land or building, goodwill, accessibility and similar ancillary advantages which constitute value addition. The modern economic theory of rent also has a nexus with demand and supply. In this analysis, rental is hiked because supply of land is scarce in relation to its demand. This economic concept is called scarcity theory of rent. This includes the facet of competition and quality. According to the modern theory, rent is not peculiar to land alone but arises in the case of many a factor which earn over and above the transfer earnings. There is a distinction between actual earnings and transfer earnings. According to the modern analysis of rent, it is not peculiar to land alone and the concept of transfer earning is more attracted towards the building depending upon its use. As an economic concept, it has been developed that rent qua building or premises or, for that matter, land has a nexus, an inseparable one, with the potentiality of its use in a competitive market. The economic growth has an effect on rent. In this regard, modern economists have evolved certain methods, namely, technical progress in methods of production, development in means of transportation and population growth. We have referred to these concepts only to highlight that the legislature has not imposed tax on mere letting but associated it with business or commercial use. Thus, it comes within the concept of activity and the value addition is inherent. It is worth noting that the language employed in the dictionary clause and the charging section, that is, commercial use for business purposes have their own significance. When premises is taken for commercial purpose, it is basically to subserve the cause of facilitating commerce, business and promoting the same. Therefore, there can be no trace of doubt that an element of value addition is involved and once there is a value addition, there is an element of service. The imposition of service tax under Section 65(105) (zzzz) read with Section 66 is not a tax on land and building

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which is under Entry 49 of List II. What is being taxed is an activity, and the activity denotes the letting or leasing with a purpose, and the purpose is fundamentally for commercial or business purpose and its furtherance. The concept has to be read in conjunction. Service tax is associated with value addition as evolved by the judgments of the Apex Court, the submission that the base of the said decisions cannot be taken away by a statutory amendment need not be adverted to. Once there is a value addition and the element of service is involved, in conceptual essentiality, service tax gets attracted and the impost gets out of the purview of Entry 49 of List II of the Seventh Schedule of the Constitution and falls under the residuary entry, that is, Entry 97 of List I. The conclusions as arrived by the Full Bench are to be enumerated in seriatim as follows: (a) The provisions, namely, Section 65(105)(zzzz) and Section 66 of the Finance Act, 1994 and as amended by the Finance Act, 2010, are intra vires the Constitution of India. (b) The decision rendered in the first Home Solutions Case (Supra) case does not lay down the correct law as there is value addition when the premises is let out for use in the course of or furtherance of business or commerce and it is, accordingly overruled.

(c) The challenge to the amendment giving it retrospective effect is unsustainable and, accordingly, the same stands repelled and the retrospective amendment is declared as constitutionally valid. Companies Act LD/60/56 Shin Satellite Public Company AC T S Limited Vs. ATN International Limited July 29, 2011 (CAL) Section 434 of the Companies Act, 1956 Winding up of Company Sum due and payable to creditor which is accepted by company is to be paid The petitioning creditor agreed to provide digital channel service to the company against a service fee for the agreed period. A credit period of 40 days was provided and security deposit given. For non-payment of sums the petitioning creditor terminated the agreement between the parties. The security deposit was also forfeited. A notice under section 434 was issued whereby the company was called upon to pay US $ 2,12,452.78. A reply was given to
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the said notice wherein forfeiture of the Security deposit was disputed so also payment of US $ 2,12,452.78. The plea of arbitration clause was not taken in the reply to the notice issued under section 434 of the 1956 Act. Neither reference had been filed nor any arbitration clause was invoked. In the e-mail of outstanding balance has been admitted by the company and a payment schedule contemplated. Later on, a confirmed payment schedule was sent to the petitioning creditor by the company and a statement of Account was sent by the company to the Income Tax Department. Such statement showed a sum of US $ 82,467.90 payable by the company to the petitioning creditor. The Calcutta High Court held that a sum of US $ 82,467.90 was due and payable to the petitioning creditor by the company and accordingly the Company was directed to pay the above said sum within 6 weeks from the date of receipt of this order alongwith interest at the rate of 12 per cent per annum. As a bonafide dispute has been raised in respect of forfeiture of the Security deposit the said cannot be decided in this application and the parties will be entitled to take steps in accordance with law. LD/60/57 Naresh Chandra Agarawal Vs. The Institute of Chartered Accountants of India September 5, 2011 (DEL) Rule 9 of Chartered Accountants (Procedure of Investigation of Professional and Other Misconduct and Conduct of Cases) Rules, 2007 read with Section 21A of the Chartered Accountant Act, 1949 Examination of the Complaint Rule 9(3)(b) of the Rules does not transgresses and supplants Section 21A(4) of the Chartered Accountants Act, 1949 and, hence, is not ultra vires The petitioner, a Chartered Accountant, had prayed for declaring Rule 9(3)(b) of Chartered Accountants (Procedure of Investigation of Professional and Other Misconduct and Conduct of Cases) Rules, 2007 (the Rules) as ultra vires as the said Rule transgresses and supplants Section 21A(4) of the Chartered Accountants Act, 1949 (the Act). It was submitted by the petitioner that Section 21A(4) mandates that the Board of Discipline if it disagrees with the Director (Discipline), it shall close the matter but the Rule as has been framed empowers the Board of Discipline either to proceed with Chapter-IV of these Rules if the matter pertains to the First Schedule or refer the matter to the Committee of Disputes to proceed under Chapter-V of these Rules if the matter pertains to Second Schedule or both the schedules. When the Section provides in a categorical manner either to close the case or direct further investigation, the question of reference to the Dispute Committee does not arise.
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The High Court of Delhi held that on a studied scrutiny of the statutory provisions of section 21A(4), it is clear that the Director (Discipline), who is the Secretary of the Board of Discipline, has been conferred the power to submit reports before the Board of Discipline with all the information on the complaints for the purpose of formation of an opinion. If the Director (Discipline) is of the opinion that there is no prima facie case and the Board of Discipline agrees with the opinion of the Director (Discipline), the matter is closed. In case of disagreement, the Board of Discipline may advise the Director (Discipline) to carry further investigation. The Chapter-IV of the Act deals with Board of Discipline. Chapter-V deals with the Disciplinary Committee. Section 21A(4) clearly stipulates that if the Board of Discipline disagrees, it may advise the Director (Discipline) to further investigate the matter. It is, however, not possible to accept that the Board cannot disagree with the report of Director (Discipline) or in case of disagreement the Board can only direct further investigation by the Director (Discipline) and not refer the matter to the Disciplinary Committee when violation/breach of the Second Schedule or both schedules is alleged. Any such restriction on the Board of Discipline is not expressly stipulated and should not impliedly infer if one examines the provisions dealing disciplinary proceedings. Section 21(4) stipulates that the Disciplinary Directorate shall follow the procedure as they may be specified. The procedure is specified in Rules including the impugned Rule 9(3)(b). The Director (Discipline) functions as the Secretary of the Board of Discipline. However, it is difficult to accept that in case Director (Discipline) gives a closure report on the basis of his or her opinion that there is no prima

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facie case, the Board of Discipline/Disciplinary Committee must accept that opinion and the only option to the Board of Discipline is to advise the Director (Discipline) to investigate the matter further. The provisions do not postulate finality to the prima facie opinion of the Director (Discipline). On the other hand, Director (Discipline) is the Secretary of the Board. The final determination whether or not a member is guilty of professional or other misconduct in the First Schedule or the Second Schedule, is decided by the Board of Discipline or the Disciplinary Committee. The argument raised and the interpretation placed by the petitioner is contrary to the legislative intent and will make the provisions unworkable as it would make the Board of Discipline and the Disciplinary Committee powerless in case the Director (Discipline) gives a negative prima facie report. The phrase prima facie itself shows that report of the Director (Discipline) is tentative and not final. The finality is attached to the orders which are ultimately passed either by the Board of Discipline or the Disciplinary Committee. Quite apart from the above, the term used in Section 21A(4) is may. The Board is not bound in all cases of disagreement to refer for reinvestigation. When discretion has been granted, the word may should not be read here as shall. The word may must take the literal colour in the present case. It gives discretion or choice to the Board. As the word may is deliberately used and conveys the legislative intent, one should perceive that it should be interpreted as shall. It has to be borne in mind that Rule 9(3)(b) is procedural and states how the steps should be taken and, therefore, it would be an anathema to the basic conception of statutory interpretation that Rule 9(3)(b) transgresses or encroaches upon the power conferred under Section 21A(4). On the contrary, it only supplements. In view of the aforesaid, the Rule 9(3)(b) cannot be held to be ultra vires. SEBI LD/60/58 Nirvana Holdings Private Ltd. Vs. Securities and Exchange Board of India August 9, 2011 (SAT-MUM) Regulation 11 of the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 Consolidation of Holdings Where a company acquired shares of target company along with its promoter directors, company should be presumed to have acted in concert with its promoter directors in their individual capacity and their holdings had to be clubbed; when total holdings would cross permissible creeping acquisition limit of 5 per cent, but no public announcement was made, Regulation 11(1) of Takeover Code would be violated The appellant was a private limited company and had only two promoters/directors/ shareholders. There
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was no other shareholder in this company and the directors had 50 per cent shareholding each. This was an investment company whose main object was to invest in shares/debentures of other companies. The two directors of appellant, in their individual capacity, were also promoters of the target company and they together held 33.38 per cent of the voting rights/share capital in the target company. The remaining 15 promoters of the target company as shown in the statement filed with the stock exchanges held 12.32 per cent of the voting rights in that company. Thus, the total holding of the promoter group in the target company came to 45.70 per cent including that of the two directors. The appellant company acquired 6.17 per cent of the total equity capital of the target company. As the appellant company acquired shares/voting rights in the target company which entitled it to exercise more than 5 per cent (6.17 per cent) of the voting rights therein thereby increasing the collective shareholding of the two directors/promoters and the appellant in the target company from 33.38 per cent to 39.55 per cent triggering Regulation 11(1) of the Takeover Code and since the appellant did not come out with a public announcement to acquire further shares of the takeover code, the SEBI alleged violation of Regulation 11(1). The Securities Appellate Tribunal held that if a promoter of a target company, who is an individual, holds 10 per cent or more shares in any other company, then that company also becomes a part of the promoter group of the target company. In the present case each of the two promoter-directors held 50 per cent shares in the appellant company. The appellant company was, therefore, a part of the promoter group of the target company even without holding a single share. It was, thus, clear that the two promoter/directors and the appellant were promoters of the target company. It is true that person acting in concert comprises two or more persons who share a common objective or purpose of substantial acquisition of shares or voting rights in a company. In other words, there has to be a meeting of their minds when the acquisition takes place and it is only then that it could be said that they acted in concert. In the present case it could not even be suggested that the appellant while acquiring 6.17 per cent shares of the target company did not act in concert with the two promoter directors who, as already observed, were promoters of the target company in their individual capacity and also hold 100 per cent shares of the appellant company. The two promoter directors controlled the appellant company and they were also its directing mind. No investment decision on behalf of the appellant company could be taken without their authority, knowledge, consent and approval. The appellant being a body corporate was distinct from the two promoter directors. In this view of the matter, it was obvious that when the appellant company which

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was a body corporate acquired shares of the target company, it acted in concert with its promoter directors in their individual capacity who were also the promoters of the target company. The shares acquired by the appellant company and the holding of the two promoter directors had to be clubbed for the purposes of Regulation 11(1) of the takeover code as they were acting in concert. When this was done, it became clear that the appellant crossed the permissible creeping acquisition limit of 5 per cent thereby triggering Regulation 11(1) of the takeover code and not having made a public announ-cement, violated the said provision. Even if the shareholding of the other promoters is excluded, the shareholding of the two promoter/directors and the appellant together was enough to trigger Regulation 11(1). In this view of the matter, no fault could be found with the conclusion arrived at by the whole time member that Regulation 11(1) got triggered and the appellant by not making a public announcement violated the said provision. Whenever an acquirer violates Regulation 10, 11 or 12 of the takeover code by not making a public announcement, he should be directed to comply with the provision by making a public offer. The words unless such acquirer makes a public announcement appearing in Regulations 10 and 11(1) make these provisions mandatory and a public announcement has to be made. Similar words appear in Regulation 12 as well. These provisions make the acquisition conditional upon a public announcement being made. The primary object of the takeover code is to provide an exit route to the public shareholders when there is substantial acquisition of shares or a take over. This right to exit is an invaluable right and the shareholders cannot be deprived of this right lightly. It is only when larger interest of investor protection or that of the securities market demands that this right could be taken away. Therefore, as a normal rule, a direction to make a public announcement to acquire shares of the target company should issue to an acquirer who fails to do that. The Board need not give reasons as to why such a direction is being issued because that is the mandate of Regulations 10, 11 and 12. However, if the issuance of such a direction is not in the interest of the securities market or for the protection of interest of investors, the Board may deviate from the normal rule and issue any other direction as envisaged in Regulation 44 of the takeover code. In that event, the Board should record reasons for deviation. In the instant case, no reasons had been recorded for deviating from the normal rule and there was no ground for deviation. In these circumstances, the appellant was to be directed to make a public announcement to acquire the shares of the target company in accordance with the provisions of the Takeover Code. n

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Circulars / Notifications

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Circulars/Notifications
Given below are the important Circulars and Notifications issued by the CBDT, CBEC, MCA, RBI and SEBI during the last month for information and use of all the readers. Readers are requested to use the Citation/website or weblink to access the full text of desired circular/notification. You are requested to please submit your feedback and suggestions on the column at eboard@icai.org.
(Matter on Direct Taxes has been contributed by the Direct Tax Committee of the ICAI) the interest accruing on the above mentioned deposit(s) as per existing procedure and at the rates in force and that the certificate of deduction of tax shall be issued by the bank in the name of the depositor. The circular further provides that if more than one person has been directed to deposit any specified amount, the amount of TDS shall be corresponding to each such depositor for the portion of interest accrued in its respective share in the total amount deposited and TDS certificates shall be accordingly issued by the bank. It has also been clarified that the depositor at the time of making deposit shall submit a prescribed declaration with the court for record purpose and to facilitate the administration of TDS. The Registrar/ Prothonotary and Senior Master or any person authorised by the court will pass the information furnished therein to the bank concerned for TDS properly in the name of the depositor(s) in accordance with the provisions of the Act. Further, the circular also provides that the aforesaid procedure shall not apply in respect of any deposit held in the capacity of being an administrator or receiver or any deposit arisen due to attachment made by the court or in the cases of representative assessee defined in section 160 of the Income Tax Act, 1961. The complete details of the text of the circulars can be downloaded from the following link http://law.incometaxindia.gov.in/DIT/Circulars.aspx II. Notifications 1. Notification No. 52, dated September 23, 2011 Section 10(15)(iv)(h) exempts interest payable by any public sector company in respect of such bonds or debentures specified by the Central Government by notification in the Official Gazette. The notification would also specify the conditions subject to which the exemption would be available. Accordingly, in exercise of the powers conferred in section 10(15)(iv)(h), the Central Government has specified the issue of tax free, secured, redeemable, non-convertible bonds of National Highways Authority of India (NHAI), Indian Railways Finance Corporation Ltd.

DIRECT TAXES

I. CIRCULARS 1. Circular No. 7/2011, dated September 27, 2011 The Central Board of Direct Taxes has through this circular, modified Circular No.07/2007, dated October 23, 2007 which laid down the procedure for refund of tax deducted at source under section 195 of the Income-tax Act, 1961 to the person deducting tax at source from the payment to a non-resident. The Circular No. 07/2007, dated October 23, 2007, did not cover a situation where the tax is deducted at a rate prescribed in the relevant DTAA which is higher than the rate prescribed in the Income-tax Act, 1961.Since the law requires deduction of tax at a rate prescribed in the relevant DTAA or under the Income-tax Act, 1961 whichever is lower, there is a possibility that in such cases excess tax is deducted relying on the provisions of relevant DTAA. Accordingly, in order to remove the genuine hardship faced by the resident deductor, the Board has modified circular no. 07/2007, dated October 23, 2007 to the effect that the same shall also apply to those cases where deduction of tax at a higher rate under the relevant DTAA has been made while a lower rate is prescribed under the domestic laws. 2. Circular No. 8/2011, dated October 14, 2011 On the basis of references received expressing the difficulties faced in implementation of provisions of section 194A in a situation where in course of proceedings before Supreme Court /High Court/ any other court or tribunal, one or more than one litigant is directed by the court that a specified amount be deposited in the bank in the names of Registrar/Prothonotary and Senior Master or any other name as per the order of the court in order to protect the interest of litigants, the Board has, through this circular provided that the bank shall in accordance with the provisions of the Act, deduct tax at source on

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(IRFCL), Housing and Urban Development Corporation Ltd.(HUDCL) and Power Finance Corporation (PFC) to be issued during the financial year 2011-12, the interest on which would be exempt under the said section. Further, it has been provided that such benefit shall be admissible only if the holder of such bonds registers his or her name and the holding with the said entity. 2. Notification No. 54, dated October 03, 2011 The Government of Republic of India has entered into an agreement with Government of the British Virgin Islands for exchange of information relating to taxes. Further, in exercise of the powers conferred by section 90 of the Income-tax Act, 1961, the Central Government hereby directs that all the provisions of the said agreement, shall be given effect to in the Union of India with respect to criminal tax matters immediately and with respect to all other matters covered in Article 1 of the said agreement, for taxable periods beginning on or after the 22nd day of August, 2011 or where there is no taxable period, for all charges to tax arising on or after the 22nd day of August, 2011. The complete details of the text of the above-mentioned notifications can be downloaded from the following link http://law.incometaxindia.gov.in/DIT/Notifications. aspx

TAXES

INDIRECT

(Matter on Indirect Taxes has been contributed by the Indirect Taxes Committee of the ICAI)

A.SERVICE TAX I.Notifications: 1. Notification No. 46 and 47/2011 ST dated September 19, 2011: Notification No. 18/2002 ST dated 16.12.2002 exempts the taxable services provided by a consulting engineer on transfer of technology from so much of the service tax leviable thereon, as is equivalent to the amount of cess paid on the said transfer of technology under the provisions of Section 3 of the Research and Development Cess Act, 1986. The said exemption would now be available if the Research & Development Cess is paid at the time of service or before payment for the service subject to maximum of six months period from the date of invoice or in case of associated enterprises the date of credit in the books of account. Also, necessary records will have to be maintained so as to establish a linkage between the invoice or the credit entry, as the case may be, and the cess payment challan. Similar conditions have been imposed in respect

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of the exemption available to the amount of cess paid by thholder of intellectual property right on import of technology under the provisions of Section 3 of the Research and Development Cess Act, 1986 B. CENTRAL EXCISE I. Circular: 1. Circular No. 953/14/2011 dated September 12, 2011: In every Commissionerate a Regional Advisory Committees (RAC) provides advisory services for solution of procedural difficulties of general nature. There are separate RAC for organised sector & small scale sector. These RAC are presently being chaired by the Commissioner. The circular issued provides that from now onwards a single RAC may be constituted for the organised sector and the small scale industries by the Zonal Chief Commissioner at Zonal level instead of a separate RAC for each Commissionerate in his Zone. In addition , following are the other decisions of the Board in this respect: i. The number of members in each RAC raised to 16 from 12 so as to include representatives from the State Government, manufacturers, SSI, PSU etc. ii. Three more members to be co-opted by the Chief Commissioner. Meetings of RAC to be convened on a quarterly basis. iii. The Chief Commissioner shall be the Chairperson of RAC. 2. Circular No. 956/17/2011 CX dated September 28, 2011: Pursuant to issuance of Notifications No. 21/2011-Central Excise (NT) & 22/2011-Central Excise (NT) both dated September 14, 2011 and Notification No. 43/2011 ST dated August 25, 2011 prescribing mandatory electronic filing of Central

Excise and Service Tax returns, the DG (Systems) has issued comprehensive instructions outlining the procedure for electronic filing of Central Excise duty and Service Tax returns and electronic payment of taxes under ACES. The said instructions outline the registration process for new assessees, existing assessees, nonassessees and for Large Taxpayers Units, steps for preparing and filing of return, use of XML Schema for filing dealers return, procedure for obtaining acknowledgement of e-filed return, procedure for e-payment etc. C. CUSTOMS I. Circular: 1. Circular No. 44/2011 Cus dated September 23, 2011: Pursuant to the judgement of the Supreme Court in the in the case of CCus. v. Sayed Ali 2011 (265) ELT 17, an Instruction F.No.437/143/2009- Cus. IV(pt) dated 15.04.2011 was issued by the Board directing the field formations to examine pending Show Cause Notices and wherever these are not hit by time limitation to get these issued afresh by the jurisdictional Commissionerates. Further, as a prospective remedial measure, the officers of Directorate General of Revenue Intelligence (DRI), Commissionerates of Customs (Preventive), Directorate General of Central Excise Intelligence (DGCEI) and Central Excise Commissionerates were assigned the functions of the proper officer for the purposes of Sections 17 and 28 of the Customs Act by the Board vide Notification No.44/2011-Customs (N.T.), dated July 06, 2011. With a view to validate the Show Cause Notices issued prior to July 06, 2011, Section 28 of the Customs Act, 1962 has been retrospectively amended by the Customs (Amendment and Validation) Act, 2011. As

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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.437/143/2009Cus. 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. 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.

3.

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

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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 CA. Hinesh Doshi)

FEM A

Review of foreign exchange facilities available to individuals Residents/ Non-Resident Indians (NRIs) and Persons of Indian Origin (PIOs) The Committee constituted under the Chairmanship of Smt. K. J. Udeshi for review of procedures relating to foreign exchange facilities to individuals Residents/ NRIs and PIOs has submitted its report to the RBI on August 8, 2011. Pursuant to the recommendations made by the Committee to improve facilities to resident individuals, NRIs, PIOs as also, for simplification of procedures, the RBI has issued following circulars implementing some of the recommendations made by the Committee. 1. Savings Bank account maintained by residents in India non-resident close relative allowed as joint holder A.P (DIR Series) Circular No.12 dated September 15, . 2011 RBI has permitted individuals resident in India to include non-resident close relative(s) (relative as defined in section 6 of the Companies Act, 1956) as a joint holder(s) in their resident bank accounts on former or survivor basis. However, non-resident Indian close relatives shall not be eligible to operate the account during the life time of the resident account holder. 2. NRIs/PIOs holding Non-Resident (External) Rupee Account Scheme (NRE)/ Foreign Currency (NonResident) Account (Banks) Scheme (FCNR(B)) accounts jointly with Indian resident close relative liberalisation A.P (DIR Series) Circular No.13 dated September 15, . 2011 RBI has permitted NRI as defined in Foreign Exchange Management (Deposit) Regulations, 2000 to open NRE / FCNR(B) account with their resident close relative (relative as defined in section 6 of the Companies Act, 1956) on former or survivor basis. The resident close relative shall be eligible to operate the account as a Power of Attorney holder in accordance with extant instructions during the life time of the NRI/ PIO account holder.

3. Foreign Investments in India increase in limit for transfer of security by way of gift A.P (DIR Series) Circular No.14 dated September 15, . 2011 In terms of the Foreign Exchange Management (Transfer or issue of Security by a Person Resident outside India) Regulations, 2000, as amended a person resident in India is permitted to transfer any security, by way of gift, to a person resident outside India, with prior approval of the RBI subject to specified conditions. One of the conditions specified is that the value of security to be transferred by the donor/ transferor, together with any security transferred to any person residing outside India as gift in the calendar year should not exceed the rupee equivalent of USD 25,000. This limit has now been enhanced to USD 50,000 per financial year. 4. Exchange Earners Foreign Currency (EEFC) Account and Resident Foreign Currency (RFC) account resident close relative allowed as joint holder A.P (DIR Series) Circular No.15 dated September 15, . 2011 RBI has permitted resident individuals to include resident close relative(s) (relative as defined in section 6 of the Companies Act, 1956) as a joint holder(s) in their

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EEFC/RFC bank accounts on former or survivor basis. However, such resident Indian close relative, now being made eligible to become joint account holder, shall not be eligible to operate the account during the life time of the resident account holder. 5. Credit of sale proceeds of Foreign Direct Investments in India to NRE/FCNR (B) accounts Clarification A.P (DIR Series) Circular No.16 dated September 15, . 2011 In terms of the Schedule 3, 4 and 5 of the Foreign Exchange Management (Transfer or issue of Security by a Person Resident outside India) Regulations, 2000, sale proceeds of Foreign Investments in India were treated as eligible credit to NRE/FCNR (B) accounts, where the purchase consideration was paid by the NRIs / PIOs out of inward remittance or funds held in their NRE/ FCNR (B) accounts and subject to applicable taxes, if any. It is now clarified that the same facility would be available to NRIs/ PIOs under Regulation 11 of the said Regulations. 6. Gift in Rupees by Resident Individuals to NRI close relatives A.P (DIR Series) Circular No.17 dated September 16, 2011 . RBI has permitted a resident individual to make a rupee gift to a NRI/PIO who is a close relative of the resident individual (relative as defined in Section 6 of the Companies Act, 1956) by way of crossed cheque / electronic transfer. The amount should be credited to the Non-Resident (Ordinary) Rupee Account (NRO) account of the NRI / PIO and credit of such gift amount may be treated as an eligible credit to NRO a/c. The gift amount would be within the overall limit of USD 200,000 per financial year as permitted under the Liberalised Remittance Scheme (LRS) for a resident individual. It would be the responsibility of the resident donor to ensure that the gift amount being remitted is under the LRS and all the remittances under the LRS during the financial year including the gift amount have not exceeded the limit prescribed under the LRS. 7. Loans in Rupees by resident individuals to NRI close relatives A.P (DIR Series) Circular No.18 dated September 16, . 2011 RBI has permitted a resident individual to lend to a NRI/ PIO close relative (relative as defined in Section 6 of the Companies Act, 1956) by way of crossed cheque / electronic transfer, subject to the specified conditions. For conditions in detail, please refer the circular on RBI website at http://www.rbi.org.in/scripts/NotificationUser. aspx?Id=6713&Mode=0

8. Repayment of loans of Non-resident close relatives by residents A.P (DIR Series) Circular No.19 dated September 16, . 2011 Hitherto, in terms of Regulation 8 (d) of the Foreign Exchange Management (Borrowing and Lending in Rupees) Regulations, 2000 as amended, relative of the NRI / PIO borrower in India is allowed to repay the housing loan taken by such NRI or PIO from an authorised dealer or a housing finance institution in India approved by the National Housing Bank for acquisition of a residential accommodation in India by crediting the borrowers loan account through the bank account of such relative. RBI has review the extant provision and decided to permit the resident close relative (relative as defined in Section 6 of the Companies Act, 1956), of the NRI to repay the loan granted to such NRI by an authorised dealer in India in accordance with Regulation 7 of the aforesaid Regulations, by crediting the borrowers loan account through the bank account of such relative. 9. Meeting of Medical expenses of NRIs close relatives by Resident Individuals A.P (DIR Series) Circular No.20 dated September 16, . 2011 RBI has clarified that where the medical expenses in respect of NRI close relative (relative as defined in Section 6 of the Companies Act, 1956) are paid by a resident individual, such a payment being in the nature of a resident to resident transaction may be covered under the term services related thereto under Regulation 2(i) of Notification No. FEMA 16 /2000- RB dated May 3, 2000 issued in pursuance of the provisions of section 3 of the Foreign Exchange Management Act, 1999. External Commercial Borrowings (ECBs) Rationalisation and Liberalisation 1. A.P (DIR Series) Circular No.25 and 26 dated . September 23, 2011 and Circular No.30 dated September 27, 2011 Considering the specific needs of the infrastructure sector, RBI has reviewed the existing ECB policy in consultation with the Government of India and it has allowed Indian companies which are in the infrastructure sector (as defined in the ECB Guidelines): (i) to utilise 25% of the fresh ECB raised towards refinancing of the Rupee loan(s) availed from the domestic banking system, under the approval route, subject to the following conditions:(a) at least 75% of the fresh ECB proposed to be raised should be utilised for capital expenditure towards a new infrastructure project(s), where infrastructure is as defined in terms of the extant guidelines on ECB;

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(b) in respect of remaining 25%, the refinance shall only be utilized for repayment of the Rupee loan availed of for capital expenditure of earlier completed infrastructure project(s); and (c) the refinance shall be utilized only for the Rupee loans which are outstanding in the books of the financing bank concerned. Companies desirous of availing such ECBs may submit their applications in Form ECB through their designated Authorised Dealer bank with the prescribed documents. (ii) to import capital goods by availing of short term credit (including buyers / suppliers credit) in the nature of bridge finance, under the approval route, subject to the following conditions:(a) the bridge finance shall be replaced with a long term ECB; (b) the long term ECB shall comply with all the extant ECB norms; and (c) prior approval shall be sought from the RBI for replacing the bridge finance with a long term ECB. (iii) to avail of ECBs in Renminbi (RMB), under the approval route, subject to an annual cap of USD 1 billion pending further review. The RBI approval will be valid for 3 months from the date of issue of the approval letter and the loan agreement should be executed within the validity period. The company may thereafter submit the completed Form 83 to the RBI for allotment of loan registration number (LRN) within 7 days (from the date of signing the loan agreement between the borrower and the lender). In case the borrower fails to obtain LRN within the above period, the RBI approval will stand cancelled. AD CategoryI bank will be permitted to open Nostro accounts in Renminbi (RMB). The designated AD - Category I bank shall monitor the end-use of funds and banks in India will not be permitted to provide any form of guarantees. 2. A.P (DIR Series) Circular No.27 dated September . 23, 2011 RBI has, in consultation with the Government of India, further rationalised and liberalised the ECB guidelines as under:(i) Enhancement of ECB limit under the automatic route (a) Eligible borrowers in real sector-industrial sectorinfrastructure sector can avail of ECB up to USD 750 million or equivalent per financial year under the automatic route as against the present limit of USD 500 million or equivalent per financial year. (b) Corporates in specified service sectors viz. hotel, hospital and software, can avail of ECB up to USD 200 million or equivalent during a financial year as against the present limit of USD 100 million or equivalent per financial year subject to the

condition that the proceeds of the ECBs should not be used for acquisition of land. (ii) ECBs designated in INR (a) All eligible borrowers can avail of ECBs designated in INR from foreign equity holders under the automatic/ approval route, as the case may be, as per the extant ECB guidelines. (b) NGOs engaged in micro finance activities will, however, be permitted to avail of ECBs designated in INR under the automatic route from overseas organizations and individuals as per the extant guidelines. (iii) ECB for Interest During Construction (IDC) It has been decided to consider IDC as a permissible end-use for the Indian companies which are in the infrastructure sector under the automatic/approval route, as the case may be, subject to the following conditions:(a) that the IDC is capitalized; and (b) is part of the project cost. 3. A.P (DIR Series) Circular No.28 dated September . 26, 2011 Presently, credit enhancement is permitted to be provided by multilateral / regional financial institutions and Government owned development financial institutions for domestic debt raised through issue of capital market instruments, such as, debentures and bonds, by Indian companies engaged exclusively in the development of infrastructure and by the Infrastructure Finance Companies (IFCs), which have been classified as such by the RBI under the approval route. It has now been decided to further liberalise the policy relating to structured obligations to permit direct foreign equity holder(s) as per extant ECB guidelines (minimum holding of 25% of the paid up capital) and indirect foreign equity holder, holding atleast 51% of the paid-up capital, to provide credit enhancement to Indian companies engaged exclusively in the development of infrastructure and to the IFCs, which have been classified as such by the RBI. Credit enhancement by all eligible non-resident entities will henceforth be permitted under the automatic route and no prior approval will be required from the Reserve Bank. 4. A.P (DIR Series) Circular No.29 dated September . 26, 2011 (i) As per the extant ECB policy, a foreign equity holder to be eligible as recognised lender under the automatic route would require minimum holding of paid-up equity in the borrower company as set out below: (a) for ECB up to USD 5 million minimum paid-up equity of 25% held directly by the lender;

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(b) for ECB more than USD 5 million minimum paid-up equity of 25% held directly by the lender and debt-equity ratio not exceeding 4:1 (i.e. the proposed ECB does not exceeds four times the direct foreign equity holding). It has now been clarified that (a) Now onwards the term debt in the debt-equity ratio will be replaced with ECB liability and the ratio will be known as ECB liability-equity ratio to make the term signify true position as other borrowings/debt are not considered in working out this ratio; (b) The paid-up capital contributed by the foreign equity holder is considered under the extant guidelines for the purpose of calculation of equity for ECBs of or beyond USD 5 million from direct foreign equity holders. Henceforth, besides the paid-up capital, free reserves (including the share premium received in foreign currency) as per the latest audited balance sheet shall be reckoned for the purpose of calculating the equity of the foreign equity holder. Where there are more than one foreign equity holder in the borrowing company, the portion of the share premium in foreign currency brought in by the lender(s) concerned shall only be considered for calculating the ECB liabilityequity ratio for reckoning quantum of permissible ECB; (c) For calculating the ECB liability, not only the proposed borrowing but also the outstanding ECB from the same foreign equity holder lender should be reckoned. (ii) To benefit eligible borrowers, it has been decided, in consultation with the Government of India, to consider the ECB proposals from foreign equity holders (direct/indirect) and group companies under the approval route as under:(a) Service sector units, in addition to those in

hotels, hospitals and software, could also be considered as eligible borrowers if the loan is obtained from foreign equity holders. This would facilitate borrowing by training institutions, R &D, miscellaneous service companies, etc; (b) ECB from indirect equity holders may be considered provided the indirect equity holding by the lender in the Indian company is at least 51%; and (c) ECB from a group company may also be permitted provided both the borrower and the foreign lender are subsidiaries of the same parent. While submitting these proposals, it may be ensured that total outstanding stock of ECBs (including the proposed ECBs) from a foreign equity lender does not exceed 7 times the equity holding, either directly or indirectly of the lender (in case of lending by a group company, equity holdings by the common parent would be reckoned). Revision in Guidelines for appointment of Agents / Franchisees by Authorised Dealer (AD) Category-I, AD Category-II and Full Fledged Money Changers A.P (DIR Series) Circular No.31 dated October 03, . 2011 In view of the growth in money changing activities undertaken by the agents / franchisees of AD Category-I banks / AD Category II / FFMCs and the issuance of Anti Money Laundering (AML) Guidelines on money changing activities and need to exercise adequate control over the franchisees by the franchisers, the RBI has amended certain instructions contained in the A.P (DIR Series) Circular No. 57 [A.P (FL/RL . . Series) Circular No. 04] dated March 9, 2009 in terms of which the Guidelines for appointment of Agents / Franchisees by Ads Category - I, Ads Category - II and FFMCs were prescribed.

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For revised instructions, please refer the circular on RBI website at http://www.rbi.org.in/Scripts/NotificationUser. aspx?Id=6743&Mode=0 Consolidated 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 updated Consolidated FDI Policy Circular 2 of 2011 which is effective from October 1, 2011. This circular subsumes and supersedes all Press Notes / Press Releases / Clarifications / Circulars issued by DIPP which were in , force as on September 30, 2011, and reflects the FDI Policy 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 contributed by CA.. Jayesh Thakur, Mumbai) MCA 1. Replacement of LLP annual compliance form to enable STP

CORPORATE

LAWS

www.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 annual filing for LLPs. The only change in the form is in relation to the enabling of the form for submission/ uploading of the same online in a straight-through processing (STP) manner. There is no other change in the content. One may refer to the above citation for further details. 2. Revised form 5 notified by MCA www.mca.gov.in The MCA has issued Notification F.No. 2/20/2011CLV dated 23.09.2011 revising the form 5 (Notice of consolidation, division, etc. or increase in share capital or increase in number of members). The new forms will be effective from 25.09.2011. One may refer to the above citation for further details and the form. 3. Companies (Amendment) Regulations, 2011 www.mca.gov.in The MCA has issued Notification F.No 2/13/201l-CL-V dated 22.09.2011 whereby it is provided that except as otherwise provided in the Act, the Registrar shall not keep any document pending for approval and registration or for taking on record or for rejection or

otherwise for more than sixty days, from the date of its filing excluding the cases where approval from the Central Government or Regional Director or Company Law Board or Court or any other competent authority is required. One may refer to the above citation for further details. 4. Extension of time for submitting DIN-4 www.mca.gov.in The MCA has issued General Circular No. 66/2011 dated 04.10.2011 extending the time for filing DIN-4 by DIN holders for furnishing the PAN and to update PAN details till 15.12.2011. One may refer to the above citation for further details. 5. Extension of time for Company Law Settlement Scheme, 2011 www.mca.gov.in The MCA has issued General Circular No. 65/2011 dated 04.10.2011 extending the time for submitting applications under the Company Law Settlement Scheme, 2011 upto December 15, 2011. One may refer to the above citation for further details.

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6. Companies (Filing of documents and forms in Extensible Business Reporting Language) Rules, 2011 www.mca.gov.in The MCA has issued Notification No. F.No. 5/18/2005CL-V dated 05.10.2011 notifying the above Rules and which specifically refer to e-Forms no. 23AC-XBRL and 23ACA-XBRL specified under the Companies (Central Government) General Rules and Forms, 1956 which should be utilized where one is covered and required to submit the annual filings in XBRL. One may refer to the above citation for further details. SEBI/RBI 7. Amendments to Issue of Capital and Disclosure Requirements www.sebi.gov.in The SEBI has issued Notification No. LAD-NRO/ GN/2011-12/25/30309 dated 23.09.2011 relating to rights issue of Indian Depository Receipts (IDRs) and some other minor amendments. It is provided that a listed issuer offering IDR through a rights issue shall satisfy the conditions specified in Chapter XA (which is inserted by this Notification) of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 at the time of filing the offer document and that every listed issuer offering IDRs through a rights issue shall prepare the offer document in accordance with the home country requirements along with an addendum containing disclosures as specified in Part A of Schedule XXI and regulation 106F and file the same with the SEBI and the stock exchanges on which the IDRs of the issuer are listed. The Notification gives more details on applicability and eligibility to make an IDR issue, renunciation by an IDR holder, requirements for depository and record date, disclosures in the offer document and the addendum for the rights offering, filing of draft offer document and the addendum for rights offering, fast track issue, dispatch of abridged letter of offer and application form, period of subscription, pre-issue advertisement for rights issue, utilisation of funds raised in rights issue, etc. The Notification also contains Part D containing the requirements for disclosures in abridged prospectus, Schedule XXI containing Part A on disclosures in the addendum to the offer document for rights issue of IDRs and Part B on disclosures in abridged letter of offer for rights issue of IDRs. One may refer to the above citation and website for further details. 8. New Takeover Regulations (NTR) www.sebi.gov.in The SEBI has issued Circular No. F. No. LAD-NRO/ GN/2011-12/24/30181 dated 23.09.2011 notifying the SEBI (Substantial Acquisition of Shares and Takeovers)

Regulations, 2011 which supersedes the SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. The NTR would be effective from the 30th day of the notification, that is, effective from October 22, 2011. The features of the NTR are as under: The initial threshold for trigger of open offer is increased from 15% of voting control to 25%. Maximum 5% allowed per financial year to acquirers holding 25% or more, upto the maximum permissible non-public shareholding. In an acquisition situation, the ability to indirectly exercise voting rights beyond the trigger threshold limits, or exercise control over a target company, would trigger open offer. The definition of the term control is substantively adopted from the extant Regulations, without including the wider parameter of ability to control as recommended by TRAC (Takeover Regulation Advisory Committee). The NTR do not contain whitewash provision in case of change in control of the target company. Under the extant Regulations, an open offer was not required if the shareholders of the target company passed a special resolution waiving the open offer in case of change in control. The following details the nature of exemptions from open offer obligations: The extant exemption available for inter se group transfers is dispensed with and brought on par with the inter se promoter transfers. The definition of group, earlier linked to the Monopolies and Restrictive Trade Practices Act, 1969, is now removed and restricted specifically to co-subsidiaries and parents. Exemption will apply only if (a) cash or cash equivalent consideration to be offered is less than 25% of the total consideration paid under the scheme, and (b) existing body of shareholders retains at least 33% of the voting rights in the combined entity directly or indirectly. For increase in voting rights pursuant to buy-back, of a shareholder holding less than 25%, increase beyond the initial threshold of 25% would be exempt if the shareholder reduces his voting rights below 25% within 90 days. In case of a shareholder holding more than 25%, increase by more than 5% in any financial year would be exempt if the specified conditions are met, else the requirement to reduce additional voting rights below 5% is within 90 days. Acquisition of shares pursuant to Corporate Debt Restructuring scheme would be exempt if it does not entail change in control and is approved by shareholders by a special resolution passed through postal ballot.

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In relation to the offer size, the following is relevant: Mandatory offer of minimum of 26% necessary of the total shares of the target company. In case of voluntary offer, acquirers collectively holding 25% or more voting rights in the target company can make a voluntary offer for a minimum size of 10% or such other number of voting capital as would not result in breach of the maximum nonpublic shareholding. In relation to minimum public shareholding requirements, the following is relevant: If post open offer shareholding of the acquirer exceeds the maximum permissible non-public shareholding, the acquirer shall be required to bring down his shareholding to the permissible level within the time permitted under the Securities Contracts (Regulation) Rules, 1957. Further, the acquirer shall not be eligible to make a voluntary delisting offer under the SEBI (Delisting of Equity Shares) Regulations, 2009 for a period of 12 months from the date of the completion of the open offer period. In relation to offer price, the minimum offer price shall be higher of: Negotiated price per share of the target company for any acquisition under the agreement attracting open offer requirement; Volume weighted average price paid or payable for acquisitions by the acquirer or any person acting in concert with him during preceding 52 weeks; Highest price paid or payable for any acquisition by the acquirer or any person acting in concert with him during the preceding 26 weeks; Volume weighted average market price for a period of 60 days in case of frequently traded shares, or the price determined by the acquirer and the manager to the offer taking into account valuation parameters in case the shares are not frequently traded; and The per share value of target company, if applicable. Furthermore, the NTR also provide for the following: The entire non-compete fees / control premium payment would form part of the negotiated price. In case of any additional payment, and in case the acquirer acquires shares of the target company in a negotiated deal during 26 weeks after the tendering period at a price higher than the offer price, such excess shall be paid within 60 days from the date of further acquisition to all the shareholders whose shares were acquired in the open offer. One may refer to the above citation and website for further details.

9. Amendment to listing agreement pursuant to New Takeover Regulations www.sebi.gov.in The SEBI has issued Circular No. SEBI/CFD/DCR/ SAST/ 1/2011/09/23 dated 23.09.2011 proposing consequential amendments to Clause 35 of the Equity Listing Agreement pursuant to the New Takeover Regulations (NTR). A consequential amendment is made to clause 35 of the Equity Listing Agreement pursuant to NTR as per Annexure 1 to this circular. Stock Exchanges are advised to carry out the amendments in their Listing Agreement and confirm compliance of the same in the next monthly development report. Also, formats for disclosures / reports under the NTR which have prescribed various reports / disclosures to be filed under various provisions contained therein, in the formats as may be specified by the Board. Accordingly, the formats have been specified and listed in Annexure - 2 of this circular. One may refer to the above citation and website for further details. 10. Disclosure of Price Information of past issues handled by Merchant Bankers www.sebi.gov.in The SEBI has issued Circular No. CIR/CFD/DIL/5/2011 dated 27.09.2011 referring to the Schedule VI, Form A, para (16) of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009 which provides that Price Information of Past Issues handled by Merchant Bankers (who are responsible for pricing this issue) should be enclosed along with Due Diligence certificate submitted to the Board. The format for disclosure of Price Information of Past Issues handled by Merchant Bankers is given at Annexure to this Circular. This circular shall be applicable on Draft Red Herring Prospectus/ Red Herring Prospectus/Prospectus filed with SEBI/Registrar of Companies (as applicable) on or after November 1, 2011. One may refer to the above citation and website for further details. 11. Filing offer documents with SEBI www.sebi.gov.in The SEBI has issued Circular No. CIR/CFD/DIL/6/2011 dated 28.09.2011 and as a green initiative, it has been decided to reduce the number of copies of offer documents being submitted to SEBI. Also, considering the availability of the soft copies of the offer documents in the websites of SEBI and the concerned merchant bankers, it is hereby prescribed that, (a) three copies of the draft offer document shall be filed with the relevant office of the Board, and, (b) one copy of the offer document shall be filed with the relevant office of the Board. It is clarified that this requirement shall be applicable for all draft/final offer documents filed with SEBI on or after the date of this circular. One may refer to the above citation for further details.

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LEGAL UPDATE

12. Clarification on 100% promoter holding in demat form www.sebi.gov.in The SEBI has issued Circular No. SEBI/Cir/ISD/ 05 /2011 dated 30.09.2011 regarding 100% promoter holding in demat form. On review of the promoters holding in demat form, it has been observed that there has been improved compliance to the above circular and the companies/promoters have started the process of converting their physical holdings in dematerialized form. At the same time representations have been received from large number of companies as well as various industry bodies regarding practical difficulties being faced in dematerializing promoters holding and seeking exemptions/extension in complying with the provisions. Hence, it is decided to extend the current deadline by one quarter i.e. quarter ending December 2011. Also, the Stock Exchanges are advised to put in place the adequate systems and issue the necessary guidelines to the market for implementing the above decision, make necessary amendments to the relevant bye-laws, rules and regulations for the implementation of the above decision immediately, bring the provisions of this circular to the notice of the member brokers of the Exchange and also to disseminate the same on the website and communicate to SEBI, the status of the implementation of the provisions of this circular in a Monthly Report. One may refer to the above citation and website for further details. 13. Guidelines for issue and listing of structured products/market linked debentures www.sebi.gov.in The SEBI has issued Circular No. IMD/DF/17/2011 dated 28.09.2011 recalling its initial and continuous disclosure norms applicable to issue and listing of debt securities through the Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008 and the Simplified Listing Agreement for Debt Securities. SEBI had observed that a variety of hybrid securities that combine features of plain vanilla debt securities and exchange traded derivatives are being issued through private placements and listed on stock exchanges. It is seen that such securities differ from plain vanilla debt securities or debt securities issued with embedded call or put options, i.e., by offering market linked returns obtained through exposures on exchange traded derivatives. Since such returns are linked to equity markets, such securities are also called equity linked debentures or stock linked debentures etc. Hence, such securities being different in their nature and their riskreturn relationship, it has been decided to specify addi-tional disclosures and other requirements in

offer documents for issue of structured products/ market linked debentures that seek listing on stock exchanges. The SEBI has provided detained guidelines and conditionalities which need to be complied with in respect of listing of structured debt/equity linked debentures in the above Circular. One may refer to the above citation and website for further details. 14. Simplification and rationalisation of trading account opening process www.sebi.gov.in The SEBI has issued Circular No. CIR/MIRSD/16/2011 dated 22.08.2011 and based on feedback from investors that the present trading account opening procedure is very cumbersome whereby an investor has to enter into a number of agreements depending on his trading preferences i.e. stock exchanges, segments, internet/wireless technology based trading, etc. As a result, it requires a large number of signatures on various documents devised by the stock brokers/ trading members. With a view to simplify and rationalise the account opening process, the SEBI has reviewed, consolidated and updated all the documents/ requirements prescribed in respect of account opening process over the years, in consultation with major stock exchanges and market participants. The simplification includes replacement of all clientbroker agreements with the Rights and Obligations document, which shall be mandatory and binding on the existing and new stock brokers (including trading members) and clients. For this purpose, the SEBI (Stock Broker and Sub-Broker) Regulations, 1992 have been amended suitably and now SEBI has devised the uniform documentation to be followed by all the stock brokers/ trading members and a copy thereof to be provided by them to the clients. The documents are, (a) index of documents giving details of various documents for client account opening process - Annexure-1 (of circular), and, (b) client account opening form in two parts, viz., Know Your Client (KYC) form capturing the basic information about the client and instruction/check list to fill up the form - Annexure-2 (of circular), and, Document capturing additional information about the client related to trading account -Annexure-3 (of circular). In the account opening process, the stock brokers/trading members would also give the useful information to the clients like, (a) a tariff sheet specifying various charges, including brokerage, payable by the client to avoid any disputes at a later date, and, (b) information on contact details of senior officials within the stock broking firm and investor grievance cell in the stock exchange, so that the client can approach them in case of any grievance. One may refer to the above citation and website for further details. n

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Accounting 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 1. A public sector company is engaged in the manufacture of power equipments. The company has manufacturing units, power sector regions, service centers and regional offices besides project sites spread all over India and abroad. The shares of the company are listed in stock exchanges at NSE and BSE. The turnover of the company was Rs. 34,154 crore in the year 2009-10. The company had employee strength of 46,274 Nos. as on 31.03.2010. 2. The rules of the company relating to the leaves are as below: Earned Leave (EL): The entitlement of earned leave is related to the number of years of service put in by the employee as under: Number of completed years of Entitlement of service earned leave per annum (days)
Upto 5 years Above 5, upto 10 years Above 10, upto 15 years Above 15, upto 20 years Above 20 years 22 24 26 28 30

Above 10, upto 15 years Above 15, upto 20 years Above 20 years

26 28 30

10 11 11

3 3 4

10 11 11

3 3 4

3. The querist has stated that the accumulation limit of earned leave is 300 days, beyond which, it shall automatically lapse. The advance credit of encashable portion of earned leave will, however, not be taken into account for determining the accumulation limit. Encashable earned leave can be encashed or availed at any time subject to an accumulation limit of 300 days and NEL is encashable at the time of retirement only, but it can be availed at any time during the service period. There is no restriction on an employee in availing the earned leave (whether encashable or non-encashable) in the same year in which it has fallen due. It is an employees discretion to avail/encash or accumulate the leave at any time. In a nutshell, the employee has an option either to avail the leave without any restriction or encash once in a year or accumulate subject to the ceiling limit of 300 days. 4. The querist has also explained the rules of the company relating to Half Pay Leave (HPL) as below: (i) All employees are entitled to 20 days of half pay leave in a year. (ii) Advance credit is allowed on 25th June/25th December each year at the rate of 10 days each time. (iii) There is no limit for accumulation of half pay leave. However, it is encashable only at the time of superannuation subject to a maximum of 480 half days, i.e., 240 days. (iv) Half pay leave can be availed at any time but encashable only at the time of superannuation. (v) Half pay leave can also be commuted and availed, as sick leave, i.e., 2 half days will be counted as one sick leave. 5. A summary of the above rules has been provided by the querist as under: EEL NEL HPL Accrued during 16 to 22 6 to 8 20 the year (days)

The earned leave has two components, viz., encashable (EEL) and non-encashable (NEL). The company gives advance credit of leave in terms of encashable and non-encashable leave on the existing standard dates as given below: No. of completed Entitl- Credit No. of days years of service ement of EL per annum (days) On 25th On 25th June Dec. EEL NEL EEL NEL Upto 5 years 22 8 3 8 3 Above 5, upto 10 years 24 9 3 9 3

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Maximum accumulation limit (days) Encashable during the service Encashable limit on superannuation (days) Availment restriction at any time during service

300 days both for EEL & No limit NEL put together Yes- once No No in a year without any restriction 300 days EEL & NEL 480 half both put together days. (240 full days). No No No

9. During the audit of annual accounts for the financial year 2009-10, the Government audit has raised a query stating that the past pattern indicates that the employees are unlikely to avail/encash the entire carried forward leave during the next twelve months and hence, the benefit would not be short-term. Accordingly, they are of the view that keeping in view the behavioral pattern of the employees, the leave benefit should be considered as long-term benefit and the provision should be made based on actuarial valuation. 10. The company has expressed its views as below: Paragraph 8 (b) of AS 15 (revised 2005), issued by the ICAI states as follows: 8. Short-term employee benefits include items such as: b) short-term compensated absences (such as paid annual leave) where the absences are expected to occur within twelve months after the end of the period in which the employees render the related employee service; Paragraph 10 of AS 15 (revised 2005), issued by the ICAI states as follows:
10. When an employee has rendered service to an enterprise during an accounting period, the enterprise should recognise the undiscounted amount of short-term employee benefits expected to be paid in exchange for that service

6. The querist has stated that prior to the introduction of Accounting Standard (AS) 15 (revised 2005), Employee Benefits, issued by the Institute of Chartered Accountants of India (ICAI), the leave liability was being accounted for on actuarial basis. However, pursuant to the introduction of AS 15 (revised 2005) from 01.04.2006, the company is accounting for the leave liability on accrual basis based on the opinion taken from a renowned consultant, which as per the querist, is in line with the requirements of AS 15 (revised 2005). 7. The accounting policy of the company relating to employee benefits is as below:
Earned leave, half pay leave, provident fund and employees family pension scheme contributions are accounted for on accrual basis. Liability for gratuity, travel claims on retirement and postretirement medical benefits are accounted for in accordance with actuarial valuation. The actuarial liability is determined with reference to employees at the beginning of each calendar year. Compensation under voluntary retirement scheme is charged-off in the year of incurrence on a prorata monthly basis.

In the case of the company, leave is accrued when the employee renders his service and there is no restriction on an employee in availing /encashing in the same year in which it has fallen due. The accumulation or encashment is entirely an individuals discretion and the employee can avail/encash the entire accumulated leave balance in one financial year itself. The point raised by Government audit for treating the leave benefit as long-term benefit is stated to be based on behavioral pattern of the employees on availing /encashing the leave based on the ASB Guidance on Implementing AS 15, Employee Benefits (revised 2005), issued by the Institute of Chartered Accountants of India (ICAI). Since there is no provision in AS 15 (revised 2005), issued by the ICAI on treatment of benefits based on behavioral pattern, the treatment has to be in line with AS 15 and not based on the said Guidance which clearly states that it is not a part of standard.

8. The accounting practice of the company in respect of leave liability from 1.4.2006 is stated by the querist as below: Liability for encashable earned leave (EEL), nonencashable earned leave (NEL) and half pay leave (HPL) is provided for in the books on accrual basis for the value of leave outstanding at the end of the year. According to the querist, provision for half pay leave is made for the total leave balance at the year end without restricting it to 480 half days (240 full days) per employee in line with the requirements of AS 15(revised).

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11. The querist has enclosed the trend of leave accrued, leave availed/encashed during the period 200809 and 2009-10 at Annexure A for reference. The querist has pointed out that it may be seen from the Annexure that approximately 96% of EEL and 82% of NEL accrued during the year were availed/encashed by the employees in the year 2009-10. Further, there is no clear trend that on an average how many employee will encash/avail or carry forward the leave. It may also be observed that in the financial year 2009-10, there is a substantial increase in leave encashment/availment as compared to year 200809. Therefore, as per the querist, when there is a full obligation of the company towards leave liability, it should be treated as short-term and accounted for on accrual basis. 12. According to the querist, in view of above and based on opinion given by the consultant when AS 15 (revised 2005) was introduced, leave liability is accounted on accrual basis and being continuously followed from the financial year 2006-07 onwards. B. Query 13. Based on the above facts, the querist has sought the opinion of the Expert Advisory Committee on the following issues: (i) Whether treatment of leave liability as short-term employee benefit and accounting on accrual basis by the company is correct and is in line with AS 15 (revised 2005) or not. (ii) In case it is not, then how to account for the change during the year 2010-11, i.e., through profit and loss account or through retained earnings (balance sheet approach). C. Points considered by the Committee 14. The Committee, while answering this query, has restricted itself to the issues raised in paragraph 13 above and has not touched upon any other issue arising from the Facts of the Case, such as, accounting policy of the company in general and particularly for provident fund, gratuity, pension, travel claims on retirement, post-retirement medical benefits and compensation under voluntary retirement scheme, etc. and the basis of acturial valuation etc. 15. The Committee notes the definitions of the terms short-term employee benefits and other long-term employee benefits as contained in paragraphs 7.2 and 7.8 of AS 15, notified under the Companies (Accounting Standards) Rules, 2006 (hereinafter

referred to as the Rules) which are reproduced below: 7.2 Short-term employee benefits are employee benefits (other than termination benefits) which fall due wholly within twelve months after the end of the period in which the employees render the related service. 7.8 Other long-term employee benefits are employee benefits (other than postemployment benefits and termination benefits) which do not fall due wholly within twelve months after the end of the period in which the employees render the related service. 16. The Committee also notes that paragraph 8 of AS 15 notified under the Rules provides as below: 8. Short-term employee benefits include items such as: (b) short-term compensated absences (such as paid annual leave) where the absences are expected to occur within twelve months after the end of the period in which the employees render the related employee service; The Committee also notes that although ASB Guidance on Implementing AS 15, Employee Benefits (revised 2005) does not form part of the Standard, by virtue of this Guidance, the Accounting Standards Board has clarified in the context of short-term and long-term employee benefits, vide Issue 3 thereof, which, inter alia, provides as below: Paragraph 7.2 of the Standard uses falls due as the basis, paragraph 8(b) of the Standard uses expected to occur as the basis to illustrate classification of short- term compensated absences. A reading of paragraph 8(b) together with paragraph 7.2 would imply that the classification of short-term compensated absences should be only when absences have fallen due and are also expected to occur. In other words, where employees are entitled to earned leave which can be carried forward to future periods the benefit would be a short-term benefit provided the employee is entitled to either encash/utilise the benefit during the twelve months after the end of the period when he became entitled to the leave and is also expected to do so. Where there are restrictions on encashment/availment, clearly the compensated absence has not fallen due and the benefit of compensated absences is more

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likely to be a long term benefit. For example, where an employee has 100 days of earned leave which he is entitled to an unlimited carry forward but the rules of the enterprise allow him to encash/utilise only 30 days during the next twelve months, the benefit would be considered as a long-term benefit. In some situations where there is no restriction but the absence is not expected to wholly occur in the next twelve months, the benefit should be considered as long-term. For example, where an employee has 400 days carry forward earned leave and the past pattern indicates that the employees are unlikely to avail/encash the entire carry forward during the next twelve months, the benefit would not be short-term. Whilst it is necessary to consider the earned leave which falls due, the pattern of actual utilisation/ encashment by employees, although reflective of the behavioural pattern of employees, does determine the status of the benefit, i.e., whether short-term or long term. The value of short-term benefits should be determined without discounting and if the benefit is determined as long-term, it would be recognised and measured as Other long-term benefits in accordance with paragraph 129 of the Standard. The categorisation in short-term or long-term employee benefits should be done on the basis of the overall behavioural pattern of all the employees of the enterprise and not on individual basis. 17. On the basis of the above, the Committee is of the view that short-term employee benefits include only those compensated absences which accrue to the employees and are expected to be availed (or encashed, as the case may be) within twelve months after the end of the period in which the employees render the related service. In other words, where it is expected that the employees will avail/encash the whole of the benefit accruing to them on account of earned leave (EEL and NEL) and half-pay leave within the twelve months after the end of the period in which the employees render the related service, the same would fall within the category of shortterm employee benefits. However, the Committee notes from the Facts of the Case that both the leave entitlements of the employees of the company can be carried forward for more than twelve months after the end of the period in which employees render the related service. Further, the Committee notes from the Annexure provided by the querist that both the types of leaves, which were accrued during the year 2008-09 and 2009-10, have been accumulated and carried forward by the employees. Therefore, the Committee is of the view that the benefit on account of both types of leaves does not fall within the category of short-term employee benefits. Rather,

the entire benefit on account of these leaves should be treated as other long-term employee benefits. 18. With respect to the recognition and measurement of other long-term employee benefits, the Committee notes that AS 15 (revised 2005) provides that the same should be measured on actuarial basis using the Projected Unit Credit Method. The Standard contains detailed requirements in this regard in paragraphs 129 and 130. 19. As regards accounting for the change in the accounting treatment of these types of leaves, the Committee notes the definition of the term Prior period items and paragraphs 15 and 19 from Accounting Standard (AS) 5, Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies, notified under the Rules, which provide as follows: Prior period items are income or expenses which arise in the current period as a result of errors or omissions in the preparation of the financial statements of one or more prior periods. 15. The nature and amount of prior period items should be separately disclosed in the statement of profit and loss in a manner that their impact on the current profit or loss can be perceived. 19. Prior period items are normally included in the determination of net profit or loss for the current period. An alternative approach is to show such items in the statement of profit and loss after determination of current net profit or loss. In either case, the objective is to indicate the effect of such items on the current profit or loss. From the above, the Committee is of the view that since earned leaves and half pay leaves are to be accounted for as other long-term employee benefits instead of short-term employee benefits, as being done by the company, same is an error and accordingly, it should be treated as Prior period item, the nature and amount of which should be included and disclosed separately in the profit and loss account of the period in which such error is revealed. 20. The Committee also notes from the Facts of the Case and the wordings of the accounting policy of the company as reproduced by the querist in paragraph 7 above, that the company has made a distinction between the terms accrual and acturial

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valuation. The Committee wishes to clarify that the acturial valuation is also based on accrual basis of accounting. Accordingly, the Committee is of the view that the wording of accounting policy of the company should also be changed in this respect. D. Opinion 21. On the basis of the above, the Committee is of the following opinion on the issues raised by the querist in paragraph 13 above: (i) No, the treatment of leave liability as short-term

employee benefit by the company is not correct. Such treatment is not in line with the requirements of AS 15 (revised 2005). Refer to paragraphs 17 and 20 above. (ii) The change in the accounting treatment of leave liability, in the extant case, from short-term employee benefits to other long-term employee benefits should be treated as prior period item. Accordingly, the nature and amount thereof should be included and disclosed in the profit and loss account for the period in which such error is revealed as discussed in paragraph 19 above.

DETAIL OF LEAVE BALANCES THE COMPANY NO. OF EMPLOYEES - 46274 as on 31.03.2010

DESCRIPTION OPENING BALANCE (No. of days) F.Y. 2009 10 NATURE OF RETIRED OTHER LEAVES EMPLOYEES EMPLOYEES EL 332774 3084518 NEL 151459 1525442 HPL 524933 5797895 EL NEL HPL EL NEL HPL EL NEL HPL EL NEL HPL 33216 10973 27679 365990 162432 552612 876446 299107 884884 839457 246112 289287 3121507 1578437 6393492 95.78% 82.28% 32.69% TOTAL 3417292 1676901 6322828 909662 310080 912563 1205447 408544 841899 3121507 1578437 6393492

Annexure A
(In No. of days)

F.Y. 2008 09 RETIRED OTHER EMPLOYEES EMPLOYEES 269548 3069913 127268 1473474 478722 5775591 26714 8299 23032 296262 135567 501754 879407 293219 859770 548713 168568 338280 3400607 1598125 6297081 62.40% 57.49% 39.35%

TOTAL 3339461 1600742 6254313 906121 301518 882802 844975 304135 840034 3400607 1598125 6297081

Total number of Leaves accrued during the year (No. of days) Total number of Leaves availed/ encashed by the employees during the year (No. of days) CLOSING BALANCE (No. of days) Leave avail/encash as %age to leave accrued

The Opinion is only that of the Expert Advisory Committee and does not necessarily represent the Opinion of the Council of the Institute. The Opinion is based on the facts supplied and in the specific circumstances of the querist. The Committee finalised the Opinion on 03.05.2011. The Opinion must, therefore, be read in the light of any amendments and/or other developments subsequent to the issuance of Opinion by the Committee. The Compendium of Opinions containing the Opinions of Expert Advisory Committee has been published in twenty eight volumes. A CD of

Compendium of Opinions containing twenty eight volumes has also been released by the Committee. These are available for sale at the Institute's office at New Delhi and its regional council offices at Mumbai, Chennai, Kolkata and Kanpur. 4 Recent opinions of the Committee are available on the website of the Institute under the head Resources. Opinions can be obtained from EAC as per its Advisory Service Rules which are available on the website of the ICAI, under the head Resources. For further information, write to eac@icai.org. n

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AUDITING

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Benford Distribution - An Effective Audit Tool

The Benford analysis is a powerful and relatively simple tool for pointing out false or wrong accounts and can be effectively used in auditing. In all phases of audit the application of this powerful tool enables the audit executive to discharge his duties effectively. The careful application of Benford analysis leads to useful conclusions. This article demonstrates an effective method of locating mistakes in a very large-scale auditable data-set by applying statistical test on Benford distribution. The identification of abnormally behaved data and making in-depth analysis of those data will always lead to identify and prevent fraudulent transactions. The tool explained in this article helps the audit executive to identify objectionable data in order to perform their task more effectively, efficiently and economically within a short span of time.

Dr. L. Kailasam (The author is working as Senior Audit Officer, Office of Principal Accountant General (C&RA), Chennai. He can be reached at lkailasam@yahoo.co.in)

Audit Control Control is one of the important managerial functions, which helps to check errors and take corrective action so that deviation from standards are minimised and stated goals of the organisation are achieved in a desired manner. Audit Control, which is one of organisational controls, consists of setting audit criteria, evaluating financial records and suggesting

corrective action in order to improve the performance of the organisation. The executive, who is exercising audit control has necessarily to conform, whether the activities of an organisation are carried out in accordance with the plan, which has been adopted, the orders, which have been given, and the principles, which have been laid down, in order to identify deviations

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and also recommend corrective measures for rectification, which facilitate prevention and recurrence of mistakes. The audit executive adopts various analytical procedures with the objective to reduce the audit risk to the minimum level for efficiently discharging this primary duty entrusted with him. The application of various tools and techniques from audit planning until reporting will enable him to derive scientific and useful conclusions. The audit executive has to estimate the probable mistakes most likely to exist within the organisation at the time of audit planning itself by making an in-depth analysis of inherent risk, control risk and other risks existing within the organisation. In this audit-planning stage, the auditor has to adopt various techniques such as Design analysis, Parato analysis, Zifs analysis, Benford analysis and other analysis in order to estimate the efficiency- economy- effectiveness of the various functions of the entity.

any researchers analysed the indifferent phenomenon of Benford law and offered various explanations. In 1976, Raimi has stated in his article that this phenomenon is the result of the way we write numbers and further stated that Benford law reflects a profound harmonic truth of nature. Boyle (1994) proved that Benford distribution is scale invariant. He found that the first digit taken from a sample is independent of the measuring units used. If the entire data multiplied by a constant, the resultant data also obeys Benfords Law.

After appropriate audit planning, the audit executive has to prescribe audit criteria by conducting preliminary survey, interview as well as making an in-depth analysis of previous case studies, etc. After fixing the audit criteria and identification of critical areas of auditing, he has to confirm the vertical, horizontal and dimensional consistency of the accounts. The ratio analysis, trend analysis, factor analysis, correlation analysis, as well as Benford analysis will enable him to identify the abnormally behaved variables in order to have thorough check for the identification of the reasons of the abnormal behaviour. He has to vouch for all the expenditure and income for the period of review. When complete checking is not possible, the audit executive has to adopt appropriate statistical techniques in order to derive scientific conclusions. The distribution of leftmost leading digits in data of an anomalous nature will conform to a formula of logarithmic intervals known as the Benford distribution. The Benford analysis is a powerful and relatively simple tool for pointing out false or wrong accounts and can be effectively used in auditing. In all phases of audit the application of this powerful tool enables the audit executive to discharge his duties effectively. This simple and efficient tool, like Parato analysis, assists the audit executives to confirm the correct recording of incomes, expenditure, assets, and liabilities. The careful application of Benford analysis leads to useful conclusions. The primary intention of this article is to demonstrate, how and where the Bendords principles could be effectively used in auditing. History of Benford Law The principles of Benford law were first published in American Journal of Mathematics during 1881. Simon

t is true that not all data sets followed Benford's law. Assigned numbers, such as PAN card numbers prescribed by the Income Tax Department, PIN codes or Bank account numbers will not conform to Benford's law, as they are pre assigned. As an example, in the pre-determined refund given to the customers, the Benford law may not be valid. If the account balance has built-in maximum or minimum balance, the Benford test will not lead good results.
Newcomb published an article in the said american journal and concluded that more numbers exist, which begin with number one than with other numbers. During 1938, Dr. Frank Benford, a physicist of the General Electric Company had rediscovered this technique. He did a detailed mathematical analysis of more than 20,000 sets of numbers such as stock quotations, tournament tennis scores, the electricity bills, etc. These unrelated sets of Anomalous Numbers followed the same firstdigit probability pattern and in all cases the number one turned up as the first digit in about 30% of the time, more often than any other number. By this practical experience, he derived a formula and concluded that in a given string of at least four numbers sampled from one or more of any data, the chance that the first digit 1 is 30.1%, but not 11.11% (i.e. not 1/9) as normally expected, but it is 30.1%. The chance that the first digit 2 is in the string is only 17.6%, and the probabilities that successive numbers will be the first digit decline smoothly up to 9,
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which has only a 4.6% chance, as detailed below. Digit Probability of obtaining as 1 digit (%)
st

1 30.1%

2 17.6%

3 12.5%

6 6.7%

7 5.8%

8 5.1%

9 4.6%

9.7% 7.9%

Many researchers analysed the indifferent phenomenon and offered various explanations. In 1976, Raimi has stated in his article that this phenomenon is the result of the way we write numbers and further stated that Benford law reflects a profound harmonic truth of nature. Boyle (1994) proved that Benford distribution is scale invariant. He found that the first digit taken from a sample is independent of the measuring units used. If the entire data multiplied by a constant, the resultant data also obeys Benfords Law. In 1995, Hill provided proof for Benford law and demonstrated how Benford analysis could be applied to stock data, census statistics and accounting data too. If the population is small then Benford law is not valid. Varian (1972) suggests that Benford law could be used as test of honesty or validity of purportedly random scientific data in a social science context. An interesting case was noticed in the literature of Benford analysis. In the State of Arizona, the manager of the State treasury was charged that he had diverted funds to bogus vendors. Benford analysis test was applied in the said case and it was found that the digits 7, 8 and 9 occur more than 90%, which is much contrary to the Benfords law. A detail analysis was made and it was found that most of the amount were just below 1,00,000/for avoiding the check of higher authorities. It was also found that none of the amount was duplicated and there were no round numbers. However, the charged official repeated some digits and digit combinations. The Benford test revealed the fraudulent payment
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and accordingly the official was punished. The Benford analysis may reveal the peculiarity of the transactions. In a particular case, while analysing the accounts payable data of a company it was found that there was large first two-digit spike in excess of the expected Benford frequency. While analysing the reasons, it was found that the company has directed to submit vouchers if the amount exceeds the prescribed amount. The employees for avoiding the submission of vouchers claimed lesser amount for which no vouchers need to be submitted. Similarly, the payments might be split into 2 or 3 parts for avoiding approval of higher authorities; such spikes could be easily identified by the Benford analysis. Applications of Benfords Law in Auditing The audit executives are necessarily to apply various digital analysis and analytical procedures for effective performance of their duties. As the SIA-61 states that the auditor has to employ analytical procedures, the audit executives have to discover and employ various analytical procedures for effectively discharging their responsibilities. Benford analysis is one of the vital tools and could be applied in almost all phases of auditing i.e. from audit planning stage to reporting stage. The correctness of information received from the auditee entity in audit planning stage could be checked by applying Benfords analysis. It is also possible to get clue for duplicate payments, missing data by identifying

duplicate purchase orders or invoice numbers in audit execution stage by adopting this technique. As majority of the accounting data follow Benford distribution, the audit executives could use this technique. While applying Benford analysis, it is necessary to consider the entire data. Samples taken from the data will not yield good results. As an example, if the audit executive wants to check the accounts receivable or accounts payable, the entire transactions have to be analysed. The audit executive cannot ascertain exact position, on the samples taken from the accounts payable or accounts receivable. The account size i.e. number of transactions in an account has to be considered before applying Benford analysis. The large number of data or items will always lead to good result. Therefore, the audit executive has to apply the Benford test on the transactions of the entire year. It is true that not all data sets followed Benford's law. Assigned numbers, such as PAN card numbers prescribed by the income tax department, PIN codes or bank account numbers will not conform to Benford's law, as they are pre assigned. As an example, in the pre-determined refund given to the customers, the Benford law may not be valid. If the account balance has built-in maximum or minimum balance, the Benford test will not lead good results. If the auditee entity has a policy that the accounts have to be recorded if it has to achieve the ascertained materiality level before recording and has in built in minimum checks

Standard On Internal Audit (Sia) 6 - Analytical Procedures*

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such accounts will not satisfy the Benford test. Similarly, for the transactions such as thefts, kickbacks, contract rigging, etc, the Benford analysis could not be effectively used. By removing the abnormal data stated above, the remaining data will confirm Benford test, if accounts reflects correct position. By adopting the appropriate strategies, it is always possible to overcome the limitations. As an example, this tool will indicate that there may be fraud or in built mechanism within the accounts. This could be easily identified by the auditor and in case if he identifies that there is no scope for built-in mechanism, there may be possibility of mistakes/frauds/ irregularities in such areas, he could take up a detailed audit. However, Benford analysis could be used as a primary tool to be added to the audit executives weapon store. Audit executive has to use additional tests, which include a personal awareness of the examined observations of assets, as well as awareness of corporate culture, etc to derive useful conclusions. Steps Involved in Applying Benford Test
Step 1 - Check whether the accounting balances confirm Benford distribution

he first step is to confirm whether the type of accounts satisfy the Benfords distribution. It is necessary to ensure whether the accounts consist of preassigned balances, or has inbuilt maximum or minimum balances or the transactions are in the nature of contract rigging, kickbacks or of theft types. As the Benford distribution is not valid in such cases, Benford test on these transactions will not yield any required results.
their unit prizes, insurance claims, employee expenses, fixed assets and liabilities, etc. normally follow Benford distribution and hence Benford law could be effectively used in such cases.
Step 2- Finding frequencies of first digit from the Account Balances

identifying the first digit in the accounting balances, the next step is to find the frequency of the first digits identified from the accounting balances.
Step 3- Comparison with predetermined frequencies

The Benford law predetermines the frequencies of first digit as mentioned in the Table 1. The predetermined first digit frequencies have to be compared with actual frequencies as found in the Step 2 and the difference between these could be found. The audit executive uses his discretion to allow the difference. Normally the difference of 5% i.e. -2.5% to +2.5% is admissible. However, according to the circumstances of the case and discretion of the auditors, it could be increased or decreased by the audit executives. The digit, which does not confirm to the prescribed admissible difference, has to be identified.
Step 4- Analysis of the abnormal digits

The next step is to extract the first digit from the account balances of the data under scrutiny. After

There may be many reasons for the abnormal behaviour of the digits

The first step is to confirm whether the type of accounts satisfy the Benfords distribution. It is necessary to ensure whether the accounts consist of pre-assigned balances, or has inbuilt maximum or minimum balances or the transactions are in the nature of contract rigging, kickbacks or of theft types. As the Benford distribution is not valid in such cases, Benford test on these transactions will not yield any required results. The accounting data relating to accounts payable, accounts receivable, refunds, sales, purchases, inventory cost and

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identified. The auditor has to list all the balances, which behaved abnormally and make detailed audit checks on the balances identified. If case specific peculiarities of the transactions are to be found or the practice adopted is to be identified, such as consolidation of refunds and issue of one cheque instead of several cheques, such account balances are to be removed. After removing, the peculiar balances from the purview of Benford analysis, and making necessary corrections after applying required audit checks, the corrected balance account should be re-checked by adopting Benford analysis. The next stage is to adopt the appropiate statistical test to confirm whether frequencies of digit are consistent with Benfords distribution.
Step 5 - Benfords Distribution Analysis

The auditor may use appropriate tests to confirm the whether digits in the data set under consideration are distributed in accordance with Benford law. The audit executive can use appropriate statistical test for deriving useful conclusions.
Step 6- Identification of the auditable area - Adoption of Divide and Rule Policy

two parts and the Benford analysis has to be done on both the parts in order to confirm whether they satisfy the Benford analysis. If any half of the broken data does satisfy statistical tests, that portion could be ignored and the remaining half has to be concentrated upon. This exercise has to be continued until the data in half falls below minimum of 100 or any lower limit prescribed by the audit executive at his discretion. By this exercise, the broken data which satisfy the Benford analysis could be left out and a detailed audit analysis has to be undertaken on the remaining data, which does not satisfy the Benford analysis. If the entire data does not satisfy the Benford analysis there is no alternative except to audit all the

transactions of the data under consideration in detail. By adopting this technique, the workload of the audit executive is reduced to a minimum level and the audit executive could concentrate on few records instead of entire records.
Step 7 Refining the tests

There is a possibility that the Benford test on first digit alone may not reveal correct results. The analysis could be extended to the two digits in order to identify the spikes in the frequency. The same procedure as explained above could be adopted. The first-two-digits test could be fine-tuned to a first-three-digits test also. In all cases, the sample size should be manageable and could not be excessive and extensive. Conclusion There is no effective audit tool available as on date for identification of all types of mistakes/ frauds/ irregularities. This new simple and easy analysing audit tool helps the auditor to identify the abnormal transactions and assists him to perform his task more effectively, efficiently and economically within the short span of time. This new audit tool will identify the areas where the actual mistakes/ frauds/irregularities might have occurred. The new innovative idea of breaking the data and applying the Benford analysis will no doubt reduce auditors precious time and also improve the efficiency of the auditor in identification of the fault areas. n

After exercising the procedures, mentioned in the above steps and removal of abnormal terms, there may be chance that the data under consideration may not conform to the Benford test. In such cases, the entire data set could be divided into two parts and Benford test could be applied to both parts separately. There may be chances that either half of the data may not satisfy the Benford test or either of the one half may not satisfy the analysis. If any one-half of the data satisfies, such half could be left. The other half of the data, which does not satisfy Benford analysis, may again be broken into further

here is a possibility that the Benford test on first digit alone may not reveal correct results. The analysis could be extended to the two digits in order to identify the spikes in the frequency. The same procedure as explained above could be adopted. The firsttwo-digits test could be finetuned to a first-three-digits test also. In all cases, the sample size should be manageable and could not be excessive and extensive.

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Foreign Contribution (Regulation) Act, 2010 A Changing Perspective

Currently, acceptance and utilisation of foreign contribution or foreign hospitality is regulated by the Foreign Contribution (Regulation) Act, 1976. Nearly after 35 years the Government has felt a need to replace the FCRA, 1976 with the Foreign Contribution (Regulation) Act, 2010. Similar attempt of replacing the FCRA, 1976 was made in the year 2005 when the Government of India introduced a Foreign Contribution (Management and Control) Bill, 2005 which for unknown reasons never became the law. Thereafter, the Government, in the year 2006, introduced a bill called Foreign Contribution (Regulation) Bill, 2006, which was nothing but the Foreign Contribution (Management and 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 2010 has 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 The main focus of the FCRA 1976, as its preamble implies, is to regulate the acceptance and utilisation of foreign funds such that these funds do not affect the democratic structure of the country. However, in the new Foreign Contribution (Regulation) Bill 2010, the focus has been shifted to prohibit acceptance and utilisation of foreign contribution or foreign hospitality for any activities detrimental to the national interest and for matters connected therewith or incidental thereto. There has been a pragmatic shift from regulatory framework to a prohibitory framework.
CA. Anand Pagaria (The author is a member of the Institute. He can be reached at eboard@icai.org)

Changes in the Definition of Foreign Contribution Section 2(h) defines foreign

contribution. It means the donation delivery or transfer made by any foreign source of any article, currency or any security. It includes all types of foreign receipts. In the earlier FCRA 1976, any article having market value of more than R1000 was considered as foreign contribution, if received from any foreign source. The monetary value of R1000 remained unchanged since its inception and difficulties were faced by many as any article received from foreign source having value of more than R1000 was to be reported. But in FCRA, 2010, this monetary value of the article has been waived off and now it will be fixed by the Central Government in the rules and that too may be changed from time to time. This is a welcome change in the definition of foreign

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contribution as this has not only waived off the monetary limit from the statute so that no amendment is required every time in the statute for changing the monetary limit, but also the monetary limit will be specified from time to time so that effect of changes in prices will be taken care of. Explanation 3 to Section 2(h) has also been added, which carves out an exclusion from foreign contribution of the amount received from any foreign source by way of fees or towards cost in lieu of goods and services rendered in the ordinary course of business, trade or commerce. This was a much awaited amendment as many NGOs and associations charge fee for their services, which is received from foreign source, and which was treated as foreign contribution under FCRA, 1976. The change is a welcome step for those associations charging some fees for services rendered or selling some product to the foreign national as a part of their activities and to support there developmental activities. But the statute has exempted foreign contribution to the extent of cost of goods only. In many cases it is very difficult to determine the cost in the voluntary sector. What is cost is also very difficult to define. The term itself is very subjective and relative. Different interpretations may be given to the word cost. Similar is the case with the terms business, trade and commerce. The act should have defined these words in the statute itself. There is no logic to exclude only cost of goods from the foreign contribution in the course of business, trade or commerce. Nominal profits are definitely charged by many associations to become selfsustained. Instead of excluding cost the better option could have been setting out turnover limits say, an amount up to R10 lakh received in the ordinary course of business,

trade or commerce is exempt. This could have been in line with the Section 2(15) of the Income-tax Act, 1961 which restricts business receipts to R10 lakh. Foreign Company and Foreign Source The term foreign company has been defined under Section 2(1)(g) of the FCRA, 2010. This definition has been added under the new Act and was not present in the old FCRA, 1976. Contributions received from foreign companies are considered as a foreign source under Section 2(1)(j)(iii) of the FCRA 2010. Further if more than 50% of the nominal value of share capital of any Indian company is held by foreign company then contributions received from such Indian company is also considered as foreign source. This is a very harsh provision as in the time of equity dilution many Indian multinational companies have more than 50% of their equity capital held by foreign companies/ foreign citizens. Similarly, even if more than 50% of equity capital of a company incorporated outside India is held by an Indian company the contributions flowing from that foreign company to any association/person in India will also be considered as foreign source by virtue of Section 2(1)(j)(iii) read with Section 2(1)(g) of the FCRA, 2010. Persons Prohibited from Receiving Foreign Contribution The following persons have been restricted from accepting foreign contribution under Section 3 (1) (a) Candidate for election; (b) Correspondent, columnist, cartoonist, editor, owner, printer or publisher of a registered newspaper; (c) Judge, government servant or employee of any corporation or any other body controlled or
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owned by the Government; (d) Member of any Legislature; (e) Political party or office-bearers thereof; (f) Organisation of a political nature as may be specified under subSection (1) of Section 5 by the Central Government; (g) Association or company engaged in the production or broadcast of audio news or audio visual news or current affairs programmes through any electronic mode, or any other electronic form as defined in clause (r) of subSection (1) of Section 2 of the Information Technology Act, 2000 or any other mode of mass communication; (h) Correspondent or columnist, cartoonist, editor, owner of the association or company referred to in clause (g). Out of the above, category number (f), (g) and (h) have been added in this FCRA, 2010 and thus more number of persons have been debarred from receiving foreign contribution under FCRA, 2010.

he term foreign company has been defined under Section 2(1) (g) of the FCRA, 2010. This definition has been added under the new act and was not present in the old FCRA, 1976. Contributions received from foreign companies are considered as a foreign source under Section 2(1)(j)(iii) of the FCRA 2010. Further if more than 50% of the nominal value of share capital of any Indian company is held by foreign company then contributions received from such Indian company is also considered as foreign source.

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Even the above category of persons are also being allowed to receive foreign contribution in these following cases (a) By way of salary, wages or other remuneration due to him or to any group of persons working under him, from any foreign source or by way of payment in the ordinary course of business transacted in India by such foreign source; or (b) By way of payment, in the course of international trade or commerce, or in the ordinary course of business transacted by him outside India; or (c) As an agent of a foreign source in relation to any transaction made by such foreign source with the Central Government or State Government; or (d) By way of a gift or presentation made to him as a member of any Indian delegation, provided that such gift or present was accepted in accordance with the rules made by the Central Government with regard to the acceptance or retention of such gift or presentation; or (e) From his relative; or (f) By way of remittance received in the ordinary course of business through any official channel, post office, or any authorised person in foreign exchange under the Foreign Exchange Management Act, 1999; or (g) By way of any scholarship, stipend or any payment of the like nature. The provisions of Section 4 are also same as contained in FCRA, 1976 except one change, i.e., in case of amount of foreign contribution received from relative there was a limit of R8000 per annum up to which no permission was required whereas in the new Act there is no such limit and any amount may be received. This is a welcome change.

Organisations of Political Nature Political parties have been specifically debarred under Section 3(1)(e) from receiving foreign contribution. Under the FCRA, 2010 as per new clause 3(1)(f) organisations of political nature are also debarred from receiving foreign contribution. The Central Government can specify an organisation as an organisation of political nature under Section 5(1) as per the rules made by it and the guidelines specifying the grounds on which such organisation is specified as an organisation of political nature. Subsequent Transfer of Foreign Contribution with Prior Approval of Central Government A registered person or a person who has obtained prior permission to receive foreign contribution for specific project is not allowed to transfer foreign contribution to other persons who are not registered or who have not obtained prior permission under Section 7. Under FCRA 2010, a proviso to Section 7 has been inserted that provides that such a transfer is allowed with the prior permission of the Central Government and in accordance with the rules framed by the Central Government. The Central Government has allowed the transfer of foreign contribution from registered organisation to an unregistered organisation, but with reluctance. There are many small, village level, grass root organisations which are working as mediatorcum-assistance provider between the actual beneficiaries and the big organisations. These small organisations require and receive funds from big organisations for village level development activities, but they cannot receive foreign contribution as they have no FCRA registration. This hinders the development work. Now with the

insertion of this clause the transfer is permitted, but the transferor has to take permission from the Central Government which will definitely create many complexities for these organisations and will increase the work of the Government also. The Government has kept the bow in their hands. There is no blanket permission to transfer foreign funds. Instead of obtaining prior permission for subsequent transfer a better option would have been to set up a limit up to which transfer of foreign contribution is allowed and alternatively the Government could have come out with a reporting requirement for such transfer along with the annual return if they want to have a control on last utilisation of the foreign contribution. Utilisation of Funds in Speculative Business and Administrative Expenses Utilisation of foreign contribution in speculative business is not allowed both under FCRA, 1976 and FCRA, 2010. However, what is speculative business has not been specified under FCRA 1976. But in FCRA, 2010 what construes speculative business will be specified in the rules. A new sub-clause (b) to Section 8(1) has been added which restricts the utilisation of foreign contribution in administrative expenses to the extent of 50% of total expenditure. Administrative expenditure beyond 50% can only be defrayed with the prior approval of the Central Government. Further sub-Section (2) to Section 8 provides that the Government will prescribe the elements that shall be included in the administrative expenses and the manner in which the administrative expenses shall be calculated. However, many organisations do not report their expenses under the administrative and project expenditure. Many a time project expenses and administrative
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expenses overlap. A clear cut distinction cannot be made. For example, it is very difficult to appropriate salary of an employee working for both office and project under the administrative expenses and project expenditure. It is more difficult for the small organisations that have less number of employees having multi-tasks. Another example may be of bifurcation of conveyance expenses of a project worker sitting in the branch office and looking after a particular project. The list may be endless. We hope that Government will come out with clear cut guidelines considering all the above factors. Registration and the New Regime No person having a definite cultural, economic, education, religious or social programme is allowed to accept the foreign contribution without obtaining a certificate of registration from the Central Government (Section- 11). For registration under the new FCRA 2010 application has to be made in prescribed form and manner and with prescribed fee. For registration in FCRA 1976 no fee was payable for registration. The purpose for prescribing a fee for registration is not known and it may be assumed that the Government wants to discourage unwanted registrations. The new process of registration provides that the Central Government may ordinarily register the person applying for registration or prior permission within 90 days from the date of receipt of application for registration or prior permission. The registration or prior permission is granted only on satisfying the following conditions(a) The person making an application for registration or grant of prior permission (i) is not fictitious or benami; (ii) has not been prosecuted

or convicted for indulging in activities aimed at conversion through inducement or force, either directly or indirectly, from one religious faith to another; (iii) has not been prosecuted or convicted for creating communal tension or disharmony in any specified district or any other part of the country; (iv) has not been found guilty of diversion or mis-utilisation of its funds; (v) is not engaged or likely to engage in propagation of sedition or advocate violent methods to achieve its ends; (vi) is not likely to use the foreign contribution for personal gains or divert it for undesirable purposes; (vii) has not contravened any of the provisions of this Act; (viii) has not been prohibited from accepting foreign contribution; (b) the person making an application for registration has undertaken reasonable activity in its chosen field for the benefit of the society for which the foreign contribution is proposed to be utilised (c) the person making an application for giving prior permission has prepared a reasonable project for the benefit of the society for which the foreign contribution is proposed to be utilised (d) in case the person being an individual, such individual has neither been convicted under any law for the time being in force nor any prosecution for any offence pending against him (e) in case the person being other than an individual, any of its directors or office bearers has
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neither been convicted under any law for the time being in force nor any prosecution for any offence is pending against him (f) the acceptance of foreign contribution by the person is not likely to affect prejudicially (i) the sovereignty and integrity of India; or (ii) the security, strategic, scientific or economic interest of the State; or (iii) the public interest; or (iv) freedom or fairness of election to any Legislature; or (v) friendly relation with any foreign State; or (vi) harmony between religious, racial, social, linguistic, regional groups, castes or communities (g) the acceptance of foreign contribution (i) shall not lead to incitement of an offence; (ii) shall not endanger the life or physical safety of any person. If the Central Government does not grant a certificate or prior permission within 90 days, reasons for refusal must be communicated to the applicant. Earlier under the FCRA, 1976 reasons for rejecting the application for registration were not communicated. The new process of obtaining prior permission stands on similar lines as of obtaining permanent registration. However, instead of relaxation in granting prior permission, the statute has eliminated the provision of deemed prior permission if nothing is heard within 120 days of the application for seeking prior permission as contained in FCRA, 1976. This is again a great hindrance in receiving foreign funds for definite, certain and earmarked projects. The registration certificate, under FCRA 2010 will be granted

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for a period of five years only as compared to permanent registration in FCRA 1976. Thereafter, renewal of registration has to be made after every five years. A relaxation to the already registered associations has been given and they have to renew their registration only after five years from the date of enactment this section. The renewal application has to be made within six months before the expiry of the period of certificate. Suspension and Cancellation of Registration Under the new FCRA 2010 the Central Government is empowered to cancel the certificate of registration of any person on the following grounds (i) If the holder of the certificate has provided incorrect or false information at the time of application for grant of registration. (ii) If the holder has violated the terms and conditions of the certificate. (iii) If it is necessary in the public interest to do so, (iv) If the holder of the certificate has violated any of the provisions of the Act. (v) If the holder of the certificate has not done any reasonable activity for the benefit of the society for two consecutive years. When the certificate is cancelled, all the foreign contribution and the assets created out of the foreign contribution will vest with the prescribed authority and it will manage the activities till the registration is subsequently granted. The prescribed authority will also have all the powers to dispose off the assets of the person created out of that foreign contribution if adequate funds are not available for managing the activities of the person.

Firstly, the above provisions will bring some sort of compulsion for the organisations to conduct some activities in the chosen field for the benefit of the society from year to year basis. Secondly, when the certificate is cancelled, the power to dispose off the assets created since inception from the foreign contribution is a very harsh provision. Imagine a situation when an organisation who has worked for so many years in development activities and has spent crores of rupees for benefit of the society and created assets from foreign contribution could not, due to one or more reasons, conduct any activity for two consecutive years and its registration is cancelled. Now, power to dispose off whole of the assets created in past by that organisation vests with the authority managing the affairs of the society due to cancellation. This will definitely bring arbitrariness among the persons of the prescribed authority managing the activities of the organisation. Multiple Bank Accounts Allowed Foreign contribution is to be received in single designated bank account as specified in the application for registration. This requirement is same as in FCRA 1976. Under FCRA 1976, multiple bank accounts were not allowed, though in project accounts, for utilisation purposes, more than one bank account was allowed in some cases. But this was not under the Statute and was through administrative directions. Under the new FCRA 2010, opening of more than one bank account for utilisation of foreign contribution is allowed under Section 17. This will definitely help many small organisations (like a micro finance organisation) whose nature of work is such that they have to open different bank accounts for disbursement and utilisation of

registered person or a person who has obtained prior permission to receive foreign contribution for specific project is not allowed to transfer foreign contribution to other persons who are not registered or who have not obtained prior permission under Section 7. Under FCRA 2010, a proviso to Section 7 has been inserted that provides that such a transfer is allowed with the prior permission of the Central Government and in accordance with the rules framed by the Central Government.
foreign funds. Still, opening of more than one bank account is allowed for utilisation purposes only and not for receipts of foreign funds. This is a dual edge sword. When a bank account is opened by an organisation it will have credit from only main foreign designated bank account and disbursement for varied purposes. In many cases it will not be strictly possible as it may have credits as in the case of a micro finance institution. In such cases it will not be possible to disburse the amount from one account and receiving back the amount in the main foreign contribution designated bank account. The receipt of foreign contribution in one designated bank account is only an administrative convenience so that there can be a track on the foreign funds. It would have been very convenient for many small village level development organisations if at least some credit (say up to a prescribed limit) to the bank account opened for utilisation purposes would have been allowed.
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A Critical Note FCRA 2010 is a mixed bag. In many cases it has tried to solve out some genuine problems of persons receiving foreign contribution, but at the same time it has added to the rigours of many genuine organisations receiving foreign contribution. The provisions like excluding receipt of amount from foreign source as fees or cost in lieu of goods or services in the course of business, trade or commerce, statutorily allowing multiple bank accounts and freely accepting foreign contribution as stipend, scholarship are welcome changes which were much awaited. Apart from this, the under-current in the FCRA 2010 S. No. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12.

is subjective and will definitely increase the litigation. Many of the provisions like considering Indian Companies having more than 50% equity holding by foreign company/ foreign citizen as Foreign Source will definitely hinder the growth of the voluntary sector participating in nation building. Similarly, provisions like adhering to the below 50% benchmark of administrative expenses and cancellation of registration in case there is no reasonable activity for the society for consecutive two years are very harsh in nature and highly subjective. The Government has also tried to become manager instead of regulator in cases where registration has been

cancelled. Prescribing fees for the grant of registration as well as prior-permission will add to the cost of organisations genuinely serving people and is not in line with the registration of voluntary associations with Government departments. Renewal of registration after every five years will also add to the administrative cost of the organisations. In short we can say that with FCRA 2010, the Government has given something, but taken back many things. We can only hope that the subjectivity in the statute will be used in favour of the persons receiving foreign contribution and then only the very purpose of the enactment is served.

FCRA 1976 and FCRA 2010 A Synopsis FCRA, 1976 FCRA, 2010 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. Interest accrued on foreign contribution was not Interest accrued on foreign contribution is Statutorily included in foreign contribution. Statutorily included in foreign contribution. 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. No terms like organisations of political nature. Such organisations will be notified and debarred from accepting foreign contribution. 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. No reference to administrative expenses and its Administrative expenses beyond 50% are not limits. allowed. 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. Conditions for registration were not set out in the Act. Conditions are Statutorily set out. No provision of suspension of registration certificate. There can be suspension of certificate for the time being as well as cancellation on certain conditions. 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. Multiple bank accounts were not permitted. Multiple bank accounts are permitted for utilisation of foreign contribution. 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
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Justice is Important, Rules of Procedure are Handmaids: Discussion in View of SC Verdict

The purpose of various provisions relating to appeal, revision, rectification, etc. is to achieve justice and to avoid injustice. Concerned appellate authorities, revision authorities, tribunals and courts are established towards the goal of rendering justice. In case of tax laws, it can be said that the ultimate purpose of all such proceedings should be considered as to impose tax correctly as per law and to refund excessive tax paid by assessee. It is true that one has to seek remedy or relief in many situations and for that he should also be vigilant to get justice and to see that he is not deprived of his privileges, and for that one should take his own actions to initiate proceedings towards availing justice. Procedures are prescribed under general laws as well as specific laws. However, courts and authorities have some inherent powers to serve purposes of judicial system to render justice and to avoid abuse of process of law and courts. A litigant has power to withdraw his petition or appeal. He also has privilege to withdraw the petition for withdrawal. Unless there are specific prohibitions or restrictions, the courts must be liberal in following or allowing processes to meet the end of justice and to render justice instead of denying justice. Suppose a person has withdrawn his petition or appeal and subsequently he wants to seek justice by consideration of his appeal (which has been withdrawn) he should be allowed to have privilege to restore the appeal. However, the courts should be careful to follow 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 Complex It is assumed that everyone generally knows law. However, it is true that laws are very complex and procedures make them more complex. This is evident from the fact that many a time even judgements of the Supreme Court are doubted and then reviewed and reversed by larger benches of the Supreme Court. These aspects must be recognised while thinking of any litigation. The finality of litigation is generally a long distant dream. Over long period of time, during which litigation lingers, the law may become more complex due to development of law by amendments, clarifications and

CA. Dev Kumar Kothari and CA. Uma Kothari (The authors are members of the Institute. They can be reached at eboard@icai.org)

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new judicial pronouncements. It is also unfortunate that our government has tendency to unsettle settled legal positions by frequently amending laws and that gives ground for further litigation. All these result into uncertainty and contingencies in our life and even when we do not want to indulge into any litigation, many times we are forced to face litigation. It is an established fact that wherever there is intervention of governments, there is more litigation. Filing of Petitions or Appeals A litigant may file a petition or appeal on consideration of some aspects of the issue at hand as per his understanding of law and as may be advised by persons concerned. Before filing a petition or appeal, one should also check before hand as to whether it is possible to withdraw petition or appeal. Sometimes it may not be advisable to file a petition or appeal if the concerned authority has right to review other aspects also which are related to the matter. For example CIT(A) has also powers to enhance assessment. In such situation one may be exposed to the risk of enhancement on other issues which have been settled in assessment. One should, therefore, check the extensiveness of powers of concerned authority/tribunal/court, possibility of withdrawal of petition or appeal, etc. Withdrawal of Petition or Appeal After filing of a petition or appeal, the litigant may find that it is not necessary to pursue the petition/ appeal and may think to withdraw the same. The withdrawal of petition or appeal is generally permissible but some enactments provide restrictions on such withdrawal. If there is restriction, the same may not be permitted to be withdrawn. In case of revenue petitions or

fter filing of a petition to withdraw, the petitioner appellant may find that he made a mistake by withdrawing the petition or appeal due to wrong reasons like wrong advice or wrong perceptions on the issue or it might have been withdrawn due to certain promises made by the opposite party. Even otherwise due to changes in legal position one may feel that he made mistake by withdrawing the petition or appeal. In such circumstances, it may be necessary that the withdrawal petition be withdrawn and original proceedings be restored.
appeals where appellate authority or revision authority or other authority concerned has power to enhance demand, the withdrawal may not be permitted. One should consider these aspects more carefully. For example, in case of appeal before CIT(A), the appellant /assessee may not be allowed to withdraw appeal because the CIT(A) has power to enhance the assessment. Withdrawal of Withdrawal Application After filing of a petition to withdraw, the petitioner/appellant may find that he made a mistake by withdrawing the petition or appeal due to wrong reasons like wrong advice or wrong perceptions on the issue or it might have been withdrawn due to certain promises made by the opposite party. Even otherwise due to changes in legal position one may feel that he made a mistake by withdrawing the petition or appeal. In such circumstances, it may

be necessary that the withdrawal petition be withdrawn and original proceedings be restored. This becomes more important when the stake is high, the changed situation or legal position warrant that original petition or appeal should be properly prosecuted to seek justice and relief. Restoration of Original Petition/ Appeal We find that in case of dismissal of petition or appeal for some technical or other reasons or for non-attendance, one can apply for restoration of petition or appeal and proceed on the same after authority concerned or court passes an order to restore the petition or appeal. Similar will be effect in case of withdrawal of a petition to withdraw is permitted. That is withdrawal of withdrawal application results into original petition or appeal being restored. In such circumstances, the opposite party can raise objection on withdrawal of withdrawal application because he has to face litigation on a matter that was settled earlier. The courts should, therefore, provide opportunity of hearing to opposite party to meet the principal of natural justice. The opposite party can raise his objections and pray the court that the petition for withdrawal of withdrawal petition should be dismissed he can show reasons for such prayers. Principal of Natural Justice It is needless to mention that in any proceeding, principal of natural justice should be followed. This is applicable to original petitions or appeal, application for withdrawal of original petition or appeal and also withdrawal of withdrawal petition, etc. A withdrawal of petition/ appeal, etc. can generally be with the permission of court or authority concerned. A withdrawal can be prejudicial to other party.
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Therefore, the other party can raise an objection. And the courts or authority should, therefore, provide opportunity of hearing to opposite party to meet the principal of natural justice. This is equally applicable to withdrawal of appeal or petition as well as withdrawal of withdrawal petition, which result into restoration of appeal or petition. The opposite party should get a copy of petition and supporting documents and also an opportunity to represent his case. To be fair, it is always desirable that copy of petitions and its supporting documents in totality should also be provided to all opposite parties at the stage of filing of petition or appeal. Copy of documents subsequently filed can also be provided to all opposite parties so that they can give their representations, However, in practice we find that people try to avoid providing copy of documents to the opposite parties and then linger the case until the get directions of court or authority. This is one of the main reasons for pendency of cases in courts and cases taking long time for disposal. Practice Support The following care should be taken as general rules: Petitions should be reasoned: There should be reason for making a petition or appeal and it should

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ithdrawal of the withdrawal application should also be based on some reason and logic and it should be in interest of justice. The petition should also be within a reasonable time. The withdrawal of withdrawal petition should be allowed only after giving an opportunity of hearing to the opposite party.

not be just to indulge into litigation. Whether withdrawal is permitted: Before filing a petition or appeal, it should be ascertained as to whether it can be withdrawn later on or that there can be situations in which withdrawal may be desirable. Authorities having powers to take views against the petitioner, which can result into harm, should be considered. The petition should be withdrawn only if there are some important reasons. The petition for withdrawal should contain such reasons which should be supported by evidence, logic and reasoning. Efforts should be made to ensure that the court or authority passes an order on such application for withdrawal after giving an opportunity to the opposite party or the other party likely to be affected like government. Presumption is not proper. In case court finds that the petition itself was frivolous, it can pass appropriate orders as to cost to compensate the opposite party. This should also be considered even while filing a petition or an appeal. Withdrawal of the withdrawal application should also be based on some reason and logic and it should be in interest of justice. The petition should also be within a reasonable time. The withdrawal of the withdrawal petition should be allowed only after giving an opportunity of hearing to the opposite party. Section 151 of the Civil Procedure Code Section 151 of the Code of Civil Procedures 1908 is the section which was specifically under consideration and on which a recent judgement of the Supreme Court has been passed. The Section reads as follows (with highlights provided by author) 151. Saving of inherent powers of Court:
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heir lordships of the Supreme Court expressed the opinion that the application praying for withdrawal of the withdrawal application was maintainable and accordingly order has been passed. As such, the impugned judgement of the Allahabad High Court has been set aside and the Appeal has been is allowed by the Supreme Court.

Nothing in this Code shall be deemed to limit or otherwise affect the inherent power of the Court to make such orders as may be necessary for the ends of justice or to prevent abuse of the process of the Court. From a reading of this Section we find that court can exercise its inherent powers to (a) render justice and (b) to avoid abuse of the process of the court and that such powers are not curtailed by other provisions of the Code. This provision can also be applied in relation to matters dealt by other enactments wherein specific procedures are also prescribed. Examples of Some Specific Procedures Under different enactments we find specific procedures including forms prescribed there-under to initiate progress and conclude proceedings. The procedures and forms are prescribed to standardise them and to provide guidelines to public, authorities and courts. For example, in relation to direct and indirect tax laws, company law, FEMA and SEBI, we find various rules and forms for applications, appeals, certificates, etc. in relation to various matters. We also find procedures in relation to various matters. In absence of such specific

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procedures general procedures as per Code of Civil Procedures can be applied. Recent Supreme Court Decision In Rajendra Prasad Gupta Vs. Prakash Chandra Mishra & Ors decided on 12.01.2011, an appeal, by special leave, was filed against the judgement of the Allahabad High Court dated 06.02.2004 passed in FAFO No.2103/2003. The appellant RAJENDRA PRASAD GUPTA 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. (As per author, the withdrawal petition was pending without passing any order by the court when petitioner applied to withdraw the same as appears from facts). Later on 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 (to withdraw the withdrawal petition) was dismissed and that order was upheld by the High Court. Therefore, the appeal

he rules pronounced in relation to rectification of mistakes by Tribunal in case of Honda Siel (supra.) can fruitfully be applied to any court or authority. If an authority or court has committed a mistake, it should be allowed to be rectified so as to make the order as per law. There should be greater scope of rectification even on the basis of change in law due to amendments or subsequent judgements of the Supreme Court or the High Court having jurisdiction in the matter.

by special leave was filed before the Supreme Court. The High Court took 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 and, therefore, the second application was not maintainable at all. The Supreme Court did not agree with this view and observed and held on the following lines: a. Rules of procedure are handmaids of justice. b. Section 151 of the Code of Civil Procedure gives inherent powers to the court to do justice. c. That provision has to be interpreted to mean that every procedure is permitted to the court for doing justice unless expressly prohibited, d. It is not that every procedure is prohibited unless expressly permitted. e. There is no express bar in filing an application for withdrawal of the withdrawal application. f. Referring to the judgement in case of Narsingh Das Vs. Mangal Dubey, ILR 5 All 163 (FB) (1882) and observation of Mr. Justice Mahmood, (the celebrated

Judge so described by their lordship) of the Allahabad High Court, noted the observations therein as follows:"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. The Supreme Court agreed with this view. Accordingly, their lordships of the Supreme Court expressed the opinion that the application, praying for withdrawal of the withdrawal application was maintainable and accordingly order has been passed. As such, the impugned judgement of the Allahabad High Court has been set aside and the Appeal has been allowed by the Supreme Court. (See Annexure I) Rectification of Mistakes in Tax Matters Tax authorities are empowered

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to rectify the mistakes that are apparent from records, for example, Section 154 and 254 (2) of the Income-tax Act, 1961, which empower tax authorities and tribunal respectively to rectify mistakes apparent from records. However, the provisions in this regard are considered as very limited in scope to rectify mistakes that are apparent from records. In reality if one goes by spirit, it can be said that the purpose of such provisions is to ensure correct assessment and collection of tax. If assessee has paid lesser tax, then a rectification should be allowed to collect correct tax. Similarly if assessee has paid excessive tax, then a rectification should be allowed to refund excessively collected tax. However, there is a lot of litigation on that aspect of what can be rectified itself. We also find that provisions are made to dispose-off rectification petitions by the assessing officers, and appellate authorities within prescribed time frame. However, practical experience shows that in case of tribunal, rectification petitions are fixed for hearing and decided quickly, however, other authorities do not take disposal of rectification petitions seriously and quickly and many times assesses are required to file fresh applications to get extended limitation. In Honda Siel Power Products Ltd. Vs. CIT [2007] 295 ITR 466 (SC), the tribunal had decided the issue relating to enhancement of cost of depreciable assets against the assessee. However, in a rectification petition, the assessee pointed out that a decision of coordinate bench cited by it, before the tribunal was not considered and, therefore, the order suffered from mistake apparent from record. On consideration of the rectification petition, the tribunal held that a decision of a coordinate bench of tribunal was cited before it, but

through over-sight it had missed the judgement of coordinate bench while dismissing the appeal of the assessee on that issue and, therefore, tribunal rectified its order to make it confirming to the decision of coordinate bench, which was cited before it. Here, we can say that the tribunal has adopted a purpose seeking and justice rendering attitude and rectified its order to make it as per law. However, revenue took narrow technical view and preferred appeal before the Delhi High Court. Delhi High Court allowed appeal of revenue and held that the tribunal under Section 254(2) has no power to review its order and the mistake rectified was not a mistake apparent from record. Therefore, the High Court set aside the order in rectification petition passed by the Tribunal and restored the original order. Therefore, the assessee appealed before the Supreme Court and the Supreme Court reversed the decision of the High Court. The main reasons and the law laid down by the Supreme Court are as follows:A. In case of Appeal before Appellate Tribunal fundamental principle is that no party appearing before Tribunal should suffer on account of mistake committed by the Tribunal. Failure to consider decision of coordinate Bench cited by assessee is a mistake. B. The purpose behind the enactment of rectification provisions like Section 254(2) of the Income-tax Act, 1961, dealing with the power of the Appellate Tribunal to amend any order passed by it under sub-section (1), if any mistake apparent from the record is brought to its notice, is based on the fundamental principle that no party appearing before the Appellate Tribunal, be it an
2011

rescribed procedures are with a view to standardise steps, procedures, formats in which documents are to be prepared, presented and served, etc. Procedures are general guidelines. Ultimate and foremost purpose of courts and authorities is to render justice and to ensure that the subject matter is decided as per law. The procedures are to help and they are not to create obstacles in the process of law and en route the justice. Therefore, procedures which help in rendering justice can be adopted and need not be denied by courts. A technical defect in procedure is also curable and can be rectified.
assessee or the Department, should suffer on account of any mistake committed by the Tribunal. This fundamental principle has nothing to do with the inherent powers of the Tribunal. If prejudice has resulted to the party and the prejudice is attributable to the Tribunals mistake, error or omission, and which error is a manifest error, then the Tribunal would be justified in rectifying its mistake. When prejudice results from an order attributable to the Tribunals mistake, error or omission, then it is the duty of the Tribunal to set it right. Atonement to the wronged party by the court or the Tribunal for the wrong committed by it has nothing to do with the concept of inherent power of review. Rule of precedent is an important aspect of legal certainty in the rule of law.

C. D.

E.

F.

G.

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H. Rule of precedent is not obliterated by Section 254(2). In view of the author, these rules pronounced in relation to rectification of mistakes by Tribunal in case of Honda Siel (supra.) can fruitfully be applied to any court or authority. If an authority or court has committed a mistake, it should be allowed to be rectified so as to make the order as per law. There should be greater scope of

rectification even on the basis of change in law due to amendments or subsequent judgements of the Supreme Court or the High Court having jurisdiction in the matter. Conclusion Prescribed procedures are with a view to standardise steps, procedures, formats in which documents are to be prepared, presented and served, etc. Procedures are general guidelines.

Ultimate and foremost purpose of courts and authorities is to render justice and to ensure that the subject matter is decided as per the law. The procedures are to help and they are not to create obstacles in the process of law and en route the justice. Therefore, procedures which help in rendering justice can be adopted and need not be denied by courts. A technical defect in procedure is also curable 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
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LLP to Be Subject to Alternate Minimum Tax

Limited Liability Partnerships are now subject to Alternate Minimum Tax @18.5%, in line with Minimum Alternate Tax in case of companies. However, the tax base in the case of Limited Liability Partnerships would be the Adjusted Total 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 subject to Minimum Alternate Tax, Dividend Distribution Tax and Surcharge. The introduction of Alternate Minimum Tax has dented the attractiveness of Limited Liability Partnership but not to a large extent. The amendment will take effect from 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 an unlisted public company into an LLP . Taxation provisions for LLP as per Income-tax Act, 1961 (before taking effect of amendments brought in

CA. Aadesh Kumar Agrawal (The author is a member of the Institute. He can be reached at eboard@icai.org)

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by Finance Act, 2011) are summarised herein below: Section : Marginal Note : Applicable with effect from 2(23): Definitions : 1.4.2010 Summarised Provisions

Firm shall include LLP Partner shall include a partner of a LLP Partnership shall include a LLP Amortisation of expenditure incurred under voluntary retirement scheme will continue to apply in case where a company* is converted into a LLP satisfying all the six conditions laid down in the proviso to Section 47(xiiib) The actual cost of any capital asset on which deduction has been allowed or is allowable under Section 35AD, shall be treated as NIL if the capital asset is acquired by the LLP from company* on conversion satisfying all the six conditions laid down in the proviso to Section 47(xiiib). The actual cost of block of assets in case of a LLP shall be WDV of the block of assets as in the case of the company* on the date of conversion, if such assets are acquired by the LLP from company* on conversion satisfying all the six conditions laid down in the proviso to Section 47 (xiiib) Unlike partnership firm, an LLP cannot claim presumptive taxation scheme under this section. However, companies are also not eligible under this section. Capital Gain need not to be worked out on the following transfers, if 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. If any of the conditions laid down in the proviso to Section 47(xiiib) are 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. Where a company* is succeeded by an LLP satisfying all the six conditions laid down in the proviso to Section 47(xiiib), cost of 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.

35DDA: Amortisation of expenditure incurred under voluntary retirement scheme: 1.4.2011

Explanation 13 to Section 43(1): Definitions of certain terms relevant to income from profit and gains of business or profession : 1.4.2011 Explanation 2C to Section 43(6): Definitions of certain terms relevant to income from profit and gains of business or profession: 1.4.2011

44AD: special provision for computing profits and gains of business on presumptive basis: 1.4.2011 47(xiiib): Transactions not regarded as transfer: 1.4.2011

47A: Withdrawal of exemption in certain cases: 1.4.2011

49(1)(iii)(e): Cost with reference to certain modes of acquisition: 1.4.2011

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Section : Marginal Note : Applicable with effect from 72A(6A), (7): Provisions relating to carry forward and set-off of accumulated loss and unabsorbed depreciation allowance in amalgamation or demerger, etc.: 1.4.2011

Summarised Provisions Where a company* is succeeded by an LLP satisfying all the six conditions laid down in the proviso to Section 47(xiiib), then the loss not being a loss sustained in a speculation business, which such predecessor company* would have been entitled to be carried forward and set-off under Section 72 if the conversion had not taken place, and 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 conversion of partnership firm into LLP shall have no tax implications subject to the rights and obligations of the partners remaining the same after conversion, and if there is no transfer of any asset or liability, after conversion. Benefits Available to LLP Over Companies An LLP being treated as a firm for taxation has the following tax advantages over a company under the Income-tax Act, 1961: (i) LLP is not subject to Dividend Distribution Tax; (ii) LLP is not subject to MAT; and (iii) LLP is not subject to surcharge. Now, LLPs are liable to pay Alternate Minimum Tax (hereinafter referred to as AMT), akin to MAT in case of company and thus one of the advantages has been taken away to some extent. Reasons for introduction of new Chapter XII-BA The economic rationale to impose AMT is to take away the arbitrage that has been used by some corporate for saving tax. Since Income-tax Act,1961 provides tax neutrality [subject to fulfillment of six conditions laid down in the proviso to Section 47(xiiib)] to conversion of a private limited company or an unlisted public company into an LLP there was a scope of tax saving , for the corporate bodies falling under the MAT net. In

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order to preserve the tax base vis--vis profit-linked deductions, new Chapter XII-BA has been inserted in the Income-tax Act, 1961, containing special provisions relating to certain LLP However, the said provisions . shall have effect only on LLPs claiming deduction under Chapter VI-A (C), that is, income based deductions or under Section 10AA (deduction available to SEZ units) and not to all LLPs in general. Commencement The new Chapter has been made operative from 1.4.2012 and will, accordingly, apply in relation to the assessment year 2012-2013 and subsequent years. Hence, there will be no AMT levy in the assessment year 2011-2012. Applicability Since the method given for computation of Adjusted Total Income does not add back all the deductions claimed by an LLP into its Total Income, but only income based deductions given under Chapter VI-A (C) or under Section 10AA. Therefore, proposed provisions of AMT shall only affect the LLP claiming any of these deductions. New Chapter XII-BA The Finance Act, 2011 seeks to tax certain LLPs differently. New Chapter XII-BA titled Special Provisions Relating to Certain Limited Liability Partnerships contains four sections, viz. S l . Section No. 1. 115 JC Marginal Note Special provisions for payment of tax by certain limited liability partnerships Tax credit for alternate minimum tax Application of other provisions of this Act Interpretation in this chapter

income tax provisions in normal course, that is, before giving effect any of the provisions of the Chapter XIIBA, as increased by (i) Deductions claimed, if any, under any Section included in Chapter VI-A under the heading "C Deductions in respect of certain incomes" (Section 80HH to 80RRB); and (ii) Deduction claimed, if any, under Section 10AA in respect of SEZ units. C. Income Based Deductions Income based deductions given under Chapter VI-A (C), which are applicable on LLPs, are tabulated herein-under: Section: Marginal Note Applicability on projects in respect of LLP

80IA: Deductions in 1. Undertaking which respect of profits and develops, develops and gains from industrial operates or maintains undertakings or entand operates an erprises engaged in industrial park; or infrastructure deve- 2. Undertaking which is set lopment, etc. up for generation and distribution of power, etc. 80IAB: Deductions Undertaking engaged in in respect of profits development of SEZ. and gains by an undertaking or enterprise engaged in development of special economic zone 80IB: Deduction in 1. Industrial undertaking in respect of profits the state of Jammu & and gains from Kashmir; or certain industrial 2. Undertaking engaged in undertakings other commercial production than infrastructure or refining of mineral development underoil or engaged in takings. commercial production of natural gas; or 3. Undertaking engaged in processing, preservation and packaging of fruits or vegetables or meat and meat products or poultry or marine or dairy products or handling, storage and transportation of foodgrains; or

2. 3. 4.

115 JD 115 JE 115 JF

Analysis of New Chapter A. Regular Income Tax: As defined under Section. 115JF(d) regular income-tax is the tax payable by an LLP on its total income for a previous year in accordance with the normal provisions of the Income-tax Act, 1961 (i.e. before giving effect any of the provisions of the Chapter XII-BA). B. Adjusted Total Income Adjusted total income as specified under Section 115JC (2) shall be the total income of the LLP as per

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Section: Marginal Note

Applicability on projects in respect of LLP 4. Undertaking engaged in operating and maintaining a hospital located anywhere in India, other than the excluded area.

Rest of the deductions given under Chapter VI-A (C) are either omitted or made inoperative by sunset clause or not applicable on LLP or irrelevant due to applicability on old projects. D. Alternate Minimum Tax: As defined under Section 115JF(b) AMT is the tax computed on adjusted total income by applying 18.5% rate of tax. The effective rate of AMT after considering education cess will be 19.055%. E. Determination of Adjusted Total Income and AMT Total Income (as per normal provisions) *** Add: Deductions under Section 80HH to 80RRB or under Section 10AA *** -----------Adjusted Total Income *** -----------AMT (18.5% of Adjusted Total Income) *** -----------F. Credit of AMT Meaning: Credit of AMT for an assessment year which is to be allowed shall be the excess of the AMT paid over the regular income tax. Set off and Carry Forward The amount of tax credit determined shall be allowed to carry forward and set-off. Such carry forward shall be allowed up to the 10th assessment year immediately succeeding the assessment year for which tax credit becomes allowable. If in any assessment year regular income tax payable exceeds the AMT, the brought forward credit of AMT shall be allowed to be set off to the extent of the such excess of regular income tax over the AMT and the balance of the tax credit, if any, shall be carried forward for the rest of the years. Thus, AMT paid could be adjusted in 10 following assessment years but no refund is possible. If the assessee fails to utilise credit within 10 years, the same shall lapse. No interest is allowable on AMT credit to the assessee. If the amount of regular income tax or the AMT is reduced or increased as a result of any order passed under this Act, the amount of tax credit allowed under this Section shall also be varied accordingly. G. Determination of Tax Liability of LLP LLP on which the new chapter applies shall work out its regular income tax and AMT every year.

80IC: Special provisions in respect of certain undertakings or enterprises in certain special category States

Undertaking or enterprise engaged in manufacture or production of certain article or thing in Himachal Pradesh or Uttaranchal.

80ID: Deduction in 1. Undertaking engaged respect of profits and in the business of hotel gains from business of of two-star, three-star hotels and convention or four-star category centres in specified located in the specified area area or specified district having a world heritage site; or 2. Undertaking engaged in the business of building, owning and operating a convention centre, located in the specified area. 80IE: visions certain in states Special pro- Undertaking in any of the in respect of North-Eastern States undertakings (i) Engaged in or undertake North-Eastern substantial expansion to manufacture or production of any article or thing excluding article or thing specified under Section 80IE(7)(iv); or (ii) Carry on any of the businesses specified under Section 80IE(7) (v). Business of collecting and processing or treating of bio-degradable waste for generating power or producing bio-fertilisers, biopesticides or other biological agents or for producing biogas or making pellets or briquettes for fuel or organic manure.

80JJA: Deduction in respect of profits and gains from business of collecting and processing of biodegradable waste.

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Where the regular income tax payable for a previous year by any LLP is less than the AMT payable for such previous year, LLP shall be liable to pay such AMT. Every LLP liable to pay AMT shall obtain a report, from a chartered accountant in prescribed form, certifying that the adjusted total income and the AMT have been computed in accordance with the provisions of this Chapter and furnish such report on or before the due date of filing return of income under Section 139(1). Where the regular income tax payable for a previous year by any LLP is more than the AMT payable for such previous year, LLP shall be liable to pay such regular income tax after setting off credit of AMT, if any, there from. H. Advance Tax Liability on AMT Paying LLP: Section 115JE Section 115JE states that unless otherwise provided in the Income-tax Act, 1961, all other provisions of the Act shall apply to an AMT paying LLP Section . 115JE is on the same line as Section 115JB(5) for the MAT paying companies. Supreme Court held in Jt. CIT Vs. Rolta India Ltd. (2011) 330 ITR 470 (SC) while deciding question as to whether interest under Section 234B can be charged on the tax calculated on the Book Profit It is clear from reading Sections 115JA and 115JB that the question whether a company which is liable to pay tax under either provision does not assume importance because specific provision(s) is made in the section saying that all other provisions of the Act shall apply to the MAT company (Section 115JA(4) and Section 115JB(5)). The evaluation of current income and the determination of the assessed income had to be made in terms of the statutory scheme comprising Section 115J/115JA of the Act. Hence, levying of interest was inescapable. The assessee was bound to pay advance tax under the said scheme of the Act. Ratios laid down in the above case is equally applicable on AMT paying LLP and thus such an LLP shall be liable to pay advance tax as per the provisions of the Act. It shall also be liable to pay interest under Sections 234B and 234C in the case of default. AMT v. MAT Though the concept of AMT is similar to MAT, however,

there are certain differences between AMT provisions and MAT provisions. Comparative study for the same is as under:Sl. No. 1. 2. AMT It is applicable on LLP . MAT It is applicable on Companies.

It is calculated It is calculated on Book on Adjusted Total Profit. Income. Adjusted total income means the total income as per income tax provisions in normal course as increased by deductions claimed, if any, under Chapter VI-A (C) or Section 10AA. Rate of AMT is 18.5%. However, surcharge shall not be applicable, irrespective of the quantum of adjusted total income. Book Profit means the profit as per profit and loss account of the company prepared in accordance with Schedule VI of the Companies Act, 1956 as increased/decreased by certain items specified in Explanation to Section 115JB. Rate of MAT is 18.5%. However, surcharge shall apply, if book profit exceeds one crore rupees.

3.

4.

5.

AMT paying LLP MAT paying companies can claim its credit can claim their credit for for ten assessment ten assessment years. years. Change in constitution, that is, conversion of private limited company or unlisted public company into LLP shall result in lapse of MAT credit which would have been available to be set off to the company if such conversion had not taken place. LLP will not be liable to pay AMT on incomes exempt to tax. Once an LLP is incorporated there is no u turn available down the road to reconvert back into a partnership or a company or any other form of business from LLP Therefore, . issue of lapse of AMT credit in case of change in constitution does not arise.

6.

7.

Companies are liable to pay MAT on the income exempted under Section 10(38).

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Sl. No. 8.

AMT While computing AMT, brought forward losses and unabsorbed depreciation both shall be taken into account.

MAT While computing MAT, what is allowable to be deducted is brought forward loss or unabsorbed depreciation whichever is less and not both. [DCIT Vs. Costal Resorts (I) Ltd. (2010) 125 ITD 170 (Cochin)] For the calculation of MAT brought forward loss and unabsorbed depreciation liable to be set off shall be in accordance with books of account.

hough the concept of AMT is similar to MAT, however, there are certain differences between AMT provisions and MAT provisions. AMT is applicable on LLP while MAT is applicable on Companies. AMT is calculated on Adjusted Total Income while MAT is calculated on Book Profit.
to reduce the amount on which interest is to be charged by the amount of tax credit, if any, allowed to be set off in accordance with the provisions of Section 115JD. If the company is converted into an LLP MAT credit , which would have been available to be set-off to the company if such conversion had not taken place shall lapse due to specific provision in this regard under Section 115JAA (7). However, these provisions were made when there was no AMT levy on LLP As of now, AMT paying LLP (successor . LLP) shall be hit by both, lapse of MAT in one hand and payment of AMT on the other. Such a provision shall discourage the companies to be converted into LLP . There are provisions under the Income-tax Act, 1961 for continuation of deductions/exemptions under Chapters III or VI-A, if companies are amalgamated or demerged. But if a company is converted into an LLP there are no such provisions. , There are certain provisions under LLP Act, 2008 in pursuant to which LLP can opt for amalgamation or demerger, etc. There are detailed provisions under Income-tax Act, 1961 providing tax neutrality to amalgamation or demerger of companies, both in the hands of companies and in the hands of shareholders. However, provisions providing tax neutrality to amalgamation or demerger of LLPs in the same way are still awaited. Conclusion LLPs that are engaged in hotel business or are carrying on IT related business or are otherwise eligible for profit linked deductions will be badly hit by the applicability of AMT, as till now they were exempt from payment of MAT but they will have to shell out AMT from their pockets. It is clear that Governments intention to bring this amendment is to protect revenue which would otherwise have to be foregone in cases of conversion of companies into LLPs. Imposition of AMT may be justified on the theory Legislation should not give tax advantage to a tax assessee, just because he carries out his business using a different form of organisation. n

9.

For the calculation of AMT brought forward loss and unabsorbed depreciation liable to be set-off shall be in accordance with normal provisions of the Income-tax Act, 1961. Such set-off of losses or depreciation shall reduce the amount of loss or depreciation to be carried forward in next year. Deductions, rebates, allowances and adjustments except that provided in Chapter VI-A under the heading "C - Deductions in respect of certain incomes" and Section 10AA are available in computing Adjusted Total Income.

10.

Such set off of losses or depreciation shall not affect the amount of loss or depreciation to be carried forward in next year. Deductions, rebates, allowances and adjustments except to the extent covered by the Explanation to Section 115JB are not available in computation of Book Profit. [Growth Avenue Securities (P Ltd. Vs. DCIT .) (2010) 126 ITD 179 (Del.)]

11.

Serious Consideration of Lawmakers Required Amount on which interest is to be computed under Sections 234A, 234B and 234C is reduced, besides other, by the amount of tax credit allowed to be set off in accordance with the provisions of Section 115JAA. After insertion of new Chapter XII-BA, it is recommended to amend Sections 234A, 234B and 234C so as to allow the assessee

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Special Measures in Respect of Transactions with Persons Located in Notified Jurisdictional Area

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 in relation to transactions entered into by any assessee. This article analyses special measures in respect of transactions with persons located in Notified Jurisdictional Area with reference to Section 94A, which has been inserted by Finance Act, 2011 with effect from 1st June, 2011. It would apply to resident as well as non-resident assessee. 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 A) Applicability to Non-Residents: The Memorandum states that the provisions have been enacted to discourage transactions of a resident assessee

CA. Thakur Repudaman (The author is a member of the ICAI. He can be reached at eboard@icai.org)

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with persons located in NJA. However, this is not borne out from the language of the provision entered into by any assessee. On a literal reading of the term any assessee, it is apparent that it would apply to resident as well as non-resident assessee. 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. As per Section 94A(6) (ii): PE : Permanent Establishment shall have the same meaning as defined in Section 92F(iiia); B) Pre-Conditions for Applicability: The section is applicable only if the following pre-conditions are fulfilled: i) There is a country or territory outside India with whom India does not have effective exchange of information on taxation matters; ii) Such country/area is a specified by notification in the Official Gazette as a NJA, having regard to the lack of effective exchange of information with such country or territory. iii) An assessee enters into a transaction where one of the parties to the transaction is a person located in NJA. C) Whether a Country with Whom India Has a DTAA Can Be Notified under Section 94A? Effective has been defined as existing in fact; actual (www. thefreedictionary.com). Hence, what is required is actual exchange of information in fact, with a treaty country and not a merely contractual legal ability to obtain information. In view of this, on a literal reading, a DTAA country could also be notified, if there is lack of effective exchange of information. (2) Notwithstanding anything to the contrary contained in this Act, if an assessee enters into a transaction where one of the parties to the transaction is a person located in a notified jurisdictional area, then (i) all the parties to the transaction shall be deemed to be associated enterprises within the meaning of Section 92A; (ii) any transaction in the nature of purchase, sale or lease of tangible or intangible property or provision of service or lending or borrowing money or any other transaction having a bearing on the profits, income, losses or assets of the assessee, including a mutual agreement or arrangement for allocation or apportionment of, or any contribution to, any cost or expense incurred or to be incurred in connection with a benefit, service or facility provided or to be provided by or to the assessee, shall be deemed to be an international transaction within the meaning of Section 92B,

otwithstanding anything to the contrary contained in this Act, if an assessee enters into a transaction where one of the parties to the transaction is a person located in a notified jurisdictional area, then all the parties to the transaction shall be deemed to be associated enterprises within the meaning of Section 92A.
and the provisions of Sections 92, 92A, 92B, 92C [except the second proviso to sub-Section (2)], 92CA, 92CB, 92D, 92E and 92F shall apply accordingly. Comments A) If the aforesaid pre-conditions, supra, are fulfilled, then: i) All the parties to the transaction shall be deemed to be associated enterprises within the meaning of Section 92A: [Section 94A(2)(i)]. In other words, once a transaction is entered into by an assessee with a person located in NJA, all the parties to the transaction shall be deemed to be associated enterprise, notwithstanding non-satisfaction of any condition in Section 92A. ii) The transaction as defined in Section 94A(2) (ii) shall be deemed to be an international transaction within the meaning of Section 92B; Section 94A(6)(iii) : transaction shall have the same meaning as defined in Section 92F(v) Section 92F(v) transaction includes an arrangement, understanding or action in concert, (a) whether or not such arrangement, understanding or action is formal or in writing; or (b) whether or not such arrangement, understanding or action is intended to be enforceable by legal proceeding. iii) The provisions of Sections 92, 92A, 92B, 92C [except the second proviso to sub-Section (2)], 92CA, 92CB, 92D, 92E and 92F shall apply to such transaction, and accordingly, the income or expenditure, as the case may be, shall be computed having regard to the ALP Hence, the . principles laid down by courts/tribunals under the aforesaid provisions and the principles of Transfer Pricing should equally apply to Section 94A. Some of the above referred provisions are briefly summarised below: I) Deemed international transaction under Section 92B(2): whether covered under Section94A? Section 92B(2) deems transactions between an

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enterprise and a person other than associated enterprise as transaction entered into between two associated enterprises, if any of the following circumstances exist: i) there exists a prior agreement in relation to the relevant transaction between such other person and the associated enterprise; or ii) the terms of the relevant transaction are determined in substance between such other person and the associated enterprise. An issue arises as to whether a transaction with a third party outside the NJA could also be covered, if the conditions of Section 92B(2) are satisfied? Answer is No for the following reasons: a) Section 94A(2) applies only to a transaction between the assessee and a person located in NJA. b) In the context of Section 176(4), which uses the expression accordingly, it was observed in CIT Vs. R.M. Datta (1989) 180 ITR 86 (Cal.) that the fiction introduced by Section 176(4) of the Act cannot be pressed into service as indicative of the head of charge, namely, whether it should be treated as the income of the business or profession chargeable under Section 28 of the Act. In the absence of any such fiction, it cannot be presumed that the legislative intention was to introduce a further fiction for the purpose of treating the said receipt as the income of the business or profession. In the same way, the deeming fiction under Section 92B(2) cannot be further imported in Section 94A(2) (which itself is a deeming provision) to consider two enterprises as associated enterprises, although they are otherwise non-associated. c) Further, Section 94A(2) provides that if an assessee enters into a transaction with a person located in NJA, then the parties shall be deemed to be associated enterprises, the transaction shall be deemed to be international transaction and the provisions, inter alia, of Section 92B shall apply

accordingly. Thus, the applicability of Section 92B is in relation to a transaction between the assessee and a person located in NJA. It is not meant to apply in relation to a transaction with a person not in NJA. d) Section 297(2)(d) states that all the provisions of this Act shall apply accordingly. Interpreting this, it was observed in Govinddas Vs. ITO (1976) 103 ITR 123(SC) that these words merely refer to the machinery provided in the new Act for the Assessment of the escaped income. They do not import any substantive provision of the new Act which creates rights or liabilities. It could be argued that in the same way, Section 94A cannot be construed to result in any substantive provision creating new liabilities. e) If the language is plain, the fact that the consequence of giving effect to it may lead to some absurd result is not a factor to be taken into account in interpreting a provision. It is for the legislature to step in and remove the absurdity. On the other hand, if two reasonable constructions of a taxing provision are possible, that construction which favours the assessee must be adopted. This is a well-accepted rule of construction recognised by this court in several of its decisions - CIT Vs. Vegetable Products Ltd. (1973) 88 ITR 192 (SC). II) No Relief for Prescribed Variation The second provision to Section 92C(2) provides that if the variation between the actual price of transaction and the ALP does not exceed such percentage as may be notified by the Central Government in this behalf, then no adjustment will be made and the actual price shall be treated as the ALP This provision is not applicable in the case . of a transaction falling under Section 94A. As a consequence, the ALP shall be considered as the expenditure or income, as the case may be. III) Maintenance of Information and Documentation All the parties to a transaction covered under Section 94A will be required to maintain information and documentation in accordance to Section 92D and the prescribed rules. IV) Accountants Report All the parties to a transaction covered under Section 94A will have to obtain a report from an accountant in terms of Section 92E. V) Non-Applicability to Past Transaction The provision states that it is applicable only if an assessee enters into a transaction with a person who is located in NJA. The use of the present tense in the word enters and is suggests that the provision should apply to a transaction after

ection 94A(2) provides that if an assessee enters into a transaction with a person located in NJA, then the parties shall be deemed to be associated enterprises, the transaction shall be deemed to be international transaction and the provisions, inter alia, of Section 92B shall apply accordingly. Thus, the applicability of Section 92B is in relation to a transaction between the assessee and a person located in NJA. It is not meant to apply in relation to a transaction with a person not in NJA.

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1-6-2011 and after the jurisdictional area is notified. B) As per Section 94A(6)(i), person located in a notified jurisdictional area shall include (a) a person who is resident of the notified jurisdictional area. The term resident has not been defined. Generally speaking, a person, who is regarded as a resident under the domestic tax law of an NJA, would be regarded as a resident for the purposes of Section 94A. (b) a person, not being an individual, which is established in the notified jurisdictional area; or (c) a permanent establishment of a person not falling in sub-clause (a) or sub-clause (b), in the notified jurisdictional area. Practically, a certificate from the Tax Authorities of NJA to the effect that a particular person is not its resident may be helpful in establishing that such a person is not a resident for the purposes of the

definition. He will, of course, have to establish that he is not having a permanent establishment and/or is not established in the NJA and he is not otherwise located in the NJA. The definition does not cover subsidiaries or affiliates or holding company of such persons if they do not satisfy the definition. To illustrate, a holding company of an entity in an NJA will not be covered if it is incorporated in some other country or territory and it is not a resident of the NJA or does not have a PE in such area or cannot be otherwise regarded as located in NJA. Example X Ltd., an Indian company, owns a computer manufacturing unit in Noida. During the quarter ending 31st December, 2011, it sells 500 units to P Ltd. and 600 units to Q Ltd. The following data is noted from the records of X Ltd. Transaction with P Ltd. Q Ltd. Non-NJA An associated enterprise of X Ltd. under Section 92A R66,800 per unit R69,000 per unit 4% of transaction price

Where P Ltd. and Q Ltd. are situated Status of P Ltd./Q Ltd.

NJA Not an associated enterprise of X Ltd. under Section 92A R67,000 per unit R69,000 per unit 4% of transaction price

Sale price or transaction price ALP under Section 92C Variation notified by the Central Government between Arms Length Price and the transaction price under second proviso to Section 92C(2) [Assumed for the purpose of this case study] Transaction price + variation Difference between ALP and transaction price Notified variation, i.e., 4% of transaction price Whether difference between ALP and transaction price exceeds notified variation, i.e., 4% Whether ALP will be considered for calculating income of X Ltd. Comments P Ltd. is situated in NJA. Consequently, P Ltd. will be treated as Associated Enterprise of X Ltd. In the case of sale of 500 units to P Ltd., ALP of R69,000 per unit will be considered to determine the taxable income of X Ltd., as P Ltd. is situated in a NJA, even if the difference between the ALP and transaction price does not exceed the notified variation of 4%. However, in the case of sale of 600 units to Q Ltd., ALP of R69,000 will

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R69,680 per unit [67,000 + 4%x 67,000] R2,000 per unit R2,680 per unit No ALP would be considered

R69,472 per unit R2,200 per unit R2,672 per unit No Not to be considered

be ignored (and income will be calculated by considering the actual transaction price of R66,800 per unit), as the difference between transaction price and ALP does not exceed the notified variation of 4% and Q Ltd. is not situated in an NJA. (3) Notwithstanding anything to the contrary contained in this Act, no deduction, (a) in respect of any payment made to any financial

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institution located in a notified jurisdictional area shall be allowed under this Act, unless the assessee furnishes an authorisation in the prescribed form authorising the Board or any other income-tax authority acting on its behalf to seek relevant information from the said financial institution on behalf of such assessee; and (b) in respect of any other expenditure or allowance (including depreciation) arising from the transaction with a person located in a notified jurisdictional area shall be allowed under any other provision of this Act, unless the assessee maintains such other documents and furnishes such information as may be prescribed, in this regard.

Comments

A) Deduction: The section classifies all deductions into the following: i) Payments made to financial institution. ii) Any other expenditure or allowance B) Payments Made to Financial Institution: On a combined reading of Section 94A(2) and Section

he second proviso to Section 92C(2) provides that, if the variation between the actual price of transaction and the ALP does not exceed such percentage as may be notified by the Central Government in this behalf, then no adjustment will be made and the actual price shall be treated as the ALP . This provision is not applicable in the case of a transaction falling under Section 94A. As a consequence, the ALP shall be considered as the expenditure or income, as the case may be.

94A(3)(a), a deduction in respect of any payment made to any financial institution shall be allowed: i) only to the extent of the ALP; and ii) only if the assessee has furnished the stipulated authorisation. There is no prescribed time limit within which the authorisation has to be furnished. What would happen if the law of NJA stipulates that the application for such information has to be made by the assessee himself and a general authorisation will not do? It appears that so far as the assessee is concerned, he would be complying with the condition in the section once he furnishes the authorisation; the deduction cannot be denied to him if the laws of NJA do not allow such information to be given on the basis of an authorisation. Payment: The section provides for deduction in respect of any payment made to any financial institution. It appears that in the context the word payment made would include payment to be made and the deduction will not be allowed in respect of amounts payable to a financial 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 ii) only if the assessee maintains the prescribed documentation and furnishes the prescribed information. The documents required to be maintained and the information required to be furnished could be in addition to information/documentation required to be maintained under Section 92D. There is no time limit for maintenance of the documents or within which the information has to be furnished. The provision applies to all expenditure including (a) capital expenditure and (b) salaries. Thus, depreciation will be allowed only if the conditions in the said section are fulfilled.

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Example: X Ltd. pays a sum of R10, 00,000 as technical fees to B, a non-resident. B is resident of NJA. Technical fees pertains to a project of X Ltd. situated in Nasik. In this case: a) X Ltd. will have to maintain documents prescribed under Section 94A(3)(b). Moreover, X Ltd. will have to furnish prescribed information. If such documents are not maintained and/or prescribed information is not furnished, the payment of technical fees of R10,00,000 will not be allowed as deduction. b) X Ltd. will have to deduct tax at source @ 30% by virtue of Section195, read with Section 94A(5). If tax is deducted at the normal rate of 10.3% or if tax is not deducted or after deduction tax is not deposited, the payment of R10,00,000 will be disallowed under Section 40(a)(i). (4) Notwithstanding anything to the contrary contained in this Act, where, in any previous year, the assessee has received or credited any sum from any person located in a notified jurisdictional area and the assessee does not offer any explanation about the source of the said sum in the hands of such person or in the hands of the beneficial owner (if such person is not the beneficial owner of the said sum) or the explanation offered by the assessee, in the opinion of the Assessing Officer, is not satisfactory, then, such sum shall be deemed to be the income of the assessee for that previous year. Comments A) Income: Section 94A(4) provides that if an assessee has received or credited any sum from any person located in NJA, the assessee shall offer explanation about the source of the said sum in the hands of such person or in the hands of the beneficial owner (if that person is not the beneficial person of the owned sum). If the assessee does not offer any explanation or the explanation offered by him is not satisfactory in the opinion of the Assessing Officer, then such sum shall be deemed to be the income of the assessee for that previous year. Examples i) If an assessee receives share capital of R100 million from X a person located in NJA, then the assessee has to give an explanation about the source of the said sum of R100 million in the hands of X. Further, if Y and not X is a beneficial owner, then the assessee has to give an explanation about the source of the said sum of R100 million in the hands of Y. ii) On 31st May, 2011, X Ltd. announces public issue of 11% debentures aggregating to R500 crore.

ection 94A(4) provides that if an assessee has received or credited any sum from any person located in NJA, the assessee shall offer explanation about the source of the said sum in the hands of such person or in the hands of the beneficial owner (if that person is not the beneficial person of the owned sum). If the assessee does not offer any explanation or the explanation offered by him is not satisfactory, in the opinion of the Assessing Officer, then such sum shall be deemed to be the income of the assessee for that previous year.
Debentures are allotted in June, 2011. One of the debenture holders is P Ltd., which is situated in a NJA and holds debentures of face value of R5 crore. In this case, X Ltd. will have to offer an explanation about the source of R5 crore in the hands of P Ltd. If no such explanation is offered or the explanation offered by X Ltd., in the opinion of the Assessing Officer, is not satisfactory, then R5 crore will be deemed as income of X Ltd. for the previous year 2011-2012. Moreover, in respect of interest payable to P Ltd., X Ltd. will have to maintain notified documents and furnish such information to the Assessing Officer (otherwise payment of interest will not be allowed as deduction). On payment of interest to P Ltd., X Ltd. will have to deduct tax @ 30%. B) Deeming Consequences: The deeming consequence is mandatory and once the assessee does not offer an explanation or his explanation is not satisfactory, the Assessing Officer has no discretion but to deem the sum as income. This is unlike Section 68/Section 69 where the Assessing Officer has a discretion and even if the assessee does not provide an explanation, or provides unsatisfactory explanation, it is not mandatory for the Assessing Officer to make an addition CIT Vs. Smt. P Noorjahan (1999) 237 ITR 570 (SC). .K. The assessees offer no explanation (CIT Vs. P Mohanakala (2007) 291 ITR 278 (SC) . The expression "the assessees offer no explanation" means where the assessees offer no proper, reasonable and acceptable explanation as regards the sums found credited in the books maintained by the assessees. However, It is true that the opinion of the Assessing Officer for not accepting the explanation offered by the assessees as not satisfactory is required to be based on proper appreciation of material and other attending circumstances available on record. The opinion of the

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Assessing Officer is required to be formed objectively with reference to the material available on record. Application of mind is the sine qua non for forming the opinion. C) Source of Source: The explanation is required about the source of the said sum in the hands of the payer or in the hands of the beneficial owner. Thus, the assessee is required to explain source of source. This is unlike Section 68 where he can be asked to explain source of credit in his own books of account but not source of source Tolaram Daga Vs. CIT (1966) 59 ITR 632 (Assam); Sarogi Credit Corpn. Vs. CIT (1976) 103 ITR 344 (Pat.). D) Capital Receipt: The Section applies to any sum including share capital, loans, deposits, distribution by a trust to a beneficiary, etc. It would apply to sums which are otherwise capital receipts. E) Beneficial Owner: Advance Ruling No. P-9 of 1995, In Re. (1996) 220 ITR 377 (AAR): Generally, the terms 'beneficiary' or 'beneficial owner' are used to designate a person who benefits financially from property held by another - such as by a trust. A 'beneficial owner' is one who is free to decide (1) whether or not the capital or other assets should be used or made available for use by others or (2) on how the yields therefrom should be used or (3) both.

As per ACIT Vs. Bhaumik Colour (P) Ltd. (2009) 118 ITD 1 (Mum. ITAT), A trustee is not a beneficial owner of shares. F) Opinion of the Assessing Officer: i) Subjective consideration Vs. Objective consideration in decision making: Subjective consideration depends on the mood and leanings of the decision maker. In objective consideration, personal leanings have no place and the purpose and object of the particulars provision or relevant law is the guiding factor. In this connection, Circular: No. 14(XL-35), dated 11-4-1955, instructing the staff is as under: Officers of the Department must not take advantage of ignorance of an assessee as to his rights. It is one of their duties to assist a taxpayer in every reasonable way, particularly in the matter of claiming and securing reliefs and in this regard the Officers should take the initiative in guiding a taxpayer where proceedings or other particulars before them indicate that some refund or relief is due to him. This attitude would, in the long run, benefit the department for it would inspire confidence in him that he may be sure of getting a square deal from the departments. 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 Application No. 622 of 1981, rendered on 20th August,1981, has laid down the approach that the authorities must adopt in such matters in the following terms: "The Supreme Court has observed in numerous decisions, including Ramlal Vs. Rewa Coalfields Ltd., AIR 1962 SC 361; State of West Bengal Vs. Administrator, Howrah Municipality, AIR 1972 SC 749, and Babhutmal Raichand Oswal Vs. Laxmibal R. Tarte, AIR 1975 SC 1297, that the State authorities should not raise technical pleas if the citizens have a lawful right and the lawful right is being denied to them merely on technical grounds. The State authorities cannot adopt the attitude which private litigants might adopt." ii) Discretion means (Golam Momen Vs. DCIT(2002) 256 ITR 754(Cal.)

iscretion means according to the rules of reason and justice, not according to private opinion, but according to law and not humour. It is not to be arbitrary, vague and fanciful, but legal and regular to be exercised, not capriciously but on judicial grounds and for substantial reasons. If an authority cast with a public duty of exercising discretion takes into account matters which the court considers to be improper for guidance of the discretion, then in the eye of law, it is an improper exercise of the discretion. Inappropriate exercise of discretion is not an exercise of discretion at all.

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Discretion means according to the rules of reason and justice, not according to private opinion, but according to law and not humour. It is not to be arbitrary, vague and fanciful, but legal and regular to be exercised, not capriciously but on judicial grounds and for substantial reasons. If an authority cast with a public duty of exercising discretion takes into account matters which the court considers to be improper for guidance of the discretion, then in the eye of law, it is an improper exercise of the discretion. Inappropriate exercise of discretion is not an exercise of discretion at all. iii) No place for surmise, suspicions or probabilities As per CIT Vs. Daya Chand Jain Vaidya (1975) 98 ITR 280 (All), mere rejection of good explanation does not convert good proof into no proof. In Sreelekha Banerjee and Others Vs. CIT (1963) 49 ITR 112 (SC), it was decided that the department cannot by merely rejecting unreasonably a good explanation, convert good proof into no proof. It is well settled that an assessment made on conjectures and surmises would be void CIT Vs. (1) Ms. Monica Oswal (2) Jawahar Lal Oswal (3) Ruchika Oswal (2004) 267 ITR 308 (P&H). In Dhakeswari Cotton Mills Ltd. Vs. CIT [1954] 26 ITR 775 (SC), Omar Salay Mohamed Sait Vs. CIT [1959] 37 ITR 151 (SC) and Lalchand Bhagat Ambica Ram Vs. CIT [1959] 37 ITR 288 (SC), it has clearly been held by the apex court that there must be something more than mere suspicion in support of an assessment and mere suspicion cannot take the place of proof for the purpose of passing an order of assessment. (5) Notwithstanding anything contained in any other provisions of this Act, where any person located in a notified jurisdictional area is entitled to receive any sum or income or amount on which tax is deductible under Chapter XVII-B, the tax shall be deducted at the highest of the following rates, namely:

otwithstanding anything contained in any other provisions of this Act, where any person located in a notified jurisdictional area is entitled to receive any sum or income or amount on which tax is deductible under Chapter XVII-B, the tax shall be deducted at the highest of the following rates, namely (a) at the rate or rates in force; (b) at the rate specified in the relevant provisions of this Act; (c) at the rate of 30%.
(a) at the rate or rates in force; (b) at the rate specified in the relevant provisions of this Act; (c) at the rate of 30%. Comments

Rates in force has been defined in Section 2(37A) of the Act. However, it may be noted that the recipient would be entitled to offer such income to tax at a lower rate. Examples a) Although a payment of royalty or fees for technical services to a person located in NJA (with whom India does not have a DTAA) will be subject to TDS @ 30%, the recipient will be liable to tax at the rates specified in Section 115A. b) On 15th September, 2011, X Ltd. borrows a sum of US$10 crore @ 6% p.a. from P Ltd., being situated in NJA. In this case, X Ltd. will have to offer an explanation about the source of US$10 crore in the hands of P Ltd. If no explanation is offered or if the explanation is not satisfactory in the opinion of the Assessing Officer, US$10 crore (in equivalent Indian currency) will be added to the income of X Ltd. for the previous year 20112012. Moreover, in respect of interest on loan

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payable to P Ltd., X Ltd. will have to maintain notified documents and furnish such information to the Assessing Officer (otherwise payment of interest will not be allowed as deduction). On payment of interest to P Ltd., X Ltd. will have to deduct tax @ 30%. However, the provisions of Section 115A have not been amended and, consequently, in the hands of P Ltd. interest income will be taxable under Section 115A(1)(a)(ii) @ 21.012% (i.e., 20% + SC + EC + SHEC). P Ltd. can claim refund of excess tax deducted by A Ltd. (along with interest) from the Assessing Officer. c) X Ltd. is incorporated on 1st June, 2011 and it sets up an infrastructure debt fund in accordance with prescribed guidelines notified by the Central Government under Section 10(47). Units of face value of R50 crore are allotted to P Ltd., which is situated in a NJA. In this case, X Ltd. will have to have to offer an explanation about the source of R50 crore in the hands of P Ltd. If no explanation is offered or if the explanation is not satisfactory in the opinion

of the Assessing Officer, R50 crore will be added to the income of X Ltd. for the previous year 20112012. However, income of X Ltd. is exempt from tax under Section 10(47). Consequently, addition of R50 crore in the hands of X Ltd. will not have any impact. Moreover, in respect of interest on units payable to P Ltd., X Ltd. will have to maintain notified documents and furnish such information to the Assessing Officer (otherwise payment of interest will not be allowed as deduction). As income of X Ltd. is exempt under Section 10(47), disallowance of interest will not have any tax effect. On payment of interest to P Ltd., X Ltd. will have to deduct tax @ 30%. However, a newly inserted clause (iia) in Section 115A(1)(a) will be applicable in the hands of P Ltd.[such case is not excluded from the operation clause (iia)]. Consequently, interest income of P Ltd. will be taxable @ 5.253% [i.e., 5% under Section 115A(1)(a)(iia) + SC + EC + SHEC)]. P Ltd. can claim refund of excess tax deducted by X Ltd. (along with interest) from the Assessing Officer. n

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Attribution of Profits to Permanent Establishment The Indian Experience

Globalisation has created a controversy between the tax payers and tax authorities on the emergence of Permanent Establishment (PE) as well as the attribution of profits to PE. The PE concept is used in international taxation to determine 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 of attribution of profits to PE, inter alia, held that the Transfer Pricing analysis to determine the arms length price has to be done by taking the Functions, Assets used and Risk involved (FAR) and in case the same has not been done, the argument on arms length price would not be acceptable. The purpose of this article is to highlight the importance of complying with the arms length principle when remunerating the enterprise constituting the PE and the issues 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 principles for attributing profits to a PE are provided in Article 7 of the OECD model tax treaty, which forms the basis of the extensive network of tax treaties between OECD countries and also between several OECD and non-OECD countries. Variations in domestic tax laws regarding taxation of PEs and lack of consensus as regards correct interpretation of Article 7 may result in double taxation for such foreign entity. In a recent decision of Rolls Royce Singapore Pvt Ltd Vs. ADIT, the Delhi High Court, while dealing with the issue of attribution of profits to PE, inter alia, held that the Transfer Pricing analysis to determine the arms length price has to be done by taking the Functions,

(Contributed by the Committee on International Taxation of the ICAI. Comments can be sent to citax@icai.org)

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Assets used and Risk involved (FAR) and in case the same has not been done, the argument on arms length price would not be acceptable. Concept of Attribution of Profits Under the provisions of the tax treaties, if a foreign enterprise carries on business in India through a PE, then the profits of such enterprise may be taxed in India but only so much of them as are directly or indirectly attributable to such PE. As per Article 7(2) of the OECD Model Convention 2010, the profits to be attributed to the PE would be the profits which the PE might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions, taking into account the Functions performed, Assets used and Risks assumed (FAR) through the PE and other parts of the enterprise. Para 16 of the OECD commentary on Article 7 further provides that profits that are attributable to the PE are to be determined under the fiction that PE is a separate enterprise and that such an enterprise is independent from rest of the enterprise of which it is a part as well as from any other person. The second part of the fiction corresponds to the arms length principle. OECD 2010 report on the attribution of profits to PE provides for a two-step process to apply an arms length separate enterprise principle in attributing profits to a PE: Step 1: Undertake a functional analysis and factual analysis, which attributes to the PE the Functions performed, Assets used and Risks assumed (FAR) by the enterprise in respect

n a recent decision of Rolls Royce Singapore Pvt Ltd Vs. ADIT, the Delhi High Court, while dealing with the issue of attribution of profits to PE, inter alia, held that the Transfer Pricing analysis to determine the arms length price has to be done by taking the Functions, Assets used and Risk involved (FAR) and in case the same has not been done, the argument on arms length price would not be acceptable.

dispute over a period of years and there are various judicial precedents which have tried to relate the attribution of profits and the arms length principles. Accordingly, we have discussed below some of the decisions which have dealt with the issue of profit attribution: Rolls Royce Singapore Pte Ltd Vs. ADIT (Delhi High Court) Facts: Rolls Royce Singapore Pte Ltd (assessee or RRSL), a tax resident of Singapore, was engaged in the business of supply of spare parts for oil field equipment and rendering repairs/overhauling services of certain equipment. Furthermore, the assessee had obtained the services of ANR Associates (ANR) in India, which was engaged in receiving/ soliciting orders. The assessee argued that ANR should be treated as a person working in an independent capacity and, therefore, should not constitute a Dependent Agent in India. Alternatively, even if ANR is treated as a Dependent Agent of RRSL, the payment of US$40,000 per annum that was paid, being an arms length price, no further income was attributable in India in the hands of RRSL for the reason that ANR was already liable to tax in India. The AO, CIT (A) and tribunal took the view that the assessee had a permanent establishment on the basis that it had a dependent agent in India under Article 5(9) of the India-Singapore DTAA and that the income earned from supplying spare parts was taxable in India. The AO held that 25% of the profits on sales of spare parts were chargeable to tax which was reduced to 10% by the CIT (A) and the tribunal. Aggrieved by the ITATs order, RRSL appealed before the

of the business it carries on through the PE. Step 2: Determine the pricing on an arms length basis, which determines an arms length return for the FAR attributed to the PE. Thus, the OECD has developed a working hypothesis as regards the approach for attribution. It has examined the feasibility of treating a PE as a hypothetical distinct and separate enterprise and has reviewed ways in which transfer pricing principles could be applied by analogy in order to attribute profits to a PE in accordance with the arm's length principle. Thus, method of attribution of profits to the PE has become one of the major concerns for the global multinational enterprises. The attribution has been a matter of

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ombay High Court, in case of SET Satellite (Singapore) Pte Ltd (218 CTR 452), has held that if the correct arms length price is applied and paid, then nothing further would be left to be taxed in the hands of the foreign enterprise. The Bombay High Court restored the CIT(A) order in the taxpayers case and held that in case the agent is remunerated at arms length by the foreign principal, the tax liability of the foreign principal (which would arise in case it is regarded to have a PE in India) would stand extinguished.

been fixed was usually not done between independent parties in an uncontrolled transaction. The assessee was in a position to dictate terms to the agent and so it could not be said that the commission was at arms length within the meaning of Article 7 (2) of the DTAA. The Transfer Pricing analysis to determine the arms length price has to be done by taking the Functions, Assets used and Risk involved. As this has not been done, the assessees argument on arms length price is not acceptable [(Morgan Stanley 292 ITR 416 (SC) & Set Satellite (Singapore) 307 ITR 205 (Bom) distinguished]. As the commission paid by the agent to the DAPE is not at arms length, the estimation that 10% of the profits on sales of spare parts were attributable to the activities carried out by the agent in India and taxable, is reasonable. Supreme Court judgement in case of DIT (Intl Taxation) Vs. Morgan Stanley and Co Inc (292 ITR 416) Facts: Morgan Stanley & Co. Inc., United States (MSCO) was engaged in the investment banking (MSAS) to support its main office functions in equity and fixed income research, account reconciliation and provision of information technology (IT) enabled services. MSCO outsourced some of its activities to MSAS. MSCO sought a ruling from the AAR on issues, inter alia, whether it had a PE in India and if so, the amount of profits attributable to such PE. MSCO contended that if MSAS was remunerated for its services at arms length, no further income should be attributed in the hands of the PE (i.e. MSAS). The important issue in this case related to the taxability of the

MSCO in India is that whether MSAS had been remunerated for its services at arms length. The AAR ruled that so long as MSAS was remunerated for its services at arms length, no further income could be attributed in the hands of the PE of the applicant. This decision was challenged by the tax authorities in the Supreme Court. Ruling: Supreme Court held that the AAR was correct in principle in its ruling in as much as there was no need to attribute further profits to the PE of the foreign company where the transaction between the two was held to be at arms length, taking into account all the risk-taking functions of the enterprise. The Supreme Court further held that the situation would be different if transfer pricing analysis did not adequately reflect the functions and risks assumed by the enterprise. In such a case, there would be need to attribute profits to the PE for those functions/risks that have not been considered. It also held that the entire exercise was to ascertain whether the service charges payable or paid to the service provider fully represented the value of profit attributable to its services. In each case, the data placed by the taxpayer had to be examined as to whether the transfer pricing analysis was exhaustive of attribution of profits and that would depend on the functional and factual analysis to be undertaken in each case. Relying on the above Supreme Court decision, Bombay High Court, in case of SET Satellite (Singapore) Pte Ltd (218 CTR 452), has held that if the correct arms length price is applied and paid, then nothing further would be left to be taxed in the hands of the foreign enterprise. The Bombay High Court has

Delhi HC with respect to existence or otherwise of a PE in India on account of the activities of ANR and the subsequent income attribution in India. Ruling: The High Court, while dealing with the above issue, inter alia held that while in principle it is correct that if a fair price is paid by the assessee to the agent for the activities of the assessee in India through the Dependent Agent PE and the said price is taxed in India at the hands of the agent, then no question of taxing the assessee again would arise; this is subject to a Transfer Pricing Analysis being undertaken under Section 92. The facts showed that the manner in which the commission/remuneration had

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restored the CIT(A) order in the taxpayers case and held that in case the agent is remunerated at arms length by the foreign principal, the tax liability of the foreign principal (which would arise in case it is regarded to have a PE in India) would stand extinguished. In the case of BBC Worldwide Ltd Vs. DDIT (2010-TIOL-59-ITATDEL), the Delhi ITAT applying the principles laid down in the decisions of Supreme Court in the case of Morgan Stanley (supra) and decision of the Bombay High Court in the case of SET Satellite (Singapore) Pvt Ltd (supra) held that where an agent is compensated on an arms length basis for its agency services in India, there should be no additional income attribution in the hands of the Taxpayer which is a foreign enterprise. It may be pertinent to note that in the facts of this case, the agent received a commission of 15% of the revenues as compensation for services. Delhi ITAT in the case of eFunds Corporation Vs. ADIT (134 TTJ 1) has adopted the dual taxpayer approach whereby the Indian subsidiary and the PE of Foreign enterprise were regarded as two separate assessable entities. The ITAT, referring to SC decision in case of Morgan Stanley, observed as under: From perusal of these observations of Hon'ble Supreme Court, it is clear that the assessment of PE gets extinguished only if following two conditions are cumulatively met1. The associate enterprise has been remunerated on arm's

length basis, and 2. By FAR (Functions performed, Assets used and Risks assumed) analysis, nothing more can be attributed to PE. The ITAT further held that as eFunds India is not remunerated for functions performed, risks assumed and assets utilised by

the foreign enterprise, attribution to PE is called for, which takes these factors into account. The relevant observations are as under: Indian entity and Indian PE are two separately assessable entities. Indian entity, i.e., eFunds India is assessable with reference to incomes it received from foreign enterprises, i.e., eFunds Corporation and eFunds IT Solution Inc. and any other income it might have earned. This assessment will be in the status of resident' and as per domestic tax law'. The foreign enterprise is taxable in India as PE with reference to profits, which are attributable to Indian PE. This assessment will be in the status of non-resident' and as per Article 7 of Indo-USA DTAA' where the assessable income will be determined after FAR analysis as per provisions of Article 7(2). In these cases, Indian entity eFunds India is having either nil or minimal risk and all the relevant assets required for carrying out business activities are provided by eFunds Corporation, USA. Whatever payments it gets from foreign enterprise, represent the price of services provided by it to the foreign enterprise and it will not get any remuneration for the functions performed, risks assumed and assets utilised by the foreign enterprise in India. Clearly, the second limb of judgement of Supreme Court referred to supra is applicable in this case, which says that something has to be attributed to PE if risk and assets belong to foreign enterprise as a whole. Landmark Principles Laid Down in Relation to Profit Attribution Thus, the crux of all the decisions discussed above is that where the transactions are held to be at

n the case of BBC Worldwide Ltd Vs. DDIT (2010TIOL-59-ITATDEL), the Delhi ITAT, applying the principles laid down in the decisions of Supreme Court in the case of Morgan Stanley (supra) and decision of the Bombay High Court in the case of SET Satellite (Singapore) Pvt Ltd (supra) held that where an agent is compensated on an arms length basis for its agency services in India, there should be no additional income attribution in the hands of the taxpayer which is a foreign enterprise. It may be pertinent to note that in the facts of this case, the agent received a commission of 15% of the revenues as compensation for services.

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arms length, nothing further can be attributed to the PE, provided that the transfer price takes into account all the risk-taking functions of the foreign enterprise. Thus, assessment of PE gets extinguished only if following two conditions are cumulatively met: The associate enterprise has been remunerated on arm's

length basis, and By FAR (Functions performed, Assets utilised and Risks assumed) analysis of Indian and foreign enterprise, nothing more can be attributed to PE.

Possible Income Attribution Scenarios As may be discerned from the above

discussion, while there is a general consensus in the judicial decisions on the need to apply transfer pricing principles for income attribution, there is some ambiguity on how these principles should be applied. Hence, depending on the facts of the case, the following possible scenarios could exist on income attribution in case foreign enterprise is regarded as having a PE in India:

Alternate Situations Situation 1 Indian entity is compensated on arms length basis taking into consideration only functions performed assets owned and risks assumed by Indian entity.

Possible Scenarios

Judicial Precedents/Other Guidance/ Comments Based on OECDs dual taxpayer approach SC decision in Morgan Stanley Delhi High Court in case of Rolls Royce

Scenario 1
As compensation to Indian entity does not take into account functions/risks of PE, additional income needs to be attributed to the PE based on arms length principles.

Scenario 2
Tax Authorities could attempt to apply formulary apportionment (either apply foreign enterprises worldwide profit margin to India revenues and attribute part of it to PE or apportion a percentage of India revenues to PE) Situation 2 Indian entities arms length compensation considers its own functions/risks as well as functions/risks of foreign enterprise that relate to the PE Scenario 1 No additional Income Attribution

Even though most case laws support application of transfer pricing principles, the ultimate determination has often been based on a formulary apportionment (could result in a arbitrary apportionment, say, 10% or 15% of profits, depending upon activities performed in India) Motorola Inc Vs. Deputy Commissioner of Income Tax1 Galileo International Inc. Vs. DCIT2 Consistent with OECDs dual taxpayer approach as all functions/risks of the PE have been compensated in the transfer price DIT Vs. Morgan Stanley Practical risk of tax authorities seeking to apply formulary apportionment does exist

Way Forward There is a high risk that the tax authority could attempt to attribute profits to a PE in the absence of adequate documentation to apply arms length principles for attribution. Given the same, it is imperative that the transfer pricing between two associates takes into
1 2

account the FAR analysis of the foreign principal as well. In other words, liability of foreign company in India may not be extinguished unless the transfer pricing takes into account the FAR analysis of Indian Company as well as foreign company.

Thus, it is advisable that robust transfer pricing documentation should be maintained and benchmarking should be done in a manner whereby the Functions performed, Assets utilised and Risk assumed (FAR) of both the foreign entity and Indian entity are taken into account. n

95 ITD 269 (Delhi ITAT) 19 SOT 257 (Delhi ITAT)

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PARTICIPATION

MID CAREER CAMPUS

Hotel Bangalore International, Bangalore
OBJECTIVE As 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 a year for Newly Qualified Chartered Accountants, wherein prospective employers and new members interact and explore the 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 providing the experienced Chartered Accountants with a platform to assess their potential and refinement in work, which they have acquired during their working tenure. CAREER ASCENT A GREAT ADVANTAGE FOR CORPORATES If you are looking for complete business solution provider, then end your search by participating in Career Ascent for experienced Chartered Accountants, wherein you would have access to a vast database of Chartered Accountants. ELIGIBILITY OF CANDIDATES FOR CAREER ASCENT-MID CAREER CAMPUS Chartered Accountants who have 1 year or more than one year of Industry experience, passed C.A. final examination on or before May, 2010 and having the membership of Institute as on 31st October, 2011 are eligible to participate. Also the members who have got placements through the placement programmes organized by the Institute between 01.11.2010 to 31.10.2011 are not eligible to apply. Campus Interview Dates
Centre Bangalore Last Date of Registration for Companies Upto 05:00 PM 1st December, 2011 Last Date of Short-listing by Companies Upto11:00 PM 5th December,2011 Consent sending by Candidates Upto 11:00pm 6th- 7th December,2011 For Firms of CAs 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% Interview Dates 9th December 2011

9th December 2011

Participation Fees for Career Ascent

For Organisations other than Firms of CAs Rs. 1,50,000/- + 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 Delhi110 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 ORGANISATIONS Timings 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.in Official Contact : Dr. Surinder Pal, Secretary, CMII or Mr. Ajeet Nath Tiwari, Placement Coordinator CMII of ICAI Tel: +91 (11) 30110548/450/430 Email: placements@icai.in,mii@icai.in, campus@icai.in,Website: www.icai.org, www.cmii.icai.org BasicTerms: 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.

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Benchmarking- A Strategic Tool for CFOs

Benchmarking is a strategic tool to compare the performance of an organisation against other organisations (may or may not be competitors) with an object to analyse the reasons for variance in performance level and initiate short term and long term strategic plans to enhance the performance level. Benchmarking Study (BMS) thus helps companies to improve their performance standards to the desired levels. In a wider sense, Benchmarking analyses are conducted not only on the Critical Success Factors ( CSF) or Key Performance Indicators (KPIs) but also on the key processes, policies , business strategies and the like to ascertain the root causes of variance. Sometimes Benchmarking 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 people's 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 organisation's internal processes and then identifying, understanding, and adapting outstanding practices from other organisations considered to be best-inclass. 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 guidelines or providing subsidies or other support to industries. Similarly, BMS are also conducted by prospective investors while making informed investment decisions and finalisation of valuation of the target companies.
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CA. Sanjay Banka (The Author is member of the ICAI and ICSI and Professional Member of Chartered Institute for Securities and Investment (London), All India Management Association and Indian Council of Arbitration. He can be contacted at sbanka9@gmail.com)

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Approaches to Benchmarking Depending 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 in any benchmarking study. The next diagram shows the inter-se relationship of the four cubes.

Fig 2: Another presentation of benchmarking categories indicating that the results are achieved by product, process and strategy. Hence, BMS must cover all the four cornerstones to achieve the desired results Results Customers Human Resources Suggested KPI for benchmarking complaints per customer per month, cost of service per customer. Revenue per employee, asset per employee, units produced per employee, EBITDA per employee, CTC per employee per month, staff turnover, teeth tail ratio, employee cost as % of revenue, training man days per employee

As we would see later, a BMS carried out in isolation with only one or two boxes, will not yield the final objective of how. The benchmarking team must adopt a holistic approach to benchmarking by covering the above four aspects. A study with number focussed approach is too narrow to be called a benchmarking study; it can never unearth the strategic advantages and disadvantages of other market participants. In most of the cases, BMS covers the financial or results benchmarking, which involves comparison of profitability and opex components as percentage of revenue. Results Ratio based Financial Suggested KPI for benchmarking Turnover ratio, liquidity ratio, coverage ratio, profitability ratio. Gross margin%, NPAT%, return on investment, return on capital employed (ROCE), SGA cost as % of revenue, opex as % of revenue, EPS, PAT, EBITDA, WACC, ROI, capital gearing. 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.

The above are merely results or numbers; in order to deep dive into the reasons for variance in these results, the management needs to conduct BMS on products, processes and strategies. These can be conducted by subject matter experts or functional managers under the overall guidance of a core team. Scoping & Steps A BMS process can be segregated in four broad stages as follows:

Operational

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he companies and geographies to be selected for benchmarking thus play a very crucial role and have to be done carefully to achieve the desired results. The selection will also be linked to the objective management has set for itself. For example, if your company is market leader in Indian Market and you do benchmarking only locally, then you may not gain any insight into better practices adopted by market leaders globally.
The companies and geographies to be selected for benchmarking thus play a very crucial role and have to be done carefully to achieve the desired results. The selection will also be linked to the objective management has set for itself. For example, if your company is market leader in Indian market and you do benchmarking only locally, then you may not gain any insight into better practices adopted by market leaders globally. The problem is that any given company in the benchmarking pool may be facing some exceptional event or may be organised in an exceptional way so as to its ratios may be vastly different from others in the same classification. By including such firms, the global benchmarks can be overly skewed. In many countries, firms are organised into holding groups. These groups nominally have very few employees, e.g. 4 to 25 employees, but have extremely large assets, liabilities, or revenues. As such, the inclusion or exclusion of firms having this form of management can affect the ratios and benchmarks reported. Finally, in some countries, detailed or comparative financials are not available and hence extreme caution has to be exercised in moderating the numbers before considering the same for study. The size and level of operations is equally important in selecting the sample. The performance metrics of a small company single location will be diametrically different from large multi-geography and any inter firm comparison will not lead to achievable targets. While it is recommended to conduct benchmarking studies intra-industry, sometimes benchmarking studies can also be instituted inter-industry for analysing trends that are industry agnostic like salary cost, borrowing cost, etc. A very obvious difficulty which arises in the minds of a BMS team is regarding availability of data and its quality. This will depend on the nature of industry and the regulatory framework in which the company operates. Companies which are operating in finance, insurance, telecom, and pharma are governed by sectoral regulators and hence a large part of their operational metrics are regularly published by the

regulators. In addition, the other usual sources of information are always available like industry associations, investors presentation on websites, published financials, etc. The core team must also have a thorough knowledge of its internal processes as well as process control concepts. Professor W. Chan Kim and Professor Rene Mauborgne, co-authors of Blue Ocean Strategy, have always insisted that instead of focussing too much on numbers, the executive should focus on the strategy part. Especially in case of companies that are operating in red ocean (operating in highly competitive and loss making environment), their BMS will not yield any dramatic conclusion, if they dont focus on strategic and functional excellence of competitors. Some Benchmarks The below table provides an indicative list of specific benchmarks used in some industries in addition to standard to standard KPIs for the sake of illustration: Sl No 1. Industry Benchmarks

Telecommunication ARPU, ARPAU, MOU, Services RPM, traffic per site, calls per customer, EBITDA %, opex per site, customer market share, revenue market share, HLR/ VLR ratio, network availability, SAC per acquisition, etc. Retail Revenue psft per month, stock psft, same store revenue growth, footfalls, private labels (nos, sales, % of total sales), SKU nos, shrinkage %, % sale at sale-through rates (non-discount rates), same stores sales growth, etc Revenue by geographical segments, % utilisation of billable employees, revenue from on shore and off shore services, software development expenses/ total revenue,

2.

3.

Software Industry

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Sl No 4.

Industry Airlines Industry

Benchmarks Load factor, average gross revenue per passenger, available seat kilometers (ASKM) -The sum of the products obtained by multiplying the number of passenger - seats available for sale on each flight stage by the corresponding stage distance, cost per ASKM (CASK) represents total cost divided by the ASKMs, revenue per ASKM, seat factor (ratio of used to available capacity: passengerkilometres/available seat-kilometres), yield (passenger revenue earned per kilometer flown.), number of passengers flown, number of flights per day, no. of airports operated.

Every Industry has its own set of benchmarking rules. For example, in retail Industry, space utilisation is one of the most important parameters for operational performance, hence several operational benchmarks are linked to space utilisation. The better a retail company can utilise its space, the higher its profitability is. Another major issue in retail industry is shrinkage (caused by losses arising out of theft and wastages) which ranges from 2% to 5% of gross sales. A high shrinkage ratio causes havoc on the profitability and sometimes on the survival of the company itself. Subhiksha faced major losses on account of shrinkages and it became one of the main contributory factors in the closure of this company. For example, Infosys tracks benchmarks like net foreign earning as % of earning (NFE/ earning), which is in the range of 50% for 2011 and 2010. Infosys also tracks R&D expense as % of total revenue which is in the range of 2%. The revenue realisation of software companies is higher in case of on shoring services and the ratio is almost 50:50. In software industry, employee cost as % of revenue can be as high as 50%, while in a traditional asset based Industry it is in the range of 4% t0 6%. Thus, it is extremely important to conduct

benchmarking studies across same Industry only to get comparable results. Telecom companies continue to be benchmarked by TRAI against the stringent call quality and network congestion criteria. Internally telecom companies benchmark themselves on customer satisfaction, call drop, and such other benchmarks against global telecom leaders. In case of new operators, the subscribers acquisition cost (SAC) is as high as R350 to R400 while the ARPU is as low as R30 pm, thus the minimum period for which the customer should be on the network and not port is at least 12 to 14 months. Imagine if the CFO or the CMO of such new telecom companies does not benchmark its SAC cost, how will they enhance SAC efficiency while ensuring that its channel partners remain motivated? Among telecom companies, there is an urgent need for companies like MTNL and BSNL to consistently pursue benchmarking studies against their successful private counterparts, more specifically on network uptime and customer satisfaction. In case of electricity trading companies, the CERC has fixed a trading margin of 4 paisa to 7 paisa per unit (based on price of R3 per unit or above) on electricity trading which is a major benchmarking for electricity trading companies. However, it should also be noted that where margins are fixed as per regulatory mandate, no action plan can be conducted to increase margins except without regulatory intervention. The result of BMS should be carefully reviewed by management for the possible causes of variance. The BMS will always provide an indication of what. But to find out Why variances and How to bridge the gap is most important. This requires the commitment of top management and engagement of a strategic team to revert with the suggested action plans. Thus companies can adopt a sponsor-based strategy and co-opt a few functional heads.

nce the benchmarking study has been completed, it obviously leads us to next question How to achieve the benchmark of the best in class companies. This is perhaps the most critical part of the process. Unless you get an insight into strategic thought process of your competitors, their success and failure stories, how they met market challenges, how their strategic decision points were tweaked, what difficulties they faced in market place, or what pressure it brought on their profit margin, then perhaps the benchmarking study will remain a paper only.

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Benchmarking Strategies This leads us to focus on what benchmarking strategies a company should follow to ensure success. Firstly, the selection of benchmarks should not be a random sample or a large number; rather it should cover best companies in three to four geographies or markets which match the market behaviour and ecosystem in which your company is operating. The strategy must focus on what next and how instead of what. The finding of what is a process, whereas the what next is a strategic call. Also, in presenting the final report, the benchmarks should be few and the final derivative of several KPIs. Thus, the focus should be on top five or top ten items to be benchmarked. Secondly, the benchmarking process should continue to be revisited in view of dynamic changes in competition and market scenario. The target set to reach or exceed the benchmarks should be quantifiable and measurable instead of abstract visionary statements like enhancing customer satisfaction to next level or leveraging the capital structure to optimise the finance cost drastically. Thirdly, the team conducting benchmarking must be broad-based with executives who have experience of multi cultural and diverse industry and should be involved from the inception stage. For example, if a small Indian FMCG is conducting such study, it should make sure to include the executives who have experience of having worked in large FMCG companies especially in rural markets. This will ensure their buyin and if people own the problem, they will definitely resolve it. How to Achieve the Benchmarks Once the BMS has been completed, it obviously leads us to next question how to achieve the benchmark of the best in class companies. This is perhaps the most critical part of the process. Unless you get an insight into strategic thought process of your competitors, their success and failure stories, how they met market challenges, how their strategic decision points were tweaked, what difficulties they faced in market place, or what pressure it brought on their profit margin, then, perhaps, the benchmarking study will remain a paper only. The management may need to lead several initiatives including changes in organisational structure and performance ethic, changes in core processes, changes in tariff and prices, changes in channel margin in line with industry trend, enhancing capability of customer facing or production team or cultural performance ethic with its strategy, capability, and skill requirements. Such action must be properly

planned and implemented in a time bound manner as indicated below

The above diagram shows a typical execution plan post a successful BMS. The companies benchmarked have been categorised in four levels as against the target company. While the management has planned for execution for action plan for top priority KPI and CSF in Q1 itself and target is to exceed the Level 4 of company (highest level), the action plan to implement the low priority KPI is a staggered and to reach the industry median points at Level 2. Such a plan can be made based on optimum allocation of resources available at the disposal of management. This execution strategy reflects a very prudent approach, however, it can be criticised on the ground that management has not planned for achieving Industry Best KPI on all counts. There are thus pros and cons attached to every execution plan and the best fit will depend on case to case. The Benchmarking Traps Many a time, the benchmarking process loses its track and ends up in a fault finding mission. Thats one of the reasons that many companies executives do not participate in the benchmarking process for fear of witch hunting. Before the studies start, the top management must take into confidence employees at all levels and assure that the result of the study will purely be used for performance improvement and for rewarding the employees who implement the action plan. Further, the benchmarking exercise should not become an industrial tourism for the core group to visit several countries. Also, a common mistake which people make is lack of caution while taking benchmarking numbers. For example, while conducting employee related benchmarks, the employee numbers as disclosed should be carefully weighed. It may so happen that while your company operates on an in sourced model and the manpower numbers in your case are fully on-roll, while the competitor may be working on an outsourced model. Thus, it becomes important

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to get correct details of on roll and outsource staff; else the entire HR benchmarking may end up giving a misleading result. Sometimes, due to differences in accounting standards or company specific policies, the revenue may include pass through expenses, which should be excluded to arrive at comparable revenue. The results of cost benchmarking should always be carefully interpreted and any strategy around cost saving or cost optimisation must consider the resultant effects. For example, any shortsighted strategy to cut down the customer relationship (CRM) cost or quality assurance cost can boomerang and may lead to customer dissatisfaction and loss of customer market share. Thus, the strategy should be carefully reviewed while ensuring that service levels are not compromised. Do it Yourself (DIY) In the light of above discussion, lets see how a new organisation can take up real BMS in the field. Suppose, ABC Limited is an SME engaged in FMCG industry, say edible oil, and is facing a real crisis in the market due to falling market share, rising customer complaints and pressure on margins, while the competitors in the market are not feeling any such external pressure. The management thus decides to form a core team for conducting BMS and recommend action plan. The following action plans would thus emerge: The management first has to decide the objective(s) of the study which may be one or more of the following - analysing the reasons for fall in market share, or reduction in profit margin, or increase market share or improve quality. The core team must be broad based with nominees from key functions including finance, marketing, HR, sales and quality assurance. The members with large market and having handled diverse product portfolio

should be preferred. The team must agree on a time bound action plan. The team must select five to ten leading companies in the edible oil field in India and five to ten from global rank. The companies selected should preferably be in same product line, customer segment, with similar volume in terms of sales and revenue. Any other company selected should be considered purely for academic purposes, since issues like profitability, quality, margins will be intricately linked to economies of scale. The next stage is data collection of the sample. This will be from the information available in public domain for the listed companies and in case of unlisted companies attempt can be made to collect it from government and regulatory authorities. One can also use the RTI tool to get some of this information. Very valuable sources of information are ex-employees, channel partners, common bankers. Detailed comparison should be made on all the four aspects: Product> Process> Strategies> Results The fourth and final stage is based on results of BMS, initiate short term and medium term execution plan and allocates necessary resources for same. Chartered accountants in practice can also undertake such strategic assignments for their small and SME customers and help enhance the competitive advantages of their clients while generating additional sources of revenues. Conclusion Globalisation and competitiveness are posing major challenges in almost all organisations and managers are seeking modern approaches to gain more competitive advantages. With the help of BMS, CFOs can continuously review their performance against the industry leaders and prompt it to set short and long terms strategies to improve performance. BMS helps companies to adopt a more scientific, data driven approach based on market dynamics instead of island approach. The CFO as the chief strategy officer can take a lead role for institutionalising the Benchmarking process and solicit enhanced performance at all levels of organisation. Management must support the BMS process, create internal competition among employees and design suitable reward programmes to seamlessly implement the plans. Benchmarking aims at improving performance, enhancing productivity - a search that never ends. Therefore, benchmarking is not a single action but a continuous, cyclical process. Finally, the best benchmark is one which continues to show the need of improvement based on Japanese principle of Kaizen. n

any a time the benchmarking process loses its track and ends up in fault finding mission. Thats one of the reasons that many companies executives do not participate in the benchmarking process for fear of witch hunting. Before the studies start, the top management must take into confidence employees at all levels and assure that the result of the study will purely be used for performance improvement and for rewarding the employees who implement the action plan. Further the benchmarking exercise should not become an industrial tourism for the core group to visit several countries.

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PARTICIPATION

10th December, 2011 Bangalore

OBJECTIVE The Committee for Members in Industry (CMII) of The Institute of Chartered Accountants of India (ICAI) provides opportunity to the employers to interact with Members and Newly Qualified Chartered Accountants through its Campus Placement Programme. 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. Chartered Accountants are getting placed not only within the country but are also taking up jobs abroad. Many CAs are providing their services to the organizations in GCC and Middle East. To facilitate employment for Chartered Accountants in the GCC, CMII of ICAI is organizing Gulf Campus Placement Programme. This programme would enable the corporates working in Gulf Council Countries (GCC) to recruit Chartered Accountants through video conferencing mode from Bangalore. GULF CAMPUS A GREAT ADVANTAGE FOR CORPORATES FROM GULF COUNCIL COUNTRIES (GCC)/MIDDLE EAST Corporates working in Gulf Council Countries (GCC)/ Middle East can now end their search by participating in Placement Programme wherein they would have access to a vast database of Chartered Accountants of The Institute of Chartered Accountants of India. The event would provide an opportunity to companies to select Chartered Accountants as per their requirement criterion. ELIGIBILITY OF CANDIDATES FOR GULF CAMPUS Chartered Accountants who have 1 year or more than one year of Industry experience, passed C.A. final examination on or before May, 2010 and having the membership of Institute as on 31st October, 2011 are eligible to participate. Also the members who have got placements through the placement programmes organized by the Institute between 01.11.2010 to 31.10.2011 are not eligible to apply.

Interview Schedule Centre Maximum No. of companies in any single slot Bangalore One each in a slot

Last Date of Registration for Companies Upto 05:00 PM 1st December, 2011

Shortlisting by Companies 5th December, 2011

Consent sending by Candidates 6th- 7th December, 2011

Interviews 10th December, 2011

Participation Fees*(INR) Centre Bangalore Day 1-Slot 1 (11.00 AM-2.00 PM IST) Rs.1,20,000 Day 1-Slot 2 (3.00 PM 6.00 PM IST) Rs.1,15,000

*Participation Fees (in Rs.) plus service tax @ 10.3 % applicable

Above payment includes the facility for video conferencing arrangements in India and also include public IP or single dial out charge that will be borne by CMII of ICAI. Companies have to make arrangements at their own end to stay connected 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 ORGANISATIONS Timings 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.

CA. K. Raghu, Chairman, CMII of ICAI, Email: cmii@icai.in Official Contact : Dr. Surinder Pal, Secretary, CMII or Mr. Ajeet Nath Tiwari, Placement Coordinator CMII of ICAI Tel: +91 (11) 30110548/450/430 Email: placements@icai.in,mii@icai.in, campus@icai.in,Website: www.icai.org, www.cmii.icai.org BasicTerms: 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.

For details contact:

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Direct Taxes Code Will Come Next Year: Finmin The government recently expressed optimism that the Direct Taxes Code (DTC) would come into force from the next financial year. Finance Minister Pranab Mukherjee said he was confident of the DTC being recommended by the standing committee in the coming (winter) Parliament session. I hope that I will get the legislation by the Budget session, he told an economic editors conference recently, answering a question. Mukherjee said he had a good discussion with the pertinent standing committees chairman (Yashwant Sinha) on whether it was possible to pass certain legislations with his help. But that is at the committee level and the chairmans level. What would happen on the floor of the House would be decided by others, he added. The Direct Taxes Code will come. The DTC Bill introduced in Parliament on August 30 last year, proposes to replace the 50-year old Income Tax Act. The Act was initially proposed to come into force at the start of the ongoing financial year. The deadline was then extended to April next year, as the draft Bill has been referred to the Parliamentary Standing Committee. Revenue department officials doubt if they will get sufficient time to get the legislative work completed in the time left for implementation of DTC from 2012-2013. (Source: http://www.indianexpress.com/) Firms Get Government Breather on Forex Earnings The Ministry of Corporate Affairs, or MCA, has given Indian firms another year to spread their liabilities on account of foreign exchange borrowings accruing from fluctuations in foreign exchange, or forex, rates. While getting more time to amortise such liabilities will come as a breather for a large number of companies that have raised loans abroad, it has raised eyebrows of some observers, who say this is the governments way of signaling a delay in the implementation of International Financial Reporting Standards (IFRS). They also contend that the government should refrain from tinkering with IFRS-compliant accounting standards that have been notified, but are yet to be implemented. IFRS guidelines are more stringent and allow accounting for such gains or losses to be charged in the profit and loss account. An observer said that there is a need to take a long-term view on adopting global standards, and that ad hoc changes dont help. The rupee has been weakening against the dollar in the past few months because of global economic turmoil. It has dropped 10.5% against the US currency since July 2011. He said that deferring losses because of forex fluctuation under Indian GAAP (generally accepted accounting principles) will only provide temporary relief, which is neither desirable nor justified. MCA last week extended the date for amortising gains or losses on money raised overseas on or after December 2006 till March 2012, against the previous deadline of March 2011. (Source: http://www.thehindubusinessline.com/)

RBI Announces Standard Rating Symbols The Reserve Bank has announced uniform and standard rating symbols to be used for indicating financial health of a bank. The change in rating symbols and definitions, however, does not effect, in any manner, the rating methodology followed by the credit rating agencies (CRAs) for rating such instruments and will have no bearing on the existing ratings assigned by the CRAs under the Basel-II framework, the Reserve Bank of India said in a statement. Under the revised standardised system, there is no change in the long term rating symbols except that they will henceforth display the rating agencys name as a prefix, it said. In case of short term ratings, a rating scale denoted by A on a scale of 1 to 4 (i.e. A1, A2, A3 and A4) and D has been prescribed, it said. (Source: http://timesofindia.indiatimes.com/) SEBI Panel Rejects Plan to Raise MF Net Worth Cap A SEBI-constituted panel on mutual funds has retained the minimum capital requirement to start a fund house at R10 crore, rejecting a proposal to increase the net worth criterion, officials at the stock market regulator said. The move comes as a breather for smaller fund houses and firms planning to enter the asset management business in Asias third-largest economy. Last year, the mutual fund advisory committee had proposed to raise the capital base of asset management companies to R50 crore from R10 crore to ward off non-serious players and to ensure higher safety for investors (Source: http://www.economictimes.com) SEBI to Probe High Volatility in IPOs The high fluctuation in share prices of a number of companies on the listing day has caught the attention of the Securities and Exchange Board of India (SEBI). SEBI had initiated an enquiry into possible price manipulation in the stock price of some of the recently-listed companies, senior officials said. SEBI is looking into the subscription and trading details of these stocks. An enquiry has been initiated. The idea is to find out if there is a trend of systematic manipulation by a set of players in the stock price, confirmed the official. Senior officials said the market regulator would look into the subscription details and trading pattern. The subscription details would help it get cues about the names of investors who subscribed to these issues. If the same people had applied in most issues, there could be a trend. Similarly, looking into the trading pattern would indicate if there was a concentration of volumes from a particular segment of brokers. (Source: http://www.hindustantimes.com) Revised Tax Treaty with Switzerland Will Help Seek Specific Information on Illegal Funds In a statement, the Swiss Federal Department of Finance said the revised agreement contains provisions on the exchange of information in accordance with

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international standards applicable at present. As per the latest data from the Swiss National Bank, the total deposits of Indian individuals and companies in Swiss banks at the end of 2010 is pegged at about $ 2.5 billion. Curiously, while the Swiss government has said that India can seek tax information on cases dating from January this year, the Central Board of Direct Taxes pointed out that information can be sought in specific cases starting from 1st April, 2011. Also, while the treaty will be applicable in Switzerland on income originating in tax years starting on or after 1st January, 2012, in matters pertaining to exchange of information, the provisions in the treaty will apply to information referring to tax years which start on or after 1st January, 2011, the Swiss statement said. Under the revised accord with the Alpine tax haven, India will be allowed to seek information on tax evasion cases whereas, under the earlier agreement, the country could only seek bank details in relation to tax fraud cases. (Press Trust of India) Services Negative List Likely in Next Budget The Finance Ministry may announce a negative list for services in the next Budget, despite suggestions from the industry it be introduced alongside the Goods and Services Tax (GST). Currently, the Centre has a positive list of services, in which a detailed description is provided for each taxable service. Services not specified are not liable to be taxed. In a negative list approach, barring a few services listed by the government, all others will be taxed. The idea behind moving to a negative list is to ensure there are no unintended tax exemptions. The ministry is of the view that moving towards a negative list by next year itself will prepare the government as well as the industry for a new system before the GST is introduced. The industry, on the other hand, has told the government it is in favour of a negative list, but introducing it only at the Central level will defeat its purpose. States do not have the power to tax services in the existing regime. But, the Constitutional Amendment Bill for the introduction of GST being vetted by a Parliamentary Standing Committee will empower states to do so. (Source: http://www.business-standard.com/india/) Suspicion No Basis for Invoice Rejection, Says Supreme Court The Supreme Court has ruled that the customs department cannot reject the authenticity of the invoice produced by the importers of the consignment on the basis of a mere suspicion. Any doubt about the value of such invoice has to be based on some material evidence and not on a mere suspicion or speculation of the authorities, the apex court said. A mere suspicion upon the correctness of the invoice produced by an importer is not sufficient to reject it as evidence of the value of imported goods. The doubt held by the officer concerned has to be based on some material evidence and is not to be formed on a mere suspicion or speculation, said a bench comprising Justice

DK Jain and Justice SJ Mukhopadhaya in its judgement. The court said, Where the department has a `reason to doubt the truth or accuracy of the declared value, it may ask the importer to provide further explanation to the effect that the declared value represents the total amount actually paid or payable for the imported goods. Needless to add that reason to doubt does not mean reason to suspect. (Source: http://www.economictimes.com) EC Ropes in I-T Dept to Check Poll Funding In a bid to check suspicious transactions, the Election Commission has rolled out fresh guidelines for monitoring of poll funding during the forthcoming elections in five states, including Uttar Pradesh, and has roped in the income tax department and the financial intelligence unit for this purpose. The directives to create a database of doubtful transactions and dubious movement of cash were recently issued by the EC to chief electoral officers of the five states that go to the polls. The EC guidelines on poll expenditure monitoring have been operationalised, a senior official privy to the development said. This is for the first time that the EC has asked the elite financial intelligence unit, functioning under the finance ministry, to sift through their records for any instance of information about the assets and liabilities of candidates participating in the polls. Besides, the I-T (investigation) and FIU will download from EC website the copies of affidavits declaring assets and liabilities by the candidates. The FIU will also verify the information available with them pertaining to the candidates and send the report to the director general of income tax (investigation) of the state through the Central Board of Direct Taxes, the EC said. (Source: http://beta.profit.ndtv.com/news) E-filing of Excise, Service Tax Returns Mandatory Assistant Commissioner of Central Excise Customs and Service Tax G. Sudhakar has said that all the service tax and central excise assesses, who were filing their ST-3 returns manually, will have to file online from now onwards. This new rule is implemented as per the instructions of the Central Board of Customs and Central Excise as on October 1, 2011, he added. Mr. Sudhakar said a hasslefree procedure for filing the returns online has been prescribed. The assesses have to create a user ID for them in ACES website and can proceed to file through the website. Those who have already given their e-mail ID to the concerned Central Excise or Service Tax Range Officers are provided with a TPIN number through e-mail. They can log on to the ACES website using the said TPIN number and create a user ID, he said. He said the assessees who have not given their active or new e-mail to the concerned officers should give them immediately so that e-mails containing TPINs can be sent to them for enabling them to create user ID. Everyone should file only online as the manual filing has been dispensed with. (Source: http://www.thehindubusinessline.com/)

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IFRS Resources List is Updated The IFRS Foundation Education Initiative has updated the list of English language resources about International Financial Reporting Standards (IFRSs) available to accounting practitioners, educators, students, and others who wish to study IFRSs. The list includes resources available from accounting firms, professional bodies, government agencies, commercial publishers, and the IASB itself. The list includes IFRS-based textbooks, is not copyrighted and may be freely reproduced and distributed (without alteration). The latest version may be downloaded from the IFRS Learning Resources page. (Source: http://www.ifrs.org/News) IFAC Releases Revisions to Policy Position Papers One and Three The International Federation of Accountants (IFAC) recently released revised versions of Policy Position Paper 1, Regulation of the Accountancy Profession, and Policy Position Paper 3, International Standard Setting in the Public Interest. Policy Position Paper 1, Regulation of the Accountancy Profession, was first issued by IFAC in December 2007. The revised paper includes a new section titled Current Regulatory Environment. The section highlights the importance of global regulatory convergence, including the adoption and implementation of high-quality standards. It describes recent developments in regulation and makes reference to the Independent Forum of Independent Audit Regulators (IFIAR) Core Principles. Lastly, the revised Policy Position Paper 1 includes a description of what would typically be included in shared regulation of auditing at a national level. Policy Position Paper 3, International Standard Setting in the Public Interest, was issued by IFAC in December 2008. The revised and updated paper describes how current governance arrangements and independent standard-setting boards supported by IFAC operate in the public interest and address the need for legitimacy, transparency, and performance. It further includes discussion of the 2010 Monitoring Group (MG) review. (Source: http://press.ifac.org/news) Comments Invited on 5 Draft Q&As for the IFRS for SMEs The SME Implementation Group (SMEIG) recently published five draft Questions & Answers (Q&As) on the IFRS for SMEs. These draft Q&As are open for comment until 30th November, 2011 and cover the following topics: Application of the IFRS for SMEs for financial periods ending before the IFRS for SMEs was issued Interpretation of undue cost or effort and impracticable, Jurisdiction requires fallback to full IFRSs, Departure from a principle in the IFRS for SMEs, Prescription of the format of financial statements by local regulation. The SMEIG is responsible for assisting the IASB on matters relating to the implementation of the IFRS for SMEs, which is a self-contained standard designed to meet the needs and capabilities of small and medium-sized entities. The SMEIG is currently reviewing comments received on three other draft Q&As, for which the comment period ended in June 2011. (Source: http://www.ifrs.org/News) G20 Finance Ministers Focus on Global Economic Risks, Re-affirm Commitment to Global Standards The G20 Finance Ministers and Central Bank Governors, in a recent meet in Paris, focused on heightened tensions and significant downside risks for the global economy that need

to be addressed decisively to restore confidence, financial stability and growth. The communiqu released outlines various responses and reforms in the financial sector, including in relation to over the counter (OTC) derivatives, Basel reforms on banking regulation and reducing over-reliance on external credit ratings. The communiqu also notes the reaffirming of the objective to achieve a single set of high quality global accounting standards, without providing any documented deadlines for achieving the objective. (Source: http://www.iasplus.com/) IESBA 2011-2012 Strategy and Work Plan Approved The 2011-2012 International Ethics Standards Board for Accountants (IESBA) Strategy and Work Plan, which sets the direction and priorities for the activities of the International Ethics Standards Board for Accountants (IESBA), has been approved by the IESBA, the IESBA Consultative Advisory Group, and the Public Interest Oversight Board. The IESBA plans to build upon the strong base established by the revised Code of Ethics for Professional Accountants (the IESBA Code) issued in July 2009. The 2011-2012 Strategy and Work Plan is focused on three strategic areas: development of standards; adoption and implementation; and convergence. The IESBA plans to develop additional guidance for professional accountants on identifying and addressing a conflict of interest, responding to suspected illegal acts, and dealing with a breach of an independence requirement of the IESBA Code. The plan may be accessed from www.ifac.org/Ethics. (Source: http://press.ifac.org/news) Cross-Industry Taskforce Calls on G-20 to Promote Economic Stability Through Regulatory Convergence IFAC has released the Private Sector Taskforce (PSTF) Report to G-20 Deputies. The PSTF report presents a set of recommendations on how to promote regulatory convergence from the perspective of a number of financial professions and industries. The PSTF was established in May 2011 at the request of the Presidency of the G-20. The report provides the G-20 with an analysis of the development of financial policy and regulation, with the aim of facilitating economic stability in the worlds capital markets. The benefits of regulatory convergence are identified, as well as the inefficiencies and associated costs created by regulatory gaps. A range of possible scenarios and associated risks are thoroughly analysed and explored, specific examples are given, and a set of recommendations are provided. Coordinated by the IFAC, the taskforce includes CFA Institute (CFA I); INSOL International; Institute of International Finance (IIF); International Accounting Standards Board (IASB); International Actuarial Association (IAA); International Corporate Governance Network (ICGN); International Insurance Society (IIS); and International Valuation Standards Council (IVSC). The report stresses the necessity of open communication and transparent processes, as well as continued cooperation between national and regional regulators and professional and industry groups, in order to further develop global standards. The PTSF report with the full recommendations is posted on the IFAC website. (Source: http://press.ifac.org/news) IASB Updates June 2011 Editorial Corrections to IFRSs The IASB has posted to its website a revised version of the batch of Editorial Corrections to IFRSs originally issued on

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29th June, 2011. This batch makes editorial corrections and changes to IFRS for SMEs (issued July 2009), Conceptual Framework for Financial Reporting (issued September 2010), Bound Volume (Red Book) 2011, Bound Volume (Blue Book) 2011, IFRS 10 Consolidated Financial Statements (issued May 2011), IFRS 11 Joint Arrangements (issued May 2011), IAS 19 Employee Benefits (issued June 2011) and Presentation of Items of Other Comprehensive Income (issued June 2011). (Source: http://www.iasplus.com/) IFAC Updates Policy Statements on Regulation and Standard Setting The International Federation of Accountants (IFAC) has released revised versions of its Policy Position Papers on the regulation of the accountancy profession and international standard setting. Policy Position Paper 1, Regulation of the Accountancy Profession, was first issued by IFAC in December 2007. The revised paper includes a new section highlighting the importance of global regulatory convergence, including the adoption and implementation of high-quality standards. IFAC recognises that regulation of the accountancy profession is primarily conducted at a national level. Therefore, in IFACs view, to achieve international convergence, national regulation should aim to endorse and implement principles, approaches, and obligations outlined in material issued by authoritative international bodies. Policy Position Paper 3, International Standard Setting in the Public Interest, was issued by IFAC in December 2008. The revised and updated paper describes how current governance arrangements and independent standardsetting boards supported by IFAC operate in the public interest and address the need for legitimacy, transparency, and performance. The paper includes a brief history of IFACs governance structure (such as the IFAC Reforms) and notes that the IFAC Board is considering amendments to the governance process of the International Public Sector Accounting Standards Board (IPSASB), including the possibility of public oversight by the Public Interest Oversight Board (PIOB). (Source: http://www.iasplus.com) 28th session of UNCTADs Intergovernmental Working Group of Experts on ISAR The twenty-eighth session of the Intergovernmental Working Group of Experts on International Standards of Accounting and Reporting (ISAR) was recently held in Geneva. ISAR assists developing countries and economies in transition to implement best practices in corporate transparency and accounting in order to facilitate investment flows and economic development. ISARs annual sessions regularly involve over 200 government authorities, regulators, standard-setters and academic representatives. Speeches and presentations at the session included contributions from ACCA, IAESB, IFAC, IFRS Foundation and the World Bank. They are available on this UNCTAD website. (Source: http://www.iasplus.com) Audit Alert on Audit Risks in Certain Emerging Markets The US Public Company Accounting Oversight Board (PCAOB) has issued a Staff Audit Practice Alert to discuss the auditors responsibilities regarding the risk of fraud when auditing companies with operations in emerging markets. Staff Audit Practice Alert No. 8 Audit Risks in Certain Emerging Markets discusses examples of conditions that may indicate greater fraud

risks, procedures auditors should perform to address fraud risks and other items auditors should consider when performing an audit of an entity with operations in emerging markets. (Source: http://www.iasplus.com) UK Government Considers Reducing SME Reporting Requirements The UK government has issued a proposal that would see reduced financial reporting requirements for SMEs in order to save companies on accounting fees and administrative costs. The consultation Audit Exemptions and Change of Accounting Framework by the Department for Business, Innovation and Skills sets out plans to allow more small companies and subsidiaries to decide whether or not to have an audit. The government is also proposing to introduce legislation in 2012 to exempt most subsidiary companies from mandatory audit, provided their parent is prepared to guarantee their debts. Currently in the UK, SMEs have to meet turnover and balance sheet thresholds to be exempt from audit. Under the new proposals, UK SMEs would be eligible for audit exemption by meeting any two of the three criteria - turnover, balance sheet total and number of employees. The Minister for Corporate Governance said that the volume and costs of reporting requirements for UK companies have increased and businesses have stressed the need for more flexible and targeted rules. (Source: http://www.vrl-financial-news.com/) Study Finds the Global Financial Crisis has Increased Support for IFRSs The Association of Chartered Certified Accountants (ACCA) has published a survey showing among other results that the International Financial Reporting Standards (IFRS) are more favourably viewed following the global financial crisis. 163 senior executives from a wide range of industries, including the financial sector, from the US, Europe, the Middle East and Asia took part in the survey that was designed to gauge support for of global standards. The findings were complemented with in-depth interviews with nine executives and investors. The US Securities and Exchange Commission should adopt the IFRSs is a clear sign as commented in the foreword of the study. (Source: http://www.iasplus.com) FRC to Improve Corporate Reporting The UK Financial Reporting Council (FRC) has launched a Financial Reporting Lab intended for Corporates and investors to develop pragmatic solutions to current reporting needs. The project aims help enhance the current reporting model that has been criticised by some stakeholders and investors, who said company reports are sometimes leaving them struggling to understand the underlying performance of an entity. FRC said the participants in the project will be drawn from a diverse range of sectors and will include investors and representatives from a range of companies. The Financial Reporting Lab will present a safe environment where companies and stakeholders can help improve the efficiency of corporate reporting and the project will take a large part of the cost and risk out of the process of innovation and reduce the need for regulatory intervention as per a chief executive of FRC. Disclosure requirements were also a topic broached at the launch with many questioning whether certain parts of the annual report, such as governance and risk management could be moved online. (Source: http://www.vrl-financial-news.com/)

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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 Accounting Standards: Gaps in GAAP What is Substantial Period of Time? by Dolphy Dsouza. BCAJ, Sep. 2011, pp.8990. Camouflage Accounting by Anand Adhikari. Business Today, Sep. 18, 2011, pp.144-150. Critical Accounting Policy Disclosures by C.B. Levine & M.J. Smith. Journal of Accounting, Auditing & Finance, Vol.26 /3, 2011, pp.39-75. Discussion of The importance of Accounting Information in Portfolio Optimization by Suresh Govindaraj. Journal of Accounting, Auditing & Finance, Vol.26 /3, 2011, pp. 35-38. Financial Reporting Quality & Investment Efficiency of Private Firms in Emerging Markets by Feng Chen, etc. The Accounting Review, Vol.86/4, 2011, pp.1255-1288. From Published Accounts by H.V. Kishnadwala. BCAJ, Sep. 2011, pp. 91-99. IFRS 13 : Part 1 by Stephen Spector. CGA Magazine, Sep. Oct. 2011, pp.36-37. IFRS Introduces Framework for Measuring Fair Values by Jamil Khatri & Akeel Master. BCAJ, Sep. 2011, pp. 85-88. Modeling Discretionary Accrual Reversal & The Balance Sheet as an Earnings Management Constraint by W.R. Baber, etc. The Accounting Review, Vol. 86/4, 2011, pp. 1189-1212. XBRL Future Financial Language by Anik R. Koria. BCAJ, Sep. 2011, pp.9-13. 2. AUDITING Audit Regulatory Reform with a Refined Stakeholder Model to Enhance Corporate Governance: Hong Kong Evidence by Philip Law. Corporate Governance, Vol.11/2, 2011, pp. 123135. The Effects of Corporate Governance & Audit & Non-audit Fees on IPO Value by Salim Chahine. The British Accounting Review, Vol.43, 2011, pp. 155-172. Internal Control Disclosures, Monitoring, & The Cost of Debt by Dan Dhaliwal, etc. The Accounting Review, Vol.86/4, 2011, pp.1131-1156. Monitoring by Auditors: The Case of Public Housing Authorities by Barbara Murray Grein & S. L. Tate. The Accounting Review, Vol.86/4, 2011, pp.1289-1319. Regulating Audit Beyond the Crisis: A Critical Discussion of the EU green Paper by Christopher Humphrey, etc. European Accounting Review, Vol.20/3, 2011, pp. 431-457. Risk-based Auditing, Strategic Prompts, & Auditor Sensitivity to the Strategic Risk of Fraud by Kendall Bowlin. The Accounting Review, Vol. 86/4, 2011, pp. 1231-1253. Small & Large Firm Regulatory Costs: The Case of the Sarbanes-Oxley Act by James A. Millar & B. Wade Bowen. Corporate Governance, Vol.11/2, 2011, pp. 161-170. UK Investors Perceptions of Auditor Independence by Eleanor Dart. The British Accounting Review, Vol.43, 2011, pp.173-185. 3. ECONOMICS Corporate Investment: Growth in 2010-11 & Prospects for 2011-12 by Department of Statistics & Information management. RBI Bulletin, Sep. 2011, pp. 1223-1231. Global Capitalism at Risk: What Are You Doing About It ? by Joseph L. Bower, etc. Harvard Business Review, Sep. 2011, pp. 105-110. Liberalization, Privatization & Globalization of Education: An Assessment by Hema Raghavan. University News, Sep. 1218, 2011, pp.8-10. 4. INVESTMENT Demutualisation of Stock Exchanges: A Study of MCX-SX by S.N. C. Sastry & Nandini Seth. Company Law Journal, Vol.3, 2011, pp. 127-139. Participatory notes & their resultant impact on Stock Markets by A.S. Dalal. Company Law Journal, Vol.3, 2011, pp.97-98. 5. MANAGEMENT Corporate Governance & board equity ownership by T.M. Pergola & G.W. Joseph. Corporate Governance, Vol.11/2, 2011, pp.200-213. Corporate Governance & Capital Flows by Giuseppina Talamo. Corporate Governance, Vol.11/3, 2011, pp. 228-243. Corporate Governance in a Developing Economy: Barriers, Issues, & Implications for Firms by John O. Okpara. Corporate Governance, Vol.11/2, 2011, pp. 184-199. Corporate Governance: MCAS Green Initiative by S. Balakrishnan. Consolidated Commercial Digest, 15/09/2011, pp.10-12. Corporate Governance Then & Now by Andrew Ewe. Public Accountants, Aug.-Sep. 2011, pp.22-24. The Four Steps to Corporate Sustainability by Om Prakash Dani & M.S. Srinivasan. Chartered Secretary, Sep. 2011, pp.1197-1201. The Incorporation of Ethics by Mindy Abramowitz. CGA Magazine, Sep.-Oct. 2011, pp. 50-51. New Perspective for the Management of M&A Process: A Merger Case of a Japanese Pharmaceutical Company by Sotaro Shibayama, etc. Corporate Governance, Vol.11/1, 2011, pp.77-89. Speculative Expectations & Financial Instabilities: When the Competitive Environment Matters by Miia Parnaudeau. Corporate Governance, Vol.11/3, 2011, pp.285-292. Universal Standards in CSR: Are We Prepared by Adefolake Adeyeye. Corporate Governance, Vol.11/1, 2011, pp.107-119.

ACCOUNTANTS BROWSER

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
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Ethical Issues in Question-Answer Form Q. Whether an auditor is required to provide the client or other auditor of the same enterprise access to his audit working papers? A. No, working papers are the property of an auditor. An auditor is not required to provide the client access to his audit working papers. The main auditors of an enterprise do not have right of access to the audit working papers of the branch auditors, except in case it is required by the regulatory norms. Q. Whether a joint auditor will be responsible for the work done by other joint auditor? A. Council direction under Clause (2) of Part I of the Second Schedule to the CA Act prescribes that in respect of audit work divided among the joint auditors, each joint auditor is responsible only for the work allocated to him, whether or not he has prepared a separate report on the work performed by him. However, on the other hand, all the joint auditors are jointly and severally responsible for the work which is not inter se divided among the auditors, and also for compliance of requirements of relevant statutes. Q. Whether the member in practice will be liable if he permits his name or the name of his firm to be used in connection with an estimate of earnings contingent upon future transactions in a manner which may lead to the belief that he vouches for the accuracy of the forecast? A. Yes, he shall be liable under Clause (3) of Part I of the Second Schedule to the CA Act. Q. Can a member in practice express his opinion on financial statements of any business or enterprises in which he, his firm or a partner in his firm has a substantial interest? A. No, as per Clause (4) of Part I of the Second Schedule to the CA Act, a Chartered Accountant in practice shall be deemed to be guilty of professional misconduct, if he expresses his opinion on financial statements of any business or any enterprise
*

in which he, his firm or a partner in his firm has substantial interest. (vide amendment in the CA Act in 2006, even after disclosure of interest by the member, expression of opinion is not allowed.) The meaning of the word substantial interest shall be the same as are contained in the Resolution passed by the Council in pursuance to Regulation 190A of CA Regulations (Pl. refer Appendix-9 of the CA Regulations, 1988.) Q. Whether a member in practice will be held liable for failing to keep moneys of his client in a separate banking account or to use such moneys for purposes other than they are intended for? A. Yes, as per Clause (10) of Part I of Second Schedule to the CA Act, a member in practice shall be deemed to be guilty of professional misconduct, if he fails to keep monies of his client other than fees or remuneration or money meant to be expended in a separate banking account or uses such monies for purposes other than they are intended for. Q. Can an auditor write the books of accounts of the auditee? A. No, Council directions under Clause (4) of Part I of the Second Schedule to the CA Act prescribes that an auditor is not permitted to write the books of accounts of his auditee clients. Q. Whether a statutory auditor can accept the system audit of same entity? A. Yes, the statutory auditor can accept the assignment of a system audit of the same entity, provided it did not involve any scrutiny/review of financial data and information. Q. Whether a member who is carrying out statutory audit and also rendering management consultancy services to his auditee clients can receive fees for such other services, which are in excess of the audit fees? A. Yes. However, in exercise of the powers conferred by Clause (1) of Part II of the Second Schedule to the CA Act, the Council of the Institute has issued

Contributed by the Ethical Standards Board of the ICAI

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Guidelines which specify that a member of the Institute in practice shall be deemed to be guilty of professional misconduct, if he accepts the appointment as statutory auditor of Public Sector Undertaking(s)/ Government Company(ies)/ Listed Company(ies) and other Public Company(ies) having turnover of R50 crore or more in a year and accepts any other work(s) or assignment(s) or service(s) in regard to the same Undertaking(s)/ Company(ies) on a remuneration which in aggregate exceeds the fee payable for carrying out the statutory audit of the same Undertaking/company. Provided that in case appointing authority(ies)/regulatory body(ies) specify(ies) more stringent condition(s)/ restriction(s), the same shall apply instead of the conditions/restrictions specified under the Guidelines. Explanation: 1. The above restrictions shall apply in respect of fees for other work(s) or service(s) or assignment(s) payable to the statutory auditors and their associate concern(s) put together; 2. For the above purpose, (I) The term other work(s) or service(s) or assignment(s) shall include Management Consultancy and all other professional services permitted by the Council pursuant to Section 2(2)(iv) of the CA Act, but shall not include: (i) audit under any other statute; (ii) certification work required to be done by the statutory auditors; and (iii) any representation before an authority. (II) The term associate concern means any corporate body or partnership firm which renders the Management Consultancy and all other professional services permitted by the Council wherein the proprietor and/ or partner(s) of the statutory auditor firm and/or their relative(s) is/are Director/s or partner/s and/or jointly or severally hold substantial interest in the said corporate body or partnership; The terms relative and substantial

interest shall have the same meaning as are assigned under Appendix (10) to the CA Regulations. 3. In regard to taking up other work(s) or service(s) or assignment(s) of the undertaking/company referred to above, it shall be open to such associate concern or corporate body to render such work(s) or service(s) or assignment(s) so long as aggregate remuneration for such other work(s) or service(s) or assignment(s) payable to the statutory auditor/s together with fees payable to its associate concern(s) or corporate body(ies) do/does not exceed the aggregate of fee payable for carrying out the statutory audit. Q. Can a Chartered Accountant receive his professional fees in advance partly or in full? A. Yes, as such there is no bar in the CA Act or in the CA Regulations as well as Code of Ethics in taking the fees in advance. Q. Whether a member of the Institute will be liable, if he contravenes any of the provisions of CA Act or the Regulations or the Guidelines? A. Yes, as per Clause (1) of Part II of Second Schedule to the CA Act, a member in practice shall be deemed to be guilty of professional misconduct, if he contravenes any of the provisions of CA Act or the Regulations made under or any Guidelines issued by the Council. Q. Is there any ceiling on the number of tax audit assignment that can be taken up by a member in practice? A. Yes, in exercise of the powers conferred by Clause (1) of Part II of the Second Schedule to the CA Act, the Council of the Institute has issued General Guidelines, 2008 which specify that a member of the Institute in practice shall be deemed to be guilty of professional misconduct, if he accepts, in a financial year, more than the specified number of tax audit assignments under Section 44AB of the Income-tax Act, 1961. The number specified for tax audit is 45. n

(III)

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TECH FOR YOU

Mobile Computing: Business Applications and Chartered Accountants1
list of the 10 most strategic tech trends of 2012 and the top two in the list are: Media Tablets and beyond and Mobile Centric Applications and interfaces. The prediction is that the growth of media tablets will result in replacement of the era of PC dominance with windows as the single platform in a post-PC era where Windows will become one of a variety of environments IT will need to support. Mobile-centric applications and interfaces would lead to building of user interfaces for multiple screen sizes and operating systems increasing the need for new types of tools that can accept data from various applications and usable on multiple devices. By 2014 mobile web users are expected to surpass desktop web users. The proliferation of smart phones, tablet computers, and mobile devices in the workplace emerged for the first time as the top business technology concern for CPAs and financial executives, according to the 2011 Top Technology Initiatives Survey by AICPA.

The Mobile Revolution in India Mobile computing is a new paradigm of computing, which is rapidly gaining momentum. Mobile computing is not just about using mobile phones but it is about computing on the move using wireless connectivity. The National Policy for Electronics 2011 states that IT and Telecommunications are the twin sectors that best epitomise what modern, resurgent and young India is capable of accomplishing. The policy lauds the achievements in the recent past in the IT and Telecom as spectacular and unprecedented in Indias history and forecasts that the future holds even more breathtaking possibilities. This is opening out new opportunities hitherto not envisaged. As of September, 2011, India has over 850 million mobile subscribers with over 90% of villages having mobile coverage. A growing number of private sector services are now being provided either online or via mobile phone. The National e-Governance Plan, is facilitating increasing number of government services to be provided online. An m-governance policy has also been drafted covering services provided via mobile phone. Core banking enables banking from anywhere and basic banking services can be accessed via the mobile phones. E-Services are becoming seamlessly linked through mobile, Internet and other modes of delivery. A pan India Broadband Plan has been initiated with the objective of providing broadband connectivity across the country by 2014, which will propel the mobile revolution in a big way. Evolution of Mobile Computing Mobile computing is enabled by use of mobile devices (portable and hand held computing devices) such as PDA, laptops, mobile phones, MP3 players, digital cameras, tablet PC and Palmtops on a wireless network. At its annual symposium, Gartner unveiled its
1

hartered Accountants as knowledge workers at a personal level are using mobile computing in their own way through smart phones, tablets and broadband wireless connectivity. However, it is important to take the use of mobile devices to next level of using it within their firm and also for providing consulting/ assurance services to clients. This requires understanding how mobile devices are changing the way every type of business operates and how mobile computing can be used to improve business processes and offer new products and services.

Business Applications of Mobile Computing Mobile devices provide the capability to conduct business anywhere and enable users to seamlessly communicate and access information whether they are in the office or anywhere. Mobile computing is changing the business landscape. The change driven largely by video, web-browsing, gaming, and other entertainment related applications is one of the hottest trends in the consumer sector. Mobile computing is rapidly moving from gadget status to a must-have for consumers compelling more and more business services to be offered through this mode. As enterprises rush to encash the cost benefits of global business operations, mobile devices become increasingly indispensable. Mobile computing enables enterprises to connect with their employees at all times resulting in increased productivity and a better return on investments. Some examples of business applications are: There is increase in workforce productivity as mobile device enables employees to work from anywhere, anytime by accessing and updating information as required. For example: employees can read/respond to emails using laptops, PDAs or smart phones from office, residence and even when on the move. Customer service can be improved by responding to customer queries on site or off site. For example: customer complaints can be accessed and responded by accessing past/latest information of client as required. Incident management can be improved by resolving problems faster without limitation of time as the concerned employees can attend to these regardless of their location. Further, escalations can be updated in real time which ensures timely resolution of

Contributed by CA A. Rafeq (The Author is a member of the Institute. He can be reached at rafeq@vsnl.com.)
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problems. For example: Computer breakdowns can be serviced by service engineers from their desks/ outside by logging into the specific computer, identifying problem and resolving it online. Business processes can be transformed by using mobile devices. Enterprises can reengineer core business processes. The new and reengineered processes can focus on utilise the key features of location and time independence. Enterprises can focus on providing customers and employees with access to information in different ways and provide the latest information. This enables employees, customers, and businesses to be available to one another as per their choice. For example: billing can be done by employees using hand held devices at customer site and the information updated online and deliveries to customers can be speeded up. Enterprises can dynamically modify and update their offerings and offer new products and services altogether. For example: enterprises can implement telecommuting with flexible working hours and locations allowing for cost savings and better efficiency.

The key issues to be considered relate to the mobile devices or gadgets to be used/accessed, programming, databases, networking, security, and architecture of information systems including wireless networking and security. It is important to prioritise these technical drivers as per their relative importance while planning the migration. The process dimension has to focus on the how aspect and has to consider the new of model of conducting business transactions by ensuring quality and managing the changing relationships of the business with the customers and employees using mobile technology. The social dimension has to focus on who aspect and has to consider key players involved such as clients, employees, and other users of the business and how they influence, and are influenced by the transition to mobile platform. Mobile Computing and Chartered Accountants IT has created the knowledge worker and this workforce is significantly more mobile and enterprises need to create ways for their employees to get the work done. Mobile computing enables the knowledge worker to work as per their timetable, anywhere, anytime. Chartered Accountants as knowledge workers at a personal level are using mobile computing in their own way through smart phones, tablets and broadband wireless connectivity. However, it is important to take the use of mobile devices to next level of using it within their firm and also for providing consulting/assurance services to clients. This requires understanding how mobile devices are changing the way every type of business operates and how mobile computing can be used to improve business processes and offer new products and services. Mobile computing involves some unique security considerations that can be mitigated through appropriate security measures such as configuration, policy and training. Mobile devices offer a wealth of connectivity, delivering great opportunities if used with proper security measures. Mobile devices tend to be even more personal than personal computers. However, most enterprises are permitting usage of mobile devices for accessing enterprise data. This requires an effective system of mobile device management as these devices hold both personal and corporate data. Hence, it becomes critical for auditors to determine if the enterprise has a mobile

ts only a matter of time before mobile connectivity is as indispensable as the telephone. Chartered Accountants are impacted by usage of this technology by their clients. As increasing number of software applications on accounting, compliance and office automation are available through mobile technology, chartered Accountants have to acquire the requisite skillsets to ride this technology wave to make effective transition to a successful future.
device security policy which clearly defines the data classification permitted on each type of mobile device, control mechanisms required based on the data classification, extent to which general use of personal devices is permitted within work-place, technical controls, back up of data, data management, security features, etc. Conclusion Mobile computing gives users the freedom to roam with access to data and services at any time and place. Most of the high-end ERPs and business software applications for SMEs have inbuilt capabilities of mobile computing enabling users to access data. Used with proper security, enterprises can harness the power of this technology to create innovative opportunities for improving the quality and efficiency of business processes and services. Mobile devices are increasingly acquiring the must-have status for enterprises on account of the increasing acceptance as business tools. Surveys have shown that forward-thinking CA firms are already connecting to their professional colleagues and clients with mobile devices, their staff are bringing them into the office, and its is expected that its only a matter of time before mobile connectivity is as indispensable as the telephone. Chartered Accountants are impacted by usage of this technology by their clients. As increasing number of software applications on accounting, compliance and office automation are available through mobile technology, chartered Accountants have to acquire the requisite skill-sets to ride this technology wave to make effective transition to a successful future. n

Implementing Mobile Computing Enterprises implementing mobile computing have to focus not only on their employees but also on their customers, business partners and service providers to realise the benefits. The key consideration in implementing mobile computing is to focus on improvements in core business processes and functions. This could cover: customer relationship management, supply chain management, procurement process, human resource and payroll systems, system and business process integration, knowledge management, etc. Enterprises planning to implement mobile computing have to consider it at a strategic decision rather than as technology or operational decision. The four key aspects to be considered are the economic, technical, process, and social dimensions. The economic dimension has to focus on the why aspect such as the business drivers, costs, competition, customers, employees, convenience, and cost benefit analysis. The technical dimension has to focus on the what aspect and consider the underlying technologies and the key deliverables.

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ECONOMIC UPDATE

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Certificate Course on Enterprise Risk Management

Course Fees : R25,000

Delhi November 5&6, 12&13, 19&20,2011

Mumbai Kolkata November December 12&13, 3&4, 10&11, 19&20, 17&18,2011 26&27,2011

Kanpur December 10&11, 17&18, 24&25, 2011

Chennai January 7&8, 14&15, 21&22,2012

CPE hrs: 100 hrs (50 hrs structured and 50 unstructured)

The Internal Audit Standards Board (IASB) of the Institute of Chartered Accountants of India (ICAI) has been constituted to reinforce the role of the Institute as a promoter and source of knowledge relating to internal audit. Having regard to the need for further educating the members of the Institute in the area of the Enterprise Risk Management and as part of capacity building of members, the Internal Audit Standards Board of the ICAI is pleased to offer Certificate Course in Enterprise Risk Management to enable the members to develop competence in this emerging field and offer value added services. Course Objectives The Certificate Course on ERM has been designed to help the members: To appreciate the risk as opportunity rather than a threat. To gain in-depth knowledge of ERM under guidance of renowned ERM specialist. To gain insights in ERM implementation from experienced faculties. Bring upto date on current thinking on risk management. To design and implement ERM. This Certificate Course on ERM initiates the members to structural approach toward risk management and manage intricacies of dynamic business environment. Eligibility Only the Members of ICAI and the Student of the Institute who have passed the CA Final Examination are eligible to pursue this Course. Evaluation Participant who successfully completes the course in line with the evaluation criteria mentioned below and qualifies the evaluation test will be awarded Certificate.

Eligibility: A candidate will have to attend a minimum of 40 hours of classes and complete the entire E-learning module, failing which, he/she will not be entitled to appear in the evaluation. Weightage: the following weightage is assigned during evaluation: Class room learning and tests : 50% E-learning : 20% Case study presentation : 20% Class room attendance : 10% Number of attempts: There is no limit on the permissible number of attempts for the evaluation tests. A candidate will be allowed to re-appear for the evaluation test only after six months of the previous attempt. Further Details and Registration Form Link: http://www.icai.org/post.html?post_id=4287 Course Registration is on First-Come-First Served basis on receipt of duly filled-in and signed application along with course fee. Address for sending the Registration Form : Internal Audit Standards Board Secretriat The Institute of Chartered Accountants of India ICAI Bhawan, A-29, Sector 62, NOIDA 201 309 Further Details and Assistance
Course Chairman CA. Rajkumar S. Adukia Chairman, Internal Audit Standards Board Mobile: 09820061049, 09323061049 Phone: 0120-3045949 Email: radukia@icai.org; cia@ icai.org Course Director CA. Rajendra Kumar P . Vice Chairman, Internal Audit Standards Board Mobile: 093823 03403 Phone: 0120-3045949 Email: auditing@icai.org; iasb. program@icai.in

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Certificate Course on Internal Audit

Course Fees : R25,000

Delhi Mumbai November November 19 & 20, 26 & 26 27 and & 27 and December December 3&4 3 & 4, 10 10 &11, &11, 17 17 & 18, &18, and 2011 24 & 25, 2011

Chennai January 14 & 15, 21 &22, 28 & 29, and February 4 & 5, 11 & 12, 2012

Hyderabad Kanpur Kolkata CPE hrs: November November January 100 hrs 5 & 6, 26 & 27 7 & 8, 14 (50 hrs structured and 12 & 13, and & 15, 21 & 50 unstructured) 19 & 20, December 22, 28 26 & 27 3 & 4, & 29, and 10 & 11, and December 17 & 18, February 3 & 4, 2011 and 4 & 5, 24 & 25, 2012 2011 Class room learning and tests : 50% E-learning : 20% Case study presentation : 20% Class room attendance : 10% Number of attempts: There is no limit on the permissible number of attempts for the evaluation tests. A candidate will be allowed to re-appear for the evaluation test only after six months of the previous attempt. Further Details and Registration Form Link: http://www.icai.org/post.html?post_id=7606 Course Registration is on First-Come-First Served basis on receipt of duly filled-in and signed application along with course fee. Address for sending the Registration Form : Internal Audit Standards Board Secretriat The Institute of Chartered Accountants of India ICAI Bhawan A-29, Sector 62, NOIDA 201 309 Further Details and Assistance
Course Chairman CA. Rajkumar S. Adukia Chairman, Internal Audit Standards Board Mobile: 09820061049, 09323061049 Phone: 0120-3045949 Email: radukia@icai.org; cia@ icai.org Course Coordinator CA. Rajendra Kumar P . Vice Chairman, Internal Audit Standards Board Mobile: 093823 03403 Phone: 0120-3045949 Email: auditing@icai.org; iasb. program@icai.in

The Internal Audit Standards Board of the ICAI is pleased to offer Certificate Course on Internal Audit to enable members to understand the various issues relating to the internal audit and in developing the necessary skills to provide value added services in this area. Course Objectives The Certificate Course on Internal Audit has been designed to help the members: Disseminating knowledge on the theory and practice of Internal Audit and allied functions. Reflect current internal audit thinking and practices and how they impact contemporary business enterprises. Enhancing the role of chartered accountants in the area of Internal Audit and allied functions. Building up Internal Audit as a core competence area of chartered accountants. Eligibility Only the Members of ICAI are eligible to pursue this Course. Evaluation Participants who successfully completes the course in line with the evaluation criteria mentioned below and qualifies the evaluation test will be awarded Certificate. Eligibility: A candidate will have to attend a minimum of 42 hours of classes and complete the entire E-learning modules, failing which, he/she will not be entitled to appear in the evaluation. Weightage: the following weightage is assigned during evaluation:

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Articles requested for new feature, Professional Opportunities, of the Journal

This is to inform you that the Editorial Board has decided to start a new feature, Professional Opportunities, specifically for the use of small and medium practitioners (SMPs) of the CA profession covering approximately one to two pages of the Journal, i.e. in 1200 words. This feature will have write-ups including relevant information on the areas which could be targeted by the SMPs for their capacity-building and professional growth. This may also cover particular aspect of problems that SMPs face in their day-to-day affairs, e.g.

In view of the above, you are requested to kindly contribute a relevant write-up in about 1200 words for consideration of the Editorial Board for publication in the Journal. - Editor, The Chartered Accountant, ICAI

retention of talent, office administration, infrastructure set-up, meeting initial capital requirement, documentation, office procedures like filing of client data, etc.

Committee on Public Finance and Government Accounting Invitation to Contribute Articles for E-Newsletter The Committee on Public Finance & Government Accounting of The Institute of Chartered Accountants of India is regularly coming up with its E-Newsletter -Prudence featuring various articles on economic issues and measures on bi-monthly basis. The August-September 2011 issue of the E-Newsletter is available at the URL http://www.icai.org/new_post. html?post_id=3825&c_id=241. The Committee invites experts, researchers and writers to contribute articles in different areas of Public Finance and Government Accounting preferably on Public Debt, Public Expenditure, Fiscal Policy, Monetary Policy, Accounting Reforms, Accrual Accounting, Accounting for Intangible Assets and Restructuring of Chart of Accounts in Accrual System in Public Sector for publication in the OctoberNovember 2011 issue of its E-newsletter. If the article is published, a token honorarium of R3000/per article shall be paid. Discretion of the Committee regarding publication/non-publication of the article shall be final and abiding therewith under copyright of the Committee. Material of this E-Newsletter may not be reproduced, whether in part or in whole, without the consent of Editorial Board of Committee. Authors may only submit original work that has not been appeared elsewhere in any publication. The articles (500 to 700 words) may be sent to us latest by 10th November, 2011 in the form of soft copy through mail/CD or in printed format through post giving details of the subject matter. Those desirous may please contact at the following address: The Secretary Committee on Public Finance and Government Accounting The Institute of Chartered Accountants of India ICAI Bhawan, A-29, Sector-62, Noida - 201 309 Phone: 0120-3045950(O) Email: cpf_ga@icai.org

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Invitation for Contribution of Questions for ISA-AT Question Bank

The Information Systems Audit Assessment Test (ISA-AT) is an objective type test having multiple choices and contains 200 questions carrying 200 marks. The time allowed for answering 200 questions is four hours. The aforesaid Test is meant for the members of the Institute to enable them to develop understanding in the field of Information Systems Audit. With a view to develop the Question Bank for the various Modules spread over the Syllabus of the ISA-AT, it has been decided to invite questions from Chartered Accountants/experts working in various organisations/ institutions. The titles of these Modules prescribed in the Syllabus are given hereunder:
Module No. Module Title

1. 2. 3. 4. 5. 6.

Information Technology Infrastructure & Communication/Networking Technology Protecting Information Assets Systems Development. Life Cycle & Application Details Business Continuity Planning Information Systems Organisation & Management

Information Systems Control & Audit Process The contributor can contribute as many questions as he/she can, but in a lot of minimum of 50 questions on the aforesaid modules in the following manner:Name of the module: Q.No. 01 Question and answer options Answer (For example)

Question description.. A) Option A B) Option B C C) Option C D) Option D

02 ........ 50 While framing the questions, the contributors have

to prepare the questions for individual modules in separate files/documents. The questions should cover all the sub chapters or aspects of the syllabus and be free from any ambiguity, doubt etc. The question should convey the same meaning which you intend to convey. It is also essential that proper care is taken in framing the questions and options (answers) provided below the questions. The solution (correct answer) to each option (answer) given as per the above format. The copyrights of the questions as well as answers so submitted shall vest with the Council of the Institute. The contributor of the questions shall ensure that the questions so submitted to the Institute are not parted with by him/her to any other Body/Person and shall be meant only for the exclusive use by the Council of the Institute. It may please be noted that the questions framed by you should be original and not already published in some books or journals or study material of the Institute or reference/text books available in the market or also from question papers of any other examinations or material distributed by any coaching institution. The requirement is the questions that are original and framed with the meticulous care and genuinely. For each question framed and forwarded and accepted by the Council of the Institute for developing a Question Bank of ISA-AT, R500/- per question selected/accepted will be paid as honorarium. In addition to honorarium payable towards questions selected, R100/- (fixed) will be paid for other services also. The questions may be sent in a sealed envelope superscribed Question Bank ISA-AT to Shri G. Somasekhar, Additional Secretary (Exams), The Institute of Chartered Accountants of India, ICAI Bhawan, Indraprastha Marg, New Delhi 110002 by name or by e-mail to srdd_exam@icai.in. While sending the questions by post/mail, please mention your name and complete postal address alongwith contact details including mobile number. All correspondence on the subject should be treated as secret. Interested persons may kindly contribute to the Question Bank of ISA-AT. Sd/(G. Somasekhar) Additional Secretary (Exams.)

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Contribution to the Question Bank of CPT The Common Proficiency Test (CPT) is an entry level test meant for 10+2 students to the Chartered Accountancy Profession having multiple choice objective questions. The level of knowledge expected is basic knowledge with the objective to develop conceptual understanding of the subject concerned. With a view to augment the Question Bank in the Subjects of Accounting/Mercantile Laws/General Economics/Quantitative Aptitude of Common Proficiency Test, it has been decided to invite questions from Chartered Accountants/Subject experts working in various Colleges/Universities/Public/Students pursuing Chartered Accountancy Course etc. The contributor can contribute as many questions as he/she can, but in a lot of minimum of 20 questions in the subjects of Accounting/Mercantile Laws/General Economics/Quantitative Aptitude in the following manner: The questions should be of objective with four probable answers for each question. The correct answer for each question is also required to be given. Fill in the blanks having four alternative answers. Small paragraph containing two to three lines followed by a question having four alternative answers. Numerical having four alternative answers (in Fundamentals of Accounting, Mathematics and Statistics). Simply worded Case studies involving multiple concepts be also prepared. The case study could be something like a practical situation described in 3 to 4 lines in simple language with application of single/multiple concepts and requiring students to choose one answer from amongst four answers whereby the analytical/ logical ability and intelligence of the students is tested. Since the CPT is an entry level Test meant for 10+2 students, the level of knowledge expected is basic knowledge and the questions should be aimed at testing the conceptual understanding and fundamentals of the subject than merely testing the memory of candidates. The difficulty level of the questions should be of 10+2 level and capable of being answered/solved in less than one minute. While framing the questions, the questions be framed in such a manner that each one of the four answers given for a particular question, per se, appear to be the right answer thereby requiring the candidate to use his analytical ability to find the correct answer. The language of the questions to be sent should be English only and is clear, correct, unambiguous and free from any doubt. The language conveys the same meaning as was intended by you. The copyrights of the questions so submitted shall vest with the Council of the Institute. The contributor of the questions shall ensure that the questions so submitted to the Institute are not parted with by him/her to any other Body/Person and shall be meant only for the exclusive use by the Council of the Institute. It may please be noted that the questions framed by you should be original and not already published in some books or journals or study material of the Institute or reference/ text books available in the market or also from question papers of any other examinations or material distributed by any coaching institution. The requirement is the questions that are original and framed with the meticulous care and genuinely. For each question framed and forwarded and accepted by the Council of the Institute for augmentation of the Question Bank of CPT, R250/per question selected/accepted will be paid as honorarium. In addition to honorarium payable towards questions selected, R100/- (fixed) will be paid for other services also. The questions may be sent in a sealed envelope superscribed Question Bank CPT to Shri G. Somasekhar, Additional Secretary (Exams),The Institute of Chartered Accountants of India, Indraprastha Marg, New Delhi 110002 by name or by e-mail to srdd_exam@ icai.in While sending the questions by post/mail, please mention your name and complete postal address alongwith contact details including mobile number. All correspondence on the subject should be treated as secret. Interested persons may kindly contribute to the Question Bank of CPT. (G. Somasekhar) Additional Secretary(Exams)

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E-learning Courses on Service Tax and Transfer Pricing

The Committee has introduced e-Learning/Computer Based Training (CBT) courses to enable members to learn and develop at their convenience, considering the potential, reach and benefits of e-Learning. These courses aim to promote greater level of quality education and training medium on an All India basis. Further details are available on the Institute website

at http://elearn.icai.org. After completion of these courses, member will get two CPE hours for each of these two courses. These courses are restarted and updated till April 2011. Please contact 0120-3045961 or elearn@icai.in for further details/clarifications/registration.

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CMII forms 50th CPE Study Circle for Members in Industry

It is always the endeavour of ICAI to update its members about the changes taking place in various statutes, share the knowledge on various new techniques and sharpen their skills on various professional matters. So, the ICAI in 2008 made Continuing Professional Education mandatory for Members in Industry to earn minimum number of CPE Credit Hours by attending the programmes of academic/professional interest organized by ICAI and its organs. ICAI has notified the norms for CPE Study Circles, which caters exclusively for the members in Industry. These CPE Study Circles are being contemplated to help Members who are in Industry in industry to achieve the objectives of maintaining their core competencies and exchange professional knowledge amongst the members apart from fostering and developing fellowship. Please visit http://www.cmii.icai.org/cpe. asp to see the entire norms of the CPE Study Circle for Members in Industry. The Committee for Members in Industry (CMII) has been empowered to approve, guide and supervise the CPE Study Circles for Members in Industry, which will conduct Continuing Professional Education Programmes for the Members in industry. The norms provide for the minimum number of members required and the application procedure, rules for functioning, administration and accounts of these CPE Study Circles. 50 CPE Study Circle for Members in Industry have already been formed so far by the CMII. List of CPE Study Circles formed so far
SR. No. 1. 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 Name Of the CPE Study Circle Reay Road CPE Study Circle Nungambakkam CPE Study Circle Electronic City, Bangalore CPE Study Circle Vittal Mallya Road, CPE Study Circle WCS-IT PARK-PUNE CPE Study Circle North Delhi Hudson Line CPE Study Circle. Cenotaph CPE Study Circle Perungudi CPE Study Circle. Urja CPE Study Circle Barakhamba Road CPE Study Circle Surat (Hazira) CPE Study Circle Gulmohar Road, Mumbai CPE Study Circle Power Transmission CPE Study Circle Bangalore Outer Ring Road ITES Industry CPE Study Circle Dairy Circle, CPE Study Circle Lodhi Road CPE Study Study Circle Location Mumbai Tamil Nadu Bangalore Bangalore Pune Delhi Chennnai Chennai Noida New Delhi Surat (Hazira) Mumbai Mumbai Bangalore Bangalore New Delhi

SR. No. 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50

Name Of the CPE Study Circle Pharma Sector CPE Study Circle Sriperumbudur CPE Study Circle Udyog Vihar CPE Study Circle kandivali (E) CPE Study Circle Rishra CPE Study Circle MG Road, Bangalore CPE Study Circle Automobile Industry CPE Study Circle Cybercity IV, Magarpatta CPE Study Circle Santacruz CPE Study Circle Kanjur Marg (E), Mumbai CPE Study Circle Kailasapuram CPE Study Circle Naurang House, CPE Study Circle Ukkunagaram CPE Study Circle NTEC CPE Study Circle Rajaji Salai, Chennai CPE Study Circle Gurgaon, DLF, Phase II CPE Study Circle. Automotive CPE Study Circle Veera Desai CPE Study Circle Gachibowli CPE Study Circle Mumbai Vikroli, ITES CPE Study Circle Life Insurance, Mumbai CPE Study Circle Sushant Lok, Gurgaon CPE Study Circle T. Nagar, Chennai (Irevna) CPE Study Circle. Defence Electronics CPE Study Circle Bannerghatta Road Information Technology CPE Study Circle Vadodra CPE Study Circle Power Sector CPE Study Circle Leela Business Park CPE Study Circle Worli Mumbai CPE Study Circle Powai CPE Study Circle Siri Fort CPE Study Cirle

Location Noida Tamil Nadu Gurgaon Mumbai Kolkata Bangalore Gurgaon Pune Mumbai Mumbai Tamil Nadu New Delhi Visakhapatnam Kolkata Chennai Gurgaon delhi Mumbai Hyderabad Mumbai Mumbai Gurgaon Chennai Bangalore Chennai Ahmedabad New Delhi Mumbai Mumbai Mumbai New Delhi

Banking & Financial Services CPE Study Mumbai Circle Saket CPE Study Circle New Delhi Sarjapur Road CPE Study Circle Bangalore

We request the members serving in industry to come forward to form CPE study circle in their organisation/ locality. For further clarification, kindly contact Dr. Surinder Pal, Secretary, Committee for Members in Industry at 011-30110491, cmii@icai.in Chairman Committee for Members in Industry, ICAI

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New Publications from the Auditing and Assurance Standards Board 2011 Edition of the Handbook of Auditing Pronouncements Ordering Information The publication can be purchased directly from the Sales Counters at the ICAIs 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 audit considerations and procedures for complex financial instruments. Comprehensively deals with various aspects relating to valuation, presentation and disclosure of complex financial instruments. Illustrative disclosures requirements for complex financial instruments in the Appendix. Illustrative procedures for audit of complex financial instruments in the Appendix. It comes with a CD of the entire guide to provide ease of reference. Price R150/- (including CD) Ordering Information The publication can be purchased directly from the Sales Counters at the ICAIs 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 Guidance Note on Certification of XBRL Financial Statements Objective of the Guidance Note: To provide guidance to the practitioners in certification of XBRL financial statements in terms of the requirements of the MCAs General Circular No. 57/
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Contains text of the Engagement and Quality Control Standards, Statements and Guidance Notes on auditing, issued by the ICAI as on October 1, 2011. Divided in three volumes: Volume I.A: Compendium of Standards (approx. 1200 pages) (Contains text of the Preface, Glossary of Terms, Framework for Assurance Engagements, Standards on Quality Control, Standards on Auditing, Standards on Review Engagements, Standards on Assurance Engagements and Standards on Related Services) Volume I.B: Compendium of Statements on Auditing (approx. 280 pages) (Contains text of the Statements on Auditing) Volume II: Compendium of Guidance Notes (approx. 620 pages) (Contains text of the Guidance Notes on Auditing) MAJOR ADDITIONS VIS A VIS 2010 EDITION Text of the Standard on Assurance Engagements (SAE) 3402, Assurance Reports on Controls at a Service Organisation. Text of the Guidance Note on Audit of Property, Plant and Equipment. Price All the three volumes of the Handbook come in a single box pack alongwith a CD containing text of the entire Handbook. The complete Box pack of the Handbook is priced at R900/-.

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2011 dated July 28, 2011 read with MCAs General Circular No. 43/2011 dated July 07, 2011 which require certification of financial statements prepared in XBRL mode for filing vide Forms 23AC-XBRL and 23ACAXBRL on MCA-21 portal by, inter alia, a Chartered Accountant. Significant features of the Guidance Note are: Written in simple and easy to understand language. Comprehensive guidance on various aspects of certification of XBRL financial instruments. Guidance on responsibility of the management for XBRL financial statements, the general approach to preparation of XBRL financial statements, responsibility of the practitioner regarding

certification and the various procedures for certification. The Appendices to the Guidance Note contain: glossary of XBRL related terms. text of relevant circulars of MCA. XBRL tool features. illustrative engagement letter for the certification engagement. illustrative management representation letter. illustrative format of certificate on XBRL financial statements. Forms 23ACXBRL and 23ACA- XBRL prescribed by MCA for filing returns by companies. The Guidance Note comes with a CD of the entire guidance note to provide ease of reference. Price R100/- (including CD) Ordering Information The publication can be purchased directly from the Sales Counters at the ICAIs 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

New Publication from the Research Committee Study on Manner of IFRS Implementation in EU and Current Status of IFRS Implementation in Select Countries The Research Committee has brought out the publication Study on manner of IFRS Implementation in EU and Current Status of IFRS Implementation in Select Countries. This publication is a study of the manner of adoption of IFRSs in select economies, specifically EU, with a view to provide an insight of the processes that were adopted for the purpose of IFRS implementation by the countries covered in the study. It also provides the status till the year 2010, of IFRS implementation by key EU member countries and few select countries like Australia, Canada, Brazil etc. Ordering Information: Price R230/Postal Charges R35/- (plus R17/-, if required by Available at registered parcel) Sale counters of the Institute of Chartered Accountants of India at New Delhi, Chennai, Mumbai, Kolkata and Kanpur. Copies can also be obtained by post. To order by post, request may be sent along with a demand draft for the amount of the price of the publication plus the postal charges in favour of The Secretary, The Institute of Chartered Accountants of India, payable at New Delhi, to the Postal Sales Department, The Institute of Chartered Accountants of India, ICAI Bhawan, A-29, Sector-62, Noida 201301 (U.P).

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Announcement regarding compliance with paragraphs 61 and 62 of the Standard on Review Engagements (SRE) 2410

1. The Council of the Institute of Chartered Accountants of India, at its 308th meeting, considered an issue relating to difficulties being faced by the members of the Institute in compliance with paragraphs 61 and 62 of the SRE 2410, Review of Interim Financial Information Performed by the Independent Auditor of the Entity, raised by the Auditing and Assurance Standards Board of the Institute. 2. The Council noted that paragraphs 61 and 62 of SRE 2410 require as under: 61. The terms of the engagement include managements agreement that where any document containing interim financial information indicates that such information has been reviewed by the entitys auditor, the review report will also be included in the document. If management has not included the review report in the document, the auditor considers seeking legal advice to assist in determining the appropriate course of action in the circumstances. 62. If the auditor has issued a modified review report and management issues the interim financial information without including the modified review report in the document containing the interim financial information, the auditor considers seeking legal advice to assist in determining the appropriate course of action in the circumstances, and the possibility of resigning from the appointment to audit the annual financial statements. 3. The Council noted that a number of entities were publishing interim financial results with a declaration that the results have been approved by the Board of Directors at its meeting held on xxxxx and have been subjected to limited review by the statutory auditors. The companies, however, were not publishing the review report along with such published results. Accordingly, it was either that the auditors had not obtained an agreement with the management that they would publish the review report along with the reviewed

results or that despite the said agreement, the management had not complied therewith. The Council noted that in the latter cases, the auditor would be penalised under the requirements of SRE 2410 even when the default/ breach had been committed by the management. 4. The Council was of the view that it is not practically feasible for the auditor to ensure that every document released by the management containing the interim financial information indicating that such information has been reviewed by the entitys auditor, the review report has been included in the said document. 5. On a consideration of the matter, the Council is of the opinion that paragraphs 61 and 62 did not envisage the auditor to take steps to ensure that on every occasion when the review results were published by the management, it also published the review report therewith. The responsibility of the auditor was upto issuance of the review report on the results, at most till the time the interim results, along with the review report, were filed by the company with the concerned stock exchange. Further, since such filing led to the concerned interim results and the review report thereon becoming available in the public domain, the same would be construed as sufficient compliance by the auditor with the requirements of paragraphs 61 and 62 of SRE 2410. 6. The Council, however, felt that if, subsequent to the issuance of the review report, the auditor became aware of situations where the management had not published the review report especially where the review report contained auditors reservations, he would need to bring the same to the attention of the management and, if considered necessary, take legal advice.

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Commencement of Certificate Course on Indirect Taxes at Chennai Next batch of Certificate Course on Indirect taxes is starting from 3rd December, 2011 at Chennai. The complete schedule of the class room is available at www.icai.org Eligibility Members of ICAI Course Duration 12 days Faculty Eminent experts of the field and erudite speakers drawn from all over the country will share their knowledge and wisdom with the participants of this Certificate Course. Fees for the Course R20,000 [Including fees for the immediate examination to be held after completion of the Course] Certificate A certificate will be awarded to the members on successful completion of course and passing the examination. CPE Hours 70 Hours (50 Structured and 20 Unstructured) Registration Members desirous of attending the said Course may convey their interest and send the duly filled Registration Form along with the demand draft for R20,000/- towards the prescribed fee at the earliest to the Secretary, Indirect Taxes Committee, The Institute of Chartered Accountants of India, ICAI Bhawan, 4th Floor, Research Block, A-29, Sector 62, Noida - 201 309, Uttar Pradesh OR may contact at 0120-3045906 and send mail at ccidt@icai.org Demand Draft should be made in favor of The Secretary, The Institute of Chartered Accountants of India payable at New Delhi. Alternatively, members may register by making online payment of the prescribed fees of R20,000/- at ICAI website and sending the hard copy of the duly filled registration form to the address mentioned above. For further details The Course Coordinator CA. Rajendra Kumar P , Central Council Member and Member Indirect Taxes Committee can also be contacted for further details at 09382303403 / 09444017087 or his email at rk@ ssaca.in Please visit : www.icai.org for further information Note: The commencement of certification course is subject to the minimum number of participants as prescribed by the Committee. It may be noted that due to limitation of seats, the registration will be on first come first serve basis.

Classifieds
4873 Required CAs as partners in experienced C.A.firm in Mumbai with good arrangement / terms and freedom for personal practice, place and age no bar. Contact:glen.office@gmail. com/26254421/9920317933. 4874 23 year established Lucknow based Firm requires full time/part time COP holders ACA/ FCA as Partners. Contact CA. S.N.Gupta at+919415101759, shivnarainabha@yahoo.co.in 4875 Our firm is 30yr old, at Hyderabad, with multiple practice including Central Statutory Audit of Banks and PSUS: looking for Practicing CAs / firms with 2/3 CAs and 5/10yrs standing, in Hyderabad to merge with us for mutual benefit. CAs assuming responsibility, possessed with planning, execution and reporting skills are invited to contact: 09949149549, email: kyesrk@yahoo.com
134 THE CHARTERED ACCOUNTANT NOVEMbEr 2011

4876 CA with CWA, CIA, CISA qualification seeks assignments/sub-contract in practice or employment in Bangalore. Contact 735305895 email: arvs64@hotmail.com 4877 Chartered Accountants with interest in ERP Consulting are invited as implementation partners for an ERP developed for Indian market. Established product with a sound consulting business. Contact CA. PCK, pc@ coral.in 4878 A reputed Chartered Accountant firm requires fresh Chartered Accountant based in Hyderabad to join as a partner of the firm for our branch office at Hyderabad. Contact: tax.erode@gmail.com, 98427 50391, 90950 75000

791

ICAI NEWS

ICAI OFFERS FIRST MBF

Campus Placement

DECEMBER 2011 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 ICAIs Centre of Excellence, Hyderabad.

Knowledge mix for your business needs

Comprehensive Finance Curriculum Unique mix of faculty Focus on Indian market Innovative practical application Healthy combination of students Rigorous testing procedures

Who should recruit MBF?

Bank - operations and credit. Investment Bankers, Fund & Treasury Mangers Merchant Bankers Equity Analysts, Private Equity, Mutual Funds, Hedge Funds, Venture Capital Funds Corporates for Core Finance, Treasury & Projects, as CFOs

How to recruit?
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

Work Experience

Course Content
LEVEL I LEVEL II LEVEL III Paper I - Financial Planning & Analysis Paper II - Fund Raising, Structuring & International Finance Paper III - Financial Markets & Portfolio Management Paper IV - Forex, Treasury & Risk Management Paper V - Valuations, Acquisitions and Risk Analysis Paper VI - Banking & Trade Finance

<04 years 04-08 years 09>10 years

11-13 years >13 Years

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PARTICIPATION

9th and 10th December 2011

Hotel Lalit Ashok, Bangalore

INVESTMENT AND BUYING OPTIONS FOR THE DISCERNING INVESTOR An 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 and Corporates from all over India would mark their presence. This would enable various organizations ranging from Banking, Insurance, Mutual Funds, Capital Markets, Real Estate, Information Technology products and services and other technological products to interact with Chartered Accountants, Investors, Finance fraternity, and Corporate Decision Makers. Chartered Accountants in today's Corporate scenario are the major financial advisors. They have the complete understanding of the latest market trends as they have with them a thorough training blended with analytical approach and research of years. Being at the event in the midst of all these key decision makers would provide your company with a big business opportunity as these Chartered Accountants play an important role in the decision making process with their vast knowledge of Finance, Accounting and Market understanding. EXHIBITORS PROFILE The 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 leading decision 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 FEES Rs. 2, 00,000/- + 10.3% Service Tax for two days i.e. 9th and 10th December 2011 THE PACKAGE WOULD INCLUDE Fully 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 Contact

CA. K. Raghu, Chairman, CMII of ICAI Tel: +91 (11) 30110491 | Email: cmii@icai.in Mr. Jagadish Kumar NS, Assistant Secretary, Bangalore Contact No. +91(80) 30563500, 09342732548, Email: bangalore@icai.org, dcobangalore@icai.org, Jagadish.ns@icai.org OR Dr. Surinder Pal, Secretary, CMII Contact No.: 011-30110430, Email: cmii@icai.in, service_mii@icai.in, mii@icai.in

EVENTS

794

CPE

12
Hours

Three Days Residential Refresher CPE Course at Alleppey

Date 2nd, 3rd & 4th December, 2011 Venue Pagoda Resorts, Alleppey, Kerala Organised by Committee for Capacity Building of CA Firms and Small & Medium Practitioners, ICAI Hosted by Alleppey Branch of SIRC of ICAI Day 1: 2nd December, 2011 12 p.m. to 03.00 Registration of Participants and p.m. Inaugural Session Indian Accounting Standards - An Session- I Update- CA. Jomon K. George, Kochi 03.00 P .M. 05.00 P .M Reopening of assessments and Session-II recent developments in 40(a) (ia) of 05.10 P .M. the IT Act - CA. R. Krishnan, Alleppey 07.10 P .M. Day 2: 3rd December, 2011 Session-III Revised Schedule VI under 09.30 A.M. Companies Act - CA. Sumantra Guha, 10.45 A.M. Central Council Member Capacity Building Measures: Session-IV Networking, Merger- Demerger & 10.55 AM Corporate Form of Practice - CA. 12.15 P M Pankaj Tyagee, Central Council Member Session-V 12.15 A.M. 01.30 P .M. Improving Quality of Audit Documentation - CA. Pankaj I. Jain, Central Council Member

For Members Per Participant (on twin sharing basis) R6500/Per Participant (single occupancy) R10000/Accompanying person: For Spouse (including child below age 5 years): R6000/ Per Child (with out extra bed) R1900/(age up to 12) Per Child (with extra bed) R2900/- (age up to 12)

For Non Members R7500 (on twin sharing basis) Non Residential Members R3800/(including Members (ARS Alleppey) R3000/lunch, dinner Non Members R4500/and house boat cruise) Fees payable by DD/Cheque in favor of Alleppey Branch of SIRC of ICAI payable at Alleppey. Send it to: The Chairman, Alleppey Branch of SIRC of ICAI, ICAI Bhavan, Behind District Co-operative Bank Building Lane, M.O. Ward, Opp. Town Hall, Alleppey, Kerala 688001 Programme Chairman CA Vijay Kumar Garg Chairman, Committee for Capacity Building of CA Firms and Small & Medium Practitioners (CCBCAF & SMP), ICAI Email: chairman.ccbcaf@ icai.org Programme Convener CA. Antony M. Malayil Chairman, Alleppey Branch of SIRC of ICAI, Phone: 09847057700 Email: antonymalayil@ gmail.com

For Registration & Information, contact details: CA. Biju Narayanan, Secretary, Alleppey Branch of SIRC of ICAI, Email:alleppey@icai.org, bijunarayanan05@ gmail.com, Phone: 09895214442

Day 3: 4th December, 2011 CA. H.R. Iyer, New An overview on Session-VI 08.45 A.M XBRL and recent Delhi 10.45 A.M. developments in Companies Act CA. H.R. Iyer, New Session-VII Contemporary 10.55 A.M. Internal Audit and Delhi 12.55 P .M. Reporting Session Chairman Open House and Valedictory CA Vijay Kumar Garg, Chairman, CCBCAF & SMP ICA , Session 01.15 P .M. onwards Delegate Fee: Residential (Including accommodation, breakfast, lunch, dinner, all other compliments and course material)
138 THE CHARTERED ACCOUNTANT NOVEMbEr 2011

CPE

6
Hours

Workshop on Capacity Building Measures of Practitioners & CA Firms

Date 19th November, 2011 Venue Hotel Rangoli Park Vartej; Bhavnagar Organised by Committee for Capacity Building of CA Firms and Small & Medium Practitioners, ICAI Hosted by Bhavnagar Branch of WIRC of ICAI

795

EVENTS

Topics to be discussed Structuring Merger and Demerger through LLP Opportunities in ERP Capacity Building Measures: Networking, Merger-Demerger and Corporate Form of Practice SMP Initiative and Capacity Building through I T Tools K-Doc & e-Sec ICAI-Tax Suite Software ICAI-ROC Software Open House and Valedictory Session 5.30 p.m. to 6.00 p.m. Registration Fees R600/- for Members; R400/- for Students Cheque/DD should be Drawn in Favour of Bhavnagar Branch of WIRC of ICAI and sent to Bhavnagar Branch of WIRC of ICAI, Sanghavi & Co. Chartered Accountants, Bulbul First Floor, Crescent Road, Bhavnagar 364 001. Phone Nos: 0278-242 3434, 242 6151 e-mail ID: bhavnagar@icai.org Limited Seats, Registration on First Come First Served Basis. Advance confirmation of registration is required. Programme Chairman Programme Coordinator CA. Manoj Ganatra CA Vijay Kumar Garg Chairman, Bhavnagar Chairman, Committee for Branch of WIRC of ICAI Capacity Building of CA Firms and Small & Medium Phone: 98250 66110 Email: manojganatra@ Practitioners, ICAI Email: chairman.ccbcaf@ hotmail.com icai.org Phone: 9414041872 For Registration & Information, contact details: CA. Rajesh P Langalia, Secretary, Bhavnagar Branch . of WIRC of ICAI; Phone: 98982 16200, Email: rajuca9@ rediffmail.com

19th November, 2011, 9.00 a.m. to 10.30 a.m. Sessions Session- I 10.30 a.m. to 1.30 p.m. Session-II 2.30 p.m. to 5.30 p.m.

Registration and Inaugural Session

Organised by Committee for Capacity Building of CA Firms and Small & Medium Practitioners, ICAI Hosted by Kota Branch of CIRC of ICAI 17th November, 2011 9.30 a.m. to 10.30 a.m. Sessions Session- I 10.30 a.m. to 1.30 p.m. Registration of participants and Inaugural session

Topics to be discussed and Speakers Assessment of Charitable trust & NGOs under Income Tax Critical issues on HUF under Income Tax - CA. Divyanshu Agrawal

Session Chairman Session-II 2.30 p.m. to 5.30 CA Vijay Kumar Garg, Chairman, CCBCAF & SMP ICAI , p.m. ICAI- ROC Software - CA. Sourav Mishra ICAI-Tax Suite Software - CA. Vinod Khandelwal Open House & Valedictory Session Chairman CA Vijay Kumar Garg, Session Chairman, CCBCAF & SMP , 5.30 p.m. to 6.00 p.m. ICAI Registration Fees:- R300/- per participant Cheque/DD should be Drawn in Favour of Kota Branch of CIRC of ICAI and sent to ICAI Bhawan, 65, New Grain Mandi, KOTA - 324 007 Phone Nos: 0744 2365272 E-mail Id: kota@icai.org, kpicai@kappa.net.in Limited Seats, Registration on First Come First Served Basis. Advance confirmation of registration is required Programme Chairman Programme Coordinator CA. Dinesh Jain Chairman, Kota Branch of CIRC of ICAI Phone: 09414182822 Email: dkj_fca@icai.org

CPE

6
Hours

Workshop on Capacity Building Measures of Practitioners & CA Firms

Date 17th November, 2011 Venue Rotary Binani Sabhagar, Shopping Centre Kota ( Raj.)

CA Vijay Kumar Garg Chairman, Committee for Capacity Building of CA Firms and Small & Medium Practitioners, ICAI Email: chairman.ccbcaf@ icai.org Phone: 9414041872

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CPE

CPE
Workshop on Capacity Building Measures of Practitioners & CA Firms

6
Hours

6
Hours

Workshop on Capacity Building Measures for Practitioners & CA Firms

Date 19th November, 2011 Venue Marchad Residency, Double Road, Beside Old KRSTC Bus Stand, Bellary Organised by Committee for Capacity Building of CA Firms and Small & Medium Practitioners, ICAI Hosted by Bellary Branch of SIRC of ICAI 19th November, Registration of participants and Inaugural session 2011 9.30 a.m. to 10.30 a.m. Sessions Topics to be discussed Capacity Building through initiatives of Session- I the Committee 10.30 a.m. to 1.30 p.m. Capacity Building Measures: Networking, Merger & Corporate form of Practice Issues on Service Tax Issues on Income Tax Session-II 2.30 p.m. to 5.30 p.m. Capacity Building through IT Tools Open House & Valedictory Session 5.30 p.m. to 6.00 p.m. Registration Fees:- R600/- per participant Cheque/DD should be Drawn in Favour of Bellary Branch of CIRC of ICAI and sent to Bellary Branch of SIRC of ICAI,No. 7/16, II Floor, Balaji Rao Road,Vaddara Banda,Bellary 583 101, Ph: (8392) 277123,Email: bellary@icai.org Limited Seats, Registration on First Come First Served Basis. Advance confirmation of registration is required. Programme Chairman Programme Coordinator CA. Y. Ramesh CA Vijay Kumar Garg Chairman, Bellary Chairman, Committee for Branch of SIRC of ICAI Capacity Building of CA Phone: 09448781630 Firms and Small & Medium Email: yerur_ramesh@ Practitioners, ICAI Email: chairman.ccbcaf@icai. rediffmail.com org, Phone: 9414041872 For Registration & Information, contact details: CA K V Chandrappa, Phone:08392 277123 Email: icaibellarybranch@yahoo.co.in
140 THE CHARTERED ACCOUNTANT NOVEMbEr 2011

Date 5th November, 2011 Venue ICAI Bhavan, 20/1, Behind Vijayanand Society, Dhantoli, Nagpur 440 012. Organised by Committee for Capacity Building of CA Firms and Small & Medium Practitioners, ICAI Hosted by Nagpur Branch of WIRC of ICAI Registration and Inaugural 5th November, 2011 9.30 a.m. to 10.30 a.m. session Sessions Topics to be discussed Session- I Capacity Building Measures10.30 a.m. to 12.00 p.m. Networking, Merger and Corporate Form of Practice Session-II Strategies for Wealth Creation, 12.00 p.m. to 1.30 p.m. Wealth Maximization and Wealth Management Session-III Frequently found shortcomings 2.30 p.m. to 3.30 p.m. in Auditing Annual Statement of Accounts Session-IV Small & Medium Practitioners 3.30 p.m. to 4.30 p.m. The Future Session-V Modus operandi for calculation 4.30 p.m. to 5.30 p.m. of professional charges - Ways and Difficulties Registration Fees:- R750/- per participant Cheque/DD should be Drawn in Favour of Nagpur Branch of WIRC of ICAI and sent to Nagpur Branch of WIRC of ICAI, ICAI Bhawan, 20/1, Behind Vijayanand Society, Dhantoli, Nagpur 440 012. Phone Nos:- 0712 2443968, 2441196 E-mail Id: nagpur@icai.org Limited Seats, Registration on First Come First Served Basis. Advance confirmation of registration is required. Programme Chairman Programme Coordinator CA. Satish Sarda CA Vijay Kumar Garg Chairman, Nagpur Branch, Chairman, Committee WIRC of ICAI for Capacity Building of Phone: 09822229601 CA Firms and Small & Medium Practitioners, ICAI Email: info@sardasoni.com Email: chairman.ccbcaf@ icai.org Phone: 9414041872 For Registration & Information, contact details: CA. Abhijit Kelkar, Vice-Chairman, Nagpur Branch of WIRC of ICAI Phone: 09422126890, 09096021215 Email: abhikelkar@yahoo.com

797

EVENTS

CPE

CPE
Workshop on Capacity Building Measures of Practitioners & CA Firms

6
Hours

6
Hours

Workshop on Capacity Building Measures of Practitioners & CA Firms

Date 26th November, 2011 Venue The Auditorium, ICAI Bhawan, Baroda, Gujarat. Organised by Committee for Capacity Building of CA Firms and Small & Medium Practitioners, ICAI Hosted by Baroda Branch of WIRC of ICAI 26th November, 2011 9.30 a.m. to 10.30 a.m. Session Timings Session- I 10.30 a.m. to 1.30 p.m. Registration of Participants and Inaugural Session Topics to be discussed

Date 6th November, 2011 Venue Hotel President Park MIDC, Jalgaon. Organised by Committee for Capacity Building of CA Firms and Small & Medium Practitioners, ICAI Hosted by Jalgaon Branch of WIRC of ICAI 6th November, 2011 Registration of Participants and 9.00 a.m. to Inaugural Session 10.00 a.m. Session Topics to be discussed Session- I 10.00 a.m. to 1.00 p.m. Session-II 2.00 p.m. to 5.00 p.m. Structuring Merger and Demerger through LLP Opportunities in ERP

Capacity Building MeasuresNetworking, Merger-Demerger & Corporate Form of Practice Professional Opportunities in Information System Audit Session-II Professional Opportunities in Valuation 2.30 p.m. to 5.30 Areas Knowledge Management through IT p.m. Tools Open House & Valedictory Session 5.30 p.m. to 6.00 p.m. Registration Fees:- R600/- per participant upto 23rd November, 2011 and R700/- per participant after 23rd November, 2011. Cheque/DD should be Drawn in Favour of Baroda Branch of WIRC of ICAI and sent to ICAI Bhawan, Kalali-Tandalja Road, Atladra, Vadodara. Phone Nos:0265-2680593, 2681115. E-mail Id:- baroda@icai.org Limited Seats, Registration on First Come First Served Basis. Advance confirmation of registration is required. Programme Chairman Programme Coordinator CA. Manilal J. Parsiya CA Vijay Kumar Garg Chairman, Baroda Branch Chairman, Committee for of WIRC of ICAI Capacity Building of CA Firms and Small & Medium Phone: 09825110620 Email: mjparsiya@gmail. Practitioners, ICAI com Email: chairmanccbcaf@ icai.org, Phone:9414041872 For Registration & Information, contact details: CA. Parikh Ashish Dilip Phone: 09825223545 Email: dilip_Parikh@sify.com

Capacity Building Measures: Networking, Merger-Demerger and Corporate Form of Practice SMP Initiative and Capacity Building through I T Tools K-Doc & e-Sec ICAI-Tax Suite Software ICAI-ROC Software Open House and Valedictory Session 5.00 p.m. to 5.30 p.m. Registration Fees:- R750/- per participant Cheque/DD should be Drawn in Favour of Jalgaon Branch of WIRC of ICAI and sent to Jalgaon Branch of WIRC of ICAI, D-11, 2nd Floor, Above Chandulal Raswanti, Golani Market, Jalgaon 425 001. Phone Nos: 0257-2224305 E-mail Id: jalgaon@icai.org

Limited Seats, Registration on First Come First Served Basis. Advance confirmation of registration is required. Programme Chairman Programme Coordinator CA. Kantilal Badale CA Vijay Kumar Garg Chairman, Jalgaon Chairman, Committee for Branch of WIRC of ICAI Capacity Building of CA Firms and Small & Medium Phone:09822250393 Email:kkbadale@gmail. Practitioners, ICAI Email: chairman.ccbcaf@icai. com org, Phone: 9414041872 For Registration & Information, contact details: CA. Parikshit Bhadade, Secretary, Jalgaon Branch of WIRC of ICAI Phone:09890029333 Email:parikshitkb@rediff.com

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CPE

6
Hours

Workshop on Capacity Building Measures of Practitioners & CA Firms

Date 28th November, 2011 Venue Hotel Holiday Home, Shimla Organised by Committee for Capacity Building of CA Firms and Small & Medium Practitioners, ICAI Hosted by Himachal Pradesh Branch of NIRC of ICAI Theme With advent of globalisation and challenges posed by the liberalization process taking place worldwide, a need is felt for strengthening competencies of CA firms and small practitioners. ICAIs initiative is to enlarge visibility of CA profession and to rejuvenate practice portfolio of Small and Medium Practitioners. ICAI has formed CCBCAF & SMP Committee for popularizing effective union of CA firms by facilitating consolidation through Networking, Mergers and setting up Management Consultancy Services etc. Committees focus is on enriching SMPs through Capacity Building measures for bringing up world class competency and brand image. This workshop will concentrate on issues & impediments related to capacity building as well as highlight emergent issues of profession. 28th November, 2011 Registration of participants and 9.30 a.m. to 10.30 Inaugural session a.m. Sessions Session- I 10.30 a.m. to 1.30 p.m. Session-II 2.30 p.m. to 5.30 p.m. Topics to be discussed Capacity Building Measures: Networking, Merger & Corporate Form of Practice Recent Issues under Service Tax Knowledge management through IT Tools ICAI Tax Suite software KDOC & eSecretary software ICAI-ROC software Recent Issues under Income Tax Open House & Valedictory Session 5.30 p.m. to 6.00 p.m.

Registration Fees:- R500/-( Rupees five hundred) per participant Cheque/DD should be drawn in favour of Himachal Pradesh Branch of NIRC of ICAI and sent to Himachal Pradesh Branch of the NIRC of the Institute of Chartered Accountants of India, First Floor, Sidhi Vinayak Apartments, Near Petrol Pump, Vikas Nagar, SHIMLA 171009 (Himachal Pradesh) Limited Seats, Registration on First Come First Served Basis. Advance confirmation of registration is required. Programme Chairman CA Vijay Kumar Garg Chairman, Committee for Capacity Building of CA Firms and Small & Medium Practitioners, ICAI Email: chairman.ccbcaf@ icai.org Phone: 9414041872 Programme Coordinator CA Umesh Walia Chairman, Himachal Pradesh Branch of NIRC of ICAI Phone:094181-52278 Email: waliaumesh@gmail. com or chairman@himachalicai.org

For Registration & Information, contact details: CA. Rohit Karol, Secretary, H P Branch of NIRC of ICAI, Phone: 09816020702, E-mail: carohitkarol@gmail.com or secretary1@himachalicai.org

CPE

6
Hours

Workshop on Capacity Building Measures of Practitioners & CA Firms

Date 20th November, 2011 Venue Hotel Sai Shradha Near Railway Station, RAIGARH (Chhattisgarh) 496001 Organised by Committee for Capacity Building of CA Firms and Small & Medium Practitioners, ICAI Hosted by Raigarh CPE Study Chapter of CIRC of ICAI 9.30 a.m. to 10.30 a.m. Sessions Session- I 10.30 a.m. to 1.30 p.m. Registration of participants and Inaugural session Topics to be discussed Capacity Building through initiatives of the Committee Capacity Building Measures: Networking, Merger & Corporate form of Practice Issues on Service Tax & VAT

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Session-II 2.30 p.m. to 5.30 p.m.

Issues on Income Tax Capacity Building through IT Tools

Sessions Session-I 10.30 a.m. to 1.30 p.m. Session-II 2.30 p.m. to 5.30 p.m.

Topics to be discussed Critical issues on Income Tax Critical issues on Service Tax K-Doc & e-Sec Software

Open House & Valedictory Session 5.30 p.m. to 6.00 p.m. Registration Fees:- R600/- per participant Cheque/DD should be Drawn in Favour of Raigarh CPE Chapter of CIRC of ICAI and sent to either of : (1) CA Ravi Kumar Agrawal, G-3 Sarla Villa, Chakradharnagar, Raigarh - 496001 [C.G.] (2) CA. Manish J. Agrawal, Nand Bhawan, Gandhi Ganj, Raigarh - 496001 [C.G.] Limited Seats, Registration on First Come First Served Basis. Advance confirmation of registration is required. Programme Chairman Programme Coordinator CA. Ravi Kumar Agrawal CA Vijay Kumar Garg President, Raigarh C.A. Chairman, Committee for Association Capacity Building of CA Firms and Small & Medium Phone: 09425251252 Email:ats.ca.rgh@gmail. Practitioners, ICAI Email: chairman.ccbcaf@ com icai.org Phone: 9414041872 For Registration & Information, contact details: CA. Manish J. Agrawal, Deputy Convenor, Raigarh CPE Chapter, Phone:09425251861, Email:camanishagrawal@ hotmail.com

ICAI- ROC Software ICAI-Tax Suite Software Open House and Valedictory Session 5.30 p.m. to 6.00 p.m. Registration Fees:- R300/- per participant Cheque/DD should be Drawn in Favour of Sri Ganganagar Branch of CIRC of ICAI and sent to Sri Ganganagar Branch of CIRC of ICAI, 107, Varindavan Vihar, Gagan Path, Sri Ganganagar 335001, Rajasthan Phone Nos: 0154-2465141E-mail Id: sriganganagarbranch@icai.org Limited Seats, Registration on First Come First Serve Basis. Advance confirmation of registration is required. Programme Chairman Programme Co-ordinator CA. Pawan Mittal CA Vijay Kumar Garg Chairman, Committee for Chairman, Sri Ganganagar Branch of CIRC of ICAI Capacity Building of CA Firms and Small & Medium Phone:09414203944 Email:pawanmittalsgnr@ Practitioners, ICAI Email: chairman.ccbcaf@ yahoo.com, chairmansgnr@ icai.org icai.org Phone: 09414041872 For Registration & Information, contact details: CA. Neeraj Chawla (Convenor) Phone: 09414210450 Email: ncca@indiatimes.com

CPE

6
Hours

Workshop on Capacity Building Measures of Practitioners & CA Firms

Date 23rd November, 2011 Venue Hotel Vikramaditya, Suratgarh Bypass Road, Sriganganagar Organised by Committee for Capacity Building of CA Firms and Small & Medium Practitioners, ICAI Hosted by Sriganganagar Branch of CIRC of ICAI Registration of participants and 23rd November, Inaugural session 2011 9.30 a.m. to 10.30 a.m. Chief Guest Shri B. P Meena, Commissioner of Income Tax, Bikaner . Range, Bikaner (Rajasthan)

CPE

6
Hours

Workshop on Capacity Building Measures of Practitioners & CA Firms

Date 26th November, 2011 Venue Hotel K C Residency , Residency Road, Jammu Tawi 180001 Organised by Committee for Capacity Building of CA Firms and Small & Medium Practitioners, ICAI Hosted by Jammu & Kashmir Branch of NIRC of ICAI 9.30 a.m. to 10.30 a.m. Registration of participants and Inaugural session

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800

Session Session- I 10.30 a.m. to 1.30 p.m. Session-II 2.30 p.m. to 5.30 p.m.

Topics to be discussed Capacity Building Measures: Networking, Merger-Demerger & Corporate Form of Practice Critical Issues on Income Tax

Capacity Building Through IT tools K-Doc & e-Sec Software ICAI- Tax Suite Software ICAI-ROC Software Session Chairman Open House & Valedictory Session CA Vijay Kumar Garg Chairman, CCBCAF & SMP ICAI , 5.30 p.m. to 6.00 p.m. Registration Fees:- R600/- per participant Cheque/DD should be Drawn in Favour of Jammu & Kashmir Branch of NIRC of ICAI and sent to Jammu & Kashmir Branch of NIRC of ICAI, 3rd Floor, Ayakar Bhawan, Rail Head Complex, Jammu Tawi 180 001 Phone No: 0191-2471027 E-mail Id: jammu_ kashmir@icai.org Limited Seats, Registration on First Come First Serve Basis. Advance confirmation of registration is required. Programme Chairman Programme Co-Chairman CA. Pankaj Tyagee CA Vijay Kumar Garg Central Council Member, Chairman, Committee ICAI for Capacity Building of Email: pankajtyagee@gmail. CA Firms and Small & Medium Practitioners, ICAI com Email: chairman.ccbcaf@ Phone: 09313976289 icai.org, Phone: 9414041872 For Registration & Information, contact details: CA. Ajay Sawhney, Chairman, Jammu & Kashmir Branch of NIRC of ICAI, Phone:09419185051, Email:caajaysawhney@rediffmail.com

12th November, 2011 Registration of participants and 08:45 a.m. to 09.30 Inaugural session a.m. Sessions Topics to be discussed and Speakers Session- I Practice Management CA. 09.30 a.m. to Abhishek Nagori 01.30 p.m. Capacity Building Measures: Networking, Merger & Corporate form of Practice - CA. Roopin Patel Emerging Opportunities for Chartered Accountants in Practice - CA. Rahul Parikh Session-II Capacity Building Through IT Tools 02.30 p.m. to - CA. B.C. Chechani 04.30 p.m. Networking & Use of I T Tools CA. Kamlesh Parikh Open House & Valedictory Session 04.30 p.m. to 05.00 p.m. Registration Fees:- R500/- per participant Cheque/DD should be Drawn in Favour of Anand Branch of WIRC of ICAI and sent to Anand Branch of WIRC of ICAI,3rd floor, Paris Tower,Near Sardargunj Bank, Sardar Gunj,ANAND - 388 001,Ph: (2692) 267080, Email: anand@icai.org Limited Seats, Registration on First Come First Served Basis. Advance confirmation of registration is required. Programme Chairman Programme Coordinator CA. Roopin Patel CA Vijay Kumar Garg Chairman, Anand Branch of Chairman, Committee WIRC of ICAI for Capacity Building of Phone:09825585845 CA Firms and Small & Medium Practitioners, ICAI Email: roopin.patel@gmail. Email: chairman.ccbcaf@ com icai.org Phone: 9414041872 For Registration & Information, contact details: CA. Ravi Shah, Secretary, Anand Branch of WIRC of ICAI, Mobile: 9825271171

CPE

6
Hours

Workshop on Capacity Building Measures of Practitioners & CA Firms

CPE

12
Hours

Auto Connect- CMII National Conference on Auto Industry Pune

Date 12th November, 2011 Venue ICAI Bhawan, Anand Branch of WIRC of ICAI, Anand Organised by Committee for Capacity Building of CA Firms and Small & Medium Practitioners, ICAI Hosted by Anand Branch of WIRC of ICAI

Date 4th and 5th November (Friday, Saturday), 2011 Venue Pune Organised by Committee for Members in Industry of ICAI Hosted by Pune Branch of WIRC of ICAI

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Theme and Programme Outline Pune is the hub of automobile industry in India. CMII is organising this conference to bring together leaders from the industry to discuss the current state of the industry and vision for the future. The conference is divided into four broad themes. Each theme will be covered in a half-day session consisting of speeches by eminent speakers followed by panel discussion by industry veterans. Inaugural Session -9:00 am to 10.30 am CA G. Ramaswamy, President, ICAI CA. Jaydeep N Shah, Vice President , ICAI

Conference Director CA K. Raghu Chairman, Committee for Members in Industry

Conference Convener CA S. B. Zaware, Central Council Member, ICAI and Member, CMII

Timings Topics to be discussed Day 1: 4th November 2011 Technical Session 110.30 am to 1:00 pm
Vision from the Government

Vision for Auto industry in India

For Registration and Further Details Fees: R3,000 for members, R4,000 for non-members Payment should be made by Cheque / DD in favour of Pune Branch of WIRC of ICAI payable at Pune and should be sent to - Pune Branch of Western India Regional Council, The Institute of Chartered Accountants of India, ICAI Bhawan, Plot No.8, Parshwanath Nagar, CTS No. 333, Sr. No. 573,Munjeri, Opp. Kale hospital, Near Mahavir Furniture, Bibawewadi, Pune 411 037. Phone No. - 02024212251/52 Email : pune@icai.org, punecpe@gmail. com

of India (Government perception) Vision from Maharashtra State government Global outlook towards auto industry in India Panel discussion on vision.

CPE

Technical Session 2 2:00 pm to 5:00 pm

Regulatory Environment Current regulatory matters Compliance beyond regulations Direct Tax, Indirect Tax and International Tax issues for Auto Industry Special Session Auto Industry as Growth Engine of the Economy Day 2: 5th November, 2011 Technical Session 4 - Financing, including corporate 10:00 am to 1:00 pm finance, private equity, working capital and also auto financing Effectiveness of supply chain management (component automobiles) Finance to Auto Industry Auto consumer financetrends Panel discussion Technical Session 5 - Accounting and internal controls 2:00 pm to 5:00 pm with specific reference to auto industry Beyond internal controls/ audit Risk management Key accounting matters/ IFRS/ Issues in Accounting Standards impacting Auto Industry Opportunities for Chartered Accountants in auto industry Panel discussion.

15
Hours

NATIONAL RRC on CA Profession towards Excellence through Capacity Building

Date 11th, 12th and 13th November 2011 Venue Shree Balaji Seva Sadan, Salasar, Churu(Rajasthan) Organised by Committee for Capacity Building of CA Firms and Small & Medium Practitioners, ICAI Hosted by Jaipur Branch of CIRC of ICAI Day 1: 11th November, 2011 12 p.m. to 2.30 Registration of participants and p.m. Inaugural Session Chief Guest Shri Namo Narain Meena, Union Minister of State of Finance Session Chairman CA Jaydeep N. Shah, Vice President, ICAI Sessions Session- I 2.30 p.m. to 4.30 p.m. Topics to be discussed and Speakers Critical issues in Direct Taxes Session Chairman : CA. S. C. Jain Practical Issues in Income Tax CA. (Dr.) Girish Ahuja Taxation and accounting in Real estate transactions CA. Vijay Goyal

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Panel Discussion on New Challenges in CA Profession Session Chairman : CA Amarjit Chopra, Past President , ICAI CA Satish Gupta CA Ravi Raniwala CA Prakash Sharma CA Sudhir Bhansali Day 2: 12th November, 2011 Session-III Critical Issue in Indirect Taxes 8.00 AM to 10.00 Chairman: CA Ravindra Holani, AM Council Member, ICAI Practical issues in Service Tax CA. Ashok Batra Critical Issues in Rajasthan VAT Shri K B Gupta Session-IV Panel Discussion on Audit 10.15 a.m. Documentations for SMPs to 12.15 p.m. Chairman: CA Rajkumar Adukia, Central Council Member, ICAI CA K L Jhanwar CA Shyam Lal Agarwal CA Pawan Goel, Past Chairman CIRC Session-V Panel Discussion on Profession 12.30 p.m. to 2.00 with Ethics p.m. Chairman: CA Subodh Kumar Agarwal, Chairman, ESB, ICAI CA Devaraja Reddy M, Central Council Member, ICAI Special Address by CA. S S Bhandari, Past Council Member, ICAI CA Vimal Chopra, Past Chairman, CIRC Day 3: 13th November, 2011 Session-VI Office Management & Corporate 8.00 AM to 11.00 form of Practice AM Chairman: CA. Sanjeev Maheshwari, Central Council Member, ICAI Office Management - CA. Nilesh Vikamsey, Central Council Member, ICAI Corporate form of Practice CA. Atul C. Bheda, Vice-Chairman, CCBCAF & SMP ICAI , Session-VII Capacity Building through IT 11.15 a.m. Tools to 1.45 p.m. Chairman: CA Atul C. Bheda, ViceChairman, CCBCAF & SMP ICAI , K-Doc & e-Sec Software - CA. B C Chechani ICAI- ROC Software - CA. Manu Agarwal ICAI-Tax Suite Software CA. Kapil Goyal Session-II 4.45 p.m. to 6.45 p.m.
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Open House and Valedictory Session 1.50 p.m. to 2.30 p.m.

Chief Guest Shri Rajendra Pareek Cabinet Minister-Industry, Government of Rajasthan Session Chairman CA Vijay Kumar Garg Chairman, CCBCAF & SMP ICAI , Without Accommodation In Rupees 2500 2300 1300 700 1300

Registration Fees Particulars FCA ACA Accompanying Person Child(3-12 Yr) Child(above 12 Yr)

With Accommodation in Rupees 3000 2800 1800 1200 1800

Note Payment may be made by Cheque / Demand Draft in favour of Jaipur Branch of CIRC of ICAI & Should be sent to-Jaipur Branch of ICAI, The Institute of Chartered Accountants of India, ICAI Bhawan, D-1, Jhalana Institutional Area, JLN Marg, Jaipur-302004 Special Attraction: a) Special Darshan Salasar Balaji(Churu), Rani Sakti Dadi Mandir (Jhuujhunu),Khatu Shyam ji (Sikar), Reengus Bheru Ji b) Pick up & Drop facility from Jaipur ( Pickup on 11/11/2011 at 7.00AM from ICAI Jaipur Branch and Drop on 13/11/2011 at 8.00 PM at Jaipur) Limited Seats, Registration on First Come First Served Basis. Programme Programme Convenor Chairman CA. Rakesh Jhalani CA Vijay Kumar Chairman, Jaipur Branch of CIRC Garg of ICAI Chairman, Phone: 09829064513 Committee for Capacity Building Email: rrc.salasarbalaji@icai.org, jaipur@icai.org of CA Firms and Small & Medium Practitioners, ICAI Email: chairman. ccbcaf@icai.org Phone: 9414041872 For Registration & Information, contact details: CA. C. L. Yadav, Past Chairman, Jaipur Branch of CIRC of ICAI, Email:clyadav1@yahoo. com,Phone:09829291148 or CA. Sunil Mor, Email: mor_sk@yahoo.com, Phone:09414039265

803

EVENTS

CPE

CPE
Workshop on Capacity Building Measures of Practitioners & CA Firms

6
Hours

10
Hours

Residential Refresher Course

Date 27th November, 2011 Venue ICAI Bhawan, Durgapur Branch of EIRC of ICAI, Durgapur Organised by Committee for Capacity Building of CA Firms and Small & Medium Practitioners, ICAI Hosted by Durgapur Branch of EIRC of ICAI 27th November, 2011 08:45 a.m. to 09.30 a.m. Sessions Session- I 10.00 a.m. to 01.00 p.m. Session-II 02.00 p.m. to 05.00 p.m. Registration of participants and Inaugural session Topics to be discussed A Roadmap to Direct Tax Code A Roadmap to GST

Capacity Building Through IT Tools Capacity Building Measures: Networking, Merger & Corporate form of Practice Open House & Valedictory Session 05.00 p.m. to 05.30 p.m.

Registration Fees:- R300/- per participant Cheque/DD should be Drawn in Favour of Durgapur Branch of EIRC of ICAI and sent to Durgapur Branch of EIRC of ICAI, ICAI BHAWAN, Priyadarshini Indira Sarani, Durgapur - 713 205, Ph: 0343-2566754, Email: durgapur@ icai.org Limited Seats, Registration on First Come First Serve Basis. Advance confirmation of registration is required. Programme Programme Coordinator Chairman CA Vijay Kumar Garg CA. Sumit Sarkar Chairman, Committee Chairman, Durgapur Branch of for Capacity Building EIRC of ICAI Phone: 09434792230 of CA Firms and Small & Medium Email: ssarkar5@yahoo.co.in Practitioners, ICAI Email: chairman. ccbcaf@icai.org Phone: 9414041872 For Registration & Information, contact details: CA. Amit Kumar Ram, Secretary, Durgapur Branch of EIRC of ICAI, Mobile: 09434792024

Date 17th and 18th December, 2011 Venue Shree Vilas Hotel, Bus Stand, N.H.8, Nathdawara (Rajsamand), Rajasthan. Organised by Committee for Capacity Building of CA Firms and Small & Medium Practitioners, ICAI Hosted by Bhilwara Branch of CIRC of ICAI Saturday,17th December, 2011 9:30 a.m. to 11:00 Registration of participants and a.m. Inaugural session Chief Guest Dr. C. P Joshi*, Union Cabinet Minister for Road . Transport & Highway, Government of India Vice Presidential Address CA Jaydeep N Shah, Vice President- ICAI Special Address Shri Madan Lal Paliwal, M.D., Miraz group Sessions Topics to be discussed and Speaker Session-I Capacity Building & Office Management 11:00 am to 02:00 pm Capacity Building of Practitioners - CA. Dhinal Ashvinbhai Shah, Central Council Member, ICAI Office Management & Opportunity in Stock Market - CA. C. S. Nanda, Central Council Member, ICAI Session-II Importance of Audit 03:00 pm to Documentation & XBRL 05:00 pm XBRL- Overview - CA. Rajkumar Adukia, Central Council Member, ICAI Documentation & SMPs CA. Shyam Lal Agarwal, Jaipur Sunday,18th December, 2011 Session-III Critical Issues & Opportunities In 10:00am to Direct & Indirect Tax 01:00pm Interpretation of Law - CA. Ravindra Holani, Central Council Member, ICAI Critical Aspects in Direct Taxes & Issues in TDS and Assessment CA. (Dr.) Girish Ahuja Critical Aspects in Service Tax - CA. Manoj Jain, Jaipur Critical Aspects in Rajasthan VAT CA. Ajay Saria, Udaipur

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804

Session-IV 02:00pm to 04:00pm

Capacity Building through IT Tools K Doc & E-Secretary - CA. B.C. Chechani ICAI-Tax Suite software CA. Vinod Khandelwal, Jaipur ICAI-ROC software - Mr. Amit Mehta Session Chairman CA. Vijay Kumar Garg, Chairman, CCBCAF & SMP ICAI ,

CPE

9
Hours

Two Days Auditing

Workshop

on

Open House & Valedictory Session 04:00 p.m. to 04:30 p.m. Registration Fees Particulars FCA ACA Accompaning Person Child(3-12 Yr) Child(above 12 Yr)

Date 19th and 20th November, 2011 Venue ICAI Bhawan, Indore Theme Standard on Audit- Practical Insight Organised by Auditing and Assurance Standards Board Hosted by Indore Branch of CIRC of ICAI Day 1, 19th November, 2011 09:30 AM 11:00 AM Sessions Technical Session I 11.00 AM 01.30 PM Registration of participants and Inaugural session Session Details and Speaker Standards on Auditing An Overview of Recent Developments CA. Abhijit Bandyopadhyay, Chairman AASB Fundamental concepts in auditing - Framework for assurance engagements and SA 200, CA. Rajkumar S. Adukia,Vice Chairman AASB Technical Session II 02.00 PM 04.00 PM
Identifying & Assessing Risk of Auditors Response to

With Accommodation in Rupees 1500.00 1400.00 1100.00 900.00 1100.00

Without Accommodation In Rupees 1100.00 1000.00 900.00 700.00 900.00

Cheque/DD should be drawn in favour of Bhilwara Branch of CIRC of ICAI and sent to Bhilwara Branch of CIRC of the ICAI, ICAI Bhawan, Opp. Hotel Surya Mahal, Shastri Nagar, Bhilwara, Rajasthan-3011001, Phone: 01482-252434 E-mail: icaibhl@gmail.com, bhilwara@icai.org Limited Seats, Registration on First Come First Served Basis. Advance confirmation of registration is required. Programme Chairman CA Vijay Kumar Garg Chairman, Committee for Capacity Building of CA Firms and Small & Medium Practitioners, ICAI Email: chairman. ccbcaf@icai.org Phone: 9414041872 Programme coordinator CA Ajay Kasliwal Chairman, Bhilwara Branch of CIRC of ICAI Email: kasliwal.ajay@gmail.com Phone: 09828146872

Material Misstatement -SA 315

Special Consideration in Audit

Assessed Risk- SA 330

of Public Sector Enterprise

CA K. L. Jawahar, Jaipur Technical Session III 04.15 PM 05.45 PM

Issues in CARO Issues in Bank Audit

For further details, contact: CA Naveen N Vagrecha, Past Chairman, Bhilwara Branch of CIRC of ICAI Email: nvagrecha@gmail. com, jathliya@gmail.com Phone: 09414112304, 09414112165
* Subject to the consent

CA. Amarjit Chopra , Past President ICAI.

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Day 2, 20th November, 2011 Technical Session IV Audit Planning 10.00 AM 11.30 AM Going concern assessment
CA Aseem Trivedi, Indore

Timings Topics to be discussed Day 1: 5th November, 2011 Technical Session I XBRL Opportunities for 04:00 pm to 06.00 pm Chartered Accountants Day 2: 6th November 2011 Technical Session II 09:30 am to 11:30 am Technical Session III 11:45 am to 01:45 pm Technical Session IV 02:45 pm to 04:45 pm Technical Session V 08:00 am to 10:00 am Sustainability- Corporate Citizenship as a foundation of Corporate Governance Risk Management Withholding Tax of Foreign Payments Relevant issues relating to Service Tax

Technical Session V 11.30 AM 01.00 PM

Communications with those

charged with governance Management representations

CA Aseem Trivedi, Indore

Workshop Chairman Chairman, Auditing & Assurance Standards Board, ICAI Phone: +91 983105 9999 Email: babhijit@deloitte.com Workshop Director CA Manoj Fadnis Central Council Member, ICAI Phone: +91 93022 17716 Email: manojfadnis@icai.org CA Vikas Jain Chairman, Indore Branch of CIRC of ICAI Phone: +91 9300099960 Email: vikas_jain_ca@yahoo. com For ACA- R1,000/- & for FCAR1,250/-

Day 3: 7th November 2011

Workshop Coordinator

CONCLUDING SESSION: 10.00 AM TO 11.00 AM Programme Chairman Programme Director CA K. Raghu Chairman Committee for Members in Industry Phone: 09341219091 Email: cakraghu@ kraghu.com CA. Pankaj Tyagee Vice Chairman - Committee for Members in Industry Phone: 09811902889 Email: pankajtyagee@gmail. com

Registration Fee

CPE

12
Hours

Residential Refresher Course

Date 5th to 7th November (Saturday, Sunday & Monday), 2011 Venue Tarikas Jungal Retreat Chail Organised by Committee for Members in Industry Hosted by Chandigarh Branch of NIRC of ICAI & Himachal Pradesh Branch of NIRC of ICAI Saturday November 12, 2011 Inaugural Session CA G. Ramaswamy, -03:00 pm to 04.00 pm President, ICAI CA. Jaydeep N Shah, Vice President , ICAI

For Registration and Further Details--Fees (Residential): For Members: R10,000/- (on Single Sharing basis) For Members: R8,000/- ( on Twin Sharing basis) For Spouse/Accompanying Person: R6500/(on Twin Sharing basis) Kids below 07 yrs. are complimentary. Children 07 12 yrs @ R2600/- per child in parents sharing room with meals Children 12 - 16 yrs. @ R3000/- per child in parents sharing room with meals Payment should be made by Cheque/DD in favour of Chandigarh Branch of NIRC of ICAI payable at Chandigarh and should be sent to - Chandigarh Branch of Northern India Regional Council, The Institute of Chartered Accountants of India, ICAI Bhawan, Sector-35-B(Near Gurdwara), Opposite Community Centre, Chandigarh-160035, Phone: 0172-5067756 Email: chandigarh@icai.org Sightseeing may be organised for Spouse, Children and Accompanied Person on request.

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CPE

Monday November 14, 2011 Three Days Residential Workshop on Internal Audit Technical Session VII 10.00 a.m. to 11.30 a.m. Technical Session VIII 12.00 noon to 1.30 p.m. Role of Internal Auditor in Strengthening Corporate Governance

12
Hours

Date Saturday, 12th, 13th, 14th November, 2011 Venue R.J.Resort, The Mall, Darjeeling Organised by Internal Audit Standards Board & Continuing Professional Education Committee of ICAI Hosted by Siliguri Branch of EIRC of ICAI Saturday November 12, 2011 Registration and Inauguration Session 01.00 p.m. to 02.30 p.m. Timing of Sessions Technical Session I 02.30 p.m. to 04.00 p.m. Technical Session II 04.30 p.m. to 06.00 p.m. Details Professional Opportunities for Chartered Accountants in Internal Audit

Fraud Internal Auditors Role in Prevention and Detection

Participation Fee: R8000/- per person ( Including accommodation (on twin sharing basis), breakfast, lunch, dinner, course material, sightseeing and to & fro travel from Siliguri to Darjeeling) Delegate fee by way of Cheque/DD drawn in favour of Siliguri Branch of EIRC of ICAI payable at Siliguri shall be sent to Chairman, Siliguri Branch of EIRC of ICAI, ICAI Bhawan, Near Overbridge, Tinbatti More, Siliguri Jalpaiguri Highway, P Siliguri, .O. Dist.: Jalpaiguri PIN 743005. Phone: 0353-2560445; 2562984 Email: siliguri@icai.org Limited Seats, Registration on First Come First Serve Basis. For registration, please contact: Seminar Chairman CA. Rajkumar S. Adukia Chairman, Internal Audit Standards Board Phone: 01203045 949, 09820061049 Email: cia@icai. org Seminar Director CA. Sumantra Guha Chairman, Continuing Professional Education Committee Phone: 01203045 957, 09831015331 Email: cpehours@icai. org Seminar Co-ordinator CA. Aditya Kumar Maheshwari Chairman, Siliguri Branch of EIRC of ICAI Phone: 09733044550 Email: siliguri@icai. org

Standards on Internal Audit Codifying the Best Practices

Sunday November 13, 2011 Technical Session III 10.00 a.m. to 11.30 a.m. Internal Audit of Specific Functions

Technical Session IV 12.00 noon to 1.30 p.m. Technical Session V 02.30 p.m. to 04.00 p.m. Technical Session VI 04.00 p.m. to 06.00 p.m.

Internal Audit of IFRS Convergence Process

Internal Audit Report Writing

Internal Control Framework A Practical Approach

For Further details, please contact Siliguri Branch of EIRC of ICAI ICAI Bhawan, Near Overbridge, Tinbatti More, Siliguri Jalpaiguri Highway, P Siliguri, .O. Dist.: Jalpaiguri PIN 734405 Phone: 0353-2560445; 2562984 Email: siliguri@icai.org

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CPE

6
Hours

National Seminar on Taxation

CPE

20
Hours

Date Saturday, 19th November, 2011 Venue Hotel Dream, S.A. Road, Kochi Organised by Continuing Professional Educational Committee Hosted by Ernakulam Branch of SIRC of ICAI Particulars Technical Session I 9.00am to 10.15pm Technical Session II 10.15am to 11.30am Topics 1. Taxation of real estate transactions 2. Taxation of Charitable Trusts Speaker : CA. Gopalakrishnan A , Kochi Assessment & Reassessment procedures in Income tax Speaker: CA R Bupathy, Chennai, Past President, ICAI Session Chairman: CA Sumantra Guha, Chairman, CPE Committee of ICAI Changing Paradigm of Tax PolicyDirect Tax Code Speaker: CA R Bupathy, Chennai, Past President, ICAI Legal Issues in TDS Speaker: Adv. Chythanya K K , Bangalore

Certificate Course on Arbitration of the ICAI at Mumbai (Scheduled to be held on 12th, 13th, 19th, 20th, 26th & 27th November, 2011- Weekends i.e. Saturdays & Sundays)

The objective of the Certificate Course on Arbitration is to familiarise the members with the relevant laws which impact the arbitration process and the practical procedural aspects and to build the competency level of the members of the ICAI to position them as multidisciplinary consultants in the global service market. The Committee on Economic, Commercial Laws & WTO of ICAI is organising the next batch of the 6 Days Certificate Course on Arbitration at Mumbai as per the following schedule; Days & Dates for the Course Saturdays & Sundays 12th, 13th, 19th, 20th, 26th & 27th November, 2011 Time: 10.00 A.M to 6.00 P on each day .M Evalutation Test The Evaluation Test will be held on 27th November, 2011 (Tentative) Venue Hotel Orchid ,Vile Parle (East), Mumbai Programme Chairman: CA. Sanjeev Maheshwari, Chairman, Committee on Economic, Commercial Laws &WTO, M: 09821119043, Email: sm@gmj.co.in Programme Coordinator: CA. Shriniwas Y. Joshi, Chairman, WIRC, M: 09821096079 Email: syjoshi@cvkca.com For Registration and Further Details, please contact: Secretary, Committee on Economic, Commercial Laws & WTO, The Institute of Chartered Accountants of India, ICAI Bhawan, Indraprastha Marg, New Delhi-110002 Ph: 011 30110499/443, Mb: 09312085029 E-mail: cecl@icai.in, ctlwto@icai.org; Website: http://www.icai. org Deputy Secretary, Western India Regional Council of the ICAI, ICAI Bhawan, 27, Cuffe Parade, Colaba, Mumbai-400005 Ph: (022) 39802923/22, Email: wro@icai.org; wirc@ icai.in , Website: http://www.wirc-icai. org

Technical Session III 12 noon to 1.30pm Technical Session IV 2.00pm to 4.00pm Registration Fee : Members : R750/Non-members : R900/Cheque/DD should be drawn in favour of ERNAKULAM BRANCH OF SIRC OF ICAI
Seminar Coordinator Seminar Seminar Chairman Convener CA. Sumantra CA. Saji Mathew, N.K. Bansal Secretary, Chairman Guha, Continuing Ernakulam Chairman, Professional Branch of SIRC Continuing Education of ICAI Professional Committee of ICAI Phone: +91 Education Phone: +91 09847 212121 Committee of 9312089135 ICAI Phone: +91 9831015331 For Registration & Information, contact details: ERNAKULAM BRANCH OF SIRC OF ICAI ICAI Bhawan, 57/3146, Dewans Road, Ernakulam, Kochi - 682016 Telephone Board :+91 484 2369 238, 2372 953, 2369 258

Registration Fee - R20,000/-(includes breakfast, tea, lunch and Study Material) The interested members may register online (http:// www.icai.org/ccm.html?progid=184) or/and send the Registration Form duly filled in along with the requisite fee by way of online acknowledgement receipt /Cheque/ Demand Draft/ drawn in favour of The Secretary, The Institute of Chartered Accountants of India payable at New Delhi. The same can be deposited either at Secretariat, Committee on Economic, Commercial Laws & WTO, New Delhi or at WIRC Office of ICAI at Mumbai as per the convenience of the Members. *The holding of batch is subject to minimum number of 30 participants

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810

Understanding the Aadhaar

AADHAAR CAMP

To reap the benefits of demographic dividends and revitalise the rotten part of economy, the Government of India has launched its most ambitious project Aadhaar, which aims at issuing UID numbers to all Indians. The Unique Identification Authority of India (UIDAI) has been established to oversee and implement the project. UID number is a 12-digit unique number issued by UIDAI. With an estimated cost of R1.5 lakh crore, the authority plans to issue 600 million UIDs by 2014. There will be centralised store of demographic and bio-metric information of all individuals covered 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 scores of institutions. However, privacy issue, technical wherewithal and glitches and actual coverage of all are some of the snags 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, Mr. Nandan Nilekani, who has been given the rank of Cabinet Minister following his appointment. Mr. Ram Sewak Sharma is the Director General of the UIDAI.

CA. Gagan Jain (The author is a member of the Institute. He can be reached at eboard@icai.org)

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The source of power for UIDAI is the proposed National Identification Authority of India (NIAI) Bill, 2010. What Is Aadhaar/UID Number? Aadhaar is a 12-digit1 number to be issued by UIDAI. The number will be stored in a centralised database and linked to the basic demographic and biometric information. Some key points of Aadhaar are: It is not a card, but a randomly generated number; It is voluntary, i.e., one may or may not apply for UID number. Further, it will be issued irrespective of existing documents; It will not have information regarding caste, religion and language. The Logo The logo comprises a sun in red and yellow, with a fingerprint traced across its centre. It represents a new dawn of equal opportunity for all. The logo was designed by Mr. Atul S. Pande of Pune.

issued on 29th September, 2010. Over the next five years, UIDAI plans to issue 600 million UIDs through 'registrar' agencies across the country. Estimated Cost Considering the vast coverage and security concerns, the cost of project is estimated to be around R1.5 lakh crore by the Frontline magazine. The cost is justified considering that a London School of Economics analysis of a similar venture mulled over by the British Government projected the cost between 10 billion and 20 billion. However, replying to this question, Mr. Nilekani said, I dont agree with that estimate. I dont know what the exact figure is, but it is much less than that by a factor of ten. Budget Allocation: UID was allocated R1900 crore in the Union Budget 2010-2011 and R1470 crore in 2011-2012. How Are Various Entities Involved in UID Connected to UIDAI? UIDAI is headquartered in Delhi and has a technology centre in Bangalore. It also has regional offices in Chandigarh, Delhi, Lucknow, Ranchi, Guwahati, Mumbai, Hyderabad and Bangalore. A lot of agencies, State Governments and officers have been involved with the project. The following diagram depicts the position and role of various entities involved:

The Timelines The first UID numbers were planned to be launched over the next 12 to 18 months, starting August 2009. In keeping with the time frame, the first number was
Planning Commission of India

UIDAI
Authorises Registrar to enroll people.

Rs.50 per successful generation of Aadhaar.

CIDR

REGISTRAR

Registrar includes Government, Public Sector and Private Sector Organisations.

CIDR is resposible to process & store data collected by registrar. Further, Authenticity of indentity is also conimed by CIDR.

Empanel for One year

Enrolling Agencies
Enrolment Centres Enrolment Centres Enrolment Centres

Enrolment Station

Enrolment Station

Enrolment Station
1

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)
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It is estimated that 18,000 application programmers, 36,000 business process reengineers and 1,500 consultants will be required as UID spreads through the economy.* * (Sources: Unique Identification Authority of India; CLSA Asia-Pacific Markets) The database will be maintained in English. The communication between resident and UIDAI will be in English and the local language. Who Can Apply For Aadhaar? What is the Process of Getting UID Number? An individual, who is a resident2 of India and satisfies the verification process, can apply for UID Number Process of Getting UID Number

more and more people under the UID coverage with its vast network. The enrolment trend is shown in the following chart:

(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 Mystery There are two types of information which are to be provided by an individual: Demographic Detail: Name, gender, date of birth (DoB), address, parent/guardian details, contact details - phone and email (Optional). Biometric Details: Photo, ten finger prints and Iris scan. The inclusion of biometric information will be a tough task as handling of various high technological instruments will raise a big question mark on the precise collection of information. Despite these possible impediments, UIDAI has chosen a set of biometrics because: Many Indians, particularly the underprivileged, dont have the documents needed to establish their identity; Even if a person has an identity proof, it will be tough for him/her to avail the attached benefits on moving from one state to another as the identity proof is issued by local administration. How Will the Identity be Confirmed? Aadhaar authentication process will enable residents to prove identity and service providers to confirm the identity to supply services and give access to the benefits. The UIDAI confirms either proof of identity

A person, after seeing the advertisement for the UID enrolment, goes to the enrolment station. His/her demographic details are entered and/or scanned by the appointed persons. These details, along with documents, if any, submitted by the applicant are sent to the registrar who passes the details to CIDR (Central Identification Data Repository). The physical documents are kept at registrars office for records. CIDR executes the de-duplication process and verifies other prescribed criteria. If the results show nonexistence of these data, a UID number is issued to the person concerned. Otherwise, a letter of non-issuance, along with the reasons, is sent to the applicant. The UIDAI is working hard and speedily to bring

adhaar authentication process will enable residents to prove identity and service providers to confirm the identity to supply services and give access to the benefits. The UIDAI confirms either proof of identity or verifies the information provided by a resident based on the data available in the CIDR at the time of authentication. Aadhaar authentication service only responds with a yes/no and no personal identity information is returned as part of the response.
2

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.
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adhaar enabled bank accounts to be opened free for every resident if he/she agrees to the same. This consent will be requested from the resident at the time of enrolment. The accounts would be opened for everyone, including children. Such accounts will speed up the process of disbursement of social benefits (e.g., pension, payment under various schemes such as NREGA). It is estimated that 500 million adults could enter the banking system through UID-linked basic banking accounts serviced through local grocery stores and cell-phone service providers.
or verifies the information provided by a resident based on the data available in the CIDR at the time of authentication. Aadhaar authentication service only responds with a yes/no and no personal identity information is returned as part of the response. (Source: www.UIDAI.gov.in) Aadhaar is Going to Revolutionise the Life of Common Man Some of the benefits of Aadhaar are as follows: Aadhaar Enabled Bank Accounts Aadhaar enabled bank accounts to be opened free for every resident if he/she agrees to the same. This consent will be requested from the resident at the time of enrolment. The accounts would be opened for everyone, including children. Such accounts will speed up the process of disbursement of social benefits (e.g., pension, payment under various schemes such as NREGA). Further, the Micro-ATM network will cover every nook and corner of India. A Micro-ATM is a hand-held device with biometric authentication capability. It will allow cash withdrawal and deposit, balance enquiry and remittances. It is estimated that 500 million adults could enter the banking system through UID-linked basic banking accounts serviced through local grocery stores and cell-phone service providers. Synchronisation of Identity Proofs A person was denied of his identity because Bihar Government refused to accept the driving license issued by the Rajasthan Government. Another person could not open a bank account in Maharashtra because he has address proof of his home in Tamil Nadu. A common Indian confronts such problems everyday. The UID number can eventually make it easier to get a passport, drivers licence, bank account,

voter Id and PAN card. Further, the UID number will be enough to establish the identity of a person and validate of his (any) identity proof. Recently, the Election Commission proposed to link all Voter IDs with the UID. This will help in resolving the problem of duplicate Voter ID. Social Benefit Schemes and PDS System The sorry state of our social benefits schemes and PDS system was aptly captured by former Indian Prime Minister Rajiv Gandhi when he said, Only a mere 16 paisa of Re 1 spent by the Government reaches the poor. With the UID number, benefits under various government schemes can directly be linked to the target persons account. This will correct the irregularities in the current database. (It is ironical to have more Below Poverty Line BPL cards than the number of BPL people) Finance Minister Pranab Mukherjee proposed direct cash subsidy to BPL people for LPG, kerosene and fertilisers in the Union Budget 20112012. UID will help in this task. Bird's Eye View on Economic Gains to Exchequer from UID Project. $10 billion is the projected value of the UIDs annual commercial opportunity by 2016. Indian Government can save $100 billion over the next five years if social services schemes use UID to eliminate bureaucratic layers, stem corruption and pay the poor directly. One-third of the subsidies paid by the Government can be saved if UID is universally implemented and schemes tightened. $5 billion is the estimated value of new IT services and reengineering of business processes around UID over the first five years of the project. Aadhaar To Strengthen the Base of Institutions a. Banks: UID will provide vast data regarding present and potential customers. Every bank can participate in the Universal Bank Access Mission of the government. They can also be a part of UID-enabled bank. Further, credit information services providers, such as CIBIL, can integrate their database with UIDs which will iron out the problems of fake/duplicate IDs, etc. b. Hospitals: Indian Medical Association, with the help of UIDAI, can create a central database that will contain all the medical details of the residents at a single place. This will save a patients cost on check-up and various tests. Apart from this,

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ndian Medical Association, with the help of UIDAI, can create a central database that will contain all the medical details of the residents at a single place. This will save a patients cost on check-up and various tests. Apart from this, database can be an information hub for medical and scientific research. The government could also identify the type and severity of diseases spreading across the country.
database can be an information hub for medical and scientific research. The Government could also identify the type and severity of diseases spreading across the country. Telecom Service Providers: With nearly 720 million subscribers (Wireless and landline), India has the second largest telecommunication network in the world. With UID, the access to telecom services will be greater and faster. It is estimated that 60 million new cell phone subscribers, most of whom cannot currently prove their identity, can be added through UID. The benefits will also be felt in the Internet space. Employee PF Organisations: A recent news article mentioned, the retirement fund manager EPFO plans to replace PF account number with unique identification number, a move which will help in speedy transfer of a subscriber's funds in case of job change and allow them to track their accounts online. Tax Authorities: Duplicate identity proofs, benami accounts, minute changes in the spelling of name have been big snags for tax authorities. It is proposed to align PAN and other personal identification numbers with the UID. This will help the authorities to follow the trail easily and quickly. Financial and Regulatory Institutions: The Ministry of Finance has sought the views of capital market regulator Securities and Exchange Board of India (SEBI) on making the UID number mandatory for all securities transactions, a move that, if implemented, could help SEBI track incidents of frauds and money laundering in market transactions. Indian Railways: Financial problems have forced Indian Railways to look at restricting subsidy and concessions to the deserving. It is looking to UIDAI for ensuring accurate identification of the beneficiaries of its low-cost services. This will help the railways to ensure that people who are not entitled to discount services such as Izzat Scheme

are not benefited by the low fare. (Source: Business Standard) The UID may help in overcoming problems relating to immigrants and foreigners. Major problems of corruption, and even inflation, can be solved with the implementation of Aadhaar project. Indian army can also use UID to enhance security. Obstacles in the Way The UID does have some negatives too, which may have an effect on the potential fruits of the project. Some of them are: 1. Civil Liberty and Security Breach: There are no safeguards for preventing violation of civil liberties and security breaches. There are also serious issues of e-surveillance. In this regard, the UIDAI has laid down protocols, regulations and standards to be adhered by registrars, enrolling agencies, UID personnel and everyone involved in the project. As the cyber war intensifies, the fear of hacking is worrying a lot of people. Any leakage of information will have unimaginable repercussions. 2. Privacy Safeguard: The UID itself only collects standard attributes, but since the enrolling system is through partnership with existing agencies such as LIC, banks, PDS shops, etc. the full board of UIDAI may have additional data fields related to identity. This information could compromise privacy and leave it open for misuse with racial profiling being an obvious threat. Countries such as the UK, Australia and the US have found similar measures unworkable with serious probability of abuse. The state will have the means to track every transaction made using the UID. 3. Voluntary Vs. Mandatory: Although the UID team stresses that the number is voluntary, it seems mandatory for all practical purposes. A similar thing happened with PAN (Permanent Account Number) too. Theoretically, PAN is not mandatory

c.

d.

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here are no safeguards for preventing violation of civil liberties and security breaches. There are also serious issues of e-surveillance. In this regard, the UIDAI has laid down protocols, regulations and standards to be adhered by registrars, enrolling agencies, UID personnel and everyone involved in the project. As the cyber war intensifies, the fear of hacking is worrying a lot of people. Any leakage of information will have unimaginable repercussions.

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but virtually, it has become an identity proof in the financial world. 4. Power Entrusted with UIDAI: The UIDAI is an executive body of this project. Generally, the executive bodies are entrusted with routine and some other important power. The remaining powers are retained with legislative body. The judiciary takes care of matters in conflict with or against the executive body. However, NIAI Bill, 2010 has delegated at least 25 functions to the proposed authority including crucial legislative functions. (For example, the definitions of demographic information and biometric information are to be decided by the authority). Further, the authority has the sole power to establish dispute resolution mechanism on matters related to the project. 5. Conflict with Other Acts: The proposed bill has several provisions which overlap with the Information Technology Act, 2001. Similarly, this project is expected to invite protests from several quarters on issues such as legal authority, database management and technical collaborations. 6. Coverage of All: The UID aims to cover everyone in its database to realise the dream of inclusive growth. But is it possible to get information from an illiterate living in a remote tribal area, where the entry of strangers is considered as an attack on the privacy of the community?

he mere issuance of UID number would not be 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).
be compatible with UID database. This may involve substantial cost. Finally, lets remember, like with most things, the UID model is only as good as its application. Conclusion All new systems carry potential benefits as well as consequential dangers. We may confront with several technical, financial and physical snags. But what matters is how we tackle them during implementation. As Mr. Nilekani has said, the inclusivity that this project would provide for the 700 million people in this country, who were outside the system, was immense enough to justify doing it. The mere issuance of UID number would not be 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. Indias much talked about demographic dividends may become its major liabilities, if not handled properly. So let us bring a new and powerful tool which has immense potential to enrich the life of a common Indian. Go to the below link to get your UID form: 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 _ wrapper&view=wrapper&Itemid=217 n

Many NGOs are promoting eye donations. If a UID registered person donates his/her eyes (after death) to an unregistered blind person, how will the latter establish his/her unique identity? Apart from these, the project entails a huge burden on the exchequer. All institutions need to upgrade or change their technologies or database system to

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1. In the context of Information security and risk management, ________ means ensuring that data remains unchanged while in storage or transmission. (9) 4. Full form of MICR is ________ _______ Recognition Code. (8,3) 5. CABF of ICAI has a tie up with ______for Group Term Insurance Scheme for Chartered Accountants and their spouses. 8. The process of extracting previously unknown information typically in the form of patterns and associations from large databases. (4,6) 11. Top recruitments have been made by this company during the AugustSeptember 2011 Campus interviews of the ICAI. (7) 12. In Pakistan, the auditors are required to comment whether any ______ is deductible at source under the statutory provisions in their audit 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) 6. Name of the company recently replaced the Reliance Capital in S&P CNX Nifty Sensex. (7) 7. MIBOR in India is known as _________in London. (5) 9. Origin of word Governance. (9) 10. ____Value Adjustments is a measure that adjusts the risk-free value of an instrument to incorporate counterparty credit risk. (6) 13. A Person Resident in India is liable to pay tax on his _______ income earned anywhere in the world. (5)

NOTe: Members can claim one hour CPe Credit Unstructured Learning for attempting this crossword by filling the details in the self-declaration form to be submitted to your regional office annually to avail CPe hours credit for Unstructured Learning activities under the activity Providing Solutions to Questionnaires/ puzzles available on Web/ Professional Journals. There is no need to individually send this crossword in hard copy or email.

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2. Cheque is a _________Instrument. (10) 3. Number of elected Council Members in the Council of ICAI. (6,3)

SOLUTION CROSSWORD 0 6 4

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 cant talk! Dont worry, said the Auctioneer, He can talk. Who do you think kept bidding against you?

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