C O N T E N T S - Chartered Accountants Association ...

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Volume : 38 Part : 02 May, 2014

Ahmedabad Chartered Accountants JournalE-mail : [email protected] Website : www.caa-ahm.org

C O N T E N T S To Begin with

MananamChange Attitude, not Lifestyle............................................................. Smt. Jaya Row.............................. 63

EditorialDemocracy Undoubted.......................................................................CA. Ashok Kataria ...................... 64

From the President............................................................................CA. Shailesh C. Shah................... 65

Articles

Scope of Tax Planning in Works Contract...........................................Adv. K. H. Kaji............................. 66Acceptance of Deposits under Companies Act, 2013.......................... CA. Chintan M. Doshi.................. 69

Direct Taxes

Glimpses of Supreme Court Rulings................................................... Adv. Samir N. Divatia..................73

From the Courts.................................................................................. CA. C.R. Sharedalal &CA. Jayesh Sharedalal................. 74

Tribunal News.....................................................................................CA. Yogesh G. Shah &CA. Aparna Parelkar.................... 76

Unreported Judgements......................................................................CA. Sanjay R. Shah......................80

Controversies......................................................................................CA. Kaushik D. Shah................... 84

Judicial Analysis................................................................................. Adv. Tushar P. Hemani................. 89

FEMA & International Taxation

Limited Liability Partnership under FEMA..........................................CA. Rajesh H. Dhruva..................93

FEMA Updates................................................................................... CA. Savan A. Godiawala..............97

Indirect Taxes

Service Tax

Service Tax Decoded.......................................................................... CA. Punit R. Prajapati..................98

Recent Judgements............................................................................. CA. Ashwin H. Shah...................101

Value Added Tax

Recent Judgements and Updates........................................................ CA. Bihari B. Shah.....................103

Corporate Law & Others

Business Valuation.............................................................................. CA. Hofeza Natawala................. 108

Corporate Law Update....................................................................... CA. Naveen Mandovara............. 113

From Published Accounts ................................................................ CA. Pamil H. Shah..................... 114

From the Government ......................................................................CA. Kunal A. Shah..................... 116

Association News.............................................................................. CA. Abhishek J. Jain &CA. Nirav R. Choksi................... 117

ACAJ Crossword Contest....................................................................................................................124

Ahmedabad Chartered Accountants Journal May, 2014

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AttentionMembers / Subscribers / Authors / Contributors1. Journals are carefully posted. If not received, you are requested to write to the Association's

Office within one month. A copy of the Journal would be sent, if extra copies are available.2. You are requested to intimate change of address to the Association's Office.3. Subscription for the Financial Year 2014-15 is ` 400/-. Single Copy (if available) ` 40/-.4. Please mention your membership number/journal subscription number in all your correspondence.5. While sending Articles for this Journal, please confirm that the same are not published / not

even meant for publishing elsewhere. No correspondence will be made in respect of Articlesnot accepted for publication, nor will they be sent back.

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

7. Membership Fees (For ICAI Members)Life Membership ` 7500/-Entrance Fees ` 500/-Ordinary Membership Fees for the year 2014-15 ` 600/- / ` 750/-Financial Year : April to March

Published ByCA. Ashok Kataria,on behalf of Chartered Accountants Association, Ahmedabad, 1st Floor, C. U. Shah Chambers, NearGujarat Vidhyapith, Ashram Road, Ahmedabad - 380 014.Phone : 91 79 27544232Fax : 91 79 27545442No part of this Publication shall be reproduced or transmitted in any form or by any meanswithout the permission in writing from the Chartered Accountants Association, Ahmedabad.While every effort has been made to ensure accuracy of information contained in this Journal,

Professional AwardsThe best articles published in this Journal in the categories of 'Direct Taxes', 'Company Law and

the Publisher is not responsible for any error that may have arisen.

Auditing' and 'Allied Laws and Others' will be awarded the Trophies/ Certificates of Appreciationafter being vetted by experts in the profession.

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

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

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

Journal CommitteeCA. Ashok Kataria CA. Pitamber Jagyasi

Chairman ConvenorMembers

CA. Gaurang Choksi CA. Jayesh Sharedalal CA. Mukesh KhandwalaCA. Naveen Mandovara CA. Rajni Shah CA. T. J. Advani

Ex-officioCA. Shailesh Shah CA. Abhishek Jain


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People believe that to turn spiritual you have tochange your wardrobe, diet and lifestyle and adopta somber and boring pattern. This does not appealto most who continue in their materialistic ways. Afew inspired ones change everything except theirthinking! They fail to benefit, get frustrated and giveup. Rare is the wise one who focuses only on‘attitude’. And succeeds!

You have a fundamental choice in every situation,at every moment. You can be unhappy andcomplain. Or you can be happy and cheerful. Thechoice is yours. It has nothing to do with the worldor what it presents. You could have the best ofthings and be miserable, as is the case with manyof us. You may have nothing and yet be deliriouslyhappy, like Sudama who was a pauper but felttotally fulfilled. What makes the difference?Attitude.

In life, everyone is denied a few things. But all ofus have been blessed with millions of gifts. If youfocus on what you do not have, you will beunhappy. If you choose to zero in on the thingsyou have, you are grateful for them and you developan irresistible desire to share, contribute, and give.This makes you happy. Unfortunately, modern lifehas programmed you to give value only for thethings you pay for. But the most precious thingscome for free, which you do not even consider!Hence you live life feeling deprived and deficientwhen, in fact, you are totally fulfilled and abundant.

While acting you can function with the attitude oftaking or be suffused with the spirit of giving. Theprinciple is – ‘Grab you Lose, Give you Gain.’Physics endorses it. An object is red in colourbecause it reflects red. It gains what it gives andloses the other colours it takes. So shift your focusfrom ‘what can I gain’ to ‘how can I add value toothers’ and success will be yours. Besides, all selfish

Smt. Jaya [email protected]

people are unhappy. To the extent you turnChange Attitude, not Lifestyleunselfish you will be happy.

Do you have conflict with the people you lovemost? Do you blame the ‘other person’ for it? Thinkagain. May be it has to do with your attitude. Doyou have expectations of your family members?Do you make demands on your spouse andchildren? This is not love. It is attachment. Lovetainted with selfishness is attachment. The truth isyou really do not love them. You only love yourself.You claim to love because they happen to cater toyou in some way – tangible or intangible. Thiscauses conflict and untold suffering. In the end youlose them. Attachment is the single most importantcause for breakdown in relationships. Physicallyhanging on to spouse and children does not makefor meaningful relationships. You need to earn theirlove and respect. Shift your stance from ‘hangingon’ to ‘letting go’. From binding them to releasingthem from your clutches. From focussing on yourhappiness to enabling their fulfilment. Accept themfor what they are, not what they can do for you.

The world and all that it offers is temporary, fleeting,passing. Sell your soul to any aspect of the worldand you are committed to sorrow. Understand thetransient nature of the world while living in it andyou will be happy. Transact with the world, enjoyit, but always remember that it will pass. Give it theright value, not the exaggerated value you have forit now. Begin the search for the permanent. Thejourney itself becomes thrilling. Then you willexperience true happiness irrespective of what youhave or do not have.

So change your attitude, not lifestyle. Your life willchange from drudgery to revelry. From mediocrityto Excellence.Smt. Jaya Row is the founder of Vedanta Vision (visit-www.vedantavision.org), dedicated to the dissemination of Vedanta,Indian philosophy - the oldest management school in the world.She has written the first article for the new column ‘Mananam’-‘AReflection’ added from this issue of ACA Journal.

M MananaM Manana


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Whole of India and more so, the youth seems to bevery energized and exhilarated for the second timewithin a period of three years. Considering the eventsunfolding in the country, the approach howeverappears to be positively contrary as compared to thesense of absolute dejection exhibited about threeyears back. Back in 2011 Anna Hazare led themovement ‘India against Corruption’. The ideabehind the massive movement was to press uponthe need for a stringent piece of legislation, the LokpalBill, as an effective tool to combat corruption thathas spread rampant in the country. The movementreceived unprecedented support from the people ofall class and age groups. The movement led by AnnaHazare spread to the each and every corner of thenation that could built pressure on the governmentfor the Bill.

The movement against corruption inspired the youthto such an extent that some quarters even hinted itas a reminder of Independence Movement led byGandhiji. However the inspiration to fight againstcorruption came along with vicious cynicism,doubting the parliamentary system of democracyand an underline belief of every politician beingcorrupt. Where the protest to fight against corruptionwas necessary, the approach was a mark ofintolerance and in fact disrepute to all great leaderswho have served this nation, selflessly.

The year 2014 however, has come with a muchneeded positive change. With the announcement of

thUnion Elections for the 16 Loksabha, the citizensof this great nation who felt cheated after 66 years ofdemocracy seem to be excited again. The soaringpercentage of voting in each and every phase of theelection is an indicator of the restoration of faith inthe democratic system of the country. The awarenessto participate in the system by choosing the rightcandidate and the government has spread to thelength and breadth of the country. The socialnetworking sites including Facebook and Twitterhave played an important role in spreading the

EditorialDemocracy Undoubted awareness. The posts such as “Vote for Change” and

“Vote for India” are regularly visible on these sites.

As are the indications, people are voting for a hopeand their aspirations. The aspiration to achieve theirdreams. The 10 year misrule of the presentgovernment has added to the woes of the citizenswho were otherwise dejected. Every voter is castinghis vote with a hope that things would change forthe good once the government changes. The questionarises, are we not depending too much on the actionsof the government to have a happy living rather thanputting efforts to make things better around us? Whatwould be the scenario if the new government is notable meet to the expectations of Indian voters? Willwe again start to distrust the politicians and doubtthe democratic system of the country?

The role of the government is to provide theenvironment that allows every citizen of the countryto grow, economically and socially. TheGovernment that works to help the poorest of poor,follows measures to boost the economy, is receptiveto reforms, decisive, enables opportunities for itscitizens. Conducive environment provided by a progrowth government however does notautomatically guarantee the economic prosperity.The measures and efforts required to be put in forsuch prosperity are to be undertaken by everyperson, individually. No establishment in the worldwould ensure our prosperity without our ownefforts. This however by no mean is to suggest thatwe should not have faith in the democraticallyelected governments and politicians. All electedrepresentatives are not bad. It is only because offew handful corrupt people, the integrity and reputeof entire political system is doubted. The dawn ofIndian political system may still be dark but let’shope that the new government brings opportunityfor every person to prosper and let’s not lose faithin our parliamentary form of democracy as has beenbeautifully said by Rabindranath Tagore that “Faithis the bird that feels the light and sings whenthe dawn is still dark.”

Namaste,CA. Ashok Kataria

[email protected]


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Dear Esteemed Readers,It is indeed a matter of immense pride and pleasurefor me to put across my thoughts with fellow alumniof this profession, as the newly elected Presidentof this august Association. I thank you all formaking this year so special, for electing me as your58th President, and giving me the opportunity toserve the Association.I am daunted by the huge responsibility that is castupon me but I hope to complete the year ahead withunstinted support of members and well wishers.Well, it will be a privilege to communicate with youfor the next twelve months and I shall strive to myutmost to meet with your expectations.Communication is complete when it is well received,so I look forward to your feedback and suggestionsfor improvement not only in respect of my writingsbut also in respect of any activity of the Association.In fact, it is your participation and encouragementthat has helped us evolve to serve better. We takeimmense pride in keeping all members at the core ofall our activities and innovations.In my opening address as the President I stated thatthe purpose of CAA is to assist professionals inadvancement and success in their careers, andmould oneself to meet new challenges. The effortsof CAA will be to keep on innovating andexploring new ideas with various activities for thebenefit of its members.Every fresh Chartered Accountant is like a freshseed. Inside each such tiny seed there lies an unseenpotential of being big strong tree. What all it needsto get that big tree is to make sure that the seed isproperly planted, watered regularly and is exposedto sunlight. With time the seed will begin to sproutand grow. Our Association is providing the samenurturing environment to fresh charteredaccountants to grow.Moreover the Association is like a family. There isa strong bond of relation between every member,that goes beyond the professional relationship. This

From the President

bond fosters the friendship amongst us.

CA. Shailesh C. [email protected]

Therefore, the slogan for the year reflects what theAssociation has been successfully accomplishingover a period of more than 60 years -

“nurturing knowledge – fostering fellowship”.

Under the back drop of this motto we at theexecutive committee have decided to organizeprograms in such a manner that they increase theknowledge of members and help them to growalong with the increase in fellowship amongst themembers and their family members.

The coming years for CA’s are expected to bechallenging as compared to the past. We havewitnessed that the Companies Act, 2013 hasreplaced old Companies Act of 1956 and manymore sea wide changes are expected in the nearfuture in major areas of practice. As a consequenceof this, the demand for professionals is bound to beon the rise and would offer tremendous scope toincrease their level of practice.

Further at the Association, we would alsoconstantly endeavour to represent at various levelsto see that hardship and inconvenience caused onaccount of administrative apathy is reduced. Wewill be vigilant and expect that you will respond inthe same manner.

Increase in the number of members of the Associationis the first resolution of new year. To serve thepurpose it is our desire to connect to with the youngbrigade of chartered Accountants through social networking sites like facebook and twitter. We plan tohave Association’s webpage on facebook givingupdates of all the activities of the Association.

Our Association was privileged to have aninteresting interaction with the President of ICAIShri K. Raghu, Vice-President Shri Manoj Fadnison their visit to our Association. The meetingprovided an opportunity to the Association toexchange views and offer greater support.

With regards,CA. Shailesh C. ShahPresident


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An epoch making judgment of the Supreme Courtin relation to works contract in the case of Larsen& Toubro Ltd. v/s. State of Karnataka (2013) 65VST 1 (SC) has created lot of flutter and givenanxious moments to contractors engaged inbuilding contracts.

The tax in respect of works contract came intoexistence by constitutional amendment bringingin Article 366(29A)(b) enabling the States to levySales Tax on works contract in respect of goodswhich have gone in the construction of a building,factory etc. by the contractor. The taxability ofworks contract was earlier negatived by theSupreme Court by the well known decision in thecase of Gannon Dunkerley & Co. reported in 9STC 353(SC). The decision in L & T case hassubstantially expanded the concept on workscontract including building contracts where at thefinal stage the building is transferred to the flatpurchaser. The summary of the decision at 65 VST1 at page 45 is as follows:-

(i) For sustaining the levy of tax on the goodsdeemed to have been sold in execution of aworks contract, three conditions must befulfilled: (one) there must be a works contract,(two) the goods should have been involved inthe execution of a works contract and (three)the property in those goods must be transferredto a third party either as goods or in some otherform.

(ii) For the purposes of Article 366(29-A)(b), in abuilding contract or any contract to doconstruction, if the developer has received oris entitled to receive valuable consideration, theabove three things are fully met. It is so becausein the performance of a contract forconstruction of building, the goods (chattels)like cement, concrete, steel, bricks etc. are

intended to be incorporated in the structure andeven though they loose their identity as goodsbut this factor does not prevent them from beinggoods.

(iii) Where a contract comprises of both a workscontract and a transfer of immovable property,such contract does not denude it of its characteras works contract. The term “works contract”in Article 366 (29-A)(b) takes within its fold allgenre of works contract and is not restricted toone specie of contract to provide for labourand services alone. Nothing in Article 366(29-A)(b) limits the term “works contract”.

(iv) Building contracts are species of the workscontract.

(v) A contract may involve both a contract of workand labour and a contract for sale. In suchcomposite contract, the distinction betweencontract for sale of goods and contract for work(or service) is virtually diminished.

(vi) The dominant nature test has no applicationand the traditional decisions which have heldthat the substance of the contract must be seenhave lost their significance where transactionsare of the nature contemplated in Article366(29-A). Even if the dominant intention ofthe contract is not to transfer the property ingoods and rather it is rendering of service orthe ultimate transaction is transfer ofimmovable property, then also it is open to theStates to levy sales tax on the materials used insuch contract if such contract otherwise haselements of works contract. The enforceabilitytest is also not determinative.

(vii)A transfer of property in goods under clause29-A(b) of Article 366 is deemed to be a saleof the goods involved in the execution of a workscontract by the person making the transfer and

Advocate K. H. [email protected]

Scope of Tax Planningin Works Contract


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Scope of Tax Planning in Works Contract

the purchase of those goods by the person towhom such transfer is made.

(viii) Even in a single and indivisible works contract,by virtue of the legal fiction introduced byArticle 366(29-A)(b), there is a deemed sale ofgoods which are involved in the execution ofthe works contract. Such a deemed sale hasall the incidents of the sale of goods involvedin the execution of a works contract where thecontract is divisible into one for the sale of goodsand the other for supply of labour and services.In other words, the single and indivisiblecontract, now by Forty-sixth Amendment hasbeen brought on par with a contract containingtwo separate agreements and States have nowpower to levy sales tax on the value of thematerial in the execution of works contract.

(ix) The expression “tax on the sale or purchase ofgoods” in Entry 54 in List II of SeventhSchedule when read with the definition clause29-A of Article 366 includes a tax on thetransfer of property in goods whether as goodsor in the form other than goods involved in theexecution of works contract.

(x) Article 366(29-A)(b) serves to bring transactionswhere essential ingredients of ‘sale’ defined inthe Sale of Goods Act, 1930 are absent withinthe ambit of sale or purchase for the purposesof levy of sales tax. In other words, transfer ofmovable property in a works contract is deemedto be sale even though it may not be sale withinthe meaning of the Sale of Goods Act.

(xi) Taxing the sale of goods element in a workscontract under Article 366(29-A)(b) read withEntry 54 List II is permissible even afterincorporation of goods provided tax is directedto the value of goods and does not purport totax the transfer of immovable property. Thevalue of the goods which can constitute themeasure for the levy of the tax has to be thevalue of the goods at the time of incorporationof the goods in works even though propertypasses as between the developer and the flat

On the limited aspect of scope or tax planning in

purchaser after incorporation of goods.

relation to building contract the followingconclusions arrived are very relevant :

(1) For tax purposes the value of the goods at thetime of incorporation in the construction is tobe taken and not the value at the time ofpurchase of goods by the contractor.

(2) Further, value addition made for the goods willonly be after an agreement is entered into withflat purchaser. Only that addition will betaxable. It therefore seems that beforeagreement with the flat purchaser is entered intoall goods incorporated in the construction willnot be taxable. It is as if the developer who isthe owner of the structure has incorporatedgoods in the construction till agreement isentered into with the flat purchaser. Thesummary of conclusions arrived at by theSupreme Court is that 65 VST 1 at page 45.

In the light of the above conclusion it is necessaryto examine and realize the concept of duality of theownership of land and building. Contrary to Englishcommon law, under Indian law, owner of land andthe owner of building may be different persons. Thusin the case of building contracts land is owned theowner, building by the developer. The land is givento the developer under an agreement with thedeveloper by the owner permitting him to constructthe building and to sell the flats to various purchasersalong with unspecified portion of the land on whichthe building is constructed. Thus the owner of landdoes not sell the flat or the office because the samedoes not belong to him while the developer only sellsthe flat and not the land which belongs to the ownerof the land. Therefore, in the final tripartitetransaction the owner as well as the developer sellthe flat to the flat purchaser along with unascertainedportion of the land as stated above.

In this connection the Larsen & Toubro judgmentconfirms & the approves the conclusion arrived atby the earlier judgment of the Supreme Court inthe case of K. Raheja Development Corpn v/s.State of Karnataka (2005) 141 STC 298(SC) at P.308 where it is observed as follows :-


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“It must be clarified that if the agreement is enteredinto after the flat or unit is already constructed thenthere would be no works contract. But, so long asthe agreement is entered into before the constructionis complete it would be works contract.”

At P. 51 of L & T judgement in 65 VST 1, it isstated as follows :-

“It may, however, be clarified that activity ofconstruction undertaken by the developerwould be works contract only from the stagethe developer enters into a contract with theflat purchaser. The value addition made to thegoods transferred after the agreement is enteredinto with the flat purchaser can only be madechargeable to tax by the State Government.............................................................................

If at the time of construction and until theconstruction was completed, there was nocontract for construction of the building withthe flat purchaser, the goods used in theconstruction cannot be deemed to have beensold by the builder since at that time there isno purchaser. That the building is intended forsale ultimately after construction does not makeany difference”.

It is therefore clear that all goods and material usedin the construction of the building will not betaxable as works contract before the agreement isentered into by the developer with the flat purchaser.Till then the developer is using his material forconstruction of the building which belongs to him.

It is only when the flat purchaser comes on the sceneby entering into the agreement with the developerthat any goods and material which have gone inthe construction will become subject matter oftaxation as a works contract.

As a result of the above statement of the lawcontained in the Larsen & Toubro judgment as wellas Raheja judgment, the scope of planning to avoidVAT liability on works contract would be tocomplete as much construction as possible beforeentering into agreement with the flat purchasers.The developer can borrow moneys from financialinstitution or other parties but may not take advancepayments from the flat purchaser before enteringin to an agreement with him for sale of flat.

It is therefore submitted that in view of thepronouncement of the Supreme Court, the goodswhich have gone in the construction of the buildingprior to entering into agreement with the flatpurchaser are not subject to VAT on basis of workscontract because the developer is constructing thebuilding of which he is the owner. The scope ofthis article is only limited to this particular aspectupto what stage cost of material and goods gone inthe construction of the building would not besubject to tax as works contract.

It may be that the above view may not appearfeasible for some and not possible to implement toothers. However in these days of multiple taxesany escape route is welcome.

❉ ❉ ❉

Scope of Tax Planning in Works Contract


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stFrom 01 April 2014, provisions for Acceptanceof Deposits by Companies shall be governed byChapter V (Section 73 to section 76) of CompaniesAct 2013.

Section 73(2) specifically provides that anycompany which is not an NBFC, whetherprivate or public can accept deposits only fromits members subject to such terms and conditionsas may be agreed upon between the company andits members, and that too after passing a resolutionin general meeting.

It means if a private company which is notNBFC, wants to accept deposits, it can acceptany such deposits only from its members.

What does Deposit means?

In Companies Act 2013, an inclusive definition of‘Deposit’ is given under Clause 31 of Section 2 asfollows:

“deposit includes any receipt of money by way ofdeposit or loan or in any other form by a company,but does not include such categories of amount asmay be prescribed in consultation with the ReserveBank of India.”

The categories as mentioned in the definition areprescribed by rules and there also an inclusivedefinition is provided. As per the rules, any receiptof money by way of deposit or loan or in any otherform shall be treated as Deposit.

However the rules have also given specificexclusions; accordingly any amount received inany of the following ways shall not be treated asdeposits:

1. From the Central Government or a StateGovernment or a local or statutory authority orguaranteed by Central or State Government;

2. From foreign Govt., foreign or international

Acceptance of Deposits

banks or multilateral financial institutions;

under Companies Act 2013

3. From foreign bodies corporate, foreign citizensor foreign authorities;

4. From person resident outside India;

5. As a loan or facility from any banks or PublicFinancial Institutions, regional financialinstitutions or Insurance Companies;

6. Against issue of commercial paper or any otherinstruments;

7. Inter corporate loans;

Subject to section 185 that restricts granting of loansto a company or body corporate in which directoris interested. A company or body corporate inwhich director is interested means:

i. Any private company of which such directoris director or member

ii. Any body corporate in which 25% or morevoting powers can be exercised at generalmeeting by such director or two or moredirectors together.

iii. Any body corporate, the board of directors,managing director or manager, whereof isaccustomed to act in accordance with thedirections or instructions of the Board, or ofany director or directors;

8. As subscription to any securities (shares,debentures, scrips, all kind of derivatives etc.)or advance towards allotment of such securitiespending allotment. But if such securities cannotbe allotted within 60 days from the date ofreceipt of application money or advances, suchamount should be refunded within 15 days fromthe date of completion of 60 days, otherwisesuch amount which is not refunded shall betreated as deposits;

9. From the person, who at the time of receipt, was

CA. Chintan M. [email protected]

a director of the company, but director has to


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furnish a declaration that he is not giving suchamount out of the funds acquired by him byborrowing or accepting deposits from others;

10. By the issue of bonds or debentures securedby a first charge or a charge ranking pari passuwith the first charge;

11. From an employee of the company under acontract of employment as a non interestbearing security deposit subject to the limit ofhis annual salary;

12. For held in trust as non interest bearing amount;

13. In the course of, or for the purpose of thebusiness of the company –

a. As an advance for supply of goods orprovision of services, but if it is notappropriated against such supply of goodsor services within 365 days from the dateof receipt, such amount should be refundedwithin 15 days from the date of completionof 365 days, otherwise such amount whichis not refunded shall be treated as deposits;

b. As an advance against property or otherlong term project for supply of goods, butif it is not adjusted appropriately as per theterms of agreement or arrangement, suchamount should be refunded within 15 daysfrom the date of completion of terms,otherwise such amount which is notrefunded shall be treated as deposits;

c. As security deposit for the performance ofthe contract for supply of goods orprovision of services.

14. From the promoters of the company inpursuance of stipulation of any financialinstitutions or bank; but it shall be treated asdeposits after repayment of loans of the financialinstitutions or bank;

15. By a Nidhi company.

Terms and Conditions for acceptance orrenewal of deposits:

Any amount borrowed, which can be termed asdeposit can be accepted by a company subject tofollowing terms and conditions:

1. A circular has to be issued by registered postwith acknowledgement due or speed post orby electronic mode in Form DPT-1, with astatement mentioning following details:

a. Financial position of the company

b. Credit rating

c. Total number of depositors

d. Amount due towards such depositors

2. A copy of said circular should be filed withregistrar within 30 days before the date of issueof circular.

3. A separate bank account to be called as depositrepayment reserve account shall be opened ina scheduled bank, which shall not be used forany other purposes other than for repaymentof deposits.

4. At least 15% of the amount of deposits maturingduring the financial year and the next followingfinancial year shall be deposited in deposit

threpayment reserve account on or before 30April of respective year.

For example, XYZ Pvt. Ltd. has accepteddeposits of Rs. 5,00,000 at 12% rate of interestfor 36 months assuming that interest is payableevery year, then it shall have to deposit Rs.75,000 (15% of 5,00,000) in deposit repayment

th ndreserve account on or before 30 April of 2year and Rs. 75,000 (15% of 5,00,000) shallhave to be deposited in deposit repayment

th rdreserve account on or before 30 April of 3year.

5. Company should enter into contract for depositinsurance at least 30 days before the issue ofcircular with specific provision mentioningaggregate monetary ceiling for repayment ofprincipal amount of deposit and interest thereonby the insurer in case of default. Such monetaryceiling shall not be less than Rs. 20,000 foreach depositor.

6. If deposits are secured deposits, then companyshall provide for security by way of charge onits assets excluding intangible assets, if such

Acceptance of Deposits under Companies Act 2013


71

charge is not created then deposit shall betermed as “unsecured deposits”.

7. A certificate shall be issued along with thecircular; certifying that the company has notcommitted any defaults in repayment ofdeposits or payment of interest thereon.

8. Company inviting secured deposits, can notissue any circular unless one or more trusteesare appointed for depositors by executing adeposit trust deed in Form DPT – 2 at least 7days before issuing the circular.

9. Every intending depositor shall make anapplication to the company for giving depositsto the company, which shall contain adeclaration that intending depositor is notmaking deposit out of any money borrowedby him from any other person.

10. Deposits can be accepted in joint names butsuch joint names should not exceed 3 names.

11. On acceptance or renewal of any deposit areceipt shall be issued to the depositor within21 days from the date of receipt or realizationof cheque or renewal.

Acceptance of deposits from public by EligibleCompanies:

Section 76 provides that every eligible companycan accept deposits from public, i.e. persons otherthan its members, on fulfillment of terms andconditions for acceptance or renewal of deposits asmentioned in preceding paragraph and followingadditional conditions:

1. During the tenure of deposits, every year suchcompany shall obtain rating (including its networth, liquidity and ability to pay its depositson due date) from a recognized credit ratingagency;

2. Every company accepting secured deposits,shall create charge on its assets within 30 daysof such acceptance.

Definition of Eligible Company is given in the rulesas under:

Eligible Company means a Public company

✒ having net worth of Rs. 100 crores or more, or

✒ having turnover of Rs. 500 crores or more

And

✒ which has obtained prior consent in generalmeeting by means of a special resolution and,

✒ said resolution is filed with ROC before makingany invitation to the public for acceptance ofdeposits.

Maximum cap for acceptance or renewal ofdeposits:

Deposits can be accepted subject to following cap:

1. in case of eligible company:

a. from the members - 10% of aggregate ofpaid up share capital and free reserves

b. from public – 25% of aggregate of paid upshare capital and free reserves

2. in case of other companies:

✒ from the members - 25% of aggregate ofpaid up share capital and free reserves

3. in case of Government companies (acceptingdeposits from public, i.e. eligible company):

✒ from public – 35% of aggregate of paid upshare capital and free reserves

However, Section 180(1)(c) provides that if acompany borrows money together with the moneyalready borrowed, including deposits, bank loansor any other loans which are not considered asdeposits, but excluding temporary loans obtainedfrom bankers, exceeding aggregate of its paid upshare capital and free reserve, then it should beconsented by a special resolution.

Rate of Interest:

Rate of interest may charged as agreed uponbetween the company and its members, but it shallnot carry a rate of interest exceeding the maximumrate of interest prescribed by Reserve Bank of Indiafor acceptance of deposits for NBFC.



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Brokerage payable on deposits:

Brokerage shall be payable to the persons only whoare authorized in writing by the company to solicitdeposits on its behalf and it should not exceed thebrokerage prescribed by Reserve Bank of India foracceptance of deposits for NBFC.

Period for repayment of deposits:

Period for repayment or renewal of deposit shallnot be less than 6 months or more than 36 monthsfrom the date of acceptance of deposit.

Deposits can be accepted or renewed for repaymentfor the period less than 6 months subject to followingconditions:

1. It should be for the purpose of meeting shortterm requirements of funds;

2. It should not exceed 10% of the aggregate ofthe paid up share capital and free reserves;

3. It should not be repayable earlier than 3 monthsfrom the date of acceptance or renewal.

stRepayment of deposits accepted before 1 April2014:

For any amount of deposits except public depositsstby eligible companies accepted before 1 April

2014 or part thereof or any interest due thereon,company shall file a statement with registrar in Form

thDPT-4 on or before 30 June 2014 or within 3months from the date on which such payments aredue.

Company shall repay any such amounts acceptedstas deposit on or before 1 April 2014, with interest

thereon

- ston or before 31 March 2015 or

- within 1 year from the date on which suchpayments are due, whichever is earlier.

Every eligible company, which has acceptedstdeposits on or before 1 April 2014, may repay it

with interest due thereon as per the agreed terms asmentioned in the contract or as per the provisionsof The Companies Act 1956, or rules made there

Premature repayment of deposits:

If a company makes a repayment of deposits, on

under.

the request of the depositor –

- after expiry of 6 months from the date of suchdeposit, but

- before the expiry of the period for which suchdeposit was accepted,

then the rate of interest payable on such depositshall be reduced by 1% from the rate asmentioned in the contract of deposit.

Return of deposits to be filed with registrar:

Every company, which accepts or renew deposit,shall have to file a return of deposits in Form DPT-

th3 on or before 30 June every year. Such companyshall furnish information in FORM DPT-3 as on

st31 March of that year duly audited by the auditorof the company.

Penal rate of interest:

Every company shall pay a penal rate of interest of18% per annum for the overdue period in case ofdeposits matured and claimed but remaining unpaid.

Punishment for Contravention:

For contravening any provision of this chapter orrules made there under, company and every officerin default shall be punishable with fine which mayextend to Rs. 5,000 and where the contravention iscontinuing one, with a further fine which mayextend to Rs. 500 for every day after the first dayduring which contravention continues.

According to Section 74(3), which is not yetnotified, if a company fails to repay the deposit or

stpart thereof or interest thereon on or before 31March 2015 or on the date of repayment as percontract, whichever is earlier, or such further timeas may be allowed by tribunal, in addition to theamount of deposit and interest due thereon, thecompany shall be punishable with fine which shallnot be less than Rs. 1 crore, which may extend toRs. 10 crores and every officer in default shall bepunishable with imprisonment up to 7 years or withfine of Rs. 25 lacs or more or with both.

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Glimpses of SupremeCourt Rulings

Advocate Samir N. [email protected].

Block assessment u/s 158BD-satisfaction-tine limit

For the purposes of Sec 158BD, a satisfaction noteis a sine qua non and must be prepared by the AObefore he transmits the records to the other AO whohas jurisdiction over such other person. Thesatisfaction note could be prepared at either of thefollowing stages: (a)at the time of or along with theinitiation of the proceedings against the person againstwhom search was conducted ,(b) along with theassessment proceedings u/s 158BC and(c) immediately after the assessment proceedings u/s 158BC are completed against the person searched.Thus the satisfaction note prepared after thecompletion of [proceedings u/s 158BC is not contraryto the provisions of Sec 158BD r.w.s. 158BE(2)(b).

CIT v. Calcutta Knitwares ( 362 ITR 675)

Sec. 10B-Adjustment of unabsorbeddepreciation

The unabsorbed depreciation has to be adjustedagainst income for the purposes of exemption u/s10B. It cannot be allowed by adjusting only aportion of unabsorbed depreciation of an earlier yearagainst the income of export unit and adjusting thebalance of it against other business income onceagain to show nil tax liability.

Himatsingka Seide Ltd v CIT ( 266 CTR 141)

Interpretation of statute- plain andunambiguous words- Interest u/s 244A

The golden rule is that the words of a statute mustprima facie be given their ordinary meaning. Whenthe words of a statute are clear, plain andunambiguous the Courts are bound to give effectto that meaning irrespective of the consequences.It is also well settled that the Courts must interpretethe provisions of the statute upon ascertaining theobject of the legislature through authoritative formsin which it is expressed.

A “tax refund” is a refund of taxes when the taxliability is less than the tax paid. Sec 244A is clear,plain and grants substantive right of interest and isnot procedural. The statutory obligation to refundmoney received and retained without right impliesand carries with it the right to interest also. The Statehaving received the money without right and havingretained and used it, is bound to make the party good.

UOI v. Tata Chemicals Ltd. (267 CTR 89)

Motor Vehicles Act, 1988 –Negligence

‘Composite negligence’ refers to the negligence onthe part of two or more persons; where a person isinjured as a result of negligence on the part of twoor more wrongdoers, it is said that the person wasinjured on account of the composite negligence ofthose wrongdoers. In such a case, each wrongdoeris jointly and severally liable to the injured forpayment of the entire damages and the injuredperson has the choice of proceeding against all orany of them. In such a case, the injured need notestablish the extent of responsibility of eachwrongdoer separately, nor is it necessary for theCourt to determine the extent of liability of eachwrongdoer separately. On the other hand where aperson suffers injury, partly due to the negligenceon the part of another person or persons, and partlyas a result of his own negligence, then thenegligence on the part of the injured whichcontributed to the accident is referred to as hiscontributory negligence. Where the injured is guiltyof some negligence his claim for damages is notdefeated merely by reason of the negligence on hispart but the damages recoverable by him in respectof the injuries stand reduced in proportion to hiscontributory negligence.

[Pawan Kumar vs. Harkishan Dass Mohanlal(2014)(3 SCC 590)]

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Adjustment of Refund : No intimationto assessee : Order not valid. CognizantTechnology Solutions India (P) Ltd. v/s.Dy. CIT (2013) 356 ITR 373 (Mad)

IssueWhether adjustment of refund without intimationto the assessee is valid ?

Held

A.O. adjusted refund of subsequent year for whichno intimation was sent to the assessee.

On the issue High Court held that :

Although the CIT was empowered to makeadjustment of the refund, the same could be doneonly in the manner as contemplated under theprovisions of the I.T. Act. It was conspicuous fromthe records that there was no intimation in writingto the assessee before making such adjustment ofrefund. As the Dy. CIT has not followed theprocedure prescribed under the provisions of theAct while adjusting the refund against theoutstanding demand, the order was vitiated in lawand was liable to be set aside.

Estimation of Gross Profit without anydefect in accounts.CIT v/s. Symphony Comfort System Ltd.( 2013) 216 Taxman 225 (Guj) (Mag)

IssueWhether estimation of gross profit without findingany defect in accounts is valid ?

HeldA.O. noticed that there was fall in gross profitrate declared by assessee as compared to previousyear and made addition on account of low grossprofit rate to assessee’s income. However no specificdefect in maintenance of books of account byassessee had been pointed by A.O. The AssessingOfficer was not justified in rejecting book result

CA. C. R. [email protected]

and enhancing gross profit rate.

Reopening : Change of opinionReckitt Benckiser Health Care IndiaLtd. v/s. ACIT (2014) 360 ITR 427 (Guj): (2013) 216 Taxman 209 (Guj) (Mag)

IssueWhen in original assessment the issue wasexamined, notice issued u/s 148 is valid ?

Held

A.O. issued notice u/s 148 seeking to reopenassessment made u/s 143(3). The notice was issuedwithin four years from the end of the relevantassessment year. Reason recorded was to the effectthat assessee had earned tax free dividend incomewhich should have been subjected to disallowanceof proportionate expenditure u/s 14A for earningsuch income on the basis of formula provided inRule 8D. When entire issue pertaining todisallowance of expenditure u/s 14A wasscrutinized by A.O. during original proceedings,reopening of assessment to make disallowance ofsuch expenditure on the basis of formula providedin rule 8D would amount to change of opinion.Hence the notice issued u/s 148 was quashed.

Penalty u/s 271(1)(c)Shervani Hospitalities Ltd. v/s. CIT(2013) 261 CTR 449 (Del) : (2013) 89DTR (Del) 169

IssueWhether penalty u/s 271(1)(c) is to be levied inevery case of addition to income ?

HeldDisallowance of claim for deduction was made.Issue raised by the assessee was debatable andcapable of two views. Assessee had an arguablecase or had taken a bonafide plea. Assessee hadgiven its explanation and categorically and clearlystated the true and full facts in the return it self. It

From the Courts

CA. Jayesh C. [email protected]

did no try to camouflage or cover up the expenses

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claimed. Every addition or disallowance made doesnot justify and mandate levy of penalty forconcealment u/s 271(1)(c). Levy of penalty is notautomatic consequence when an addition is madeby disallowance of an expenses and by notaccepting the explanation given by the assessee.Merely making a claim which is held as notsustainable under law should not lead topenalization. When the assessee had furnished fulldetails in the return itself and the claim is debatable,reasonably plausible or may well have beenaccepted. Penalty u/s 271(1)(c) was not justified.

Sec. 263 : Erroneous or prejudicial tothe interests of Revenue : Spectra Sharesand Scrips (P) Ltd. v/s. C.I.T. (2013) 261CTR 499 (AP) : (2013) 354 ITR 35 (AP)

Issue

When the order of A.O. can be said to be erroneousor prejudicial to the interests of revenue so as toexercise jurisdiction of CIT u/s 263?

Held

A.O. having passed the assessment order acceptingthe case of the assesee that its income from sale ofshares and mutual fund units has to be taxed underthe head “Capital Gains”, after satisfying himselfwith the explanation and data submitted by theassessee in response to his querries. The order ofthe A.O. could not be termed as erroneous orprejudicial to the interests of Revenue warrantingexercise of revisional jurisdiction u/s 263 merelybecause the CIT entertained a different opinion inthe matter, more so when the revenue has all alongaccepted that the assessee is holding shares andmutual fund units as investment.

Sec. 54/54-F Several Units would satisfycondition of a Residential House : Housev/s. Unit. CIT v/s. Gita Duggal (2013)357 ITR 153 (Delhi)

Issue

Whether construction of several units of housewould satisfy the provision of Section 54/54F to

Held

Section 54 and 54F of I.T. Act, 1961 use expression

claim deduction ?

“a residential house”. The expression used is not “aresidential unit”. Sections 54 and 54F require theassessee to acquire “ a residential house” and so longas the assessee acquires a building, which may beconstructed, for the sake of convenience, in such amember as to consist of several units which can, ifthe need arises, be conveniently and independentlyused as an independent residence, the requirementof the section should be taken to have been satisfied.There is nothing in these sections which requires theresidential house to be constructed in a particularmanner. The only requirement is that it should be forresidential use and not for commercial use. The factthat the residential house consists of severalindependent units cannot be permitted to act as animpediment to the allowance of the deduction undersection 54 or section 54F.

Share application money : Identity ofapplicant v/s credit worthiness :CIT v/s. Miq Steels P. Ltd. (2013) 217Taxman 209 (All) (Mag)

IssueIs it necessary to have creditworthiness of theapplicant of share application when once the identityis proved ?

HeldAssessee company received certain amounts fromshare applicants. A.O. added same amount onground that the company had failed to provegenuineness of transactions and creditworthinessof shareholders. He held that shareholders hadshown low income in income tax returns whichwas much less compared to investment in sharecapital. CIT (Appeals) relying upon decision ofSupreme Court in CIT v/s. Stellar Investment Ltd.(2001) 251 ITR 263/115 Taxman 99 deletedimpugned addition made by A.O. He held that incase of capital contributed by a shareholder, identityof a shareholder was only required to be proved.Tribunal upheld order of A.O. High Court held thatthe case is squarely covered by the Supreme Courtdecision in Stellar Investment (P) Ltd.

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ADIT (Int.Tax) Vs. Marks & SpencerReliance India (P) Ltd. 147 ITD 83 (Mum)Assessment year: 2010-11 Order Dated:

th4 September, 2013

Basic Facts

The assessee entered into an agreement withM&SPlc.a UK based company whereby theassessee was provided personnel to carry out thefunctions in the area of management, to set up ofbusiness, property selection and retail operation,product and merchandise selection and to settingup merchandise team. Assessee paid the salaryexpenditure of employees deputed under secondedagreement.The AO held that the assessee hadcommitted a default by remitting the money withoutdeduction of tax even when it was chargeable totax as Fees for Technical Services (FTS). On appeal,the CIT(A) held that the remittance was only partreimbursement of expenses and could not be treatedas income deemed to accrue or arise in India asincome being FTS as per Indo-UK DTAA. TheRevenue is in appeal before the Tribunal.

Issue

Whether expatriation of employees underseconded agreement without transfer oftechnology would fall under term makeavailable as per article 13(4)(c) of Indo-UKDTAA?

Held

Merely providing the employees or assisting theassessee in the business and in the area ofconsultancy, management, etc. would not constitutemake available of the services of any technical orconsultancy in nature. Thus, expatriation ofemployee under seconded agreement withouttransfer of technology would not fall under the termmake available as per the article 13(4)(c) of Indo-UK DTAA. Further the entire amount of salary

received by these personnel has been subjected totax in India at the highest average rate of tax.Therefore, there is no question of any default onthe part of the assessee. It is pertinent to mentionthat payment by the assessee is actually paymentmade to the employees deputed in India underseconded agreement but routed through M&S Plc.UK. Since the said payment to the employees isalready subjected to tax in India, therefore, there isno question of treating the assessee-in-default fornon-deduction of tax at source.

Metro & Metro Vs. ACIT147 ITD 207 (Agra)Assessment Year: 2008-09

st Order dated: 1 November, 2013

Basic Facts

The assessee was a manufacturer and exporter ofleather goods. It had made remittances to a Germanybased company, TUV GmbH, in respect of leathertesting charges, but did not withhold the applicabletaxes from those remittances. The assesseesubmitted that no testing operations were carriedout by the TUV GmbH in India and, accordingly,income could not be said to accrue or arise in Indiaand, in such circumstances, assessee was not liableto deduct tax at source while making payments oftesting charges. The AO rejected assessee’sexplanation. He held that payment in questionamounted to fees for technical services withinmeaning of Explanation to section 9(1)(vii) and,thus, assessee was required to deduct tax at sourceunder section 195 while making said payments. Inview of failure of assessee to deduct tax at source,the Assessing Officer disallowed payments oftesting charges under section 40(a)(i).The CIT(A)confirmed the order of AO.

Issue

Whether disallowance under section 40(a)(i) ofthe Act is justified for failure to deduct tax at

Tribunal News

CA. Yogesh G. Shah CA. Aparna [email protected] [email protected]

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source on the testing charges paid to a GermanCompany for testing carried out outside India?

Held

The Tribunal did not accept the assessee’scontention that when there is no human interventionin testing process, provisions of section 9(1)(vii)would not be applicable since none of the lowerauthorities had examined this aspect and details ofthe testing process was not available.The Tribunalalso did not accept the assessee’s contention that itssource of income is outside India hence theexception in section 9(1)(vii)(b) would beapplicable. According to Tribunal merely becausethe user of service is a one hundred per cent exportunit, it cannot be said that the “technical servicesare used for the purpose of making or earning anyincome from source outside India”. Accordingly theTribunal held that the testing charges would betaxable in India and hence the assesse had obligationto deduct tax at source.

Regarding applicability of Special Bench Decisionin case of Merliyan Shipping & Transport, thetribunal held that the provisions of section 40(a)(i)cannot be interpreted in such a manner so as torestrict the scope of section to only amountsremaining payable at the end of the year, becauseapart from the difference in wording of section40(1)(i) vis-à-vis section 40(a)(ia) and other factors,such an interpretation will make the sectionredundant.

The tribunal ultimately upheld that assessee’scontention that the amendment to section 9(1) byvirtue of Finance Act 2010 was nowhere in sight atthe material point of time i.e. AY 2008-09 and insuch a case the assesse could not be penalized forperforming the impossible task of deducting tax atsource in accordance with law.

Based on the Supreme Court decision in case ofIshikawajma Harima Heavy Industries Ltd., theTribunal held that since the services were renderedoutside India- even though it was utilized in India,

The Institute & Electronics Engineers

the testing fees were not taxable in India.

Inc. V. DIT 160 TTJ 771 (Hyd)rd Order Dated: 23 June, 2013

Basic Facts

The assessee institute filed an application in FormNo. 10A seeking registration under s. 12AA of ITAct, 1961. However, after pointing out that the“activities conducted by the assessee are basicallyaimed at improving the knowledge and competenceof its member and that the society is not engaged inany charitable activity” and further pointing out that,it is also hit by the amended provision of s. 2(15) ofthe Act, the said application was rejected by theDIT (Exemptions). Being aggrieved by the saidorder, the assessee filed an appeal before theHon’ble Tribunal. The Tribunal remitted the matterback to the DIT with directions to re-exam theobject and genuineness of the trust. In the freshproceedings DIT again rejected the application onthe ground that programme revenue received bythe assesse was not as per its objects as stated in theMemorandum of association.

Issue

Whether on the facts and in law the registrationunder s. 12AA can be denied to the assesse.

Held

Tribunal held that the object of assessee is in natureof charitable activity. Further it held that it ispertinent to note that clause “not involving carryingactivities of profit” were omitted from this definitionby legislature by Finance Act, 1983. Therefore aftersuch omission, the element of profit cannot beexcluded from definition “charitable purpose” unders. 2(15). The above view is also supported by thelegislative intent disclosed in a. 10(22) wherein ithas been clearly provided that income of anyactivities cannot be exempted unconditionally ifinstitute derives profit. However, such institutioncan claim exemption s. 11 and 12 as element ofprofit is not excluded by the legislature becausefinancial affairs of such institute are controlled byprovisions of s. 11 and 13. Section 11 clearlyprovides that in order to claim exemption such

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institute must apply 85 percent of its income forcharitable purpose. Further only85 percent ofincome is to be applied for charitable purpose itselfshows that element of profit is not excluded formdefinition of charitable purpose for purpose of s.11 and 12. Further exemption can be denied ifprovisions of s. 13 are violated. Therefore if thereis any violation of either s. 11 or 13, then profit ofsuch institute is taxable. As in present case there isno such violation and section 11, 12 and 12AA arecomplied with, because some profit has been earnedby an assessee trust registration under s. 12AAcannot be denied. Tribunal relying on SupremeCourt decision on Surat Art Silk & ClothManufacturer Association directed Director ofIT(exemptions) to grant assessee registration unders. 12AA.

Mind Tree Ltd. Vs. ACIT 160 TTJ761 (Bang)Assessment Year 2009-10; Order dated

th5 December, 2013

Basic Facts

The assessee-company has incurred expenses forthe purpose of lighting arrangements during Chennaievent, items hired for Panache Cricket Match finalsfor employees held in Bangalore between differentproject teams,Shareholders and creditors meetduring the merger of Aztecsoft with the assesseeand for Chennai facility inauguration. As per theassesseeit is abundantly clear that none of theseexpenses were incurred to enure any benefit to theemployees nor was there any element ofentertainment to bring it under the purview ofsection 115WB(2)(A).However, the CIT(A) afteranalyzing the provisions of section 115WB(1),115WB(1)(a) of the Act, was of the view that thenature of expenses were in the nature of‘entertainment’ liable to be treated as a deemedbenefit under section 115WB(2)(A) of the Act ratherthan as expenditure incurred towards conferenceliable to be taxed under section 115WB(2)(C) ofthe Act.

Issue

Whether the expenses were covered under thepurview of section 115WB(2)(A) and whether

the assessee-company was liable to pay fringebenefit tax on the same?

Held

The expenditure incurred by the assessee-companyfor organizing cricket match which as perexplanation to section 115WB(2)(E) is notconsidered as expenditure for employee’s welfare.The expenses incurred for the purpose of organizingshareholders and creditors meet during merger doesnot involve any question of employees’ welfare andso invoking the provisions of Section 115WB(2)(A)do not arise. The expenses incurred towards theinauguration of Chennai facility. Hereto, there wasno element of ‘entertainment’ in the said expensesso as to bring it under the purview of Section115WB(2)(A). Accordingly, Hon’ble ITAT heldthat the impugned expenses incurred by theassessee-company cannot be regarded as fringebenefits and thus, the company was not liable topay fringe benefit tax on the same.

ACIT VS. Nimbus Communications Ltd.160 TTJ 717 (Mum)Assessment Year 2005-06; Order dated

th12 June, 2013

Basic Facts

The assessee company was engaged in business ofairtime marketing available on televisionprogrammes, cricket and other sports event. It hadentered into international transaction with itsAssociate Enterprise (“AE”). The assessee hadgiven corporate guarantee through ICICI Bank, UKfor financial facility given to its AEs withoutcharging any commission on the ground ofcommercial expediency. The Transfer PricingOfficer (TPO) determined the arm’s length valueof international transaction of the assessee with itsAEs by applying the CUP method. The TPO hadadopted the arm’s length rate of the commissionfor providing guarantee at 1.5 percent on the basisof guarantee commission charged by HSBCBank.The AO added the difference of Rs. 3.2 lakhto the total income of the assessee being interestundercharged to its AE. On appeal, the CIT(A)confirmed the addition made by the AO.

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Issue

Whether Transfer pricing adjustment wasrequired in respect Bank guarantee commissionin respect of corporateguarantee given on behalfof AE?

Held

The tribunal held that a financial loan guarantee is acommitment entered into by the assessee companywith a third party lender of its AEs which obligesthe assessee-company to cover the risk of default byits AE and this act thus involves performance orcarrying out of service to cover the risk of default forwhich ‘price’ has to be charged. Even the OECDTransfer Pricing Guidelines 2010 supports this viewin para 7.13 where it is explained that where highercredit rating of AE is due to a guarantee by anothergroup member, such association positively enhancesthe profit making potential of that AE. There was aclear benefit accrued to the AEs by the guaranteeprovided by the assessee and when such benefit waspassed on by the assessee to the said AEs, guaranteecommission should have been charged at arm’slength price. The commercial relationship betweenthe assessee and its AEs is distinct and separate fromthe transactions of giving guarantee and suchtransactions have to be considered and examinedindependently in order to determine the arm’s lengthprice.

Shree Cement Ltd. Vs. ACIT 160TTJ 529 (Jaipur)Assessment year: 2007-08 to 2009-10

th Order dated: 27 January, 2014

Basic Facts

The assessee-company has claimed deduction u/s80-IA in respect of its power undertaking locatedin the State of Rajasthan. Power generated by thepower undertaking is predominantly used by theassessee captively at its cement unit also inRajasthan. The assessee has considered the marketvalue i.e. the arm’s length value being the value atwhich independent power supplier has sold powerto power distribution companies (Discoms) in theState of Rajasthan for computing the deduction u/s80-IA(8). The AO has applied rate at which power

is supplied by the State electricity grid to assessee’scement unit for computing the deduction eligibleunder section 80IA. CIT(A) upheld the action ofthe AO.

Issue

Whether where there are two or more marketvalues available and if the assesse has adopteda value which is ‘market value’ whether it ispermissible for the Revenue to still replace thesame by another ‘market value’?

Held

Hon’ble ITAT held that the value adopted by theassessee be it value as per independent third partytrading transactions or as per power exchange or anyother independent transaction ( for the relevant periodand which has taken place in the relevant area wherethe eligible unit is located) constitute market value’in terms of Explanation to section 80-IA(8). Wherea basket of market values are available for the relevantperiod and relevant geographical area where theeligible unit is situated, the assessee has discretion toadopt any one of them as market value. So long asthe assessee has adopted a ‘market value’ as thetransfer price, that is sufficient compliance of law. Itis the principle and not the quantum which is thedeciding factor. AO can adopt a different value onlywhere the value adopted by assessee does notcorrespond to the ‘market value’. Accordingly, thedisallowance made by the AO and confirmed by theCIT(A) on account of deduction under section 80-IA of the Act was deleted.

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Past President of the Association,CA. Ajit C. Shah has been

nominated as a member in GMCSCo-ordination Committee of WIRC

for the year 2014-15.

CONGRATULATIONS

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In this issue we are giving full texts of two decisionsof Hon’ble Bombay High Court. The decisionscontain very strong strictures passed wheredepartment wanted to pursue an appeal wherein theissues relating to the same were already decided bythe High Court on earlier occasion in favour of theassessee and in another decision, the Court imposedcost of Rs.1 Lakh for not pointing out that in theassessee’s own case for earlier assessment year, theissues were decided in favour of assessee.However, subsequently on assurance from revenuethat henceforth these kinds of mistakes will not recurthe awarding of the cost was recalled.

We hope the readers would find them useful.

In the High Court of Judicature at BombayOrdinary Original Civil JurisdictionIncome Tax Appeal No. 2646 of 2011

The Commissioner of Income Tax ..Appellant

Versus

Kirloskar Oil Engines Ltd. ..Respondent

Mr. N. N. Singh, for the Appellant/ Revenue.Mr. Mihir Naniwadekar, for the Respondent/Assessee.

Coram : S. C. Dharmadhikariand

Girish S. Kulkarni, JJ.thDate :17 April, 2014

P.C.:

1. This Appeal challenges the order passed by theIncome Tax Appellate Tribunal, Pune Benchdated 30.06.2011 in Income Tax AppealNo.82/PN/2001. The Assessment Year inquestion is 1997-98.

2. Mr. Singh, learned counsel appearing for theAppellant/Revenue, submits that this Appeal

CA. Sanjay R. [email protected]

Unreported Judgements

raises a substantial question of law. He submitsthat the Income Tax Appellate Tribunal wasnot justified in holding that the special capitalincentive amounting to Rs.20 lacs received bythe predecessor in title of the Assessee fromthe Government of Maharashtra through theState Industrial Corporation of Maharashtra (forshort SICOM) was capital receipt in the handsof the Assessee.

3. It is urged that the Assessee is a companyengaged in the business of manufacturing ofinternal combustion engines of 3 horse power.The Assessee filed the return of income for theAssessment Year 1997-98 on 30.11.1997declaring the total income of Rs. 41,93,64,490/. The assessment was undertaken and theAssessing Officer made an order on31.12.1999 under Section 143(3) of the IncomeTax Act, 1961. He assessed the income atRs.61,74,05,557/-. Aggrieved thereby, theAssessee filed the Appeal before theCommissioner of Income Tax (Appeals). TheCommissioner of Income Tax (Appeals) hasallowed the Appeal of the Assessee resultingin the Revenue/ Department preferring anAppeal to the Income Tax Appellate Tribunal.

4. Mr. Naniwadekar, learned counsel appearing forthe Respondent/ Assessee, would urge that thequestion raised in this Appeal is fully coveredby the judgment of the Division Bench of thisCourt in the case of Commissioner of IncomeTax v/s Chaphalkar Brothers reported in (2013)351 ITR 309 (Bom.). He submits that thepredecessor-in-title was given the incentive soas to set up a new industry. If the industry wasto be set up and established and the incentivewas given by the State Government through itsIndustrial Corporation, then, as the Division


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Bench held, the purpose of same is relevantfactor. If the object is to enable the Assessee toset up a new unit, then, the receipt of subsidywould be on capital account. In thesecircumstances, Mr. Naniwadekar submits thatthe issue is squarely covered not only by thejudgment of the Division Bench, but equally bythe judgment of the Honourable Supreme Courtin the case of Commissioner of Income Tax v/sPonni Sugars & Chemicals Limited reported in(2008) 306 ITR 392 (SC).

5. Having heard the learned counsel appearingfor the parties at some length and perusing withtheir assistance the concurrent orders of theCommissioner of Income Tax (Appeals) andthat of the Income Tax Appellate Tribunal, wefind that the only question raised in this Appealis covered by the judgment of the HonourableSupreme Court and equally that of the DivisionBench of this Court. Undisputedly, the capitalincentive was given to the Assessee. That wasto enable the Assessee’s predecessor-in-title toset up a new unit. This was under the incentivepackage offered by the State Government forsetting up new industries in the State. Thepredecessor-in-title of Assessee applied for suchspecial capital incentive from the SICOM. Thatwas in the form of loan of Rs.20 lacs in theyear 1992. Since actual disbursement was totake place from the receipt of funds from theGovernment of Maharashtra, the predecessor-in-title of Assessee took bridge loan from theSICOM. Later on, that bridge loan wasconverted together with outstanding interest ofRs.5 lacs into special capital incentive by theSICOM. That being in the nature of capitalreceipt, it was directly credited to the capitalreceipt reserve account. The Assessee claimedthe receipt as a capital receipt. It is that stand ofthe Assessee which was not accepted by theAssessing Officer. The matter was carried inAppeal and the Assessee succeeded.

6. We are of the opinion that repeatedly theRevenue has misunderstood and misconstrued

the nature of receipts. Whenever new industriesare to be set up in the State, there are incentivesoffered by the State Governments. They areoffered directly or through some canalizingagencies like SICOM. Initially, they are termedas loan, but later on converted into incentiveand offered with a view to enable the Assesseeto set up a new unit. Then, despite theHonourable Supreme Court addressing theissue and the Division Benches of this Courtholding that these could not have been assessedin the manner done by the Assessing Officers,the Revenue persists with its above stand. Herealso we are told that the matter is not coveredby the Division Bench judgment. When Mr.Singh was asked to explain as to how it is notso covered, all that he would urge is that theAssessing Officer has taken the facts from thenarration of the Respondent’s predecessor-in-title. It is in that light he submits that the schemeunder which such incentives are offered is notin issue and under which the assistance wasgiven to the Assessee. We are unable to acceptthis stand. In the case of in Sahney Steel andPress Works Limited v/s Commissioner ofIncome Tax reported in (1997) 228 ITR253(SC) and in Ponni Sugars (supra), theHonourable Supreme Court has emphasizedthat the character of receipt in the hands of theAssessee has to be determined with respect tothe purpose for which the subsidy is given. Thepurpose test has to be applied. The point oftime at which the subsidy is given is notrelevant. The source is immaterial. The formof subsidy is immaterial. The main conditionand with which the Court should be concernedis that the incentive must be utilized by theAssessee to set up a new unit or for substantialexpansion of existing unit. If the object of thesubsidy scheme is to enable the Assessee torun the business more profitably, then, thereceipt is on the revenue account. On the otherhand, if the object of the assistance under thesubsidy scheme was to enable the Assessee to



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set up a new unit, then, the receipt of subsidywason the capital account.

7. We do not find any justification for the Revenuequestioning the concurrent findings of fact inthe present case. The concurrent findings offact do not raise any substantial question of law.There is no perversity in rendering suchfindings and the purpose of assistance givenby the Government through SICOM. In suchcircumstances the Revenue should not havequestioned the concurrent orders in the case ofthe present Assessee. Once undisputed factspoint towards the object and that being to enablethe Assessee to set up a new unit, then, thematter is squarely covered by the judgments ofthe Division Bench of this Court and equallythat of the Honourable Supreme Court.

8. We are afraid that if the Revenue persists withsuch stand and as has been turned downrepeatedly, that would defeat the very objectand purpose of the schemes and packagesdevised by the States. That would also resultin frustrating the entrepreneurs and defeatingthe purpose of setting up new industries andparticularly in backward areas. The Revenue,therefore, should bear in mind that in every suchcase and whenever the funds or receipts arefrom the schemes and packages devised by theState, it should note the object and purpose ofthe same. If that is of the nature specified in thejudgments of this Court and equally that of theHonourable Supreme Court, then, the Revenuemust act accordingly. We hope that this muchis enough so as to dissuade the Revenue frombringing such matters repeatedly to this Court.Ordinarily and for wasting judicial time andwhich is precious, we would have imposedheavy costs on the Revenue while dismissingthis Appeal, but we refrain from doing so bygiving last opportunity to the Revenue. ThisAppeal does not raise any substantial question

In the High Court of Judicature at Bombay

of law. It is dismissed. No order as to costs.

(Girish S. Kulkarni, J.)(S. C. Dharmadhikari, J.)

Ordinary Original Civil JurisdictionIncome Tax Appeal No. 1001 of 2011

Commissioner of Income Tax 4, .. AppellantMumbai

VersusM/s.Kisan Ratilal Choksey .. RespondentShare & Securities Pvt.Ltd.

Mr.Arvind Pinto for the Appellant.Mr.Abhishek Tilaki/b Sameer G. Dalal for theRespondent.

Coram : S. C. Dharmadhikariand

Girish S. Kulkarni, JJ.th thDates : 16 April, 2014 & 17 April, 2014

P.C.:

1. The present Appeal challenges the order passedby the Income Tax Appellate Tribunal,Mumbai Bench in Income Tax AppealNo.4821/Mum/2009 dated 30th September2010. The Assessment Year inquestion is 2006-07.

2. The Tribunal has categorically observed thatin disposing of the Revenue’s Appeal andequally that of the assessee’s what it has doneisto follow its own view taken earlier and inthe case of the very assessee. The assessee’sown case namely, Income Tax Appeal No.4347/M/2009 has been referred to. The AssessmentYear in that case was 2005-06. The Tribunaldelivered an order dated 14th June 2010 anddealt with identical controversy. The twosubstantial questions of law and which areplaced for our consideration were the veryquestions raised by the Revenue. The Revenuefiled the Appeal against the order dated 4th June2010, being Income Tax Appeal No.6803/10.On 21st October 2011, the Revenue’s Appealhas been dismissed by this Court with thefollowing observations and conclusions:-



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“Counsel for the Revenue states that thequestions raised by the revenue in this appealare covered against the revenue by the judgmentof this Court in the case of Commissioner ofIncome Tax (Appeals) Vs. M/s. Kotak SecuritiesLtd. (Income Tax Appeal No.3111 of 2009)decided by us today i.e. 21st October 2011,the decision in the case of The Income TaxCommissioner Vs. Angel Capital & DebitMarket Ltd (Income Tax Appeal (L) No.475 of

th 2011) decided on 28 July 2011 and thedecision in the case of The Commissioner ofIncome Tax Vs. M/s. Sykes & Ray Equities (I)Ltd. (Income Tax AppealNo.3563 of 2010)decided on 14th October 2011. For the reasonsstated in the aforesaid orders, the present appealis dismissed with no order as to costs.”

3. In doing so, the Division Bench comprising ofTheir Lordships, the Hon’ble Justice Mr. J.P.Devdhar, as His Lordship then was, andHon’ble Mr. Justice A.A.Sayed followed theirown order dated 21st July 2011 inIncome Tax(L) No.475 of 2011.

4. When the present Appeal was called out foradmission today, it was the assessee’s counselwho brought to our notice the orders inIncomeTax Appeal Nos.6803/10, Income Tax Appeal(Lodging) No.475/11 and Income Tax AppealNo.3563/10.

5. It is unfortunate that the Revenue insists inarguing Appeals in this manner and forsubsequent Assessment Years. The Revenueought to have been fair and brought to the noticeof this Court the fact that itsAppeal challengingthe very findings and conclusions for priorAssessmentYears has been dismissed by thisCourt on merits. The reasons assigned oughtto have been pointed out to us and thereafter,any explanation should have been offered foradmission of this Appeal. In the light of thefact that the controversy is fully covered by the

orders referred above, and particularly thefindings rendered by the Division Bench in thevery assessee’s case that we are of the opinionthat the present Appeal does not raise anysubstantial question of law. It is a gross abuseof the process of this Court. It is dismissed withcosts quantified at Rs.1,00,000/- (Rupees Onelakh). Costs be paid to the assessee within4(four) weeks from today.

th 17 April, 2014:

6. This matter was mentioned on a praecipe lateron by Mr. Pinto, learned counsel appearing forthe Revenue and the only requestis that thedirection to pay the costs quantified at Rs.1 lacwithin four weeks to the Assessee be recalled.Mr. Pinto assures the Court thathereafter thejudicial orders and directions would be abidedby in all matters and if appropriate avermentsare not made, they would be incorporated andinserted to the effect that the orders of theTribunal for prior Assessment Years and in thecase of very Assessee have been eitherchallenged or otherwise. If the challenge ispending even that statement would also bemade. If it is decided, the outcome thereof bealso indicated. The relevant explanation thenwould find place in each and every memo ofAppeal which is filed in this Court and equallyto be lodged and filed in the Court.

7. It is with this assurance from the Revenue andsince the matter is left by the Assessee’s counselto the Court that we recall our direction to paycosts quantified at Rs.1 lac. No other correctionor alteration is made. The Application for recall/speaking to the minutes is, accordingly,disposed of. No costs.

(Girish S. Kulkarni, J.)(S. C. Dharmadhikari, J.)

❉ ❉ ❉



84

Paid or Payable and Disallowance U/S40(a)(ia) [An Update]

Issue

M/S XYZ has during A.Y. 2011-12 paid interest toABN Amro, Bajaj Capital& Reliance Capitalwithout deduction of TDS. The AO during thecourse of assessment proceedings issued showcause notice as to why the expenditure should notbe disallowed u/s 40(a)(ia) of the Income Tax Act1961. M/S XYZ contended that Section 40(a)(ia)of the Income Tax Act 1961, will apply only to theamount which has remained payable at the end ofthe relevant financial year and could not be invokedto disallow the amount which had actually beenpaid during the previous year without deduction oftax at source.

Proposition

The Provision of Section 40(a)(ia) read as under:

Notwithstanding anything to the contrary in Section30 to 38, the following amounts shall not bededucted in computing the income chargeable underthe head “Profits and gains of business orprofession” –

(a) In the case of any assessee –

(i) ————————

(ia) any interest, commission or brokerage, [rent,royalty,] fees for professional services or feesfor technical services payable to a resident, oramounts payable to a contractor or sub-contractor, being resident, for carrying out anywork (including supply of labour for carryingout any work), on which tax is deductible atsource under Chapter XVII-B and such tax hasnot been deducted or, after deduction, [ has notbeen paid on or before the due date specifiedin sub-section (1) of section 139:

[Provided that where in respect of any suchsum, tax has been deducted in any subsequentyear, or has been deducted during the previousyear but paid after the due date specified in sub-section (1) of section 139, such sum shall beallowed as a deduction in computing theincome of the previous year in which such taxhas been paid:]

[ Provided further that where an assessee failsto deduct the whole or any part of the tax inaccordance with the provisions of ChapterXVII-B on any such sum but is not deemed tobe an assessee in default under the first provisoto sub-section (1) of section 201, then, for thepurpose of this sub-clause, it shall be deemedthat the assessee has deducted and paid thetax on such sum on the date of furnishing ofreturn of income by the resident payee referredto in the said proviso]

It is proposed that after looking at the languageof the section the word payable is used, that isto say if the amount is debited to the profit &loss a/c but not paid and credited as provisionor outstanding liabilities can only in this caseChapter XVII-B is applicable, but the amountalready paid as an expense does not attract theprovision of Section 40(a)(ia) of the IncomeTax Act, 1961.

View Against The Proposition:

The Hon’ble Calcutta High Court and Hon’bleGujarat High Court in the case of CommissionerOf Income Tax, Kolkata-XI vs. Crescent ExportsSyndicate and Commissioner of Income Tax – IVvs. Sikandarkhan N Tunvar respectively, have heldthat Section 40(a)(ia) of the Act would cover notonly the amounts which are payable at the end ofthe previous year but also which are payable at anytime during the year. The Hon’ble High Courts have

ControversiesCA. Kaushik D. Shah

[email protected].

further held that the intention of the Legislation was


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to disallow certain types of expense, subject toprovisions of Chapter XVII-B, which are payableat any time during the year but no tax was deductedat source or if deducted was not paid within thestipulated time. There is no such condition thatamount should remain payable at the end of theyear. Also the CBDT has issued Circular No. 10/DV/2013 dated 16.12.2013, clarifying the issue, inwhich it was stated that “After careful examinationof the issue, the Board is of the considered viewthat the provision of Section 40(a)(ia) of the Actwould cover not only the amounts which are

stpayable as on 31 March of a previous year butalso amounts which are payable at any time duringthe year. The statutory provisions are amply clearand in the context of Section 40(a)(ia) of the Actthe term “payable” would include “amounts whichare paid during the previous year.”

In the case of Crescent Export Syndicate theHon’ble Calcutta High Court held as follows:

(a) Comparison between the Pre-amendment andpost-amendment law is permissible for thepurpose of ascertaining the mischief sought tobe remedied or the object sought to be achievedby an amendment. This is precisely what wasdone by the Apex Court in the case of CIT vs.Kelvinator [2010] 187 Taxman 312. But thesame comparison between the draft and theenacted law is not permissible, nor can the draftor the bill be used for the purpose of regulatingthe meaning and purport of enacted law. It isthe finally enacted law which is the will of theLegislature.

(b) What the tribunal by majority (in MerilynShipping & Transports) did was to supply theCasus omissus ( by way of reading into thesection 40(a)(ia) that it cannot be invoked byAssessing Officer to disallow the genuine andreasonable expenditure on the amounts ofexpenditure already paid) which was notpermissible and could only have been done bythe supreme court in an appropriate case.

(c) Only Hon’ble Supreme Court may supply theCasus omissus, but it would be in the rarest ofthe rare case when such supplying of Casus

omissus would be extremely necessary due tothe inadvertent omission on the part of theLegislature.

(d) The key word used in section 40(a)(ia), are“on which tax is deductible at source underChapter XVII-B.” What is to be disallowed isthose expenses on which tax is deductible atsource under Chapter XVII-B. Once this isrealized nothing turns on the basis of the factthat the Legislature used the word “payable”and not “paid or credited”. Unless any amountis payable, it can neither be paid nor credited.If an amount has neither been paid nor credited,there can be no occasion for claiming anydeduction.

(e) There can be no denial that the provision inquestion is harsh, but that is no ground to readthe same in a manner which is not intended bythe Legislature. The law is deliberately madeharsh to secure compliance of the provisionsrequiring deductions of tax at source. It is notthe case of an inadvertent error.

Hon’ble Gujarat High Court in the case ofSikandarkhan N Tunvar, their Lordships gavefollowing reasons:

(a) As section 40(a)(ia) of the Act creates anartificial charge on an amount which isotherwise not an income of the assessee, itcannot be construed liberally. The incurred andis eligible for deduction, on the ground that,though tax was required to be deducted atsource it was not deducted or if deducted, hadnot been deposited before the due date.

(b) The terms “payable” and “paid” are notsynonymous. In the context of Section 40(a)(ia)they are not used interchangeably. Word “paid”as defined in section 43(2) of the act meansactually paid or incurred according to themethod of accounting. The word “payable” hasbeen described in Webster’s Third NewInternational Unabridged Dictionary asrequiring to be paid: capable of being paid.

(c) In the context of section 40(a)(ia), the word“payable” would not include “paid”. In other

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words, an amount which is already paid ceasesto be payable and conversely, what is payablecannot be one that is already paid. Term“payable” cannot be seen to be including theexpression “paid”.

(d) The provisions contained in Chapter XVII-Bnowhere require that the amount which ispayable must remain so payable throughout theyear.

(e) The language used in Section 40(a)(ia) is notthat such amount must continue to remainpayable till the end of the accounting year. Anysuch interpretation would require reading wordswhich the Legislature has not used.

(f) The Legislature could not have intended tobring about any such distinction nor does thelanguage used in the section bring about anysuch meaning. If the interpretation as advancedby the assessee is accepted, it would lead to asituation where the assessee who thought hewas required to deduct the tax at source but nosuch deduction was made or more flagrantlydeduction, though made was not paid to theGovernment, would escape the consequencesonly because the amount was already paidbefore the end of the year in contrast to anotherassessee who would otherwise be in similarsituation but in whose case the amountremained payable till the end of the year. TheLegislature would not have desired to bringabout incongruous and seeminglyirreconcilable consequences.

(g) Merely because accounts are closed on the lastdate of the accounting year and thecomputation of profit and loss is to be judgedwith reference to such date, it does not meanwhether an amount is payable or not in thecontext of section 40(a)(ia) must be ascertained

ston the strength of the position emerging on 31March.

(h) The proceedings in the Parliament, its debatesand even the speeches made by the proposerof a bill are ordinarily not considered as relevantor safe tools for interpretation of a Statute. The

debates in the Parliament at best indicate theopinion of the individual members and areordinarily not relied upon for interpreting theprovisions, particularly when the provisions areplain.

(i) The reason why a certain language was usedin a draft bill and why the provision ultimatelyenacted carried a different expression cannotbe gathered from mere comparison of the twosets of provisions. There may be variety ofreasons why the ultimate provisions may varyfrom the original draft.

(j) The principle of Casus omissus is appliedmainly when an existing provision is amendedand a change is brought about. Whileinterpreting such an amended provision, theCourt would immediately inquire what thestatutory provision was before and whatchanges the Legislature brought about andcompare the effect of the two.

(k) The other occasion when this principle of Casusomissus is applied is when the language of theLegislature is compared with some otheranalogous Statute or other provisions of thesame Statute or with expression which couldapparently or obviously be used if theLegislature had different intention in mind,while framing the provision.

From the above reasonings the following views wedecided:

(a) The intention of the Legislation must be seennot from the draft of the proposed bill but fromthe statute which is passed by the Parliament.Therefore, the comparison of the draft with thefinal enactment cannot help to find out intentionof the Legislature.

(b) The difference between the terms “credited”or “paid” or “payable” is relevant for thepurpose of TDS Provisions under ChapterXVII-B but has no relevance for makingdisallowance under section 40(a)(ia) and,therefore, the Legislature has dropped the word“ credited” or “ paid” from the financialenactment.

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(c) Section 40(a)(ia) was inserted in order to ensurea scrupulous adherence to the TDS provisions.If narrow interpretation was assigned to theword “payable” as suggested by the assesseethen the very object of incorporation of section40(a)(ia) would be defeated.

(d) Therefore, the contention that amountcontemplated for tax deduction under ChapterXVII-B has been segregated in two parts – onepart which has been paid within the F.Y.without making TDS and the other part whichis payable at the end of the year would only becovered for disallowance was never intendedby the Legislature.

(e) Section 40(a)(ia) is applicable irrespective ofmethod of accounting followed by an assessee,therefore, the word “payable” includes withinits ambit entire accrued liability. In mercantilesystem of accounting the TDS is required tobe made the moment amount is credited to theaccount of the payee on accrual of liability. Incash system of accounting TDS is required tobe made the moment amount is paid to thepayee.

(f) The insertion of Expression “on which tax isdeductible at source under Chapter XVII-B”in the final enactment clearly shows theintention of the Legislature that deductibility isto be seen from the point view of Chapter XVII-B.

(g) Had the intention of the Legislature been tostdisallow only items outstanding as on 31

March, then the term “payable” would havebeen qualified by the phrase as outstanding as

ston 31 March. In the absence of suchqualification the same cannot be read in thesection.

(h) When one goes through the provision of TDSas contained in Chapter XVII-B, there is useof the term “shall”. It makes it clear that theseare mandatory provision and are applicable tothe entire sum contemplated under therespective sections. These sections do not giveany leverage to the assessee to make thepayment without making the TDS.

(i) As per principle of Ejusdem generis the term“payable” in section 40(a)(ia) has to beinterpreted in the light of the sums referred toin various sections contained in Chapter XVII-B. Therefore, emphasis is on liability to pay onwhich tax is deductible and not on actualpayment.

(j) If the contention of the assessee was acceptedthen section 40(a)(ia) would become otiose inrespect sums paid during the F.Y.

(k) Rule 30 merely contemplates the procedure fordeposit of the TDS amount and merely becausedifferent time-limits are prescribed, it would notfollow that different considerations wouldapply while considering the term “payable”under section 40(a)(ia). Further, it is only aprocedural provision which cannot override thesubstantive provisions of the Act.

View in favour of the Proposition:

The Special Bench in the case of Merilyn Shipping& Transports vs. CIT (Vishakhapatnam) 136ITD23has observed as under:

“Section 40(a)(ia), creates a legal fiction by virtueof which even the genuine and admissible expensesclaimed by an assessee under the head ‘Incomefrom Business and Profesion’ if the assessee doesnot deduct TDS on such expenses, are disallowed.Section 40(a)(ia) has been enacted for the purposeof augment of tax through the mechanism of TDSand was in furtherance to the said objective. This isa deeming provision. How to interpret the deemingprovisions or what is the meaning of word ‘deem’.As verb Transitive, the word ‘deem’ means to treatsomethings as if (i) it is really something else, or(ii) it has qualities that it does not have. ‘Deem’ is auseful word when it is necessary to establish a legalfiction either positively by ‘deeming’ something tobe something it is not or negatively by ‘deeming’something not to be something which it is. Legalfiction is an assumption that something is true eventhough it may be untrue. Such an assumption isespecially made in judicially reasoning to alter howa legal rule operates. When a law creates a legalfiction such fiction should be carried to its logicalend. There should no hesitation in giving full effect

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to it. The proposition that the legal fiction must becarried to it logical conclusion does not, however,mean that it should be carried to an illogical length.By catena of decisions, three rules are fairly wellsettled for interpreting a provision creating a legalfiction. They are as under:

(1) The court is to ascertain the purpose for whichthe fiction has been created, and afterascertaining this, the court is to assume all thosefacts and consequences, which are incidentalor inevitable corollaries to giving effect to thefiction.

(2) The legal fiction cannot be interpreted in amanner that extends the effect of fiction beyondthe purpose for which it is created or beyondthe language of the section by which it iscreated. Neither can one allow himself to be socarried away by a legal fiction so as to ignorethe words of the very section which creates itor its context or setting in the statute whichcontains that sections nor can one loose sightof the purpose for which the fiction is created.

(3) Outside the bounds of the legal fiction thedifference between the reality and the fictionmay still persist in the provisions of the sameact which creates the fiction and the differencemay be ascertained by reference to the subjectand context of those provisions.

It means that legal fiction cannot be extended anyfurther and has to be limited to the area for which itis created.

In the present case, section 40(a)(ia) creates a legalfiction for the amount outstanding or remains

stpayable, i.e., at the end of every year as on 31March and it cannot be extended for taxing theamounts already paid. In fact, section 201 itself takescare of tax to be collected in the hands of the payeeand other TDS provisions under Chapter XVII-Bof the Act. No further legal fiction from elsewherein the statute can be borrowed to extend the field ofsection 40(a)(ia). This fiction cannot be extendedany further and, therefore, cannot be invoked byAssessing Officer to disallow the genuine andreasonable expenditure on the amounts of

Summation :

The decision of the Special Bench of ITAT inMerilyn Shipping & Transports (supra) centers

expenditure already paid.

around the interpretation of the term “payable”used in section 40(a)(ia). It is held therein that ifspecified amount is paid during the F.Y., then it isnot payable and, therefore, it cannot be disallowedeven if tax has not been deducted or after deductionit has not been paid to the Government. However,the Calcutta High Court and the Gujarat High Courtdid not approve of this view. In brief, their viewwas: (i) Section 40(a)(ia) creates a fiction by whichthe genuine payment of a specified sum claimed inthe Profit & loss Account is disallowed for eithernot deducting the tax or after deduction for notpaying to the Government., therefore, the provisionshould be interpreted strictly; (ii) the debate in theParliament does not reflect the intention of theLegislature, but it is only the final enactment whichreflects the intention behind the Legislation; (iii)“payable” means amount which has accrued infavour of payee; (iv) the assumption that it shouldbe shown at the end of the Financial Year is likeputting another condition in the provision which isnot intended by the Legislature; (v) paid comes afteran amount becomes payable. A sum cannot be paidunless it first becomes payable. The moment agreedwork is completed, agreed services are renderedand the other party has performed its part of contractthe sum would become payable. It is anterior intime as compared to term paid. Whatever is paidprior to completion of agreed work/services wouldonly be in the nature of advance to be adjustedagainst final payment on completion of work/service. Therefore, it is not fair to compare “paid”and “payable” by keeping them at par and thenhold that only time of payment differentiates them.

The view of the ITAT, that by not putting theexpression after the word “payable” to the effectthat the sum is pending/payable at the end of theaccounting year is only a casus omissus is notacceptable because the casus omissus is generallysupplied by the Hon’ble Apex Court and only inrare cases when the language of the Legislature is

contd. on page no. 96

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Amarshiv Construction Pvt. Ltd. v.DCIT (Guj.) (Tax Appeal No. 554 of2003, dated 19/03/2014)

The question, therefore, arises whether in view ofsuch terms of the contract, the amount received bythe assessee which otherwise is categorized assecurity deposit, after offering matching bankguarantee, can be said to be the assessee’s income.The answer would be in the affirmative, if it is foundthat the right to receive such income had accrued.The assessee following mercantile system ofaccounting, this question would be relevant. Evenotherwise, as held by the Supreme Court in case ofCommissioner of IncomeTax v. Bokaro SteelLimited, reported in 236 ITR 315 unless there isreally any income, there can be no tax levied.

The crucial question therefore is can in the presentcase, the right to receive the income accrued in favourof the assessee. In this context, we may recall thatwhenever the retention money of a contractor forperformance guarantee was actually held back bythe employer of the contract, the Courts have takena view that the right to receive such income nothaving accrued, the same cannot be taxed at the pointof time when the bills are raised. This is preciselywhat the Calcutta High Court held in case of SimplexConcrete Piles (India) Private Limited [Supra]. ThisCourt in case of Anup Engineering Company Limited[Supra] also took a similar view. In the said case, thefacts were that the assessee company was in thebusiness of manufacturing vessels used by chemicalindustries. The assessee executed a contract for supplyand erection of a spray drying plant for aconsideration of Rs. 40 lakhs. During the periodrelevant to A.Y 199798, the plant was erected andthe assessee was paid a sum of Rs. 34.49 lakhsagainst the bills raised by the assessee. The assessee,in the books of account, showed a sum of Rs. 40

lakhs to be received from the employer of the contractbut debited a sum of Rs. 3 lacs from its sales accountby crediting the same to warranty account. As somedispute had arisen with regard to quality of the vesselsupplied by the assessee, the assessee apprehendedthat due to the warranty clause contained in thecontract, the assessee might not receive the saidamount. It was in this context, the Court held andobserved as under:It can thus be seen that different High Courts havein the context of with holding of retention moneyfor performance guarantee of a contract has heldthat the right to receive such amount did not accruedtill the performance warranty period was over.Even in the context of actual release of such amounton furnishing the bank guarantee, subject to thesatisfactory completion of the contract, the BombayHigh Court confirmed the decision of the Tribunalwhich by majority view had held that the incomecannot be said to have accrued. In our opinion,merely because in the present case, unlike in thecases cited by us; including Anup Engineering Co.Limited [Supra] the amount was realized, wouldnot change this situation. It is undisputed that everyreceipt is not an income. Whether a receipt is anincome or not would depend on whether the rightto receive the same had accrued to the assessee.The question whether in the present case such righthad accrued or not, must be judged on the termsand conditions of the contract between the parties.We have noted such conditions before and after theamendment. Before the amendment, the assesseehad to surrender a portion of the running bill amounttowards additional performance guarantee deposit.

The assessee could request the employer of thecontract to convert such amount into interest bearingsecurities or deposits. The amount would still remainwith SSNNL. After amendment, the assessee hadan additional option of receiving the amount butconverting the security deposit into a bank guarantee.

Judicial Analysis

Advocate Tushar [email protected]

Taxability of “Retention Money”

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In other words, the assessee would receive the fullrunning bill amount; including 10% to be set apartby way of additional security deposit, upon furnishingthe bank guarantee of a matching sum. In either case,namely as in the pre-amendment scenario where theassessee would not receive 10% of the running billamount or post amendment, when such amountwould be received by the assessee upon furnishingthe bank guarantee, para 5.6 of the general conditionsremained unchanged. As per the said condition, thesecurity deposit or the security deposit converted intobank guarantee would be returned to the contractorafter defects liability period is over. This would besubject to two conditions – firstly, that the employerof the contract would deduct from such amount, anyamount due to it and that the Engineering Chargecertifies that no liability attaches to the contractor. Itcan thus be seen that in either of the two cases,SSNNL would recover from the assessee, the amountdue to SSNNL and release the rest of the amountout of the security deposit only upon completion ofthe defects liability period and upon certification bythe Engineering Charge. In case of the pre-amendment period, such recovery would be fromthe security deposit/interest bearing securities ordeposits; as the case may be. In the post amendmentperiod, if the assessee had so opted and furnishedbank guarantee to receive the amount, such recoverywould be from the bank guarantee so furnished.It thus emerge that the character of the amount didnot change. It still retained the character of retentionmoney. Its temporary release to the assessee onfurnishing the bank guarantee cannot be equated withthe right to receive such amount and resultantly withaccrual of income because the dominant control overthe said amount still remained with SSNNL.In case of Commissioner of IncomeTax v. GovindPrasad PrabhuNath, reported in (1988) 171 ITR417, the Allahabad High Court observed that theterms “income is received”, “accrues” and “arises”have not been defined in the Income tax Act, 1961.Mere receipt of income is not the sole test ofchargeability. Receipt of income refers to the firstoccasion when the recipient gets the money underhis own control. The words “accrue” or “arises”do not mean actual receipt of profits or gains. Boththese words are used in contradistinction to the word

“receive” and include a right to receive. Thus, if anassessee acquires a right to receive the income, theincome can be said to accrue to him though it maybe received later on.

In case of Commissioner of IncomeTax v. KeralaState Drugs &Pharmaceuticals Limited, reportedin 192 ITR p.1, the Kerala High Court observedthat even under the mercantile system ofaccounting, it is only the accrual of real incomewhich is chargeable to tax. The income should notbe hypothetical income, but real income.

In Commissioner of IncomeTax v. Punjab TractorsCooperative Multi Purpose Society Limited,reported in {1998} 234 ITR 105, the Punjab &Haryana High Court observed that, “...it is onlyreceipt as “income” which would attract tax. Everyreceipt by the assessee is, therefore, not necessarilyincome in his hands. It bears the character of incomeat the time when it accrues in the hands of theassessee and then it becomeexigible to tax.”

In the context of the question of accrual of incomeand real income arising, we may refer to a recentdecision of Supreme Court rendered in case ofCommissioner of Income Tax v. Excel IndustriesLimited &Anr., reported in (2013) 358 ITR 295(SC). In the said case, the question considered bythe Supreme Court was whether the benefit of anentitlement to make duty free imports of rawmaterials obtained by an assessee through advancelicenses and Duty Entitlement Pass Book issuedagainst export obligations is the income in the yearin which the exports are made, or the year in whichthe duty free imports are made. The assessee, whichwas following mercantile system of accounting, inthe return had claimed deduction of Rs. 12.57Crores under the head advance licence benefitreceivable. The assessee had also claimed adeduction in respect of duty entitlement pass bookbenefit receivable amounting to Rs. 4.46 Crores.These benefits related to entitlement to import dutyfree raw material under the relevant import andexport policy by way of reduction from raw materialconsumption. According to the assessee, theamounts were to be excluded from the total incomesince they could not be said to have accrued untilimports were made and the raw materials

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consumed. It was in this context, the Supreme Courtconsidered above noted question. The Court,referring to the decision in case of CIT v.ShoorjiVallabhdas& Company [Supra] observedthat it is well settled that income tax cannot be leviedonhypothetical income. The Court further held andobserved as under :”

Looked from any angle, we see no material changeby virtue of the amendment in clause 5.4 to thegeneral conditions in so far as the question of accrualof income is concerned. Right to receive the sumwas even before the amendment uncertain andtherefore contingent. Upon satisfactory completionof several factors, even after the amendment, thesame conditions applied. Same uncertainly andunpredictability prevailed. The assessee had noabsolute right to receive the amount. SSNNL hadno obligation to release the same before completionof warranty period and even thereafter wouldrelease the amount only after making permissibleadjustments. Mere fact that in the present case norecoveries were made from the bank guarantee orsecurity deposit is of no consequence. We may nowdeal with some of the contentions of the Revenue,which found favour of the Tribunal also.

Mere fact that the amount was received by theassessee would not mean that income had accrued.Whether income did accrue or not would dependon the fact whether the right to receive said amounthad accrued or not. The fact that tax was deductedat source on said amount also would be of noconsequence. Tax was deducted by SSNNL. Theassessee had no control over such deduction. Merelywhether tax was deductible or not would not decidethe taxability of certain receipts. The manner inwhich the assessee accounted for such receipt in itsbooks of account can also not determine its taxliability, as held by the Supreme Court in case ofKedarnath Jute Mfg. Company Limited v.Commissioner of IncomeTax [Central], Calcuttareported in 82 ITR 363. In such decision, the Courtheld and observed as under :”

Reliance placed by the Tribunal to the AccountingStandards for percentage completion method wasmisplaced. The assessee did not follow thepercentage completion method and the accounting

treatment to be accorded in such case therefore wasnot at issue. The assessee claiming entireexpenditure and not excluding expenditure relatableto the withheld security deposit also would not befatal to the interest of the assessee. The expenditurein toto was incurred. The question only was whatwould be the total amount that the assessee wouldreceive for carrying out such construction. Ninetypercent of the amount was payable or already paidover. Ten per cent of the running account bills wasadjustable towards the claims of the SSNNL andrecoveries arising out of defects; if any. Release ofsuch amount or part thereof would decide theultimate profit margin of the assessee upon executionof the contract. The expenditure incurred by theassessee could not be proportionately divided intothat covering the assessee’s ninety per cent of thebill amount and relatable to the rest ten percent.

Under the circumstances, we find that the Tribunalcommitted an error in allowing the Revenue’sappeals. The question is answered in favour of theassessee. The judgment to the extent above in eachof the respective appeals is reversed. Resultantly,the judgment of the CIT [A] is reinstated.

Anup Engineering Ltd. v.CIT (247 ITR457) (Guj)

14. For the purpose of ascertaining whether incomehad, in fact, accrued, one has to also see whetherthere is a real income. It has been also observedby the Supreme Court in CIT v. Bokaro Steel

1Ltd. [1999] 236 ITR 315 , that no matter byadopting what method the assessee maintainshis accounts, it may be either the cash systemwhere entries are made on the basis of actualreceipts and actual outgoings or disbursements,or it may be the mercantile system where entriesare made on accrual basis, that is to say, accrualof the right to receive payment and the accrualof the liability to disburse or pay. However, inboth cases, unless there is real income, therecannot be any income-tax. In the instant casealso, there is no real income so far as Rs. 3 lakhsare concerned because no debt has been createdin favour of the assessee by virtue of clause No.14 of the contract and as the assessee did not

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get any right to receive the said amount duringthe previous year in question, it cannot be saidthat income in respect of the amount in questionhad been accrued to the assessee during theprevious year in question.

15. Looking to the facts of the present case and inthe light of the law laid down by the SupremeCourt in the cases referred to hereinabove, it isvery clear that unless and until a debt is createdin favour of the assessee which is due bysomebody, it cannot be said that the assesseehas acquired a right to receive the income orthat the income has accrued to him. A debt musthave come into existence and the assessee musthave acquired a right to receive the payment. Inthe instant case, the assessee did not get any rightto receive a sum of Rs. 4 lakhs which couldhave been retained by ‘Godrej’ in pursuance ofclause No. 14 of the contract. One has to lookat the contract and not at the entries made in thebooks of account. If, upon construction of thecontract, one comes to a conclusion that theassessee could not have received Rs. 4 lakhsfrom ‘Godrej’, by no stretch of imagination itcan be said that the said amount had accrued byway of income to the assessee in the previousyear in question. As the plant was not up to thesatisfaction of ‘Godrej’, ‘Godrej’ had a right toretain Rs. 4 lakhs. It is not in dispute that duringthe previous year in question, the dispute as toquality of the plant had arisen and the assesseehad also felt that quality of the plant was not upto the mark and, therefore, believing that‘Godrej’ might ultimately retain Rs. 3 lakhs orunder the warranty clause the assessee mighthave to pay Rs. 3 lakhs, the assessee made aprovision for Rs. 3 lakhs by deducting the saidamount from the sales account. In fact, in theprevious year in question, the assessee had novested right to receive Rs. 4 lakhs and, therefore,it cannot be said that income to that extent hadaccrued to the assessee. We can test the aboveconclusion in a different manner too. Whether‘Godrej’ was liable to pay Rs. 4 lakhs to theassessee in spite of the fact that quality of theplant was admittedly not up to the mark ? Didthe assessee get a vested right to get the said

amount ? Answer to these questions would bein negative and, therefore, as observedhereinabove, it cannot be said that income hadaccrued to the assessee.

CIT v. Simplex Concrete Piles India (P.)Ltd. (179 ITR 8) (Kol)

9. On these facts, we have to consider whether theright to receive the retention money accrued tothe assessee on submission of bill. In the case ofA. Gajapathy Naidu ( supra)the Supreme Courthad occasion to examine the question and laiddown that when the ITO proceeds to include aparticular income in the assessment, he shouldask himself, inter alia, two questions, viz., (i)what is the system of accountancy adopted bythe assessee, and (ii) if it is mercantile system ofaccountancy, when has the right to receive thatamount accrued. From the facts, as we havealready set out hereinbefore, we do not find anyreason to hold that the entire amount becamedue immediately upon submission of bills, 5 or10 per cent of the bills as the case may be iswithheld as a security. The assessee followsmercantile system of accounting and, therefore,it must credit the accounts as and when the rightto receive any sum accrues. There can not beany dispute that only 90 per cent of the bills inthe first instance when the job accrues to theassessee and the remaining 10 or 5 per centbecomes due in accordance with the terms ofthe respective contract. In some cases, as percontract, the right to receive payment of 5 percent accrues on completion of work and onlythe remaining 5 per cent is deferred for a furtherperiod. The payment of retention money isdeferred and is contingent on the satisfactorycompletion of the work and removal of defectsand payment of damages, if any. Till then thereis no admission of liability and no right to receiveany part of the retention money accrues to theassessee. Accordingly, the Tribunal was right indirecting the ITO to examine the question ofretention money from this angle and makeadjustment regarding the same, if necessary.

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CA. Rajesh H. [email protected]

Limited Liability Partnership is a new concept inIndia being born recently by virtue of LimitedLiability Partnership Act, 2008 (LLP) implemented

thwith effect from 9 January 2009. Pulling togetherthe provisions and facilities of the Partnership Lawand Company Law together, the LLP providessimplicity and flexibility of partnership as also thelegal protection of limited liability of a companyand is a better Special Purpose Vehicle for foreignersto undertake business and profession in India.

Although the LLP Act clearly allowed Foreignersincluding Non Resident Indians (NRIs) / Personsof Indian Origin (PIOs ) to join as shareholders ,the provisions of the governing law for ForeignDirect Investment (FDI ) , the Foreign ExchangeManagement Act, 1999(FEMA) did not permitinvestment in LLP by NRIs ; PIOs ; foreigners orforeign companies or entities. Subsequentlyforeigners and foreign entities were grantedapproval to join as partners of an Indian LLP, NRIs/ PIOs were not allowed to join a LLP as partnerstill recently.

thNow it has been notified on the 13 March 2014that NRIs, PIOs, Foreigners and Foreign entitiescan invest in a LLP in India and instructions in this

thregards are issued vide circular of the 16 April2014 allowing participation with retrospective effect

thfrom 20 May 2011 and therefore it is appropriateto study the salient features of FEMA regulationsapplicable for NRI and PIO investment in LLP.

NRI, PIO, individual of foreign origin and foreignentity are referred to as Foreign Investors andForeign Direct Investment is referred to as FDI inthe article.

1. Effective from :

Permissibility of FDI in LLPs is notified videNotification FEMA 298/2014 - RB dated 13thMarch 2014 by making couple of amendments

in Regulation 2 and Regulation 5 of ForeignExchange Management (Transfer or Issue ofSecurity by a Person Resident Outside India)Regulations, 2000. The amendments areexplained and instructed vide Circular A.P.

th(DIR Series) Circular No. 123 of 16 April2014.

.01 The amendments are introduced retrospectivelywith effect from 20th May 2011.

.02 However filing of returns has been madeeffective from 16th April 2014.

2. Eligible Investors :

Foreign investors eligible to join as partners /shareholders of a LLP are ;

.01 Non Resident Indian (NRI) being Indian citizenresiding abroad.

.02 Person of Indian Origin (PIO) being foreigncitizen of Indian origin residing abroad. A PIOis defined as an individual who himself or anyone of his parents or grandparents were bornin India or were Indian citizen earlier. Spouseof a PIO is also covered by definition of a PIO.

.03 Foreign citizens of foreign origin and

.04 Foreign entity incorporated outside India.

As entity is not defined the same should includeforeign company; foreign partnership; foreigntrust and any other legal overseas entity.

3. Non Eligible Investors :

The notification is specified, some entities noteligible to be partners of an Indian LLP whichare :

.01 Citizens and entities of Pakistan andBangladesh ;

.02 SEBI registered Foreign Institutional Investor(FII) ;

Limited LiabilityPartnership under FEMA


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.03 SEBI registered Foreign Venture CapitalInvestor (FVCI) ;

.04 SEBI registered Qualified Foreign Investor(QFI) and

.05 Foreign Portfolio Investor registered inaccordance with Securities and ExchangeBoard of India(Foreign Portfolio Investors)Regulations, 2014 (RFPI).

4. Elibigible LLPs :

Existing or newly formed LLP undertakingactivities in sectors wherein 100% (ForeignDirect Investment) FDI is permissible underautomatic route are only eligible to accept FDI.

.01 As such manufacturing companies, softwarecompanies, hotels, hospitals, infrastructuredevelopment companies, wholesale tradecompanies and other specified sectors wherein100% FDI is permissible under automatic routeas notified by Ministry of Commerce andIndustry from time to time can only accept FDI.

5. Ineligible Sectors :

LLPs undertaking business of any sector otherthan sectors wherein 100% FDI underautomatic route is permissible cannot acceptFDI.

.01 Thus sectors wherein conditions are stipulatede.g. real estate development by foreignerswherein conditions regarding built up area , sizeof plots etc. are stipulated.

.02 All sectors which require Governmentapproval.

.03 LLP undertaking agriculture, plantationactivities or business of print media.

6. Nature of Investments :

Investment is permissible by way of capitalcontribution only.

.01 Transfer of profit share i.e. purchase of existingpartner’s profit share is considered as capitalcontribution.

.02 Reinvestment of profits is also considered ascapital contribution.

.03 A LLP cannot avail External CommercialBorrowing (ECB).

.04 As such FDI in any other form is notpermissible. e.g. shareholders loans

7. Valuation of Shares :

Valuation of FDI by way of capital contributionor transfer of profit share is permissible at fairprice or an amount higher than the fair price.

.01 Fair price has not defined but is explained asany fair price worked out followingvaluation norms which are internationallyaccepted and are as per market practice.

.02 Therefore the valuation as per Discounted CashFlow Method (DCF) which is prescribed forvaluation of shares of company under FEMAor the Book Value method under the IncomeTax Act, 1961 (IT ACT ) being internationallyaccepted method of valuation accepted in Indiaalso may be adopted as fair price.

.03 Such fair price is to be certified by CharteredAccountant or practicing cost accountant orapproved valuer on the panel of the CentralGovernment of valuers.

.04 Profit share transfer from a resident to nonresident can be made at fair price or a pricehigher than the fair price while transfer of profitshare by non resident to a resident has to be atfair price or value lesser than the fair price.

8. Mode of Investment :

NRI / PIO can contribute by way of cashcontribution only.

.01 The consideration can be bought in by way offorex remittance through banking channelsfrom abroad or payment from NRE or FCNRaccount.

.02 Contribution from NRO account is notpermissible.

.03 Capital contribution in exchange of any assetsor technical know how etc. is also notpermissible.

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9. Government Approval :

FDI in Indian LLP is subject to prior permissionof the Government of India / ForeignInvestment Promotion Board(FIPB).

.01 Appropriate application by way of mandatorypreliminary application followed by freshapplication quoting the FC registration isrequired to be submitted at FIPB facilitationcentre New Delhi followed by submission of15 hard copies together with appropriateannexures and documents 3 weeks prior to thescheduled date of FIPB meeting which is heldat specified intervals.

.02 This is not a part of RBI notification but is theprocedure being followed for FIPB approvals.

10. Downstream Investment :

An Indian company having FDI may makedownstream investment in an LLP provided thecompany as also LLP are undertaking activitieswherein 100% FDI is permissible underautomatic rule unconditionally.

.01 A LLP accepting FDI cannot make anydownstream investment in any Indian entity.

11. Conversion :

An Indian Incorporated company havingaccepted FDI can be converted into LLPprovided all the terms and conditions other thanthe mode of payment are made/ subject to priorapproval to Government of India/FIPB .

.01 As Partnership Firms are not allowed FDI otherthan NRI/PO investment on non repatriationbasis the issue of Firm’s conversion is notincorporated.

12. Certification :

Application by a LLP will require submissionof various certificates including :

.01 Fair price value for issuance or transfer ofshares will require certification of a CharteredAccountant or practicing cost accountant r orapproved valuer on the panel of the CentralGovernment of valuers.

.02 Bankers Foreign Inward Remittance Certificate(FIRC).

.03 Know Your Customer (KYC) report of theforeign investor . This report is to be providedby LLP’s Bank based on KYC report receivedfrom foreign investor’s Overseas Bank.

13. Reporting for Investment :

LLP receiving contribution from foreigninvestor will report specified informationregarding the LLP; foreign investor; investmentfunds together with CA certificate, FIRC ,KYC and notified declaration and applicationin Form FDI - LLP(I).

.01 Such form is required to be submitted within30 days from the date of receipt of capitalcontribution.

.02 Such form is to be submitted through LLP’sBank to the Regional Office of Reserve Bankof India having jurisdiction of the registeredoffice of LLP.

.03 The RBI will allot a Unique IdentificationNumber (UIN) for the investment.

14. Reporting for Transfer of Shares :

Transferor and transferee are required to submitspecified details in Form FDI - LLP(II) .

.01 Such form is to be submitted within 60days from the date of receipt of funds.

.02 The form is required to be submitted to the Bankmaintaining the transferor/transferee’s Bankaccount.

.03 Documents to be submitted with applicationinclude consent letter of the buyer and seller;profit share pattern of LLP after the transfer;CA certificate regarding fair price; selfdeclaration of the foreign investor regarding itseligibility; self declaration regardingGovernment approval and no objection / taxclearance certificate of Income Tax Officer orChartered Accountant or cost accountant orcompany secretary in practice .

.04 The form will contain details about the buyer;seller; and FIPB approval etc.



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.05 This form will be further certified by the Bankstating that the application is complete in allaspects and the payment is in accordance withFEMA Regulations.

15. Reporting for Existing Investment :

LLPs which have received FDI since 20th May2011 till the issue of these instructions arerequired to comply with the reportingrequirement within 30 or 60 days as applicableas Reserve Bank of India had grantedpermission to foreign citizens of foreign originand foreign entities to invest in LLP since May2011 but the reporting requirements were notnotified till now.

16. LLP – A Case of Differing Identity :

It is strange that although LLPs are similar toIndian incorporated companies and FDI inLLPs is also governed by Foreign ExchangeManagement (Transfer or Issue of Security bya Person Resident Outside India) Regulations,2000 , the very same regulation which is alsothe Principal Regulation for FDI in Indian

incorporated companies, there are glaringdifferences governing FDI in LLPs vis - a - visCompanies and the same donot find supportof any material facts or logic whatsoever.

Some of these differences are:

.01 FDI in companies is allowed under automaticroute and as such prior permission of ReserveBank of India or any other authority is notrequired. In contrast investment in LLP requireprior approval of Government of India / FIPB.

.02 FDI in companies has multiple investment capsranging from 24% to 100% whereas FDI inLLPs is permissible only if the sector is allowed100% FDI and tat too under automatic routeonly.

.03 Companies can accept NRI/PIO investmentsfrom NRO account too and can also issue sharesin exchange of assets, or technical know howetc whereas LLPs require entire FDI in cash.

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compared with some other analogous statute or ifthe Legislature had different intention in mind, whileframing the provision.

In the case of ITO vs. M/S Theekathir Press, TheITAT Chennai Branch has held as under:

“We find that the judgment of the Hon’ble AllahabadHigh Court is in favour of the assessee. At the sametime, we find that the orders of the Calcutta HighCourt and the Gujarat High Court are against theassessee. In such circumstances, the rule of JudicialPrecedence demands that the view favourable tothe Assessee must be adopted, as held by theHon’ble Supreme Court in the case of CIT vs.Vegetable products ltd., 88 ITR 192. Following theabove fundamental rule declared by the Hon’bleSupreme Court, we have to follow the Judgment

of the Hon’ble Allahabad High Court, which is infavour of the assessee. Accordingly, we hold thatthe disallowance under section 40(a)(ia) appliesonly to those amounts “Payable” and not to thoseamounts “paid”.”

Finally it is respectfully submitted that the decisionof the Hon. ITAT Chennai Bench in the case of theITO v/s. M/s. Theekathir Press, (ITA No. 2076(Mds)/2012 lays down the correct law and in viewof the decision in the case of CIT v/s. VegetableProducts Ltd. 88 ITR 192 (SC) the paid V/s. payablecontroversy ultimately should be decided in favourof the assessee.

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contd. from page 88 Controversies


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CA. Savan A. [email protected]

External Commercial Borrowings(ECB) for Civil Avitation sector:

The ECB working capital for civil avitation sectorshould be raised within 12 months from the date ofissue;on a review it has now been decided thatscheme of raising ECB for working capital for CivilAviation Sector will continue till March 31, 2015.

For full text refer to: A.P. (DIR Series) Circular No.113 - http://www.rbi.org.in/scripts/BS_CircularIndexDisplay.aspx?Id=8792

Merchanting Trade Transactions

The guidelines on merchanting trade transactionshave been revised

For a trade to be classified as merchanting tradefollowing conditions should be satisfieda. Goods acquired should not enter the Domestic

Tariff Area andb. The state of the goods should not undergo any

transformation

AD bank should be satisfied with the bonafides ofthe transactions.


Foreign investment in India inGovernment Securities:

The present limit for investment in GovernmentSecurities by SEBI registered FIIs, QFIs, long terminvestors and FPIs registered in accordance withSEBI guidelines limits to USD 30 billion havingresidual maturity of more than one year and above.

Out of the above limit, a sub-limit of USD 5.5 billionis available for investment in Treasury Bills (T-bills). But the existing investments in T-bills andGovernment dated securities of less than one yearresidual maturity shall be allowed to paid out onmaturity/ sale.

All other existing conditions for investment inGovernment securities remain unchanged

For full text refer to: A.P. (DIR Series) Circular No.118 - http://www.rbi.org.in/scripts/BS_CircularIndex Display.aspx?Id=8828

Rupee Drawing Arrangement – ‘Directto Account’ Facility

In order to facilitate receipt of foreign inwardremittances directly into bank accounts of thebeneficiaries, it has been decided to allow foreigninward remittances received under Rupee DrawingArrangement (RDA) to be transferred to the KYCcompliant beneficiary bank accounts.· The Partner Bank shall appropriately mark the

direct-to-account remittances to indicate to theRecipient Bank that it is a foreign inwardremittance.

· The Recipient Bank may seek additionalinformation from the Partner Bank and shallreport suspicious transactions to the FIU-INDwith details of the Partner Bank through whichthey received the remittances.


Foreign Direct Investment inPharmaceuticals sector – clarification

· The extant FDI policy for pharmaceutical sectorhas since been reviewed and it has now beendecided with immediate effect that the existingpolicy would continue with the condition that‘non-compete’ clause would not be allowedexcept in special circumstances with theapproval of the Foreign Investment PromotionBoard (FIPB) of the Government of India.


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FEMA Updates

1

2

3 5

4


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CA. Punit R. [email protected]

as the case may be. However, in terms of this section,this definition is limited for the purpose of ChapterIIIA (Advance Rulings) of the Central Excise Act,1944 and further Section 29A indicates that thisdefinition is to be followed unless the contextotherwise require. Further, reading of entire servicetax law as a whole, it will result in absurdity if themeaning of the term activity is considered limited tothe definition given in Section 29A(a) of the CentralExcise Act, 1944. Hence, we need to refer to a propermeaning of the term activity.As per Black’s Law Dictionary (Ninth Edition)activity means the collective acts of one person or oftwo or more people engaged in a common enterprise.

Service Tax Education Guide released on 19-06-2012 at paragraph no. 2.1.1 states that in terms ofthe common understanding of the word activitywould include an act done, a work done, a deeddone, an operation carried out, execution of anact, provision of a facility etc. It is a term withvery wide connotation. Further, it clarifies thatactivity could be active or passive and would alsoinclude forbearance to act.In terms of Section 65E(e) of the Act, agreeing tothe obligation to refrain from an act, or to toleratean act or situation, or to do an act is a DeclaredService and thus, through deeming fiction, servicetax is to be levied.Here, it is worth noting that in terms of chargingsection 66B of the Finance Act, 1994, service taxshall be levied on services provided or agreed to beprovided. It means that it is not necessary that theactivity is already carried out or completed orexecuted. Even to agree to provide the service issubject to levy of service tax and subject to Pointof Taxation Rules, 2011, service tax is to be paid.Like in some other parts of the world where valueadded tax is being levied only on economicactivities, in India, no distinction has been madebetween commercial/economic activity and non-economic activity. It means that service tax is to be

Service Tax Decoded

Meaning of Service for Service TaxAlthough tax is being levied on services since 1994,term “Service” was not defined till introduction ofNegative List based taxation through Finance Act,

st2012. With effect from 1 July, 2012, Section65B(44) of the Finance Act, 1994 (the Act) definesthe term “service” as follows.65B. Interpretations.- In this Chapter, unless the

context otherwise requires, -

(44) “service” means any activity carried out bya person for another for consideration, andincludes a declared service, but shall notinclude—

(a) .....................

This part of the definition is a core for the term“service”. It can be seen from the above part of thedefinition that there are basically three ingredientsof a service as follows.1. There should be any activity carried out.2. Such activity should be carried out by a

person for another.3. And such an activity is carried out for

consideration.Unless all of the above three ingredients areavailable, an activity can’t be considered as a“service” and question of levy of service tax onsuch activity will not arise.ActivityThe term “activity” is not defined anywhere in theFinance Act, 1994. In terms of Section 65B(55) ofthe Act, the words and expressions used but notdefined in the Chapter V of the Finance Act, 1994and defined in the Central Excise Act, 1944 or rulesmade thereunder, shall apply, so far as may be, inrelation to service tax as they apply in relation toduty of excise. As per Section 29A(a) of the CentralExcise Act, 1944, “activity” means production ormanufacture of goods and includes any new businessof production or manufacture proposed to beundertaken by the existing producer or manufacturer,


99

paid even if an activity is carried out on non-economic or non-commercial basis. For example,security services provided by a co-operative societyof ex-army staff, which is established for welfareof its member and working without any intentionfor profit, are also subject to service tax.Carried out by a person for anotherAn activity should be carried out by a person foranother. To constitute a “service” for levy of theservice tax, it is necessary that the activity is carriedout by one person for another. In other words, serviceprovider and service recipient should be two distinctpersons. Activity carried out for self is not a “service”for the purpose of service tax law and question ofpayment of service tax doesn’t arise at all.The term person is defined in the Section 65B(37)of the Act, to include an individual, a HinduUndivided Family, a company, a society, a limitedliability partnership, a firm, an association of personor body of individuals, whether incorporated or not,Government, a local authority and every artificialjuridical person, not falling within any of the above.Above definition is inclusive definition and notexhaustive one. In legal parlance, if service provideris a separate person having separate existence thanservice receiver, than service tax would be leviedon the provision of service.

For example, provision of a service by a holdingcompany to a 100% subsidiary company,incorporated as a separate entity is service providedby one person to another person and service taxshall be levied accordingly. On the other hand,service provided by a head office to an independentbranch, keeping its own accounts and drawing itsseparate Profit & Loss Account and Balance Sheet,but not having separate legal identity, is still a serviceprovided by a person to self and service tax wouldnot be levied. For example, service provided by aCentral Office of a Nationalised Bank to its localbranch is not a service provided by a person toanother person and therefore out to the scope ofthe service tax.Merely because separate registration is obtained, itmay not be concluded that services are providedby a person to another person. Different provisionsare provided for the registration. Under that ruleone person may require more than one registration.However, this fact, on its own, may not determine

that each registered unit is a separate legal entity orhaving separate legal identity.Service provided to self is not a service at all andquestion of levy of service tax doesn’t arise.However, this principle has two exceptions. In termsof Explanation 3 to Section 65B(44) the Act;(a) An unincorporated association or a body of

person and member thereof shall be treated asdistinct person, meaning thereby provision ofservice between an unincorporated association/a body of person and its member will be subjectto service tax. For example, Company A andCompany B has entered into joint ventureagreement and provided services to CompanyC. In this case, if any service is provided byCompany A to the joint venture, it will beconsidered as a service provided by a personto another despite of the fact that Company Ais also a member of the joint venture and thusto that extent service is provided to self.

(b) An establishment of a person in the taxableterritory and any of his other establishment in anon-taxable territory shall be treated asestablishments of distinct persons. In simplewords provision of service between a headoffice in the taxable territory (i.e. in India,except Jammu & Kashmir) and a branch officelocated in non-taxable territory shall be subjectto service tax. In the same manner, provisionof service between a head office in the non-taxable territory and branch office in taxableterritory shall be subject to service tax.

For ConsiderationAn activity carried out for consideration is a serviceand subject to service tax. To consider an activity asa service it is prerequisite that such an activity is carriedout for consideration. An activity carried out withoutconsideration is not a service and service tax, on suchactivity is not to be levied. For example, honoraryservices provided by volunteers to an organisation,without consideration is not a service at all.In terms of Explanation (a) to section 67 of the Act“consideration” includes any amount that is payablefor the taxable services provided or to be provided.It can be seen from the above provision that itmerely expands the meaning of the wordconsideration. Hence, we have to rely on thegeneral meaning of the word consideration. Black’s

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Law Dictionary (Ninth Edition) defines theconsideration as;- “Something (such as an act, a forbearance, or a

return promise) bargained for and received by apromisor from a promisee; that which motivatesa person to do something, esp. to engage in alegal act.”

- “A consideration in its widest sense is the reason,motive, or inducement, by which a man ismoved to bind himself by an agreement. It isnot for nothing that he consents to impose anobligation upon himself, or to abandon ortransfer a right. It is in consideration of such andsuch a fact that he agrees to bear new burdensor to forgo the benefits which the law alreadyallows him.”

Section 2(d) of the Indian Contract Act, 1872defines the consideration as- “When, at the desire of the promisor, the

promisee or any other person has done orabstained from doing, or does or abstains fromdoing, or promises to do or abstain from doing,something, such act or abstinence or promise iscalled a consideration for the promise”

Even abstinence from doing something is also avalid consideration. For example, for services ofB, A agrees to B, not to do business in particulargeographical area is a consideration.A consideration that has no value in eyes of law isnot a consideration at all. For example,consideration in form of spending a time by ahusband with his wife may be a consideration inaffection but it has no value in eyes of law and itmay not be considered as a consideration.Doing an act which a person is already required todo it or it is a legal obligation of that person to do itis not a consideration. For example, if A agrees topay his income tax dues properly, if B provides himparticular service, than, paying of income tax duesby A is not a consideration because it is a legalobligation of A to pay his income tax dues properly.This is because of the fact that irrespective of serviceof B, A is bound to pay his income tax and thus,paying income tax would not induce A to enter intocontract and thing that don’t induce a person to enterinto contract is not a consideration.The term consideration has particular meaning.Provisions and case laws under the Indian Contract

Activities specifically included in the term

Act, 1982 may be referred for better understanding.

“Service”Declared Services, as provided in Section 65E ofthe Act, are deemed to be service. For various typesof the declared services, the said section may bereferred.Activities specifically excluded from the term“Service”Section 65B(44) specifically excludes followingactivities from the term “service”;(i) An activity which constitutes merely a transfer

of title in goods or immovable property, by wayof sale, gift or in any other manner. Here, it isworth noting that transaction which are purelyin nature of sale etc. are excluded. Transactionswhich are not merely a sale transaction butprovision of services are also included are notexcluded from the definition of service.

(ii) An activity which constitutes merely suchtransfer, delivery or supply of any goods whichis deemed to be a sale within the meaning ofclause (29A) of article 366 of the Constitution.In the case of works contract, sale of goodsinvolved in works contract are deemed saleunder the above mentioned Article of theConstitution of India. Only that portion of theworks contract and not the service portionincluded in the works contract is excluded fromthe definition of service.

(iii) An activity which constitutes merely, atransaction in money or actionable claim. Forexample, exchange of Rs. 100 currency noteswith Rs. 10 currency notes, investing in FixedDeposit etc. are examples of transaction inmoney.

(iv) A provision of service by an employee to theemployer in the course of or in relation to hisemployment. Provision of services by anemployer to employees is within ambit ofservice tax. For example, transportation chargescollected by employers from employee aresubject to service tax.

(v) Fees taken in any Court or tribunal establishedunder any law for the time being in force.

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CA. Ashwin H. [email protected]

Dilip Parikh v. Commissioner of Service-tax, Ahmedabad [2014] 41 taxmann.com311 (Ahmedabad - CESTAT)

If a property, jointly owned by two or morepersons, is rented out by such persons separatelyto a single person, Whether all such co-ownerswould be eligible for small service provider’sexemption of Rs. 10 lakh separately.

Section 93, read with section 65(90a) of the FinanceAct, 1994 - Exemptions - Service Tax - Smallservice providers/Threshold exemption .

Facts

Assesses, being co-owners of a building, rented outsuch building to a tenant and rent was received byall such co-owners separately through differentcheques. Since rent received separately by each co-owner did not exceed Rs. 10 lakhs, they claimedthreshold exemption under Notification No. 6/2005-ST, as amended. Department argued that amountwas to be assessed collectively and sought to cluball receipts alleging that separation was made witha view to gain tax benefit.

Held

It was held that rental agreement between partiesclearly provided that all co-owners wereindividually renting out such building to a singleperson. Cheques were also received separately bythem. Small service providers' threshold exemptionspeaks of aggregate value of taxable services andif, individually, all co-owners are considered asseparate service providers, their aggregate value didnot exceed exemption limit. Hence, prima facie,case was in favour of assessee and pre-deposit was

Central Excise v. Inductotherm India (P.)

waived accordingly.

Ltd. [2014] 43 taxmann.com 34 (Gujarat)High Court of Gujarat

In case of export of final product, place ofremoval would be port of shipment and notfactory gate and therefore, manufacturer wouldbe entitled to credit of input services availedupto such ‘port of shipment’

Rule 2(l), read with Rule 2(t), of the Cenvat CreditRules, 2004 and section 4 of the Central ExciseAct, 1944 - CENVAT Credit - Input service - Placeof removal - Place of removal is defined in section4(3)(c) of Central Excise Act, 1944.

Facts

Assessee a manufacturer took credit of CargoHandling Services used for export of goodsmanufactured by it . Department denied said crediton ground that credit could be availed only upto ‘place of removal’, ‘ port of shipment’ cannot beregarded as ‘ place of removal’ and, therefore, saidservice availed after clearance from factory couldnot be regarded as input service.

Held

It was held that since, in this case, cargo handlingservices were utilized for purpose of export of finalproduct, said services availed upto ‘ place ofremoval’ being ‘ port of export’ (i.e., until goodsleave India from port) were service used in relationto clearance of final products upto place of removal.Therefore, assessee was entitled to credit.

Commissioner of Service Tax, Service TaxCommissionerate v. Rallies India Ltd.[2014] 43 taxmann.com 266 (Karnataka)High Court of Karnataka

When Tribunal, without application of mindand without considering facts involved, hasrendered judgment by following another

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judgment, such judgment has to be set aside andremanded back for consideration afresh.

Section 65(92), read with section 86, of the FinanceAct, 1994 - Taxable services - Scientific orTechnical Consultancy Services.

Facts

Assessee was engaged in providing followingservices : (i) Original Research Activities viz.Product Chemistry, Environmental Studies,Toxicology Studies, Physic-Chemical Properties,Environmental fate Studies; and (ii) SponsoredResearch Activities . Department sought levy ofservice tax under Scientific or TechnicalConsultancy services. Assessee argued that it wasnot rendering any service, therefore, no service taxcould be levied.

Held

Tribunal had allowed appeal of assessee relyingupon judgment in another case without discussingfacts of present case. Further, no finding was givenwhether assessee is a service provider or not in orderto give benefit of judgment in such another case.When Tribunal, without application of mind andwithout considering facts involved, has renderedjudgment, said judgment has to be set aside andremanded back for consideration afresh.

Commissioner of Central Excise,Ahmedabad – III v. Gujarat State PetronetLtd [2014] 42 taxmann.com 166 (Gujarat)High Court of Gujarat

When assessee avails certain benefits/Cenvatcredit claiming to be covered by statute andwhen it is found that such benefits are notavailable, surely assessee can be stated to havemade misstatement, but, for invocation ofextened period of limitation and levy of penalty,such misstatement must be shown to be willful.

Section 73 of the Finance Act, 1994, read withsection 11A of the Central Excise Act, 1944 andsection 28 of the Customs Act, 1962 - Recovery -Of duty or tax not levied/paid or short-levied/paidor erroneously refunded - Invocation of Extended

Facts

When assessee avails certain benefits/Cenvat credit

Period of Limitation.

claiming to be covered by statute and when it isfound that such benefits are not available, surelyassessee can be stated to have made misstatement,but, whether such misstatement was wilful or notis to be examined.

Held

Where issue of taking credit was not free fromdoubt, assessee had taken legal opinion from expertsgiving rise to two views and had also approachedCBEC for appropriate clarification, assessee’s bonafides could not be called into question. It could besaid, therefore, that there was no suppression offacts or wilful misstatement of facts warrantinginvocation of extended period of limitation.Moreover assessee being a public sector unit, anyevasion would not benefit any individual. In viewof findings of fact arrived at by Tribunal, extendedperiod of limitation could not be invoked.

In light of section 80, which provides that no penaltyshall be imposable on assessee for any failurereferred to in said provisions, if assessee proves thatthere was reasonable cause for such failure. SinceTribunal had found that assessee had acted in bonafide manner, no penalty could be levied.

Texonic Instruments v. Commissioner ofService Tax [2014] 30 taxmann.com 419(Karnataka) High Court of Karnataka.

Department was directed not to initiate coercivesteps till disposal of stay application by Tribunal.

Section 87 of the Finance Act, 1994 - Recovery ofany amount due to Central Government.

FactsAssessee’s appeal along with stay application waspending before Tribunal, department sought toinitiate recovery proceedings. Assessee argued thatTribunal was not functioning for certain period.

HeldTribunal was directed to hear to consider assessee’sstay application preferably within 3 weeks frompresent order. Department was directed not toinitiate coercive steps till disposal of stay applicationby Tribunal.

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contd. on page no. 107

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CA. Bihari B. [email protected].

Important Notifications / Circulars

Vide Representation by the Sales Tax BarAssociation, the Additional Commissioner ofCommercial Tax has decided that the Form No. 202has been designed as per the representation of theAssociation and the new Form No.202 is availableon Website by clicking on Macro Based TempletsVat 202 in the Home Page of Amendment.

Important Judgments

M/s. Kunal Infrastructure (India) Pvt.Ltd. RA No. 121/2013 dated 19.3.2014.(GSTB)

The important paragraphs are reproduced here underfor the benefit of the readers.

We have considered the rival submissions & thefacts of the case. We have gone through the orderspassed by the authorities below in the light ofstatutory provisions as well as the decided case lawon the subject. Two major issues were raised bythe applicant in the present Revision Application.First issue is with regard to the applicant’s challengeagainst charging of interest under section 42(6)especially when the revisional order also results intothe refund. We found sufficient substance in thesubmissions of Mr. Mehta. Section 42(6) of the Actprovides that “where the amount of tax assessed orre-assessed for any period, under section 34 orsection 35, subject to revision, if any, under section75, exceeds the amount of tax already paid by thedealer for that period, there shall be paid by such adealer, simple interest at the rate of 18% per annumon the amount of tax not so paid or any less amountthereof remaining unpaid during such period. Thus,the material question examined for the purpose ofcharging of interest under section 42(6) is that theamount of tax assessed exceeds the amount of taxalready paid.

Here, in the present case, as a result of revisionalorder the amount of tax does not exceed the amountof tax already paid, as the payment made in excessof the tax assessed and the assessment was resultedinto refund which was duly granted to the applicantalong with interest. Even after passing of therevisional order, the amount of tax assessed, doesnot exceed the amount of tax paid, as even therevisional order, the applicant is entitled to therefund. The reliance placed by Mr. Parmar on theprovisions under section 37(4) of the Act does notrender any assistance to the department and the saidanalogy cannot be applied to the case coveredunder section 42(6) of the Act. It is true that section37 deals with provisional refund and as perprovisions contained under section 37(4) of the Acton assessment, provisional refund granted undersub-section (2) found to be in excess, then suchexcess shall be recovered, as if it is a tax due fromthe dealer under this Act and the interest on suchtax shall be charged at the rate of 18% per annumfor the period from the date of grant of provisionalrefund till the date of assessment.There is no dispute about the fact that the applicant’sclaim regarding input tax credit on the purchasesmade from M/s. Soham Industries is disallowed andhence the applicant is liable to pay tax. However,as a result of such disallowance in the applicant’scase, the quantum of the refund which wasoriginally granted pursuant to the assessment orderpassed by the Assessing Officer was reduced andalong with such reduction of refund, the interestpaid on refund was also reduced. However, at boththe stages i.e. at the stage of assessment as well asat the stage of revision, the applicant is ultimatelyheld to be entitled to refund and in no case, the taxassessed even exceeds the tax paid by the applicant.Thus the condition precedent for charging of interestas laid down under section 42(6) of the Act is notsatisfied and hence the applicant is not liable to payany interest under section 42(6) of the Act.

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This takes us to the second issue raised by theapplicant with regard to levy of penalty undersection 34(7) of the Act for the first time in therevisional proceedings. As stated earlier, theapplicant has disputed such levy of penalty undersection 34(7) on four different grounds; whileproposing to revise the assessment order, it is statedin the notice issued in Form No. 503 that the inputtax credit on the purchases made from M/s. SohaniIndustries whose registration has been cancelled abinitio is required to be disallowed and for thatpurpose necessary details and the evidence werecalled for. However, there is no reference withregard to charge of interest and levy of penalty.Interest being consequential is not separatelyrequired to be mentioned in the notice proposing torevise the assessment order.

By issuing notice in Form No. 503 the Ld. DeputyCommissioner has only asked for the details andevidence for the purpose of disallowance of inputtax credit. Ultimately after going through details ifthe Learned Deputy Commissioner comes to theconclusion that the input tax credit is required to bedisallowed and if it is held that the applicant hasavoided the tax to that extent, the Ld. DeputyCommissioner can as well levy penalty undersection 34(7) of the Act. Hence considering the factsof the case, it is not necessary that simply becausethe proposal regarding levy of penalty is not madein the notice in Form No. 503, order passed undersection 75 levying penalty under Section 34(7)stands vitiated.

The second issue raised for challenging the penaltyunder section 34(7) of the Act is that, that section34(7) can be invoked only in the case of auditassessment. This section specifically refers that ifthe Commissioner is satisfied that the dealer in orderto evade or avoid payment of tax, due to thecircumstances mentioned in sub-clause (a) to (e),he shall after giving the dealer an opportunity ofbeing heard, direct that the dealer shall pay, by wayof penalty, a sum not exceeding 1 and ½ times ofthe amount of tax assessed on account of the saidreason in the “audit assessment”. In view of thewords used “in the audit assessment” it is contendedthat in revisional proceedings, the penalty under

section 34(7) cannot be levied. This Tribunal ishowever of the view that when the entire auditassessment itself is a subject matter of revision anydefect, lacunae or omission found in that auditassessment can be taken into revision.

The third issue which is raised for the purpose ofchallenging the levy of penalty under section 34(7)of the Act is that, that in the revisional proceedings,the revisional Authority cannot levy penalty for thefirst time. In support of these submissions, thereliance was placed on the decision of the Hon.High Court of Gujarat in Bhavnagar ChemicalsWorks (1946) Ltd. vs. Commissioner of Sales Tax,Ahmedabad (Spura), wherein it is held that thepower of revision cannot be restricted to a case,where the subordinate authority has positivelyexercised power and has committed some error orillegality in exercise thereof. Even in the cases,where the authority has either failed or omitted toexercise power to levy tax, the Revisional Authoritycan exercise its power. It is further held that penaltyproceedings are independent and distinct fromassessment proceedings. If the revisional authorityhas expressly or impliedly not at all exercised itspenalty jurisdiction, the revisional authority cannotproceed to levy penalty for the first time. But wherethe assessing authority has omitted to impose penaltydespite initiation of penalty proceedings, the orderto impose penalty can be revised.

In this case before the Hon. High Court of Gujarat,since the Assessing Authority has taken action toimpose penalty by issuing Notice under section45(1)(b) of the Gujarat Sales Tax Act it was opento the Assistant Commissioner to impose penalty.The imposition of penalty under section 45(1)(b)of the Act by the Asst. Commissioner in Revisionwas valid. The reliance was also placed on thedecision of the Hon. Bombay High Court in thecase of Tata Exports Ltd. vs. the State ofMaharashtra (supra) wherein it is held that wherethe Assessing Authority has imposed any penaltyin exercise of power under section 36(2) of the Actand the Commissioner issued a notice proposing toimpose penalty under section 36(2) of the Act itwas held that since there was no order passed undersection 36 by any authority, which could have been

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revised under section 57 nor did the Commissionerproposes revision of the order of assessment, hewas not passing any order in revision against anyorder passed by any authority subordinate to himand hence the imposition of penalty under section36(2) of the Act was not “while passing any orderin revision”. The Commissioner was not entitled toimpose penalty under section 36(2) for the first time.

The decision of the Hon. Bombay High Court inaltogether on a different point in the facts of thatcase the power under section 57 was sought to beexercised only for the purpose of levy of penaltyunder section 36(2) of the Act and there was noproposal to revise the order of assessment. The Hon.Bombay High Court has therefore held that, theCommissioner was not entitled to impose penaltyunder section 36(2) of the Act for the first time.Here in the present case, the order of assessmentwas also sought to be revised for the purpose ofdisallowance of input tax credit and consequentiallevy of penalty under section 34(7) of the Act.

While deciding this issue, the decision of the Hon.Supreme Court in the case of Shri Balaji Rice Millsvs. the State of Karnataka – 140 STC 267 (SC)relied upon by Mr. Parmar is also required to betaken into consideration. In this case, whileconsidering the provisions contained in theKarnataka Sales Tax Act, 1957, more particularlythe provisions contained in section 18, 18(A) and22(A) of the said Act, the Hon. Apex Court hasheld that, that there is a difference between theexercise of revisional powers over orders passedby the Lower Authority and exercise of revisionalpowers in the assessment proceedings itself. Therevision of the order may be confined to what theorder contains or dealt with. But when theassessment proceedings are before the RevisionalAuthority, it can go beyond the order of AssessingAuthority and pass such orders, as the assessingauthority could or should have passed.

The Hon. Apex Court has observed that the specialprovisions under section 22(A)(4) of the KarnatakaSales Act, 1957, enables the Commissioner/Addl.Commissioner, not only to revise the order ofAssessing Authority, but also to reassess and passsuch orders on a point, not decided or dealt with in

the order of assessment. In view of the words“passed such order thereon as the circumstance ofthe case justify” including an order of enhancingor modifying the assessment or cancelling theassessment and directing a fresh assessment insection 22(A), even if no penalty is levied in theorder of assessment, the Revisional Authority isjustified in imposing the same, by virtue of specialpowers given to him under the statute.

Vat Act, such wide powers are not given to theRevisional Authority. It only stated that theCommissioner of his own motion within three yearsor on an application made to him within one yearfrom the date of any order passed by any officerappointed under section 16 to assist him may call forand examine example the record of any such orderand pass such order there on, as he thinks just andproper. The powers were given to the Commissioneronly to call for and examine the record of any suchorder and not the record of assessment proceedings.No power of enhancing or modifying the assessmentor cancelling the assessment and directing a freshassessment are given to the Revisional Authorityunder section 75 of the Act.

The Hon. Apex Court has also considered the decisionof the Hon. High Court of Gujarat in the case ofBhavnagar Chemical Works (1946) Ltd. (sup0ra) andhas observed that in this case power to impose taxfor the first time by the Revisional Authority isjustified. However, it was held that when theAssessing Authority did not impose penalty, then theRevisional Authority cannot impose the same for thefirst time. The Hon. Apex Court has therefore, afterconsidering the provisions of the Karnataka SalesTax Act has taken the view that levy of penalty inrevision proceedings is reasonable, just and proper,therefore, not liable to be set aside.

Considering the aforesaid legal position in the contextof statutory provisions contained in section 75 of theAct, we are of the view that powers given to theRevisional Authority under section 75 of the Act arenot as wide as the powers given to the RevisionalAuthority under the Karnataka Sales Tax Act andhence the decision of the Hon. Apex Court in thecase of Sree Balaji Rice Mills (supra) cannot beapplicable to the facts of the present case and the



106

applicant’s case is covered by the decision of the Hon.High Court of Gujarat in the case of BhavnagarChemical Works (1946) Ltd. and in this view of thematter the Ld. Deputy Commissioner has wronglyexercised the powers under section 34(7) of the Actfor the purpose of levying penalty for the first timein the revisional proceedings. Non-issuance of noticein Form No. 309 is also one of the important factors,coupled with an absence of a detailed or reasonedorder of levying penalty. Levy of penalty is, therefore,deleted. In the result, we pass the order.

Order :

This Revision Application is partly allowed.Disallowance of input tax credit of Rs. 15,680/- onthe purchase made from M/s. Soham Industries Ltd.is hereby confirmed and as a result thereof, thereduction of refund along with the reduction ofinterest paid thereon is also confirmed. Howeverfor the reasons stated above the charging of interestunder section 42(6) and levy of penalty under section34(7) of the Act is hereby deleted.

M/s. Madhusudan Texturisers Pvt. Ltd.SA No. 365 of 2011 – Decided on27.09.12. Reported at 2012 GSTB Pg 72

The Hon’ble Tribunal held that section 11(3)(b) ofreduction of tax credit @ 4% is not applicable incase where the goods purchased in the state istransferred to the another state for doing the jobwork if the goods are sent back to the state and aresold in the State of Gujarat.

The Ld. Assessing Officer while passingassessment order for the year 2006-2007 hasreduced the tax credit @ 4% as provided in section11(3)(b) of the taxable goods purchased in the stateand transferred to Daman for doing job work ofmanufacturing of Nylon filament yarn. The Ld.Assessing Officer relied on determination order u/s. 80 and the Hon. Tribunal judgment delivered inthe case of M/s., JCT Ltd. The appellant purchasedNylon POY Yarn from M/s. GSFC and transferredto M/s. Madhusudan Synthetics Daman forconversion of it in to Nylon filament yarn. The taxcredit was claimed on the purchases of Nylon POYyarn. The appeal was summarily dismissed as theappellant did not make the payment of pre deposit

amount. The appellant contended before Hon.Tribunal that section 11(3)(b) is not applicable inthe case because the goods transferred to Damanwas only for doing job work of converting NylonPOY Yarn in to Nylon Filament Yarn. The goodstransferred for doing job work was come back tothe state and thereafter the sales of goods were madefrom the state of Gujarat. The appellant had satisfiedthe requirement of section 11(3)(a) of the Act.Accordingly, the appellant was entitled to claim taxcredit and section 11(3)(b) is not applicable in thefacts of the case. The appellant referred section11(3)(a) and relied on the judgment of Hon.Supreme Court in the case of M/s. East India CottonManufacturing Co. Ltd. reported in AIR 1981 SC1610. The appellant also relied on the circular ofCommissioner of Sales Tax, Maharashtra and thecircular of Commissioner of Commercial Taxes,Karnataka in which the identical issue w2asanswered in favour of the appellant.

The appellant relied on Rule 7 of the Delhi VATRules 2005 in which the tax credit reduced whiletransferring goods outside state was held entitled toclaim tax credit so reduced when the dealer bringssuch goods back into Delhi for sale. The appellantalso relied on the relevant provision under the PunjabVAT Act, 2005. As regard interpretation of statutethe appellant relied on the judgment of Hon. SupremeCourt in the case of M/s. Filip Tiago De Gama ofVedem Vasco De Gama reported in AIR 1990 SC961 and other judgments. The Hon. Tribunal referredsection 11(3)(a), Section 11(3)(b) and SupremeCourt judgment in the case of East India CottonManufacturing Co. Ltd. (supra) and held that section11(3)(b) regarding reduction of tax credit is notapplicable in the case of the appellant. The state haspreferred tax appeal before the Hon. Gujarat HighCourt which is not yet decided.

M/s. P. M. Rathod and Co. S.A. No. 827of 2010 decided on 15.10.2012. Reportedat 2013 GSTB Page 100].

The claim of concessional rate of tax on the interstatesale of goods made against form ‘C’ is held admissibleupon production of duplicate counter foil ofdeclaration form ‘C’ where the original counter foilswere misplaced by the department.

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The appellant submitted original counter foil ofdeclaration form ‘C’ to the concerned inspectorduring the course of assessment proceedings.However, the assessment order was not passed asthe concerned assessing officer was transferred toanother office. The appellant was asked to remainpresent in the assessment proceedings by anotherassessing authority and was asked to submitdeclaration form ‘C’ in support to the claim ofinterstate sale. The appellant pointed out that he hadalready submitted original counter foils ofdeclaration form ‘C’ at earlier stage. Appellantsubmitted duplicate counter foils of declaration form‘C’ and also requested to allow the claim ofinterstate sale made against form ‘C’. The Ld.

Assessing Officer insisted for the production oforiginal counter foils of declaration form ‘C’ andhas ultimately rejected the claim of interstate salemade against form ‘C’ and levied tax at full rate.The appellant contended before Hon. Tribunal thatthe appellant had submitted original counter foilsof declaration form ‘C’ at earlier stage. The appellantfiled detailed affidavit stating relevant facts ofsubmission of original counter foils of declarationform ‘C’. The Hon. Tribunal considering the factsof the case directed the assessing officer for passingof the assessment order by accepting duplicatecounter foil of declaration form ‘C’.

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6Dani Aviation Services (P.) Ltd.v.CustomsExcise & Service Tax Appellate Tribunal[ 2014] 42 taxmann.com 561 (Madras)High Court of Madras

Where assessee had collected service tax fromcustomers and had paid same belatedly, interestwas automatic and pre-deposit of such interestcannot be waived.

Section 65(105)(zzm), read with sections 65(19),73, 75 and 78 of the Finance Act, 1994 - Taxableservices - Airport Services

Facts

The assessee is providing ground handling servicesto M/s. Sri Lankan Airlines Pvt. Ltd., and other non-scheduled airlines. A demand of tax for the periodOctober, 2007 and from July 2008 to September,2010 along with interest and penalty was issued tothe assessee. As against which, the assesseepreferred appeal before the Tribunal and sought forwaiver of pre-deposit of penalty and interest. TheTribunal noticed that the assessee had collected theentire service tax amount and retained the same withthem. When the same was detected by theDepartment, the assessee paid a portion of service

tax and subsequently, before the issuance of showcause notice the remaining amount has been paid.Taking into consideration that the entire amount ofservice tax has been paid, the assessee was directedto pre-deposit penalty and the entire interest withina period of eight weeks and report compliance on14.10.2013. Since the assessee did not comply withthe order, the appeals itself stood dismissed.

Held

It was held that prima facie, conduct of assesseewas not in accordance with law, since they arebound to remit service tax collected from customerswithin time prescribed under Act. Having not doneso, levy of interest being automatic, assessee cannotbe granted any indulgence on said aspect. Asregards levy of penalty, assessee had failed torespond to show cause notices. Since entire servicetax had been paid by assessee and interest in respectof one notice had also been paid, pre-deposit ofbalance interest was confirmed and pre-deposit ofpenalty was partially reduced.

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contd. from page 102 Service Tax - Recent Judgments


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CA. Hozefa [email protected]

‘valuation’ in some sections, does not specify thebasis on which such valuations shall be done orwho will do them. The 2013 Act has introducedthe concept of a ‘Registered Valuer’ under a separatechapter which intends to cover several kinds ofvaluation requirements. As per Chapter XVIISection 247 of the Act, where a valuation is requiredto be made in respect of any property, stocks, shares,debentures, securities or goodwill or any otherassets or net worth of a company or its liabilitiesunder the provision of this Act, it must be valuedby a “Registered Valuer”. The underlying principlebehind introducing this concept is to set and regulatethe practice which will bring transparency and bettergovernance through defined valuation standards invarious business processes demanding valuation.Chapter XVII Section 247 of the 2013 Act, readwith Rule 17 of Draft Rules lay down the eligibilitycriteria to work as registered valuer, purpose orientedapproaches and methods to be used by registeredvaluers and contents of the Valuation Report. Itdefines their roles and responsibilities. The draftrules are subject to change.

Provision of Companies Act, 2013

Chapter XVII

Registered Valuers

247. (1) Where a valuation is required to bemade in respect of any property, stocks,shares, debentures, securities orgoodwill or any other assets (hereinreferred to as the assets) or net worth ofa company or its liabilities under theprovision of this Act, it shall be valuedby a person having such qualificationsand experience and registered as avaluer in such manner, on such termsand conditions as may be prescribed and

Business Valuation

“Registered Valuers” : Portraying a newavenue for Chartered Accountants in practice

The current economic and regulatory environmentin India is on the verge of a major revamp. Constantefforts are being made to amend and adapt the lawsto suit the needs of contemporary age, to updateand make it globally compliant and more meaningfull in the context of investor protection andbusiness friendliness.

Background

Companies Act, 2013 (2013 Act) has been assentedby the President of India on 29 August 2013 andpublished in Official Gazette on 30 August 2013.2013 Act empowers the Central Government tobring into force various sections from such date(s)as may be notified in the Official Gazette. The newlaw will replace the more than 50year oldCompanies Act, 1956.

The new legislation concurs bringing easy andefficient way of carrying business in India. The 2013Act stipulates enhanced self-regulations coupledwith emphasis on corporate democracy andprovides for business friendly corporate regulation,enhanced accountability of management, e-governance initiatives, corporate governance,introduction of Corporate Social Responsibility(CSR), improved disclosure norms, auditaccountability, protection for minority shareholders,investor protection and activism and betterframework for insolvency regulation andinstitutional structure.

It is the first time that the concept of RegisteredValuers has been introduced. Though businessvaluations are required in various situations suchas court approved M&A, IPO, FDI, etc., theconcept of valuation as a code is new to India. TheCompanies Act, 1956, despite using the term


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appointed by the audit committee or inits absence by the Board of Directors ofthat company.

(2) The valuer appointed under sub-section(1) shall,—

(a) make an impartial, true and fairvaluation of any assets which may berequired to be valued;

(b) exercise due diligence while performingthe functions as valuer;

(c) make the valuation in accordance withsuch rules as may be prescribed; and

(d) not undertake valuation of any assets inwhich he has a direct or indirect interestor becomes so interested at any timeduring or after the valuation of assets.

(3) If a valuer contravenes the provisionsof this section or the rules madethereunder, the valuer shall bepunishable with fine which shall not beless than twenty-five thousand rupeesbut which may extend to one lakhrupees:

Provided that if the valuer hascontravened such provisions with theintention to defraud the company or itsmembers, he shall be punishable withimprisonment for a term which mayextend to one year and with fine whichshall not be less than one lakh rupeesbut which may extend to five lakh rupees.

(4) Where a valuer has been convicted undersub-section (3), he shall be liable to—

(i) refund the remuneration received byhim to the company; and

(ii) pay for damages to the company orto any other person for loss arisingout of incorrect or misleadingstatements of particulars made in his

The silent features of the Provisions

✒ Audit Committee or in absence of Audit

report.

Committee, the Board of Directors of thecompany will appoint a valuer

✒ The Valuer can not undertake or carry outvaluation job of any assets in which he has adirect or indirect interest.

✒ The Valuer shall exercise due diligence and shallmake an impartial, true and fair valuation inaccordance with prescribed rules.

✒ In case of contravention of any provision/s ofthe Act or the Rules by the Valuer, he will bepunishable with imprisonment and fine andsubject to be liable to refund the remunerationand also to pay for damages.

As per the provisions of Companies Act, 2013, allvaluations under the Act will be carried out by aRegistered Valuer. The below mentioned sectionsspecifies valuation requirement under the Act.

Sections Details

Section 62(1)(c) For Valuing further Issue ofShares

Section 192(2) For Valuing Assets involved inArrangement of Non Cashtransactions involving Directors

Section For Valuing Shares, Property and230(2)(c)(v) Assets of the company under a

Scheme of Corporate DebtRestructuring

Section 230(3) Under a Scheme of Compromise/Arrangement, along with thenotice of creditors/ shareholdersmeeting, a copy of ValuationReport, if any shall beaccompanied

Section The report of the expert with232(2)(d) regard to valuation, if any would

be circulated for meeting ofcreditors/members

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Section Where under a Scheme of232(3)(h) Compromise/Arrangement the

transferor company is a listedcompany and the transfereecompany is an unlisted company,for exit opportunity to theshareholders of transferorcompany, valuation may berequired to be made by theTribunal

Section 236(2) For Valuing Equity Shares heldby Minority Shareholders

Section For preparing Valuation report in

260(2)(c) respect of Shares and Assets toarrive at the Reserve Price forCompany Administrator

Section 281(1) For Valuing Assets for submissionof report by Liquidator

Section For report on the Assets of the

305(2)(d) company for preparation ofdeclaration of solvency undervoluntary winding up

Section For Valuing the interest of any

319 (3)(b) dissenting member of thetransferor company who did notvote in favour of the specialresolution, as may be required bythe Company Liquidator

Some of the stipulations under draft rules

The draft rules speaks about the definition ofregistered valuer, eligibility criteria to get registeredas valuer, provisions related with governance ofregistered valuers including the informationsubmission requirements, removal and restorationof name, appeal procedures etc., and theconsideration while conducting the valuationassignment including procedures, methods and

Registration as Valuers

The Draft Rules define “Registered Valuer” and

reporting contents.

state that a person to be eligible to act as a valuer,must register with the Central Government orinstitution or agency notified by the CentralGovernment by filing an application for registrationas a valuer.

The following persons shall be eligible to apply forbeing registered as a valuer:

a) A chartered accountant, company secretary orcost accountant who is in whole-time practice,or any person holding equivalent Indian orforeign qualification (acquired by Indiancitizen) as the Ministry of Corporate Affairsmay recognize by an order; (having at least 5years continuous experience after acquiringmembership of the respective institution)

b) A Merchant Banker registered with theSecurities and Exchange Board of India, andwho has in his employment person(s) havingqualifications prescribed under (a) above tocarry out valuation by such qualified persons;(having at least 5 years continuous experienceafter acquiring membership of therespectiveinstitution)

c) Member of the Institute of Engineers and whois in whole-time practice; (having at least 5years continuous experience after acquiringmembership of the respective institution)

d) Member of the Institute of Architects and whois in whole-time practice; (having at least 5years continuous experience after acquiringmembership of the respective institution)

e) A person or entity possessing necessarycompetence and qualification as may be notifiedby the Central Government from time to time.

- Persons referred to in (a) and (b) shall be inrespect of requirement for a “financialvaluation” and the persons referred to in (c)and (d) shall be in respect of requirement for a“technical valuation” and a person or a firm or

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Limited Liability Partnership or merchantbanker possessing both the qualifications mayact in dual capacity.

- Explanation: For the purposes of this rule, aperson shall be deemed “to be in whole-timepractice”, when individually or in partnershipor in limited liability partnership or in merchantbanker with other persons in practice who aremembers of other professional bodies, he, inconsideration of remuneration received or tobe received :

(i) engages himself in the practice of valuation; or

(ii) offers to perform or performs services involvingvaluation of any assets with the object ofarriving at financial value of the asset beingvalued; or renders professional services orassistance in or about matters of principle ordetail relating to valuation.

The Central Government or any authority,institution or agency, as may be notified by theCentral Government, shall maintain a registerto be called as the Register of Valuers in whichthere shall be registered the names, address andother details of the persons registered as valuersin pursuance of section 247.

In case valuer found guilty of professionalmisconduct or otherwise by the Institute inwhich he is a member or by National FinancialReporting Authority or where the SEBIremoved the registration of the merchantbanker, such valuer shall cease to be the valuerautomatically and their name shall be removedfrom the register of valuer unless such orderhas been stayed by the Competent Authority.Any ongoing assignment of such valuer, whohas ceased to be a valuer, shall be assigned toother valuer from the panel maintained byCentral Government or any authority orinstitution to complete the assignment, if no stay

Conducting Valuation Assignment

The Valuer shall conduct valuation in accordance

is granted on such appeal, if any.

with the provisions of rules.

The foremost things to start the valuation task areto finalize the purpose of valuation and the date ofvaluation. Based on these, the approach will befinalized and will further lead to select the methodsof valuation to be used to arrive at concluding valueestimation.

A registered valuer shall make a valuation of anyasset as on “valuation date”, in accordance withthe applicable standards, if any, as may be stipulatedfor this purpose. And for the purposes of this rule,‘valuation date’ means the date on which theestimate of value is applicable. It may be differentfrom the date of the valuation report or the date onwhich the investigations were undertaken orcompleted.

✒ Approaches To Value

Following are the approaches to conduct purposeoriented valuation as prescribed in draft Rules

1. Asset approach;

2. Income approach;

3. Market approach.

✒ Important Points To Consider

The following points need to be consideredwhile undertaking valuation:

a) Nature of the business and the history ofthe enterprise from its inception;

b) Economic outlook in general and outlookof the specific industry in particular;

c) Book value of the stock and the financialcondition of the business;

d) Earning capacity of the company;

e) Dividend –paying capacity of thecompany;

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f) Goodwill or other intangible value;

g) Sales of the stock and the size of the blockof stock to be valued;

h) Market prices of stock of corporationsengaged in the same or a similar line ofbusiness;

i) Contingent liabilities or substantial legalissues, within India or abroad, impactingthe business;

j) Nature of instrument proposed to be issued,and nature of transaction contemplated bythe parties.

✒ Valuation Methods

The Draft Rules cover most of the frequentlyused methods of valuation as well as permitvaluers to apply other methods as appropriateand justified.

The Rules provides that the valuation of anyasset as on valuation date shall be made inaccordance with any one or more of thefollowing methods:

1. Net asset value method

2. Market Price method

3. Yield method / Profit Earning CapacityValue (PECV)

4. Discounted Cash Flow Method (DCF)

5. Comparable Companies MultiplesMethodology (CCM)

6. Comparable Transaction MultiplesMethod (CTM)

7. Price of Recent Investment method (PORI)

8. Sum of the parts valuation (SOTP)

9. Liquidation value

10. Weighted Average Method

11. Any other method accepted or notified bythe Reserve Bank of India, Securities andExchange Board or Income TaxAuthorities.

12. Any other method(s) that the valuer maydeem fit to adopt in the given circumstancesof the case, provided that adequatejustification for use of such method(s) (andnot any of the methods above) must beincluded in the report.

✒ Valuation Report

As per draft rules the valuation report shall beas near to and shall contain such informationas mentioned in form No. 17.3.

The format of valuation report pursuant to section247 (2)(c) and rule 17.7 is available on the websiteof the Association at : www.caa-ahm.org\LegalDetails.php?legalid=163

❉ ❉ ❉

Business Valuation

A family is a place where minds come in contact with one another. If these minds love

one another the home will be as beautiful as a flower garden. But if these minds get out

of harmony with one another it is like a storm that plays havoc with the garden.

Gautama Buddha.


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CA. Naveen [email protected]

MCA Updates

1. Clarification regarding the applicabilitywith regard to relevant financial year:

MCA has clarified that the financial statements(and documents required to be attachedthereto), Auditor’s Report and Board’s Reportin respect of financial years that commenced

stearlier than 01 April, 2014 shall be governedby the relevant provisions/Schedules/Rules ofthe Companies Act, 1956 and that in respect

stof financial years commencing on or after 01April, 2014, the provisions of the new Act shallapply.

th[F. No. 1/19/2013-CL.V dt. 04 April, 2014]

2. Table of Fees (pursuant to rule 12 of theCompanies (Registration of Offices and Fees)Rules, 2014: The table of fees is available onthe website of the Association at www.caa-ahm.org\LegalDetails.php? legalid=164

3. Notification of corresponding new forms:The notification of new forms is available onthe website of the Association at www.caa-ahm.org\LegalDetails.php? legalid=165

SEBI Updates

Corporate Governance in listed entities -Amendments to Clauses 35B and 49 of theEquity Listing Agreement:The SEBI has amended the provisions relating tocorporate governance in the Listing Agreement. Theamendments are aimed at aligning provision ofClause 49 with the provisions of the newly enactedCompanies Act, 2013 and to strengthen thecorporate governance framework of listedcompanies in India.They, inter alia, include, the exclusion of ‘NomineeDirector’ from the definition of ‘Independent Director’;establishment of a Compulsory Whistle blowermechanism; prohibition of stock options toIndependent Directors; Prior Approval of Audit

Corporate Law Update

Committee for all material Related Party Transactions;and inclusion of at least one Woman Director on theBoard of prescribed class of companies.The maximum number of Boards an IndependentDirector and a whole time Director can serve onlisted companies is restricted to seven and threerespectively, with a further restriction that the totaltenure of an Independent Director is limited to 2terms of 5 years each.The revised Clause 49 would be applicable to all

stlisted companies w. e. f. 01 October, 2014.However, the provisions of Clause 49(VI)(C) asgiven in Part-B shall be applicable to top 100 listedcompanies by market capitalization as at the end ofthe immediate previous financial year.The provisions of Clause 49(VII) as given in Part-B shall be applicable to all prospective transactions.All existing material related party contracts orarrangements as on the date of this circular whichare likely to continue beyond March 31, 2015 shallbe placed for approval of the shareholders in thefirst General Meeting subsequent to October 01,2014. However, a company may choose to get suchcontracts approved by the shareholders even before

st01 October, 2014.For other listed entities which are not companies,but body corporate or are subject to regulations underother statutes (e.g. banks, financial institutions,insurance companies etc.), the Clause 49 will applyto the extent that it does not violate their respectivestatutes and guidelines or directives issued by therelevant regulatory authorities. The Clause 49 is notapplicable to Mutual Funds.The revised Clause 35B would be applicable to alllisted companies and the modalities would begoverned by the provisions of Companies(Management and Administration) Rules, 2014.Circular No. CIR/CFD/DIL/6/2012 dated July 13,2012 stands amended to that extent.

th[Cir/CFD/Policy Cell/2/2014 dt. 17 April, 2014]❉ ❉ ❉


114

AS – 20 Earnings Per Share

Notes to the Financial Statements for the yearended 31st March, 2013

Infinite Computer Solutions (India) Limited

Basic earnings per share are calculated by dividingthe net profit or loss for the quarter attributable toequity shareholders by the weighted averagenumber of equity shares outstanding during thequarter.

For calculating diluted earnings per share, the netprofit or loss for the quarter attributable to equityshareholders and the weighted average number ofshares outstanding during the quarter are adjustedfor the effects of all dilutive potential equity shares.

Godawari Power & Ispat Limited

Basic earnings per share are calculated by dividingthe net profit or loss for the period attributable toequity shareholders by weighted average numberof equity shares outstanding during the period. Theweighted average number of equity sharesoutstanding during the period are adjusted for eventsof bonus issue; bonus element in a right issue toexisting shareholders.

For the purpose of calculating diluted earnings pershare, the net profit or loss for the year attributableto equity shareholders and the weighted averagenumber of shares outstanding during the year areadjusted for the effects of all dilutive potential equityshares.

Allsec Technologies Limited

The earnings considered in ascertaining theCompany’s earnings per share comprise the net

profit or loss after tax attributable to equity shareholders. The number of shares used in computingbasic earnings per share is the weighted averagenumber of shares outstanding during the year.

The number of shares used in computing dilutedearnings per share comprises the weighted averagenumber of shares considered for deriving basicearnings per share and also the weighted averagenumber of shares, if any, which would have beenissued on the conversion of all dilutive potentialequity shares.

Kolte - Patil developers Limited

The Company reports basic and diluted earningsper share in accordance with Accounting Standard– 20 ‘Earnings Per Share’ issued by the Institute ofChartered Accountants of India on basic earningsper share is computed by dividing the net profit orloss for the period by the weighted average numberof Equity shares outstanding during the period.Diluted earnings per share is computed by dividingthe net profit or loss for the period by the weightedaverage number of equity shares outstanding duringthe period as adjusted for the effects of all dilutedpotential equity shares except where the results areanti-dilutive.

Reliance Communications Limited

In determining Earning per Share, the Companyconsiders the net profit after tax and includes thepost tax effect of any extraordinary/ exceptionalitem. The number of shares used in computing BasicEarning per Share is the weighted average numberof shares outstanding during the period. Thenumber of shares used in computing Diluted

CA. Pamil H. [email protected]

Earning per Share comprises the weighted average

From Published Accounts


115

shares considered for deriving Basic Earnings perShare and also the weighted average number ofshares that could have been issued on theconversion of all dilutive potential equity sharesunless the results would be anti - dilutive. Dilutivepotential equity shares are deemed converted as ofthe beginning of the period, unless issued at a laterdate.

K. P. R. Mill Limited

Basic earnings per share is computed by dividingthe profit / (loss) for the year by the weightedaverage number of equity shares outstanding duringthe year. Diluted earnings per share is computedby dividing the profit / (loss) for the year as adjustedfor dividend, interest and other charges to expenseor income (net of any attributable taxes) relating tothe dilutive potential equity shares, by the weightedaverage number of equity shares considered forderiving basic earnings per share and the weightedaverage number of equity shares which could havebeen issued on the conversion of all dilutivepotential equity shares. Potential equity shares aredeemed to be dilutive only if their conversion toequity shares would decrease the net profit per sharefrom continuing ordinary operations. Potentialdilutive equity shares are deemed to be convertedas at the beginning of the period, unless they havebeen issued at a later date. The dilutive potentialequity shares are adjusted for the proceedsreceivable had the shares been actually issued atfair value (i.e. average market value of theoutstanding shares). Dilutive potential equity sharesare determined independently for each periodpresented. The number of equity shares and

potentially dilutive equity shares are adjusted forshare splits / reverse share splits and bonus shares,as appropriate.

R. P. P. Infra Projects Limited

The Company reports basic and diluted earningsper share in accordance with Accounting Standard(AS20). Earnings per Share notified by theCompanies (Accounting Standards) Rules, 2006.Basic earnings per equity shares are computed bydividing the net profit for the year attributable tothe Equity Shareholders by the weighted averagenumber of equity shares outstanding during the year.Diluted earnings per share is computed by dividingthe net profit for the year adjusting for the effectsof dilutive potential equity shares attributable to theEquity Shareholders by the weighted averagenumber of the equity shares and dilutive potentialequity shares outstanding during the year exceptwhere the results are anti dilutive.

Oberoi Realty Limited

Basic earnings per share is calculated by dividingthe net profit / (loss) for the year attributable toequity shareholders (after deducting preferencedividends and attributable taxes) by weightedaverage number of equity shares outstanding duringthe year.

For the purpose of calculating diluted earnings pershare, the net profit / (loss) for the year attributableto equity shareholders and the weighted averagenumbers of shares outstanding during the year areadjusted for the effects of all dilutive potential equityshares.

❉ ❉ ❉

From Published Accounts

Wisdom is something that has to be discovered by each

one, and it is not the result of knowledge.

J.Krishnamurti


116

From the Government

CA. Kunal A. [email protected]

Income Tax

Important CBDT Circular On Depreciation/Amortisation Of Intangible Assets

The CBDT has issued Circular No. 09/2014 dated23.04.2014 in which it has dealt with the importantissue of treatment of expenditure incurred fordevelopment of roads & highways in Build-Own-Transfer (BOT) agreements.

The CBDT has expressed the view that as theassessee does not hold any rights in the projectexcept recovery of toll fee to recoup the expenditureincurred, the assessee cannot be treated as the“owner” of the property and cannot be alloweddepreciation u/s 32(1) (ii) of the Act.

However, the CBDT has also held, following thelaw laid down in Madras Industrial InvestmentCorp 225 ITR 802 (SC), that the entire cost ofconstruction and development of the infrastructurefacility has to be amortized evenly over the periodof the concessionaire agreement and allowed asbusiness expenditure u/s 37(1) of the Act.

The CBDT’s view with regard to the assessee notbeing the “owner” runs counter to the law laid downin Noida Toll Bridge 213 Taxman 333 and severalother judgements. In Swarna Tollway, the ITAThas conducted a thorough analysis of the entire lawon the subject and concluded that the assessee hasto be treated as the “owner” even though it haslimited rights on the structure. The Tribunal reliedon several judgements of the Supreme Courtincluding Mysore Minerals 239 ITR 775 (SC)where the concept of “owner” has been consideredin great detail.

Unfortunately, the CBDT has not applied its mindthese aspects and come to a conclusion in asummary manner.

It is well settled that a Circular which is contrary tothe law has no binding effect. However, theCBDT’s directive that the expenditure should beamortized and allowed as business expenditure iswelcome.

Service Tax

G.S.R. 107 (E).– In exercise of the powersconferred by sub-section (1) of section 93 of theFinance Act, 1994 (32 of 1994), the CentralGovernment, on being satisfied that it is necessaryin the public interest so to do, hereby makes thefollowing further amendments in the notificationof the Government of India in the Ministry ofFinance (Department of Revenue) No. 6/2013-

thService Tax, dated the 18 April, 2013 publishedin the Gazette of India, Extraordinary Part-II,Section 3, sub-section(i), vide number G.S.R. 254

th(E), dated 18 April, 2013, namely:-

In the said notification, in paragraph 3, in condition(a), in the second proviso, serial number (xix) andthe entries relating thereto shall be deleted.

Note: The principal notification number 6/2013-thService Tax, dated the 18 April, 2013 was

published in the Gazette of India, Extraordinary,Part II, Section 3, Sub-section (i), vide number

thG.S.R. 254(E), dated the 18 April, 2013 and waslast amended by notification no. 17/2013 –Service

thTax, dated the 26 December, 2013 vide numberthG.S.R. 792 (E), dated the 26 December, 2013.

(Notification No. 05/2014-Service Tax, Datedth24 February, 2014.)

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Association News

CA. Abhishek J. JainHon. Secretary

At the 63rd Annual General Meeting1 At the 63rd Annual General Meeting of the members of the Association held on Saturday, 3rd May

2014 at ICAI Bhawan, 123, Sardar Patel Colony, Naranpura, Ahmedabad, following Office Bearersand Executive Committee Members have been declared elected for the year 2014-15.

Office Bearers

1 CA. Shailesh C. Shah President2 CA. Yamal A. Vyas Vice - President3 CA. Abhishek J. Jain Hon. Secretary4 CA. Nirav R. Choksi Hon. Secretary

Executive Committee Members

1 CA. Atul R. Shah 2 CA. Umesh S. Shah 3 CA. Ashok P. Patel4 CA. Surya O. Chhabaria 5 CA. Parag R. Rawal 6 CA. Karan D. Shah7 CA. Umesh M. Jintanwala 8 CA. Parimal S. Shah 9 CA. Pathik B. Shah

Imm. Past President CA. Prakash B. Sheth

List of Sub Committees

Sr. Name of Sub Chairman Convener Members No. Committee

1 Journal CA. Ashok C. Kataria CA. Pitamber S. Jagyasi CA. Gaurang M. ChoksiCA. Jayesh C. SharedalalCA. Mukesh M. KhandwalaCA. Naveen R. MandovraCA. Rajni M. ShahCA. Tahil J. Advani

2 Residential CA. Chintan M. Doshi CA. Maulik S. Desai CA. Ajit C. ShahRefresher Course CA. Atul R. Shah

CA. Bharat M. VashiCA. Himanjal A. BrahmbhattCA. Mehul S. ShahCA. Monish S. Shah

3 Brain Trust cum CA. Kunal A. Shah CA. Ronak M. CA. Deepak R. ShahWorkshop Khandwala CA. Parag R. Raval

CA. Rutvij P. ShahCA. Satyapal K. SadhwaniCA. Yogi K. Upadhyay

4 Study Circle CA. Mehul S. Shah CA. Naisal H. Shah CA. Chintan M. DoshiCA. Sanjay R. ShahCA. Uday I. ShahCA. Umesh M. Jintanwala

CA. Nirav R. ChoksiHon. Secretary


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5 Legal and CA. Yamal A. Vyas CA. Nesal H. Shah CA. Durgesh V. BuchRepresentation - CA. Jainik N. VakilState Government CA. Karan D. Shah

CA. Kaushik C. Patel

6 Legal and CA. Rajni M. Shah CA. Ashok C. Kataria CA. Deepak R. ShahRepresentation - CA. Jayesh C. SharedalalDirect Tax CA. Jignesh J. Shah

CA. Parimal S. ShahCA. Parth J. ContractorCA. Sandeep A. Parikh

7 Legal and CA. Ashwin H. Shah CA. Bishan R. Shah CA. Bihari B. ShahRepresentation - CA. Nilesh V. SuchakService Tax CA. Punit R. Prajapati

CA. Umesh S. ShahCA. Yogi K. Upadhyay

8 Information & CA. Anuj J. Sharedalal CA. Vijay M. Valia CA. Anuj J. ShahTechnology CA. Ashok C. Kataria

CA. Chintan M. DoshiCA. Diti B. VashiCA. Jainee R. ShahCA. Karan D. ShahCA. Niren M. NagriCA. Pathik B. ShahCA. Ronak M. Khandwala

9 Publication CA. Mukesh M. CA. Atul R. Shah CA. Ashok C. Kataria Khandwala CA. Ashwin H. Shah

CA. Darshan A. ShahCA. Gaurang M. ChoksiCA. Jignesh J. ShahCA. Nirav R. ChoksiCA. Rajni M. Shah

10 Cultural & CA. Nirav R. Choksi CA. Parag C. Soni CA. Ajit C. ShahEntertainment CA. Ashwin H. Shah

CA. Devang A. DoctorCA. Durgesh V. Buch

11 Membership CA. Rinkesh K. Shah CA. Fenil R. Shah CA. Hersh R. RathiDevelopment & CA. Jayesh R. VaghelaLibrary CA. Kaushik D. Shah

CA. Rajni M. ShahCA. Yamal A. Vyas

12 Professional CA. Priyam R. Shah CA. Jitesh R. Patel CA. Ashok P. PatelDevelopment CA. Ashwin H. ShahCommittee CA. Jinand V. Shah

CA. Maulik S. Shah

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13 Sports Committee CA. Uday I. Shah CA. Chintan M. Doshi CA. Ajit C. ShahCA. Atul R. ShahCA. Jitesh R. PatelCA. Maulik S. DesaiCA. Prakash B. ShethCA. Surya O. ChhabriaCA. Yogi K. Upadhyay

14 Forum of CA. Sunil H. Talati CA. Ashwin H. Shah CA. Ajit C. ShahPast Presidents CA. Deepak R. Shah

CA. Jayesh R. MorCA. Kirit P. ShahCA. Mukesh M. Khandwala

The following prizes and Medals were distributed:

Best Article in Ahmedabad Chartered Accountants Journal

Sr. Name of the Trophy Name of the Recipient Name of the Article published in No. the Journal

1 Shri Gatorbhai Patel Shiva Pharma CA. Kirit P. Shah “Reassessment u/s 147 ofFoudation Trophy for Best Article on I.T.Act,1961 -Some Issues”Direct Taxes 2013-14

2 Shri U. R. Shah Memorial CA. Nesal H.Shah “Corporate Debt Restructuring”Funds Trophy for Best Article onAllied Law 2013-14

3 Champaben Chandulal Shah CA. Punit R.Prajapati "Reverse Charge Mechanism underMemorial Trophy for Best Article Service Tax and Emerging Issues”on Direct Taxes 2013-14

Best Study Circle Meeting Leader

Sr. Name of the Trophy Name of the Recipient Name of the Study Circle Meeting No.

1 Shri Dwarkadas B. Shah CA. Rutvij P. Shah “Overview and Issues onMemorial Trophy for the Best Lead Wealth Tax”Study Circle Meeting 2013-14

List of Students who have been awarded Medals/Prizes for the Year 2013

Sr. Medal Name Highest Mark PCC / Final Name of thein C.A. Examination Recipent Student

1 Avinash J. Budhdev Final Year Final/May 2013 Ashutosh AgarwalMemorial CA Student Topper (Gujarat) Roll No. 102205Award (Cash Prize of Final/Nov 2013 Sanya Naresh SitlaniRs.11000/- each) Roll No. 122544

2 Kantilal V. Patel Best Student of the Final/May-Nov. 2013 Ashutosh AgarwalMemorial Medal year 2013 (A'bad) ROLL NO. 102205

3 H. V. Vasa Best Student Final/May 2013 Ashutosh AgarwalMemorial Medal (Ahmedabad) Roll No. 102205

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Final/Nov 2013 Atul AgarwalRoll No. 102018

4 A. M. Thaker Best Lady Student Final/May 2013 Himali Chetan ShahMemorial Medal (Ahmedabad) Roll No. 100822

Final/Nov 2013 Priyanka Dhanpatraj MehtaRoll No. 100981

5 Chandulal M. Shah Paper 1 Final/May 2013 Priya MaheshwariMemorial Medal Financial Reporting Roll No. 100667

Final/Nov 2013 Arpitkumar Dipak ShahRoll No. 100571

6 VNS & BNS Social Paper 2 Final/May 2013 Nikunj MurlimanoharWelfare Medal Strategic Financial Roll No. 100674 Devpura

Management Final/Nov 2013 Atul AgarwalRoll No. 102018

7 Dhirubhai B. Shah Paper 3 Final/May 2013 Kunal Kiritkumar ShahMemorial Medal Advanced Auditing Roll No. 102696

and Professional Final/Nov 2013 Alpesh VallabhbhaiEthics Roll No. 102052 Shekhadiya

8 Mansukhbhai J. Shah Paper 4 Final/May 2013 Grandhi Krishna TejaMedal Corporate and Allied Roll No. 102262

Laws Final/Nov 2013 Mahavirbhai VanrajbhaiRoll No. 100221 Gohil

9 Madhuben Prafulbhai Paper 5 Final/May 2013 Harshita Raichand PinchaTrivedi Memorial Advance Roll No. 100497Medal Management Final/Nov 2013 Saurabh Kamleshbhai Shah

Accounting Roll No. 100246

10 VNS & BNS Social Paper 6 Final/May 2013 Ashutosh AgarwalWelfare Medal Information Systems Roll No. 102205

Control & Audit Final/Nov 2013 Kavya Sanjaykumar PatelRoll No. 100566

11 A. M. Gnag Paper 7 Final/May 2013 Ashutosh AgarwalMemorial Medal Direct Taxes laws Roll No. 102205

Final/Nov 2013 Siddharth AshokkumarRoll No. 101993 Dhagia

12 C. F. Patel Paper 7 Final/May 2013 Ashutosh AgarwalMemorial Medal Direct Taxes laws Roll No. 102205

Final/Nov 2013 Siddharth AshokkumarRoll No. 101993 Dhagia

13 Jagrutiben K. Shah Paper 8 FINAL / May 2013 Vaibhav Navneet VithalaniMemorial Medal Indirect Taxes Laws Roll No. 102183

FINAL /Nov 2013 Siddharth AshokkumarRoll No. 101993 Dhagia

14 Shri K. T. Thakore Best Student of IPCE / May 2013 Himanshu NemchandMemorial Medal the year 2013 Agrawal

(Gujarat)

Association News


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15 B. S. Soni Best Student IPCE / May 2013 Jinit Pragnesh DhariaMemorial Medal (Ahmedabad) Roll No.201738

IPCE / Nov 2013 Jyoti MukeshbhaiRoll No. 201875 Maheshwari

16 Hasmukhbhai J. Patel Paper -1 IPCE / May 2013 Shruti AgarwalMemorial Medal Accounting Roll No. 201075


17 Shri V. R. Shah Paper -2 IPCE / May 2013 Nikhil Dineshbhai GuptaMemorial Medal Best Student for the Roll No. 205402

year 13 in A'bad forBusiness Law Ethicsand Communication

18 Lalita Khanchand Paper 3 IPCE / May 2013 Chiranjiv Vijay MelwaniTekwani Memorial Cost Accounting & Roll No. 202872Medal Financial IPCE / Nov 2013 Jyoti Mukeshbhai

Management Roll No. 201875 Maheshwari

19 VNS & BNS Social Paper - 4 IPCE / May 2013 Prashant RameshchandraWelfare Medal Taxation Roll No. 202020 Vohera


20 Rameshchandra S. Shah Paper -5 IPCE / May 2013 Shriya Nitin ShahMemorial Medal Advance Accounting Roll No. 205365

IPCE / Nov 2013 BhavikkumarRoll No. 200841 Laxmichandbhai Patel

21 Akshay Trivedi Paper 6 IPCE / May 2013 Ujashi Sanjay ShahMemorial Medal Auditing & Roll No.204931

Assurance IPCE / Nov 2013 Anamika Jitendra JainRoll No. 200963

22 Mansukhbhai S. Shah Paper 7 IPCE / May 2013 Dipen RajendrakumarMemorial Medal Information Tech- Roll No. 205045 Acharya

nology & Strategic IPCE / Nov 2013 Sachin V. JainManagement Roll No. 204183

3 M/s. C. H. Pamnani & Co., Chartered Accountants, are appointed as Auditors of the Associationfor the financial year 2014-15.

4 thAt the 26 Annual General Meeting of the members of the Mutual Benefit Scheme held on Saturday,3rd May 2014 at ICAI Bhawan, 123, Sardar Patel Colony, Naranpura, Ahmedabad. M/s. C. H. Pamnani& Co., Chartered Accountants, are appointed as Auditors of the Mutual Benefit Scheme for thefinancial year 2014-15.

stAt the 1 Executive Committee Meeting

1 At the 1st Executive Committee Meeting held on 3rd May 2014, three senior members of the Associationnamely (a) CA. Ajit C. Shah, (b) CA. Ashwin H. Shah (c) CA. Mukesh M. Khandwala have been coopted as the members of the Executive Committee for the year 2014-15.

Association News


122

2 Forthcoming Programmes

Date/Day Time Programmes Speaker Venue

5th,7th, 9th, 4.00 pm to Intensive Study Course on - At the office of the12th, 16th, 7.00 pm Companies Act, 2013 Association, 1st Floor, 17th, 19th, (on weekdays) C. U. Shah Chambers,21st, 23rd 10.00 am to Ashram Road,and 24th 1.00 pm Ahmedabad.May, 2014 (on Saturday,

i.e. 17th and24th May)

29.05.2014 05.00 pm to st1 Study Circle on Meeting CA. Niren M. Nagari At the office of the07.00 pm on New Company Law - Association, 1st Floor,

Role of Auditors C. U. Shah Chambers,Ashram Road, Ahmedabad.

30.05.2014 04.00 pm to Knowledge Clinic At the office of the5.00 pm Association, 1st Floor,

C. U. Shah Chambers,Ashram Road, Ahmedabad.

31.05.2014 09.00 am to 1st Programme of CA. Snehal Shah, Shantinath Hall,12.30 pm Professional Development Mumbai ICAI Bhawan,

Committee on 123, Sardar Patel Colony,“How to handle Survey, Ushmanpura, Ahmedabad.

Search & Seizure” Jointlywith Ahmedabad Branch of

WIRC of ICAI

13.06.2014 08.00 pm to Hassayro Artist : Tagore Hall, Paldi,12.00 pm Sahhabuddin Rathod, Ahmedabad.

Jitubhai Dwarkawala

21.06.2014 st 09.00 am to 1 Brain Trust cum Worshop CA. Rajiv Luthia, ATMA Hall,01.00 pm on “Issues in Service Tax - Mumbai Opp. Old RBI

A Mixed Bag” Ashram Road,Ahmedabad.

02.08.2014 st41 Residential Refresher Various Speakers Jaypee Palace Hotelto Course & Convention Centre,06.08.2014 AGRA.

❉ ❉ ❉

Association News


Across1. Program of CAA to resolve queries of

members.2. ______________ is not available on inputs not

used in production.3. Asset used for part of the year to be depreciated

on _________ basis.4. Sales turnover estimated on the basis of

__________ income is not correct.

Down5. In absence of recording of ___________ over

why order of assessment require to be examineddo not satisfy the requirement of issue of showcause notice u/s 263.

6. Fifty years of ______________.7. _____________ Surveys are common in

Election time.8. _____ refused to be accepted by the addressee

can be presumed to have been served on him.

Notes:1. The Crossword puzzle is based on previous issue of ACA Journal.2. Three lucky winners on the basis of a draw will be awarded prizes.3. The contest is open only for the members of Chartered Accountants Association.4. Members may submit their reply either physically at the office of the Association or by email at

[email protected] on or before 28/05/2014.

ACAJ Crossword Contest # 1

5. The decision of Journal Committee shall be final and binding.

124Ahmedabad Chartered Accountants Journal May, 2014

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