The Chartered Accountant Oct 11

SET UP BY AN ACT OF PARLIAMENTTHE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA

VOLUME 60 NO. 4 OCTOBER 2011 R100

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THE CHARTERED

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Happy

DiwaliAn Auditor is often described as a watchdog. In the

present day of our quick economic development, both in the public as well as the private sectors, you have to play an important role. The flow of investment in corporate enterprises, where increasingly ownership is getting divorced from management, could hardly be maintained without confidence in the integrity of management on the part of the ultimate owners of a company. The watchfulness of the accountancy profession, more than any other safeguard, helps to create and sustain this confidence.

Shri Lal Bahadur Shastri (At Annual Meeting of the Council of the ICAI on 13th September, 1958)

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EDITORIAL

THE CHARTERED ACCOUNTANT october 2011 3

Concept of ‘Independence’ in ‘Independent Auditor’corporate entity is not merely a legal personification but a quintessence of ‘Trust’. Various stakeholders rely and place their investments on this trustee

with the premise that their investments will be procreated by expending it on purposes for which funds were sought. Given the separation of ownership and management in a corporate model, it is not possible for all to take part in the day-to-day affairs of the company which are left to the Board of Directors and key managerial personnel. Stakeholders largely rely on the published information emanating in the form of quarterly reports, annual report, auditor’s report and so forth. The results that the company publish annually every year reflect the credence of trust to all those who partake in their investment process. In this process, the auditor’s role is of paramount importance as he certifies on ‘true and fair’ view on the state of affairs of the company.

Given the toughness of situations in which businesses operate and cyclical situations which it has to undergo, a corporate growth is a bumpy affair. The global financial crisis, fall down of financial institutions in the recent past and the current sovereign debt crisis in select economies has brought forth cynicism and scepticism in the minds of investors. As a result trust on corporate integrity is at low ebb and efforts are on to rebuild it. Regulators and investors being baffled are still battling against the corporate misdemeanours and its prevention. The laws are fraught with different complexities in fixing the role and responsibility of those at the helm of affairs. How should be the person at the helm of a corporate body function? The world at large expects the directors and the auditors to be ‘independent.’ What constitutes being independent? There can be many views and reviews. Becoming and being independent is an individual frame of mind set and with each personality it differs. Codes on Corporate Governance have attempted to define how a director can be independent but a mere prescription is not a panacea. In the Indian context, there is a definition of an independent director in clause 49 to the listing agreement and also proposed in the Companies Bill, 2009. The society at large and the law also expects an auditor to be the repositories of trust, transparency, and, therefore, auditor should also be independent. Unlike the definition of independent director, the term ‘independent auditor’ is commonly used but has not been significantly defined. This brings us to explore the concept of ‘independence’ in ‘independent auditor’. An auditor should not only be seen as independent but also be seemingly independent.

The legal framework, in which auditors operate, however, is not sufficiently designed in certain respects to provide the objectivity which shareholders and the public expects of an auditor in carrying out his functions. A further drawback is the lack of knowledge and understanding

amongst the shareholders and public of the nature and extent of auditor’s role. What auditors do achieve and what is thought to be achieved leads to an “expectation gap”, which is widening and is of great concern because it reflects the realistic expectations by various stakeholders on audits being done in an independent manner. The auditors’ role is to report whether the financial statements give a ‘true and fair view’ (not full and fair view) on the affairs of the company. His role is neither to prepare the financial statements, nor to provide absolute assurance that figures in the financial statements is correct, nor to provide a guarantee that the company will be a going concern. The going concern concept and problems are to be handled and addressed by the management rather than by auditors. Therefore, a fine-tuning and balance has to be brought forth by the auditors in their statement on the conditions on which business is now continuing and not to mention that business may be susceptible to be closed down at any time. Another issue, in the growing expectation gap on the role of auditors, is that whether the prime responsibility for the prevention and detection of fraud is of the auditors or the fiduciary responsibility of the Board. The solution to the problem lies in the support systems that the company has created by way of internal controls, constitution of independent audit committee, etc. To place a duty on the auditors to deduce fraud(s) is fraught with difficulties because he will never be in a position to state whether fraud has taken place or not. Whenever a fraud is perceived to have taken place and no material evidence is available, it may not be realistic for the auditors to bring the same to the attention of the shareholders or at best he can bring out qualifications in his report.

It is often believed that an auditors report to the shareholders but work for the management. This myth lays the stress and strain for the independence, excellence and integrity of the auditors. Auditors, in order to preserve their unblemished reputation for independence, should not have any commercial or conflict of interest in the company in which he is the auditor. The role of Audit Committee is an important area to safeguard auditors’ independence and objectivity. An auditor should be seen from the point of view that his ‘excellence’ in context of complying with the requirements of accounting and auditing standards, ‘independent’ in submission of report to the management without fear or favour and ‘integrity’ that he is true and fair to those who are concerned with him including the profession to which he is the torch-bearer. In all matters of ‘Trust’, you always find ‘us’. This is the glory of the ICAI and its members.

-Editorial BoardICAI-Partner in Nation Building

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CONTENTS

THE CHARTERED ACCOUNTANT OCTOBER 20116

ICAI NEWS632 Invitation to Contribute Articles for E-Newsletter - ‘Prudence’632 Announcement from Peer Review Board632 Statutory Audit of Public Sector and Private/Foreign Banks

simultaneously633 ICAI-ROC: A MCA-21 Compliance Software633 www.icai.org.in: An Exclusive Website 634 ICAI-Tax Suite: A Tax Compliance Software 635 CABF Group Term Insurance Scheme for CAs & spouse636 Empanelment of Resource Persons636 Announcement regarding IPCC [Paper 7 - Section B] and PCE

[Paper 6 - Section B] - Strategic Management

EVENTS637 Training Programme on “An Insight on the Concepts Applicable to

Autonomous Bodies”, Ahmedabad637 Workshop on Capacity Building Measures of Practitioners & CA

Firms, Surat638 Training Programme on “An Insight on the Concepts Applicable to

Autonomous Bodies”, Bangalore638 Workshop on Capacity Building Measures of Practitioners & CA

Firms, Bharuch639 NATIONAL RRC on CA Profession towards excellence through

Capacity Building, Salasar Balaji, Churu (Rajasthan)640 “Auto Connect”- CMII National Conference on Auto Industry, Pune640 Workshop on Capacity Building Measures of Practitioners & CA

Firms, Bharatpur641 Residential Refresher Course on Tax Reforms and SMP’s: Issues,

Suggestions & Solutions, Mount Abu641 Residential Refresher Course on Capacity Building Measures of

Practitioners & CA Firms, Nathdawara (Rajsamand), Rajasthan642 Workshop on Capacity Building Measures of Practitioners & CA

Firms, Allahabad643 Residential Refresher Course, Balotra (Rajasthan)644 National Conference on Excellence in Profession through Capacity

Building, Udaipur644 Workshop on Capacity Building Measures of Practitioners & CA

Firms, Agra645 Study Tour on International Taxation to Vienna, Austria646 Workshop on Capacity Building Measures for Practitioners & CA

Firms, Nagpur

EDITOR CA. G. RAMASWAMY,President

JOINT EDITOR CA. JAYDEEP N. SHAH,Vice-President

MEMBERS CA. ATUL C. BHEDA CA. K. RAGHU CA. M. DEVARAJA REDDY CA. MADHUKAR N. HIREGANGE CA. MANOJ FADNIS CA. NAVEEN N.D. GUPTA CA. NILESH S. VIKAMSEY CA. P. RAJENDRA KUMAR CA. RAJKUMAR S. ADUKIA CA. RAVINDRA HOLANI CA. SUBODH K. AGRAWAL CA. SUMANTRA GUHA CA. V. MURALI CA. ANIL S. DANI CA. R. GIRI CA. S. SUNDARRAMANSECRETARY CA. NITIN JAINICAI EDITORIAL TEAM NADEEM AHMED SUSANTA K. SAHU DR. N. K. RANJAN NIMISHA SINGH

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA ICAI Bhawan, Post Box No.7100, Indraprastha Marg, New Delhi-110002, Tel: +91 (11) 39893989. E-mail: [email protected], Website: www.icai.org

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CLASSIFIEDS:Minimum R1,000/- for the first 25 words or part thereof and R250/-for five words or part thereof over and above first twenty five words. Please contact: The Journal Section at ICAI Bhawan, A-29, Sector-62, Noida or call at +91(120) 3045955 or e-mail at [email protected]

EDITORIAL SUPPORT, DESIGN, ADVERTISEMENT & MARKETINGSPENTA MULTIMEDIA Aaron Rodrigues, Subramanian Shankar, Nilesh Juvalekar & Ganesh Waradkar.MUMBAI: Spenta Multimedia, Peninsula Spenta, Mathuradas Mill Compound, N. M. Joshi Marg, Lower Parel. Mumbai-400013. Tel: +91 (22) 24811022/24811025, Telefax: -91(22) 24811021.DELHI: No.7, 1st Floor, Nizamuddin (West) Market. New Delhi-110013. Tel: +91 (11) 4669 9999.BENGALURU: Old No. 583, New No. 9, Sri Manjunatha Krupa, 80 Feet Road, 3rd Cross, Opp. Koramangala Police Station, Bengaluru-560095. Tel: +91(80) 4161 8966/77.KOLKATA: 206-Jodhpur Park, Kolkata - 700068. Tel: +91(33) 2473 5896. Telefax: +91(33) 2413 7973.CHENNAI: AKS Pooja Complex, 2nd Floor, Old No: 203 New No: 154, R. K. Mutt Road, Mandevelli (Next to Jagan Mohan Clinic), Chennai-600028.HYDERABAD: H.No: 8-2-684/3/R/1&2, Flat No: 304, Alankrith Apts, Gulmohar Avenue, Rd No: 12, Banjara Hills, Hyderabad. Tel.: +91 9676666691.ICAI RESERVES THE RIGHT TO REJECT ADVERTISEMENTSPrinted and published by Vijay Kapur on behalf of The Instituteof Chartered Accountants of India (ICAI)

Editor – CA. G. RamaswamyPublished at ICAI Bhawan, P. O. Box No. 7100, Indraprastha Marg, New Delhi - 110 002 and printed at Spenta Multimedia. Peninsula Spenta, Mathuradas Mill Compound. N. M. Joshi Marg, Lower Parel, Mumbai - 400013The views and opinions expressed or implied in THE CHARTERED ACCOUNTANT are those of the authors and do not necessarily reflect those of ICAI. Unsolicited articles and transparencies are sent in at the owner’s risk and the publisher accepts no liability for loss or damage. Material in this publication may not be reproduced, whether in part or in whole, without the consent of ICAI.DISCLAIMER: The ICAI is not in any way responsible for the result of any action taken on the basis of the advertisement published in the Journal. The members, however, may bear in mind the provision of the Code of Ethics while responding to the advertisements.TOTAL CIRCULATION: 2,13,198Total No. of Pages: 148 including CoversCover image, Inside images and Graphics: www.dreamstime.com

EDITORIAL BOARD VOICE511 Editorial516 From The President

MEMBERS522 Readers Write524 Photographs528 Know Your Ethics530 Classi eds561 Opinion

Segment Reporting623 Career Watch628 UDIN648 Inspiration

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Legal Update532 Legal Decisions554 Circular and Noti cations

617 National Update619 International Update621 Economic Update622 Accountant’s Browser

UPDATES



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Happy

DiwaliAn Auditor is often described as a watchdog. In the

present day of our quick economic development, both in the public as well as the private sectors, you have to play an important role. The flow of investment in corporate enterprises, where increasingly ownership is getting divorced from management, could hardly be maintained without confidence in the integrity of management on the part of the ultimate owners of a company. The watchfulness of the accountancy profession, more than any other safeguard, helps to create and sustain this confidence.

Shri Lal Bahadur Shastri (At Annual Meeting of the Council of the ICAI on 13th September, 1958)

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIASET UP BY AN ACT OF PARLIAMENT


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THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIASET UP BY AN ACT OF PARLIAMENT

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IN THIS ISSUE...

TAXATION593 Is Goodwill an Intangible Asset Eligible for Tax

Depreciation? – CA. Namita Kedia598 Proposed ‘Goods and Services Tax’ and Latest

Developments towards its Implementation – CA. Rabin Kr. Ray

TECH FOR YOU626 Mobile Computing: Concepts, Challenges and

Opportunities for Chartered Accountants – CA. A. Rafeq

INTERNATIONAL TAXATION602 Taxability of Software Payments under the Act – The

Controversy Continues – Committee on International Taxation of the ICAI

ACCOUNTING565 Accounting for Credit Value Adjustments – CA . R. Venkata Subramani568 Forensic Accounting - Another Feather in the Hat of

Accounting – Dr. Indrani Ghosh and Dr. Kamal Kishore Banerjee

REPORTING572 Disclosures in Corporate Annual Reports — A Case

Study of Some Selected Public Limited Companies in India

– Prof. Pintu Sarkar579 Global Trends in Reporting to the Stakeholders – CA. Sriraman Parthasarathy

CORPORATE & ALLIED LAWS612 Changing Methodologies- Interpreting Exemption

Noti cation – Mr. S. M. Jain

AUDITING586 Information Risk and Risk Assurance in Auditing – CA. (Dr.) Sanjib Kumar Basu

GENERAL 649 How to Succeed in Life Against All Odds – CA. K. S. Karthikeyan

SPEECH615 As India Grows, CAs Have to Share a Lot of

Responsibilities – Shri Sachin Pilot, Union Minister of State for

Communication and Information Technology

BACKPAGE652 Cross Word 064 Smile Please

FROM THE PRESIDENT

THE CHARTERED ACCOUNTANT october 20118

of the Council or till further orders, whichever is earlier. Shri Manoj Kumar, therefore, has been appointed on the 21st Council for the remaining period of 2011-2012. We had the occasion to meet and welcome him during the recently-concluded meeting of the Council.

Initiatives for Ministries/Government OfficesSuggestions Submitted to MCA: We have sent our views on the proposed Forms 23 AC-XBRL and 23 ACA-XBRL to be notified by the Ministry of Corporate Affairs, to the Ministry. We have also sent our views on the draft Companies (Auditor’s Report to the Central Government) Order, 2011 and the proposed Companies (Auditor’s Report) Order, 2011 to the Ministry of Corporate Affairs.

Suggestions on CBEC Draft Circular Submitted: The Central Board of Excise and Customs (CBEC) had proposed to introduce a simplified scheme for refund of service tax to exporters on the lines of duty drawback scheme. Exporters, exporter associations, chambers, trade, industry and field formations had been requested to go through the proposed scheme and offer their comments. We have finalised our suggestions on the draft circular and submitted the same to the CBEC.

Issues in TDS and e-Filing Submitted to DIT: Issues being faced in claiming of TDS and e-filing of returns have been submitted to Shri Harish Kumar, DIT (Systems), on their request. We have been further requested to forward the details of specific cases so that remedial action could be initiated.

Draft Accounting Standards for Local Bodies Sent to Ministries: It is quite satisfying to inform that the drafts of ASLB 1 on Presentation of Financial Statements and ASLB 7 on Inventories have been sent to the Technical Committee on the Budget and Accounting Standards constituted by the Ministry of Urban Development, Government of India, and the Technical Committee on the Budget and Accounting Standards constituted by the Ministry of Panchayati Raj, Government of India, for recommending the same to states for adoption by the urban local bodies and Panchayati Raj institutions respectively.

Meetings with Government Offices/OfficialsMeeting of Central Direct Taxes Advisory Committee: My Central Council colleague CA. Sanjay K. Agarwal, among others, represented the Institute and participated in the third meeting of Central Direct Taxes Advisory Committee, which was chaired by Shri. Pranab Mukherjee, Hon’ble Finance Minister, and was attended by Shri S. S. Palanimanickam, Hon’ble Minister of State, and other dignitaries from the Ministry as well as from FICCI, ASSOCHAM, Federation of Association of Small Industries of India, etc. We placed our views and offered assistance for developing and encouraging mutual understanding and department co-operation between taxpayers and the

Dear Friends,

et me first wish all our readers moments of great inspiration that 2nd October as birthday of the father of our nation, Mahatma Gandhi, instils in the hearts

of the people of India and the world.

At the same time, I would also like to remember that another great nationalist leader and freedom fighter was born on the same day. Born on 2nd October, 1901, Shri Lal Bahadur Shastri was a man of people and principles. He understood the common man’s language, i.e. their needs and emotions. Deeply influenced by the political teachings of Mahatma Gandhi, Shastriji was also of the opinion: Hard work is equal to prayer. A man of integrity, Shastriji gave us a slogan of Jai Jawan Jai Kisan to enthuse both our soldiers and farmers asking them to do their best for the rise of the country and grow along with it.

Today our nation stands tall and strong despite the fact that a financial crisis has again struck the world. While other countries have started to become nervous about the size of their budget deficits, our fundamentals are still strong, and, India is ready to face the crisis.

Now, let us get updated with some of the major developments in the accountancy profession that have taken place in the past one month:

Shri Manoj Kumar, JS, MCA, Nominated on ICAI Council Ministry of Corporate Affairs has communicated the nomination of Shri Manoj Kumar, Joint Secretary, Ministry of Corporate Affairs, on the 21st Council of the Institute in place of Dr. T. V. Somanathan, for the remaining term

CA. G. Ramaswamy, President, ICAI

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Income-tax Department. Our views were well received. Shri Mukherjee assured that the issues raised would be taken up by the offices concerned.

Meeting with Secretary, Department of Financial Services: In respect of the appointment of central statutory auditors of public-sector banks, a meeting was held with Shri D. K. Mittal, Secretary, Department of Financial Services, Ministry of Finance, where he was apprised of various options available to the Ministry in case the RBI refuses for direct appointment of the auditors. Shri Mittal has agreed to look into the matter. CA. Amarjit Chopra, immediate past-President, was also present in the meeting.

Sub-Group for MCA in Simplifying Procedures under Companies Act, 1956: A sub-group has been constituted under the chairmanship of my Central Council colleague CA. S. Santhanakrishnan with CA. Nilesh Vikamsey, my other Central Council colleague, as its Vice Chairman, in response to a letter received from the Additional Secretary, Ministry of Corporate Affairs, soliciting suggestions for the simplification of procedures under the Companies Act, 1956.

Training/Workshops/Other ProgrammesTraining Programmes for Officials of Autonomous Bodies: As you are aware that we, in collaboration with office of Comptroller and Auditor General of India (C&AG), have been organising a series of training programmes on An insight on the concepts applicable to Autonomous Bodies for the officials of autonomous bodies and members of the Profession with an objective to familiarise them with the concepts and techniques of the financial reporting and adherence to the uniform format of accounts. In this series, recently, such a programme was successfully held in Noida with over 175 participants from autonomous bodies of Delhi and NCR, and the Profession, where dignitaries from the office of C&AG of India as well as ICAI were present. Another such programme was conducted with about 120 participants from the autonomous bodies of Andhra Pradesh and Orissa, and the profession recently in Hyderabad. Director General (Autonomous Bodies), office of C&AG of India, Shri K. P. Sasidharan was present among others on both the occasions.

Spreading Investor Awareness: As you are aware, the Ministry of Corporate Affairs had appointed us the nodal agency for the noble cause of investor awareness and mandated us to conduct investor awareness programmes across the country. I am happy to acknowledge that, in the last month alone, we have conducted 18 MCA-ICAI investor awareness programmes in Goa, Surat, Gurgaon, Moradabad, Gorakhpur, Rajkot, Vasai, Baroda, Vapi, Latur, Calicut, Chirala, Sivakasi, Secunderabad, Coimbatore, Thrissur, Sriganganagar and Bhilai.

Workshop on Municipal Accounting Reforms Held: I am happy to inform that my Central Council colleagues CA. J. Venkateswarlu and CA. Jayant Gokhale recently made presentations on the Role of ICAI in Municipal Accounting Reforms and Management Accounting Reforms in Municipalities respectively at a workshop on ‘Municipal Accounting Reforms - The way forward’ organised by the Asian Development Bank (ADB) in New Delhi, where they also addressed the queries regarding municipal accounting reforms.

ISA Faculty Meet in October: I am pleased to inform you that we are going to organise the ISA (Information Systems Audit) faculty meet at the Centre of Excellence in Hyderabad on 15th and 16th October, 2011. This meet is important for charting a strategy for identifying changes that need to be implemented for further improvement in the post-qualification course on ISA, practical aspects of the ISA professional training, background material of the Course and so on.

Workshop on Accrual Accounting: We have received a request from office of the GASAB (C&AG of India) to organise a two-day workshop on Transition to Accrual Accounting for its officials. The workshop would be held shortly at International Centre for Information Systems & Audit in Noida.

International Initiatives IFAC Board and Edinburgh Group Meetings: I had the opportunity to attend the IFAC Board and Edinburgh Group meetings recently along with CA. Ved Jain, ICAI past-President, in Brisbane, Australia. An oral update on the activities of the Public Policy and Regulation department including that about Private Sector Taskforce of Regulated Provisions and Industries, IFAC submissions to the G-20 for November 2011 Heads of Governments meeting, and Policy Position Paper, was provided in the Board meeting. A presentation on current developments and IFAC responses to such developments was also made. In the Edinburgh Group meeting, we discussed the IFAC Board Papers, issues relating to liaison with the IFAC committees, and 2011 Forward Planner for the Group, and took note of the status of actions arising from the Group’s meetings previously held. We also got an update on the plans for the 2014 World Congress of Accountants that would be held in Rome.

Invitation for Agreement with Tunisia Accounting Institute: I feel happy to inform you that Mr. Jaleel, representing Tunisia at the Edinburgh Group meeting, has made a personal request and invited me to visit the accounting institute in Tunisia towards signing a friendship agreement with them.

CAPA Events/ Conference: I also attended the CAPA events along with the ICAI Vice-President CA. Jaydeep N. Shah. Our Board membership of the CAPA has been

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retained. I also participated in the 18th CAPA Conference in one of its interactive panel sessions, i.e. session on Exploring IFRS implementation – Practical Insights and Lessons Learnt, and shared my views on the issues involved in IFRS implementation in India with the representatives of other countries.

IASB’s National Standard Setters Meeting in Vienna: I wish to inform you that my Central Council colleagues CA. Manoj Fadnis and CA. S. Santhanakrishnan recently attended the National Standard Setters meeting organised by the International Accounting Standards Board in Vienna and made a presentation on rate regulated activities. Later, they also had discussions in the AOSSG informal meeting held in London, where they also participated in the meeting of the World Standard Setters and explained India’s position with respect to what the carve-outs were.

ICAI Shortlisted for Agreement Services for LICPA: I am really glad to inform our stakeholders that our Institute has been shortlisted along with the CPA Ireland and the CGA-Canada for submission of a request for proposal (RFP) for twinning arrangement services for strengthening the Liberia Institute of Certified Public Accountants under the World Bank proposal. The RFP has been sent for rendering services for establishment of accountancy institute and rendering allied services to the Liberian Institute of Certified Public Accountants.

MCA and MEA Approval to Initiate MoU with AIA, UK: Ministry of Corporate Affairs and Ministry of External Affairs have given their approval for signing of an MoU with the Association of International Accountants (AIA), UK, which, hopefully, would be signed by October end this year during the visit of AIA delegation to India.

Next ICAI International Conference in Chennai: I wish to inform the accounting community in India as well as the world that the next International Conference of the ICAI will be held on 6th to 8th January 6-8, 2012, in Chennai and a large number of foreign participants are expected to join the occasion. Details about the Conference, including the schedule, will be communicated shortly through our website and journal.

Initiatives for the ProfessionApproval on Draft Amendments in CA Regulations, 1988: I am happy to inform all our stakeholders that we have received a communication from the Ministry of Corporate Affairs stating its approval to the draft amendments in the Chartered Accountants Regulations, 1988 submitted by us to them in July 2011. Most of our proposed amendments have been agreed to. After preparing the draft notification in agreement with the recommendations of the Ministry, the same will be hosted on the Institute website for public comments and then submitted for vetting by the Legislative Department.

Roadmap for Robust FRRB Mechanism: I feel happy to share that the Financial Reporting Review Board (FRRB) of the ICAI has been able to carve a niche among the regulators and members of the profession while striving to bring transparency in the financial reporting system in India. We understand the need to consider the existing procedures of FRRB and revise them, if necessary on regular basis. To make the FRRB mechanism more robust and effective, its existing procedures have been reconsidered recently and to make it more robust and effective a concept paper was drafted by the Board. We considered this concept paper in the recently-held Council meeting and approved the same so that a more effective financial reporting review mechanism could be developed.

Roadmap for the applicability of Ind ASs: As you may be aware, the International Accounting Standards Board (IASB) has issued certain new IFRSs and revised some others recently. The new/revised IFRSs/IASs would be applicable from January 2013. Further, the date of applicability of Indian Accounting Standards (Ind ASs) is yet to be notified by the Ministry of Corporate Affairs. In view of the above and considering the fact that if Ind ASs become applicable from 2012, the companies would apply them for the year 2012-2013 only and the new Standards would become applicable to them from the year 2013, we have recently considered and approved the recommendations on the revised roadmap for the applicability of the Ind ASs, convergent with the IFRSs, and sent the same to the Government for its consideration.

QRB Meeting in Delhi: Quality Review Board (QRB) conducted its meeting recently in New Delhi, where it considered the issues for recommending appropriate amendments to the ‘Chartered Accountants Procedures of Meetings of Quality Review Board, and Terms and Conditions of Service and Allowances of the Chairperson and Members of the Board Rules, 2006’. The Board also took note of the interaction held recently with high-level delegation of accountancy professionals from the UK, where issues relating to audit regulation, environment for such regulation and regulatory practices, principles for inspection processes, issues emerging from audit inspections, among others had been discussed. We must appreciate that the Board had taken note of the stakeholder consultation workshops that we successfully organised in New Delhi, Chennai and Kolkata, and thanked us for the same.

Draft Guidance Note on Revised Schedule VI: We have prepared and considered the draft Guidance Note/Statement on Revised Schedule VI recently to identify if any additional guidance is required to be given to the statutory auditors in order to bring out a comprehensive document. The Guidance Note will be released after including the comments and suggestions given by the Council.

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Strategy Meeting of ICAI Council: In my last communication, I had informed you about a meeting we had with the past-Presidents of ICAI to identify the strategic directions of the profession and ICAI. On the same lines, a strategy meeting of the ICAI Council was held to develop a strategy and prepare a comprehensive plan. I am happy to share with you that the discussions were quite fruitful. I would like to thank all my Central Council colleagues for their whole-hearted cooperation, insight and meaningful suggestions towards making that meeting a success.

Initiatives for MembersConclave of ICAI Members in Entrepreneurship & Public Services: A Conclave of ICAI Members in Entrepreneurship & Public Services was successfully held in New Delhi recently for the ICAI members who have established themselves as successful entrepreneurs or are engaged in public services, to solicit their suggestions for restructuring the Institute’s initiative towards this niche segment of members. It was inaugurated by the Hon’ble Member of Parliament, Rajya Sabha, Shri Piyush Goyal. Hon’ble Sitting Judge of Delhi High Court Justice CA. Rajiv Shakdher delivered a special address on the occasion. More than 50 members participated in the Conclave, including CA. Ravi Pandit, Chairman & Group CEO, KPIT Cumins Infosystems Limited, CA. Anand Rathi, Founder & Managing Director, Anand Rathi Financial Services Limited, CA. Anil Peshawari, Founder & Managing Director, Meenu Creation Pvt. Limited, CA. Suresh Prabhu, Former Union Minister, Government of India, CA. Tejendra Luthra, Joint Commissioner of Police (Special Branch), New Delhi, CA. Jitendra Tiwari, Executive Director, Centre for Entrepreneurship Development, Madhya Pradesh, CA. Shivshankar Gupta (IAS), Development Commissioner (Handicrafts), Ministry of Textiles, Government of India, CA. Sandeep Kumar Sultania (IAS), Vice Chairman & Managing Director, Andhra Pradesh Tourism Development Corporation Limited, and CA. G. E. Veerabhadrappa, Vice-President, ITAT.

Developing CA Firms’ Websites: As you are aware that an exclusive website, www.icai.org.in, was launched in the recent past to enable our members in practice and CA firms to create their own websites and upload details of their firms in order to network and get better visibility. It is quite satisfying to note that so far, 1,699 CA firms have created their websites.

List of Members Published: List of Members as on 1st April, 2011, has been prepared and hosted on the Institute’s website. Members may view the list on the Institute’s website. CDs of the Members List will also be released shortly.

Clarification in Number of Tax-Audit Assignments Hosted: For the removal of doubts pertaining to inclusion of audits conducted under Sections 44AD, 44AE and

44AF of the Income-tax Act, 1961 in the specified number of tax audit assignments, a clarification has been issued and hosted on the Institute’s website for information of the members that audits conducted under Section 44AD, 44AE and 44AF of the Income-tax Act, 1961 shall not be taken into account for the purpose of reckoning the specified number of tax audit assignments.

Certificate Courses: As you are aware, continuous professional updation is the hallmark of our profession. Therefore, in the last few years, we started many Certificate Courses in the areas like arbitration, valuation, ERM, forex and treasury, international taxation, IFRS, business finance, IT, indirect taxes and internal audit, which are not covered comprehensively in our course curriculum. Members have been participating in those Courses in large numbers. And we have been taking all required steps to make improvements like revising course-content, revision/launching e-learning modules, updating study materials, etc. I am sure, in the time to come, more members will join these professional courses and get benefited by them.

Recently, I along with the ICAI Vice-President CA. Jaydeep N. Shah inaugurated the new batch of Certificate Course on Forex and Treasury Management in New Delhi, where my Central Council colleague CA. Vinod Jain was also present. I would also like to take this opportunity to inform you that certificate courses in the areas of mergers & acquisitions, Competition Laws and Regulatory and accounting aspects of NPO sectors are also likely to start shortly.

Initiatives for the StudentsI am happy that our Institute has taken the required measures for the benefit of our students including organising special counselling programmes and conducting mock tests at Regional Councils and Branches for the betterment of their preparation and execution of their forthcoming examinations. I am sure that such measures will enhance the performance of our students in examinations. I would like to urge our students to do hard work and success is bound to follow. Friedrich Nietzsche had rightly observed: The only place success comes before work is in the dictionary. And always remember what Winston Churchill had said: Success is not final, failure is not fatal; it is the courage to continue that counts.

National Conventions in Kolkata and Lucknow: National Convention for the CA students on the theme ‘Chartered Accountancy: Present Glowing, Future Perfect’ was successfully held recently in Kolkata, hosted jointly by the EIRC and Eastern India Chartered Accountant Students Association (EICASA) and attended by about 800 students, which was inaugurated by the noted industrialist Shri Harshavardhan Neotia, Padma Shri awardee, along with the ICAI Vice-President CA. Jaydeep N. Shah. Another National Convention for the CA students on the theme ‘Challenges before the

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FROM THE PRESIDENT


Profession: Excellence, Integrity and Independence’ was held in Lucknow, hosted by Lucknow Branch of CIRC, and attended by over 900 students, which was inaugurated by Hon’ble Justice and Lok Ayukta of Uttar Pradesh, Shri N. K. Mehrotra along with the ICAI Vice-President CA. Jaydeep N. Shah. Some of my Central Council colleagues also attended the Conventions.

GMCS to be Held Twice: We have decided to hold the General Management and Communication Skills programme twice (in two parts) for our students – first during the first year of articleship training and second before joining the profession but after passing the Intermediate examination. These two-part training programmes will deal with the office management and personality development (group discussion, mock interviews, etc.) aspect of profession respectively, aiming to transform and prepare our students to face the international professional scenario with grace and skill.

Formation of New Branches of Students’ Association: We have received formal requests for setting up the branches of Central India Chartered Accountants Students’ Associations (CICASA) from the CIRC Branches, i.e. Patna, Ajmer, Dhanbad, Saharanpur, Allahabad, Kota, Lucknow, Varanasi, Bhilwara, Alwar, Jamshedpur, Ghaziabad and Jabalpur, of Western India Chartered Accountants Students’ Associations (WICASA) from the WIRC Branches, i.e. Bhavnagar, Vapi and Akola, and of Eastern India Chartered Accountants Students’ Associations (EICASA) from an EIRC Branch, i.e. Bhubaneswar, along with the recommendations of the Chairman of the Regional Council concerned. While we have decided in favour of setting up of the branches of Association in the aforesaid places, we have, in principle, also decided that mere submission of intimation about the formation of a Students’ Association along with the recommendation of the Regional Council concerned to the President in office shall be a valid compliance.

Campus Placement Programmes: Campus Placement Programmes (August to September 2011) have been successfully organised at 16 centres across India, viz. Ahmedabad, Bangalore, Bhubaneswar, Chandigarh, Chennai, Coimbatore, Ernakulam, Hyderabad, Indore, Jaipur, Kanpur, Kolkata, Mumbai, Nagpur, New Delhi and Pune. More than 1,100 newly-qualified chartered accountants have been offered jobs out of 10,169, who registered. Highest salary offered is R13.93 lakh per annum by ITC. A detailed report on the placement programmes is published elsewhere in the Journal.

Infrastructural Initiatives It is time to literally consolidate the foundations of the accountancy profession in all corners of our nation. And I feel both blessed and blissful about the strengthening of the pillars of our profession. This is not just a sign of growth of our infrastructure but that of strengthening of

this unique academic tradition of integrity also. These initiatives are also to extend the best-possible facility to our students as well as our members in building and maintaining an ethically strong society. I felt quite delighted to lay the foundation stone for the buildings of Alleppey Branch, Madurai Branch, Erode Branch, Mangalore Branch, Ajmer Branch and Bhilwara Branch, and to inaugurate the building of Kakinada Branch.

*******A great exponent of liberty and democracy, Thomas Jefferson says: Our greatest happiness doesn’t depend on the condition of life in which change has placed us, but is always the result of a good conscience, good health, occupation, and freedom in all just pursuits. Faith in peaceful coexistence is based in the principle of vasudhaiva kutumbakam (whole world is one family), and in valuing dignity of all individuals of our society and loving them instinctively. I would like to quote the great poet, Kanian Poongundran, who writes in Purananuru: …all towns are one, all men our kin. We have to retain our faith in human relationships, rather than alienating ourselves from society and insulating ourselves against the instincts of love and affection. Environmentalist and Nobel Laureate Dalai Lama has strong belief in the power of a good soul: It is very important to generate a good attitude, a good heart, as much as possible. From this, happiness in both the short-term and the long-term for both yourself and others will come.

Let us understand what the great saint Thiruvalluavar says about human beings and their status: all human beings are alike at birth; their acts bring about variations in their worthiness. Almost two thousand years back, the saint spoke something which was more a matter of common sense and an instance of his great understanding of societal reality. Today, our science says that human beings are 99.9% identical so far as their genetic material is concerned. People and conveniences around us and available to us where we grow make us different individuals. Therefore, we will not take pride in how different we are from others. Buddhism cautions us to watch our character, as it becomes our destiny. Let us simply unite and see the power of joy which this unity radiates on all of us.

May the festivals of Dussehra and Diwali bring joy and light in your life!

Best wishes

CA. G. RamaswamyPresident, ICAISeptember 25, 2011 New Delhi

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READERS WRITE


Technology really stood out and considerably added to our knowledge. ‘Know Your Ethics’ and ‘EAC Opinion’ are two other regular columns which were worth preserving by Indian accounting professionals for all times to come. I congratulate the related team for bringing out the September 2011 issue of the journal.

-CA. S Jain

‘Member’s Identity Card’ Should be Widely Accepted’

The identity cards issued by ICAI should be widely accepted and recognised. Why it is that CAs are amongst the most respected professionals, still their I-cards are of no use where we need to submit the documents. Neither it is recognised in banks for opening a bank account nor when they ask for a copy of ID Proof. I appeal to the ICAI to take steps in this direction, so that we can use our I-cards as first source of any identification proof.

-CA. Tapan Jindal

‘Journal Highlights’ through email a Useful Initiative

We are very happy to get the journal highlights in email, which is very user friendly. We look forward that this practice continues for all times to come.

-CA. I.V.Surendra Kumar, Ongole

The journal highlights being sent to us by email is an excellent initiative. Congratulations!

-Akbar Mohamed Casim Shaikh, Qatar Its a very appropriate & timely

decision of sending highlights of the Journal with details accessible at single click. Reference becoming easy with high level of comfort. Congrats for a new service to the CA community!

-CA.Vivek Mathkari. Pune

September Issue a Treasure Trove

The September 2011 issue has proved to be a treasure for the tech savvy professionals. The deep insight into a relatively naive technology for the Chartered Accountants, ‘Cloud Computing,’ by CA. A. Rafeq is an impeccable effort. Making the netizens aware of the risk and threats involved in using IT and also explaining the security measures to combat the issue by Dr. Debashis Kundu has made this issue of journal accomplish its objective.

-CA. Priyesh Jain, Jaipur I congratulate and appreciate our

honourable Institute for continuously improving the content and quality of our CA Journal, which is undoubtedly one of the finest publications. September issue was one of the best in recent times, highlighting various important issues and matters. I also want to thank the team of this journal for putting up the most important things in concise and understandable manner. Also it is very useful for those who have selected there career either in auditing or taxation because it helps the readers in updating the knowledge in different aspects which becomes very difficult in practical life.

-Jatin Prashnani The September 2011 issue of the

journal was very nicely packed with informative and knowledge enhancing content, particularly the Information Technology aspect. The Editorial titled ‘Information Technology and Chartered Accountants’ made a very good and informative reading. The column ‘From the President’ was equally informative which updated us with the latest developments pertaining to our profession in India and the ICAI. Among the other contents, the section on Information

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

Write to Editor‘Information is Power’ and our ever-evolving profession needs more and more of that today than ever before. Do you have any relevant points to make, experiences to share, and views to spread among the CA fraternity? If yes, e-mail us at [email protected]/[email protected] or write to: The Editor, The Journal Section, ICAI, A-29, Sector 62, Noida (UP) - 201309

Editor

n

Congratulations to the team that has worked on this useful improvement to the user interface of the ICAI journal. The ease of access and reading makes it a completely joyful experience leave alone the cost it saves in terms of paper and air/sea mailing.

-CA. Venkat Ramamurthy, Vice Chairman - ICAI Doha Chapter

I am a member since 1986 and consider the Journal Highlights as best improvement. Hope these links are permanent.

-Rajan Srinivasan

Please accept my congratulations for this initiative of sending the Journal Highlights through email. Many a time we used to miss reading the journal for it was not readily accessible at all times. But getting this in email, you certainly cannot miss it.

-CA Rakesh Khanna Thanks a lot for arranging the

delivery of Journal Highlights through email. This format is very helpful particularly for members like me who are far away from home.

-CA. Sai Akkanapragada Saiprasad, New York

I highly appreciate the initiative of

sending the PDF file with highlights of the journal to members.

-CA. Ganesh S Deshpande, Thane

CorrigendumIn the executive Summary of the article titled “Assurance on corporate Sustainability reports” published on page nos. 88-93 in August 2011 issue, the IFAc definition of Assurance was wrongly published as definition of Sustainability reporting. the error is regretted.

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ICAI President CA. G. Ramaswamy along with Vice-President CA. Jaydeep N. Shah, Central Council member CA. Vinod Jain and Regional Council Members of NIRC inaugurating the Certi cate Course on Forex and Treasury Management in New Delhi. (17.09.2011)

ICAI President CA. G. Ramaswamy presenting a bouquet to Union Minister of State for Communication and Information Technology Shri Sachin Pilot during CMII Orientation Programme held in New Delhi. Central Council Members CA. K. Raghu, CA. Pankaj Tyagee and ICAI NIRC Chairman CA. Rajesh Sharma are also seen in the photograph.

ICAI President CA. G. Ramaswamy presenting a memento to Shri Piyush Goyal, Member of Parliament during Conclave of ICAI Members in Entrepreneurship & Public Services held in New Delhi. ICAI Vice-President CA. Jaydeep N. Shah is also seen in the photograph. (22.09.2011)

Hon’ble Justice CA. Rajiv Shakdhar, Judge Delhi High Court, being presented a memento by ICAI President CA. G. Ramaswamy during Conclave of ICAI Members in Entrepreneurship & Public Services held in New Delhi. Central Council Member CA. Mahesh P. Sarda, ICAI Vice-President CA. Jaydeep N. Shah and ICAI Secretary Shri T. Karthikeyan are also seen in the photograph. (22.09.2011)

Hon’ble Chief Minister, Govt. of Odisha, Shri Naveen Patnaik lighting the Inaugural Lamp in presence of (From R-L) Past Chairman, Bhubaneswar Branch, CA. Pranab Das Pattnaik, President, ICAI, CA. G. Ramaswamy, Shri Prafulla Chandra Ghadai, Hon’ble Minister of Finance & Public Enterprises, Govt. of Odisha, CA. Saroj Kumar Sahu, Organising Committee Chairman and CA. B. Manoj Kumar Patro, Chairman, Bhubaneswar Branch.

ICAI President CA. G. Ramaswamy with Shri D. K. Mittal, Secretary, Financial Services, Ministry of Finance, Govt. of India during a meeting in New Delhi.

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Group photograph taken during recently held meeting of the Council to discuss and identify Strategic Directions for the Profession and ICAI in Manesar, Gurgaon. (24.09.2011)

For structured application and other details, please visit our website: http://www.icai.org. Interested candidates may e-mail their structured format application at [email protected] or can send through speed post / courier to Shri Chatar Singh, Assistant Secretary, President’s office, at the above address, superscribing on the envelope “Application for the post of Secretary” within 15 days.

Advt. No.ICAI / Rectt./04/2011

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA(Premier professional body set up by an Act of Parliament)

ICAI Bhawan, Indraprastha Marg, Post Box No. 7100, New Delhi 110 002.

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA

requiresTechnical Director

Technical Director heads the Technical Directorate which provides support to the Accounting Standards Board, Committee for Implementation of Indian Accounting Standards (IFRS), Committee for Accounting Standards for Local Bodies, Research Committee, Expert Advisory Committee and other assignments relating to providing inputs to the accounting pronouncements issued by the Institute. The work includes liaising with the relevant international bodies, such as International Accounting Standards Board and the Governmental and Regulatory Authorities, such as Ministry of Corporate Affairs, Reserve Bank of India, Securities Exchange Board of India, Insurance Regulatory Development Authority and other such authorities on accounting matters.

Essential knowledge and skills required for the incumbent would include expert knowledge of the Accounting Standards in India and IFRSs apart from the other pronouncements, such as Guidance Notes, Opinions of Expert Advisory Committee and other technical literature issued by the ICAI. The skills required include application of the aforesaid pronouncements in specific situation with a view to advise the relevant Committees/Board and to draft the relevant pronouncements. This would require ability to objectively analyse issues involved in various accounting alternatives and perceive their implications in implementation.

He/She would act as team manager of the Technical Directorate comprising technical and administrative personnel.

Remuneration Salary payable is currently under revision and hence the same is negotiable, which among others, would seek to protect the current salary drawn by a deserving candidate.

In appropriate cases contractual arrangements can also be considered.

Qualification and ExperienceChartered Accountant or equivalent with experience of application of Accounting Standards in India and or abroad of 15 years.

For structured application and other details, please visit our website: http://www.icai.org. Interested candidates may e-mail their structured format application at [email protected] or can send through speed post/courier to the Deputy Secretary, HRD(P) at the above address, superscribing on the envelope “Application for Technical Director” within 15 days

Advt. No. ICAI/Rectt./03/2011

For structured application and other details, please visit our website: http://www.icai.org. Interested candidates may e-mail their structured format application at [email protected]@icai.in or can send through speed post / courier to Shri Chatar Singh, Assistant Secretary, President’s office, at the above address, superscribing on the envelope “Application for the post of Secretary” within 15 days.

Advt. No.ICAI / Rectt./04/2011Advt. No.ICAI / Rectt./04/2011

THE INSTITUTE OF CHARTERED ACCOUNTANTS OF INDIA(Premier professional body set up by an Act of Parliament)

ICAI Bhawan, Indraprastha Marg, Post Box No. 7100, New Delhi 110 002.

ICAI invites applications from highly competent candidates for the position of

SECRETARY(which is a statutory position)

ICAI, the second largest accounting body in the world, set up by an Act of Parliament, is looking for a high profile and multi-faceted personality with leadership qualities, excellent communication, interpersonal and motivational skills for the position of Secretary

ROLETo act as the Secretary of the Council of ICAI, which is the ▪governing body managing the affairs of ICAI.Largely responsible for furthering the Institute’s objectives ▪of promotion and regulation of the Accountancy Profession, by being in constant touch with other statutory / regulatory / professional bodies within and outside India and the Governments and the Society at large. As a conceptualist, to sustain and further enhance the image ▪of the profession externally with various Government Ministries / Departments like Ministry of Corporate Affairs, Ministry of Finance, Ministry of Commerce and Industry, Office of the C&AG, Ministry of Law and Justice; Regulators such as RBI, SEBI, IRDA, etc., and Apex Industry Associations.To be the external face of ICAI with international and regional ▪/ sub-regional professional accounting bodies, such as, IFAC, IASB, IAASB, CAPA, SAFA, etc.

PROFILEBrilliant academic career, outstanding track record and also ▪flair for taking up multifaceted challenging assignments.Currently occupying a top management / managerial ▪position (directly involved in policy making and formulating strategies) reporting only to the Board of Directors / CEO of the organisation concerned.Relevant experience : 20 years or more in any renowned ▪/ reputed regulatory / professional / educational body / institution in the Government, Public or Private Sector.Membership of ICAI with a high first class Degree from ▪a renowned University would be an added advantage. [Condition relaxable in exceptional cases].Salary payable is currently under revision and hence the same ▪is negotiable, which among others, would seek to protect the current salary drawn by a deserving candidate. Contractual arrangement can also be considered in ▪exceptional cases.

This is an EXCELLENT opportunity for a high calibre professional to join a world class accounting organisation and make an impact on the national level.

Location: New Delhi Age : 45+ years (relaxable in deserving cases)

PHOTOGRAPHS


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Infrastructure Development

ICAI President CA. G. Ramaswamy laid the foundation stone for the building of Alleppey branch of SIRC of ICAI in the presence of Central Council member CA. Rajendra Kumar P., Alleppey branch Chairman CA. Antony M. Malayil, branch managing committee members and other dignitaries. (21.07.2011)

Alleppey

Hon’ble Minister of State for Defence, Govt. of India, Dr. M. M. Pallam Raju along with ICAI President CA. G. Ramaswamy inaugurating the branch building of Kakinada branch of SIRC of ICAI. (13.08.2011)

Kakinada

ICAI President CA. G. Ramaswamy, Vice-President CA. Jaydeep N. Shah, SIRC of ICAI Chairman CA. K. Shanmukha Sundaram and Madurai branch Chairman CA. V. Sivakumar performing Poojan during foundation stone laying ceremony for the building of Madurai branch of SIRC of ICAI. (31.08.2011)

Madurai

ICAI President CA. G. Ramaswamy unveiling the foundation stone for the building of Erode branch of SIRC of ICAI. SIRC of ICAI Chairman CA. K. Shanmukha Sundaram, SIRC Secretary CA. S. Murali, Erode branch Chairman CA. C. P. Suresh Kumar and other dignitaries are also present in the photograph. (02.09.2011)

Erode

Lighting of lamp during foundation stone laying ceremony for the building of Ajmer branch of CIRC of ICAI. Seen in the photograph ICAI President CA. G. Ramaswamy, Vice-President CA. Jaydeep N. Shah, Central Council Member CA. Vijay Garg and Ajmer Branch Chairman CA. Sushil Bansal among other dignitaries. (15.08.2011)

Ajmer

Photograph taken during laying of foundation stone at the Bhilwara branch of CIRC of ICAI. ICAI President CA. G. Ramaswamy, Vice-President CA. Jaydeep N. Shah, Central Council Member CA. Vijay Garg and Branch Managing Committee members are also seen in the photograph. (15.08.2011)

Bhilwara

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KNOW YOUR ETHICS


Know Your Ethics*

charge fees on a percentage of turnover, except in the circumstances provided under Regulation 192 of the CA Regulations.

Regulation 192 reads as under: “192. Restriction on fees

No Chartered Accountant in practice shall charge or offer to charge, accept or offer to accept, in respect of any professional work, fees which are based on a percentage of profits, or which are contingent upon the findings, or results of such work:

Provided that:(a) in the case of a receiver or a liquidator, the fees

may be based on a percentage of the realisation or disbursement of the assets;

(b) in the case of an auditor or a co-operative society, the fees may be based on a percentage of the paid up capital or the working capital or the gross or net income or profits; and

(c) in the case of a valuer for the purposes of direct taxes and duties, the fees may be based on a percentage of the value of the property valued.”

Q. Whether a Chartered Accountant in practice can engage in any business or occupation other than the profession of Chartered Accountancy?

A. No, in terms of Clause (11) of Part I of First Schedule to the CA Act, in general, a Chartered Accountant in practice is not permitted to engage in any business or occupation other than the profession of Chartered Accountancy.

However, there are following exceptions to it:-1. A Chartered Accountant can be a director of

a company (not being a managing director or a whole time director), unless he or any of his partners is interested in such company as an auditor.

2. A Chartered Accountant in practice may engage in any business or occupation with the permission granted in accordance with a resolution of the Council.

Appendix (9) of CA Regulations contains the above

Resolution under two heads (A) Permission granted

* Contributed by the Ethical Standards Board of the ICAI

Ethical Issues in Question-Answer Form

Q. Whether a Chartered Accountant can accept an appointment as auditor of a company without first ascertaining from it whether the requirement of Section 225 of the Companies Act, 1956 in respect of such appointment have been duly complied with?

A. No, as per Clause (9) of Part I of the First Schedule to the CA Act, a Chartered Accountant in practice shall be deemed to be guilty of professional misconduct if he accepts an appointment as auditor of a company without first ascertaining from it whether the requirements of Section 225 of the Companies Act, 1956 in respect of such appointment have been duly complied with. In this regard, the Council has laid down detailed guidelines that are appearing at pages 188 to 196 of Code of Ethics, 2009.

Q. Whether a statutory auditor can be appointed in the adjourned meeting in place of existing statutory auditor where no special notice for removal or replacement of the retiring auditor is received at the time of the original meeting?

A. No, if any annual general meeting is adjourned without appointing an auditor, no special notice for removal or replacement of the retiring auditor received after the adjournment can be taken note of and acted upon by the company, since in terms of Section 190(1) of the Companies Act, 1956, special notice should be given to the Company at least fourteen clear days before the meeting in which the subject matter of the notice is to be considered, the meeting contemplated in Section 190(1) undoubtedly is the original meeting.

Q. Whether a Chartered Accountant or a firm of Chartered Accountants can charge or offer to charge professional fees based on a percentage of turnover?

A. No, in terms of Clause (10) of Part I of First Schedule to the CA Act it is not permitted to a Chartered Accountant or a firm of Chartered Accountants to

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KNOW YOUR ETHICS


generally (B) Permission to be granted specifically. (Please refer pages 345 to 349 of the Code of Ethics, 2009).

Q. Whether a Chartered Accountant in practice is entitled to accept teaching assignment?

A. Yes, a Chartered Accountant in practice is allowed to accept teaching assignment in university, affiliated colleges, educational institution, coaching organisation, private tutorship under the specific permission of the Council , provided the direct teaching hours devoted to such activities taken together do not exceed 25 hours a week .

Q. Can a practicing Chartered Accountant accept a position as auditor previously held by some other Chartered Accountant in such conditions as to constitute undercutting?

A. Prior to the amendment in the CA Act in 2006, undercutting was violative of the then Clause (12) of Part-I of the First Schedule to the CA Act. After the 2006 amendment, this provision has been repealed, and hence, it is not violative for a practicing chartered accountant to accept a position as auditor at a fee below the fee earlier charged by previous auditor.

Q. Whether a member of the Institute be guilty of professional misconduct, if he, not being a fellow, styles himself as a fellow?

A. Yes, as per Clause (1) of Part III of the First Schedule to the CA Act, a member of the Institute, whether in practice or not, shall be deemed to be guilty of professional misconduct if he, not being a fellow, styles himself as a fellow.

Q. Whether a member of the Institute shall be deemed to be guilty of professional misconduct, if he does not supply the information called for, or does not comply with the requirements asked for, by the Institute?

A. Yes, a member of the Institute shall be deemed to be guilty of professional misconduct if he does not supply the information called for, or does not comply with the requirements asked for, by the Institute (As per Clause (2) of Part III of the First Schedule to the CA Act).

Q. Can a Chartered Accountant in practice disclose information acquired in the course of his professional engagement?

A. No, as per Clause (1) of Part I of Second Schedule to the CA Act, a Chartered Accountant in practice shall be deemed to be guilty of professional misconduct, if he discloses information acquired in the course of his professional engagement to any person other than his client so engaging him, without the consent of his client or otherwise than as required by any law for the time being in force. n

Classifieds4868 Required Chartered Accountants on partnership/

assignment/sub-contract /employment basis, semi- qualified and articled assistants (for the state of Jammu & Kashmir)/ Northern States. Apply Box: 4868, C/o The Institute of Chartered Accountants of India, ICAI Bhawan, A-29, Sector-62, Noida-201301.

4869 Mumbai based Mid-size C.A Firm, seeks to merge small Firms at Varanasi, Raipur, Patna , Ranchi ,Chandigarh, Chennai, Bangalore, and Hyderabad. Contact: 09821240794 or e-mail: [email protected]

4870 A Delhi based CA firm having branch offices at Mumbai, Bangalore & Jaipur invites expression of

interest (EOI) for partnership from professionals at Hyderabad to start its local branch office and from professionals at Delhi & NCR with experience/expertise in direct and indirect taxation. CAs in practice of profession for a period up to 7 years may send their EOI at [email protected]

4871 A Kolkata based old partnership audit firm requires partner for their Delhi office. email: [email protected]

4872 Required CA’s as partners in experienced C.A.firm in Mumbai with good arrangement /terms and freedom for personal practice, place and age no bar. Contact: [email protected] / 26254421 / 9920317933.

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LEGAL UPDATE Legal Decisions


Income-tax ActLD/60/34

LS Cable Ltd., In reJuly 26, 2011 (AAR)

Section 9 of the Income-tax Act, 1961 - Income - Deemed to accrue or arise in India

Where clauses in offshore supply contract agreement regarding transfer of ownership and payment mechanism in form of letter of credit, would go to establish that transaction of sale and title took place outside Indian Territory and ownership and property in goods passed outside India, amounts receivable by a foreign company for offshore supply of equipments and material are not liable to tax in India, merely on the ground that transit risk is borne by applicant till goods reach site in India

The applicant-Korean company was the successful bidder in the bids invited by the Delhi Transco Limited (DTL). The scope of work of the applicant under the said contracts for all these projects include: (1) offshore supply contract involving supply of equipments and materials including mandatory spares on CIF basis, (2) onshore supply contract and (3) onshore service contract. The applicant refers to various clauses in the contract documents relating to offshore supply contract viz., transfer of title, insurance, payment mechanism etc. and submits that in connection with the said contract, the property in the goods to be supplied from Korea would pass outside India in favour of DTL and the sale would be concluded outside India and the payment would be received outside India in foreign currency. The applicant contends that no income accrues or arises in India and further no income will be received or deemed to be received in India.

The question formulated by the applicant for seeking advance ruling is whether the amounts receivable by the applicant from DTL under ‘offshore supply contract’ for offshore supply of equipments and materials, spares are liable to tax in India.

The Authority for Advance Rulings held that the clauses in the offshore supply contract agreement regarding the transfer of ownership, the payment mechanism in the form of letter of credit which ensures the credit of the amount in foreign currency to the applicant's foreign bank account on receipt of shipment advice and insurance clause, would go to establish that the transaction of sale and the title took place outside Indian Territory. The ownership and property in goods passed outside India. The transit risk borne by the applicant till the goods reach the site in India is not necessarily inconsistent with the sale of goods taking place outside

India. The parties may decide between them as to when the title of the goods should pass. As the consideration for the sale portion is separately specified, it can well be separated from the whole.Nothing in law prevents the parties to enter into a contract which provides for sale of material for a specified consideration, although they were meant to be utilised in the fabrication and installation of a complete plant. Regarding the revenue's plea that as the applicant has a PE in India, the income arising should be taxed in India, the authority stated that the existence of PE would be for the purpose of carrying out the contract for onshore supplies and services etc. but such a PE would have no role to play in offshore supplies. Even if a PE is involved in carrying on some incidental activities such as clearance from the port and transportation, it cannot be said that the PE is in connection with the offshore supplies. Accordingly, the applicant was not liable to tax in respect of offshore supplies as per the Act.

LD/60/35Columbia Sportswear Company, In re

August 8, 2011 (AAR)Section 9 of the Income-tax Act, 1961 read with Article 5 of the Indo-US DTAA - Income - Deemed to accrue or arise in IndiaWhere Indian liaison office of applicant US company is not used solely for purpose of purchasing goods or merchandise or for collecting information for enterprise, rather identifies competent manufacturer/supplier, negotiates competitive price, helps in choosing material to be used, ensures compliance with quality of material, acts as ‘go between’, between applicant and seller or manufacturer-seller of goods and even gets material tested to ensure quality in addition to ensuring compliance with its policies and relevant laws of India by suppliers, and, furthermore, takes identical activities in Egypt and Bangladesh, liaison office in question would qualify to be a permanent establishment in terms of Article 5 of DTAA

In the year 1995, the applicant US company established a liaison office for undertaking liaison activities in connection with purchase of goods in India, Bangladesh and Egypt. Besides coordinating purchase of goods it is engaged in quality monitoring and production monitoring of goods purchased from these countries. The goods procured from Egypt and Bangladesh do not come to India but are directly sold to the applicant in the United States.

The applicant approached the Authority for Advance Rulings essentially seeking a ruling on the question whether in the nature of the activities carried on by the liaison office it could be understood as a permanent

Legal Decisions1

DIRECT TAXES

1 Readers are invited to send their comments on the selection of cases and their utility at [email protected].

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LEGAL UPDATELegal Decisions


establishment of the applicant and whether any income can be said to accrue or arise in India to the applicant, liable to be taxed in India.

The Authority for Advance Rulings held that what section 9(1)(i) Explanation 1(b) deems in the case of a non-resident, is that no income arises in India to him through or from operations which are confined to the purchase of goods in India for the purpose of export. In this case, the activities of the Liaison Office of the applicant in India is not confined to the purchase of goods in India for the purpose of export. The applicant, in fact, transacts in India its business of designing, quality controlling, getting manufactured consistent with its policy and the laws, the branded products it sells elsewhere. All these activities cannot be understood as activities confined to purchase of goods in India for export from India. 'Confined' means, 'limited restricted'. 'Purchase' means 'get by payment, buy'. It is difficult to accept that all these activities enumerated are activities confined to purchase. None can accept the position that these activities are limited to the purchase of goods.

Income resulting from manufacture, purchase and sale cannot be compartmentalized and confined to one arising out of a sale only. The whole process of procurement and sale has to be completed to generate income. Hence, getting manufactured and purchasing form integral parts of the process of generating income. The liaison office acts as the arm of the applicant regarding that part of the activity. A function related to purchase is not a function confined to purchase or mere purchase.

There is another aspect. The activities of the Liaison Office of the applicant in India, is not confined to India. It also takes up the identical activities as in India, in Egypt and Bangladesh. The applicant has only pleaded that the goods procured from Egypt and Bangladesh are not imported into India and are sold only to the applicant in the US. Whether product of the applicant are sold in Egypt and Bangladesh is not clear. Whatever it be, since the activities of the applicant in India takes in, its business in Egypt and Bangladesh, it cannot be stated that the operations of the applicant in India are confined to the purchase of goods in India for the purpose of export. Therefore, inclined to the view that the applicant cannot take shelter under Explanation 1(b) to section 9(1)(i) of the Income-tax Act.

According to article 5 of the Indo-US DTAA, the term 'permanent establishment' means a fixed place of busi-ness through which the business of an enterprise is wholly or partly carried on. Then, the article proceeds to enumerate certain establishments as included in the term 'permanent establishment' in sub-article (2). Sub-article (3) excludes certain establishments from within the term 'permanent establishment'. Clause (d) therein excludes a fixed place of business solely for the purpose of purchasing goods or merchandise or of collecting information for the enterprise. Clause (e) excludes a fixed place of business

solely for the purpose of advertising, for the supply of information, for scientific research or for other activities which have a preparatory or auxiliary character, for the enterprise. Article 5.1 defines a permanent establishment as meaning a fixed place of business through which the business of an enterprise is wholly or partly carried on. If an establishment satisfies this definition, there is no need to go into the question whether the establishment cannot be brought within the inclusive part of the definition in sub-article (2). Once the definition in article 5.1 is satisfied, the only inquiry to be undertaken is to see whether it is one of those establishments excluded by sub-article (3). In construing the exclusion in sub-article (3), it appears to us that the exclusion has to be tested with reference to one or more of the activities referred to therein.

In the instant case the liaison office has a fixed place of business. It was originally in Chennai and now it is being established in Bangalore. It has 35 employees and it deals with different aspects of the business of the applicant. The business of the applicant is designing, getting manufactured, purchasing and selling of garments based on its research relating to consumer preferences and market conditions. Other than the actual business of selling, the rest of the activities of the applicant are conducted by the liaison office in India at best in part. In other words, a part of the business of the applicant is carried on in India by the liaison office. Not only in India, but also in Egypt and Bangladesh. There cannot be much doubt in such circumstances that the liaison office would be a permanent establishment of the applicant within the meaning of article 5.1 of the DTAA. The applicant has admitted that it has a fixed place of business in India through which it carries on its business and has invoked the exclusionary provisions in Article 5(3) of the Treaty to get out of the obligations arising therefrom.

The liaison office is not used solely for the purpose of purchasing goods or merchandise or for collecting information for the enterprise. The liaison office identifies a competent manufacturer, negotiates a competitive price, helps in choosing the material to be used, ensures compliance with the quality of the material, acts as ‘go between’ between the applicant and the seller or the manufacturer-seller of the goods and even gets the material tested to ensure quality in addition to ensuring compliance with its policies and the relevant laws of India, by the suppliers. What sub-article (3)(d) excludes is a place of business solely for the purpose of purchasing goods or of collecting information for the enterprise. The activities carried on by the liaison office cannot said to be an activity solely for the purpose of purchasing the goods or for collecting information for the enterprise. It is practically an involvement in all the activities connected with the business of the applicant except the actual sale of the products outside the country. On these facts, it is not possible to find that such an establishment would be excluded by clause (d) of sub-article (3) of article 5. Further,

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the liaison office, admittedly is collecting information for the enterprise, though it may not be established solely for that purpose.

Clause (e) speaks of a fixed place of business solely for the purpose of advertising, for the supply of information, for scientific research or for other activities which have preparatory or auxiliary character for the enterprise. Auxiliary means providing extra help and support. Preparatory means done in order to prepare for something. Here again, the liaison office is not solely involved in advertising, for the supply of information for scientific research or other activities which have preparatory or auxiliary character. The liaison office is involved in conducting a substantial part of the business of the applicant which as indicated earlier, takes in a number of activities culminating in designing of apparel or goods with material to the taste of the customers and after adequate research at a competitive price, supervision of the manufacturing process and then sale by the applicant in a brand name. The liaison office is also the conduit for conveying the requirements and the decisions of the applicant to the various manufacturers identified by it and approved by the applicant and for processing the goods and paying for them. A part of the business of the applicant in Egypt and Bangladesh is also carried on by or through the liaison office. On the facts of this case and in the light of the activities undertaken by the liaison office, clauses (d) and (e) of article 5(3) read separately or together, would take the liaison office out of the definition of permanent establishment contained in article 5(1) of DTAA. On the facts of this case, the liaison office would be a permanent establishment of the applicant in India.

It is true that in terms of the permission taken from the Reserve Bank of India, the liaison office can undertake purely liaison activities, viz., to inspect the quality, to ensure shipments and to act as a communication channel between Head office and parties in India and will not take up any other activity of a trading, commercial or industrial nature. The liaison office, on the applicant's own showing

is also engaged in identifying suppliers, recommending them for acceptance, getting competitive quotations from suppliers, recommending their acceptance and so on. In addition, it is also doing the work of the applicant in Egypt and Bangladesh. The question, whether all these activities will also come within the permission granted by the Reserve Bank of India, need not be considered here. Suffice it is to say that one has to test the effect of the activities admittedly undertaken by the liaison office in the context of Article 5 of DTAA to adjudge whether it would be a permanent establishment within that Article. On the basis of the reasoning as above, the liaison office in question would qualify to be a permanent establishment in terms of Article 5 of the DTAA.

LD/60/36Commissioner of Income Tax

Vs. K. Raheja Corporation P. Limited

August 8, 2011 (BOM)[Assessment Year 2000-01]

Section 14A read with Section 10(33) of the Income Tax Act, 1961 - Total income - Expenditure incurred in relation to income not includible inIn absence of any material or basis to hold that interest expenditure directly or indirectly was attributable for earning dividend income, interest expenditure could not be disallowed under section 14A

The finding of fact recorded by the Tribunal was that the investments in equity shares and mutual funds were made by the assessee year after year and it has been consistently held by the Tribunal that these investments had been made out of the assessee’s own funds and not out of the borrowed funds. The Revenue could not point as to how interest on borrowed funds was attributable to earning dividend income which are exempt under Section 10(33) (as it then stood).

The Bombay High Court held that in the facts of the present case, in the absence of any material or basis to

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hold that the interest expenditure directly or indirectly was attributable for earning the dividend income, the decision of the Tribunal in deleting the disallowance of interest made under section 14A could not be faulted.

LD/60/37Siem Offshore Inc., In re

July 25, 2011 (AAR)Section 44BB read with section 9 of the Income-tax Act, 1961 read with Article 25 of the Indo-Norwegian DTAA - Non-residents, business of exploration mineral oils etcWhere in addition to ensuring marine logistics support in event of any operational exigency, applicant was mainly engaged in transportation of cargo, material and personnel required at rig, responsibilities resting on applicant in terms of contract did not involve providing of any technical service; obviously, applicant was engaged in business of providing service or facilities in connection with extraction or production of oil, a mining activity and, thus, income would take it out of section 9(1)(vii) and bring it within section 44BB

The applicant-foreign company is incorporated in the Cayman Islands. The applicant formed a consortium with three other companies which were awarded work by ONGC. The consortium agreement provides scope of work of each one and ONGC was to make direct payments to each company for performance of work. Under agreement with ONGC, applicant was required to provide ‘sea logistics services’, which included service to provide marine logistics support for transportation of essential cargo including operators, operators', sub-contractors' and rig contractors' materials and personnel required at rig in addition to ensuring marine logistics support in event of any operational exigency.

The Authority for Advance Rulings held that the work undertaken by the applicant is the providing of Sea Logistics Services. The applicant was mainly engaged in transportation of cargo, material and personnel required at the rig in addition to ensuring marine logistics support in the event of any operational exigency. Thus, the responsibilities resting on the applicant in terms of the contract did not involve the providing of any technical service. Obviously, the applicant was engaged in the business of providing service or facilities in connection with extraction or production of oil, a mining activity. It could also be said to be supplying plant and machinery for hire to be used in the prospecting of oil. Thus, the income derived by the applicant from the activities undertaken by it under the consortium agreement as recognized by ONGC, the explorer, takes it out of section 9(1)(vii) and brings that income within section 44BB. On the terms of the transaction in question, it is clear that what is paid to the applicant is not fee for technical services and consequently the proviso to section 44BB is not attracted. It is not, therefore, necessary to go into the question as

to what constitutes fee for technical services and whether section 44DA will be attracted to the case. On facts, the services being provided by the applicant are not technical services. Hence, the applicant can claim to be assessed in terms of section 44BB especially since there is no case that ONGC is not involved in prospecting, exploration and extraction of oil and the services being provided by the applicant are services in connection with that activity.

However, in view of the developments that took place after 1-1-2010, the income of the applicant should be assessed only in the context of Article 25 of the India-Norwegian Treaty. Thus, the tax liability of the applicant to be taxed in India is governed by Article 23(4) of DTAA read with its non obstante clause fixing the limit.

LD/60/38WesternGeco International Ltd., In re

July 25, 2011 (AAR)Section 44BB of the Income-tax Act, 1961 - Non-residents, business of exploration mineral oils etcRevenues to be earned by the Non-resident-Applicant under the seismic data acquisition and processing contract with a company engaged in the exploration and production of mineral oils in India are taxable in accordance with section 44BB

The applicant, British Virgin Islands Company, is engaged in the business of acquisition and processing of 2D and 3D seismic data for companies engaged in the exploration and production of mineral oils in India. The applicant desires to obtain a ruling on the questions as to whether revenues to be earned by the applicant under the seismic data acquisition and processing contract with BHP Billiton in India are taxable in accordance with section 44BB.

The Authority for Advance Rulings held that in terms of the contract, the applicant is to provide vessels and seismic crew at the area of operations to acquire the 2D geophysical survey in the MB/KK blocks offshore India to BHP Billiton. The vessels are to be equipped with hardware

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and software to process the seismic data. The survey work is to be carried out 24×7 hours a day, seven days a week and without shut down for holidays. The cost of maintenance of the vessels, catering and accommodation services on board the seismic vessels is to be borne by the applicant. It is therefore obvious that the applicant is engaged in the business of providing services or facilities in connection with extraction or production of oil, a mining activity. It could also be said that the applicant is supplying plant and machinery for hire to be used in the prospecting of mineral oil. The activities undertaken are recognised by BHP Billiton in connection with the extraction or production of oil. The activities being mining, the services rendered goes out of the purview of section 9(1)(vii). The executive understanding of Explanation 2 to section 9(1)(vii) is also explained in CBDT's Instruction No. 1862 in the similar manner. As section 44BB is a special, specific and exclusive provision, even where the profits arising from business specified therein fall within the ambit of fees for technical services, the provision should prevail for the purposes of computation.

Therefore, revenues to be earned by the Applicant under the seismic data acquisition and processing contract with BHP Billiton in India are taxable in accordance with section 44BB.

Section 44BB of the Income-tax Act, 1961 - Non-residents, business of exploration mineral oils etcWhere applicant company is engaged in business of acquisition and processing of seismic data for companies engaged in exploration and production of mineral oils in India and equipment vessel mobilization/demobilization activities was attributable to distance travelled by the vessel outside India, entire mobilization/ demobilization revenues received by applicant with respect to seismic data acquisition and/or processing would be taxable in India at an effective rate of 4.223 per cent

The applicant, British Virgin Islands company, is engaged in the business of acquisition and processing of 2D and 3D seismic data for companies engaged in the exploration and production of mineral oils in India. The applicant desires to obtain a ruling on the questions as to whether the revenues arising under the contract with BHP Billiton on account of mobilization/demobilization activities attributable to distance travelled by the vessel outside India will be subject to tax in India.

The Authority for Advance Rulings held that once an assessee opts to come under section 44BB(1), the provision itself deems its profits and gains as 10 per cent of the aggregate of the amounts specified in sub-section (2). Sub-section (2)(a) specifies that that aggregate amount is the amount paid or payable whether in or out of India to the assessee on account of provision of services in India. In the scenario, there is no scope for splitting up the amount payable to the assessee. If the

assessee wants to seek such a splitting up it has to go under section 44BB(3).

Section 44BB does not close its doors to an applicant who desires to know which part of its income accrues or arises in India and how much. The applicant can exercise its rights provided it opts to get the income taxed under section 44BB(3). The scheme of computation of income under this section does not provide any leeway to apply both the sub-sections (1) and (3) of section 44BB to the income arising from the business activities falling under the ambit of section 44BB(1). Even if part of the income falls under 'Royalties' or 'Fees for technical Services', there is no scope to assess such receipts under these heads, once it is held that the income is from its oil exploration and production activities as envisaged under section 44BB. In view thereof, the entire mobilization/ demobilization revenues received by the applicant with respect to seismic data acquisition and/or processing would be taxable in India at an effective rate of 4.223 per cent.

LD/60/39Sahney Kirkwood Private Limited, Mumbai

Vs. Additional Commissioner of Income-tax

July 29, 2011 (BOM)

Section 60 of the Income-tax Act, 1961 - Transfer of income – Where there is no transfer of assetsWhere assessee let out a part of its premises to another company in which one of directors of assessee company was also a director, but there was nothing on record to show that transaction between assessee and said company was a sham transaction, amounts received by said company on account of letting out premises to third parties were not liable to be assessed in hands of assessee

By a Leave and Licence Agreement, the assessee let out a part of its premises to a company Minicon. Minicon let out the said premises on leave and licence to various third parties. The Assessing Officer sought to tax the amount received by Minicon from various persons in the hands of the assessee on the ground that the leave and licence agreement between the appellant assessee and Minicon was a sham transaction.

The Bombay High Court held that the amounts rece-ived by Minicon had been taxed in the hands of Minicon and the assessment orders passed to that effect had attained finality. If the amounts received by Minicon by letting out the premises taken on leave and licence agreement from the assessee, had been taxed in the hands of Minicon, then taxing the very same amount once again in the hands of the assessee would amount to taxing an income twice which is not permissible in law.

The fact that one of the directors of the assessee company was also a director in Minicon, but there was

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nothing on record to show that the transaction between the assessee and Minicon was a sham transaction. In these circumstances, the amounts received by Minicon on account of letting out the premises were not liable to be assessed in the hands of the assessee.

LD/60/40Deputy Commissioner of Income-tax

Vs. Deloitte Consulting India (P.) Ltd.

July 22, 2011 (ITAT-HYD)[Assessment Year 2004-05]

Section 92C of the Income-tax Act, 1961 - Transfer Pricing - Computation of• It is mandatory to use current year data first and then

datas for period not more than two years• Tolerance band provided in section 92C is not to

be taken as a standard deduction; actual working is to be taken for determining ALP without giving deduction of 5%

• Companies having related party transaction of more than percentage limit of turnover fixed, is to be excluded from list of comparable

• No two comparable companies can be replicas of each other; intangibles or outsourcing manpower would not materially affect price or profit margin

• Giant company having 20 times more turnover than assessee company, cannot be a comparable

• Section 92A(2)(i) clearly deals with manufacturing of goods and articles and not with provision of services; rejection of comparable on basis of criteria of services provided by it, was not just

• Where comparable companies did not have any export business for year under consideration whereas assessee company had full-fledged export business, those companies could not be comparable

• Where assessee company was carrying several risks while undertaking various works/services for its associate enterprise, adjustment towards risks was to be made

• During transfer pricing assessment, authorities are not required to demonstrate motive of assessee company to shift profits outside India by manipulating prices

The assessee is a company which derives income from software development and IT enabled services. It has entered into international transactions with its associated enterprises. For determining arms length’s price (ALP), the Tribunal made following observations:• For the purpose of determining the ALP, the tr-ansactions entered into the Associate Enterprises are to be compared with uncontrolled transactions carried on by an entity during the same period as that of the assessee company as provided under rule 10B (4) of the Income-tax Rules. In view of this matter, consideration of the data

of only one year is justified. The expression "shall" used in the said Rule makes it clear that it is mandatory to use the current year data first and if any circumstances reveal an influence on the determination of ALP in relation to the transaction being compared than other datas for period not more than two years prior to such financial year may be used.• The tolerance band provided in section 92C is not to be taken as a standard deduction. If the arithmetic mean falls within the tolerance band, then there should not be any ALP adjustment. If it exceeds the said tolerance band, then ALP adjustment is not required to be computed after allowing the deduction at 5 per cent. That means, actual working is to be taken for determining the ALP without giving deduction of 5 per cent.• The TPO applied the criteria of excluding the com-panies having related party transaction of more than 25 per cent of the turnover from the list of comparable companies. Having done so, the TPO should have excluded those companies from the list of comparable companies where it was evident that the percentage of related party transaction in these cases above said 25 per cent and this, failed to satisfy the TPO's own criteria.• It is contended that the comparable company VITL has employee-cost at 1.38 per cent of its revenue when compared to that of the assessee company which was at 52.12 per cent. Further, VITL owns valuable intangible when compared to the assessee company. Hence, the said company had to be excluded.

Held that it appeared that the VITL had outsourced the manpower and the cost of outsourcing appeared to have been included in the other heads of the expenditure instead of wages-employee cost. Moreover, the intangibles would not materially affect the price or profit earning. By outsourcing the manpower, the VITL would have incurred more cost compared to the assessee company, thus resulting in lesser operating profit. But, the intangibles or outsourcing the manpower would not materially affect the price or profit margin.

No two comparable companies can be replicas of each other. The application of rule 10B should be carried out and judged not with technical rigor, but on a broader prospective. In this view of the matter, selecting the VITL as comparable company was proper. • Wipro Company's turnover was 20 times more than the assessee company. Hence, the assessee company was not comparable with Wipro BPO, the reasoning being that the latter is a giant company having 20 times more turnover than the assessee company. Wipro BPO should be excluded from the list of comparable companies. Hence, the ground raised by the assessee on this issue is allowed.• The company ASL was rejected as comparable company in back office services segment on the basis that the company sourced it exclusively from Apex

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Data Services Inc., USA and thus, has related party transactions.

Held that ASL did not render any services to Apex Data but only sources business from them. Therefore, ASL rendered services directly to the third parties and not to the Apex Data. ASL had only transaction with Apex Data in purchasing of fixed assets. In view of this matter, no controlled transaction between the ASL and Apex Data. Thus, no materially significant related party transactions exist. Section 92A(2)(i) clearly deals with manufacturing of goods and articles and not with provision of services. Therefore, the TPO/CIT (A) was not justified in rejecting the ASL as comparable company from the final list of comparable companies.• Independent comparable companies were rejected by TPO/CIT (A) on the basis that they did no have any foreign exchange revenue. The TPO, in the case of back office services segment, had rejected five companies on account of the fact that these companies did not generate foreign exchange revenue.

Held that the domestic BPO is much smaller business segment than the export BPO. The productivity and return in domestic segment is also much less than the export segment. The TPO clearly demonstrated in his order that the earnings per seat in domestic segment was 0.45 lakhs as against 2.37 lakhs in the export segment which worked out to 5.27 times more than the domestic segment. In the export segment, the earnings would be more due to the fact that they had advantage of time zone and higher productivity etc. It appeared that the assessee company agreed that one criterion for selection/rejection of the comparables is FAR analysis. The aforesaid companies did not have any export business for the year under consideration whereas the assessee company had full-fledged export business. The functions, risks and assets are entirely different. Hence, these companies could not be considered as a comparable company for determining the ALP.

The reference to resident and non-resident in rule 10A of IT Rules, is related to the residential status and not related to the domestic or export. Moreover, the Delhi Bench of the Tribunal in the case of Mentor Graphics Noida (P.) Ltd. v. Dy. CIT [2007] 109 ITD 101 (Delhi) held that the ALP should be determined by taking results of a comparable transaction in comparable circumstances. Rule 10B(2)(d) also emphasizes that the comparability of the transaction should be international transaction. There was no merit in the argument that the companies rejected by the TPO operate in similar market condition as that of assessee company due to the fact that the aforesaid companies did not have any international transaction. In view of the above, rejecting the aforesaid company as not comparable was justified. • There are several factors such as market risks, environmental risk, entrepreneurial risk and functional risk

etc., which affect the matter and which ultimately affect the results of the company. All the aforesaid factors make it impracticable to any authority to find out exact duplicate company of the assessee as comparable. Some variation bound to exist.

The TPO had made efforts to identify the comparables whose functions are similar to the assessee company by applying filter quantitatively and qualitatively to eliminate the differences between the assessee companies with that of comparable companies to neutralize the aforesaid risk factors.

The assessee company was an independent contracting entity and would be solely responsible for determining the manner, means and methods by which it performs its obligation under the said contract as per Article-5, the assessee company has undertaken the warranty that all its work and documentation to be delivered to the associate enterprise would be free of error. In a nutshell, the assessee company was carrying several risks while undertaking various works/services for its associate enterprise. It could not be said that the assessee company was operating in a risk free environment and accordingly the assessee company was not entitled to any adjustment towards risks borne by various comparable companies. • Transfer pricing rules shall apply when one of the parties to the transaction is a non-resident, even if the transaction takes place within India. There is no need to find out the legislative intent behind the transfer pricing provision when the provisions themselves were unambiguous. Therefore, existence of actual cross border transactions or motive to shift profits outside India or to evade taxes is not free conditions for transfer pricing provisions to apply. In view of this, the lower authorities, during transfer pricing assessment, are not required to demonstrate the motive of the assessee company to shift the profits outside India by manipulating the prices.

LD/60/41Cairn U.K. Holdings Ltd., In re

August 1, 2011 (AAR)Section 112, read with section 48, of the Income-tax Act, 1961 - Capital gains - Tax on long term capital gainsWhere foreign company sold equity shares held by it in an Indian listed company in off-market mode, Tax payable on long-term capital gains arising to does not get benefit of lower rate of 10 per cent as provided by proviso to section 112

The applicant CUHL, a Scotish company, acquired the equity shares of Indian company CIL. As per the share purchase agreement, 135,267,264 equity shares of CIHL were transferred by the applicant to CIL and as a consideration, CIL issued 861,764,893 equity shares to the applicant. Accordingly, these equity shares of CIL were allotted to the applicant under a swap of share arrange-

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ment. Approval of the Foreign Investment Promotion Board of India was also obtained. Later on PCIL acquired 2.29 per cent equity shares in CIL from the applicant, pursuant to which the applicant transferred 4,36,00,000 equity shares to PCIL for a consideration of USD 241,426,379. The transaction took place in off-market-mode and not through the recognised stock exchange. The question arose for a ruling from the Authority as to whether the tax payable on long term capital gains arisen to CUHL on sale of equity shares of CIL will be 10 per cent of the amount of capital gains as per proviso to section 112(1).

The Authority for Advance Rulings held that the assets on which tax is payable in respect of any income arising from the transfer are listed securities or unit or zero coupon bond. If the asset is not a share or debenture, the residents and non-resident assessees are allowed computation of capital gains on the basis of indexation. In respect of units and zero coupon bonds, which are other than shares or debentures, all the assessees, whether residents or non-residents, are eligible to the benefit of indexation in the computation of capital gains arising on their transfe. However, the 3rd proviso denies the benefit of indexation to bonds or debentures. While applying the proviso to section 112(1) to determine the tax payable, the computation mechanism includes such assets. There is thus no dichotomy in the proviso to section 112(1) and the 3rd proviso to section 48. Section 48 is a section which governs mode of computation of income whereas section 112 determines the tax payable on such income. It may be important to keep in mind that the application of the proviso is based on the capital asset to which the provisions of 2nd proviso to section 48 apply. If it is the case that it applies to the 1st proviso meant for a non-resident assessee then the proviso would have made a mention of it.

The indexation formula already enters into the computation in the first limb where it is mentioned that "tax payable in respect of any income arising from the transfer of long-term capital asset" is to be determined. In fact there is no issue on this part of proviso whether the

2nd proviso to section 48 enters into the said computation or not. The issue that arises lies in the second limb of the proviso starting with the phrase "ten per cent of the amount of capital gains before giving effect to the provisions of the second proviso to section 48". This cannot be read to mean "deny the concessional rate of tax to the category of assessees who are not eligible to have the benefit of indexed cost of acquisition under the second proviso of section 48". It only conveys how a particular amount is to be determined. Any other meaning would tantamount to rewriting this part of the proviso of section 112(1).

As the indexation on the zero coupon bond is available by virtue of 2nd proviso, it will affect the computation of capital gains under section 48 on which tax is payable under the first limb of the proviso and thus would not go out of the purview of the proviso to section 112(1). The zero coupon bond on which indexation is available will get the benefit of the lower rate of tax at 10 per cent under the proviso. The exclusion from application of 1st and 2nd provisos to section 48 while calculating the amount of Income-tax on the income by way of long-term capital gains in the cases of non-residents and allow them the benefits of lower tax rates of 10 per cent also find mention in sections 115AC(3) and 115AD(3). The Act has taken care when, where, and how the 1st and the 2nd provisos to section 48 are to be excluded. The long-term capital gains on the sale of shares of the listed companies are otherwise exempt from tax under section 10(38) if the sale of the shares takes place through the recognized stock exchange on which security transaction tax is paid. However, in this case such exemption is not available as the shares of the listed company CIL are sold in the off-market mode.

As the section 48 must be read with section 112 and if the tax on long-term capital gains provision cannot be given effect to for any reason, then the provision has no application under the Act. Resultantly, the applicant is not eligible to avail the benefit of lower rate of tax of 10 per cent on the capital gains on the sale of shares to PCIL.

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LD/60/42Hyundai Heavy Industries Ltd.

Vs. Union of India

July 21, 2011 (Uttarakhand) [Assessment Years 2002-03, 2004-05 to 2007-08]

Section 144C of the Income-tax Act, 1961 read with Rule 3 of the Income-tax Rules, 1962 – Reference to Dispute Resolution PanelProvision of Section 144C and Rule 3 (2) of Rules is not ultra viresWhere, one of members of Dispute Resolution Panel is also a jurisdictional Commissioner, said officer should not sit and adjudicate upon matter brought before DRP

The petitioner, being aggrieved by the draft assessment orders, approached the Dispute Resolution Panel and filed its objection. During the pendency of the proceedings before the Panel it came to know that one of the members of the collegium was a Commissioner presently holding the post of Director of Income Tax (International Taxation), who was ceased of various proceedings against the petitioner. It was contended that the said DIT had exercised his power granting approval for the re-assessment for the same of assessment years in question under section 148. The petitioner consequently orally objected to the constitution of the collegium and submitted that there was a conflict of interest if the DIT continued to sit in the collegium since he was involved in the reassessment proceedings. Inspite of the oral objection, the DIT did not recuse himself and participated in the proceedings and finalised the draft assessment order. The Panel without considering the objection of the petitioner issued orders to the Assessing Officer by its order for the assessment years in question.

The Uttarakhand High Court held that the doctrine of nemo judex in causa sua is subject to the doctrine of necessity. Bias cannot be established merely because one of the members of the Dispute Resolution Panel is also a jurisdictional Commissioner. Where, there was nothing to indicate that the jurisdictional Commissioner was interested in his personal capacity in the outcome of the assessment order. Further, there was nothing to indicate that the direction issued by the Panel to the Assessing Officer was based on extraneous considerations.

The Commissioner is required to discharge certain functions under the Act. He exercises his power impartially and with an independant mind. Such exercise of statutory functions does not get coloured when a member of a Panel issues directions to the Assessing Officer.

The DIT in question was only discharging its statutory functions provided under the Act and, therefore, on the principles of the doctrine of necessity, bias stood excluded. There was no violation of the principles of natural justice. The law permits certain things to be carried out as a matter of necessity. The doctrine of necessity makes it imperative for the authority to carry out its statutory functions and if

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the doctrine of necessity is not allowed full play in certain situations, it would impede the course of justice.

The contention of the petitioner that Section 144C of the Act and Rule 3 (2) of the Rules should be declared ultravires was patently erroneous. Mere potential of bias against one of the members of the panel will not render the provision unconstitutional. In the facts and circumstances of the case, there was no conflict of interest. Alleged bias against one member of the Panel does not make the provision ultravires. Even though, no specific prayer for the quashing of Section 144C of the Act and Rule 3 (2) of the Rules, was made in the petition. The Court has dwelt on it since long drawn arguments were made. In the light of the aforesaid, the provision of Section 144C of the Act and Rule 3(2) of the Rules could not be held to be ultra vires.

However, the jurisdictional Commissioner was one of the members of the Panel. He was the officer who approved the reopening of the assessment orders and issued directions to the Assessing Officer, which according to the averments in the counter affidavit, was supervisory in nature. The respondents admitted that in the exercise of statutory functions, the Officer could have an “official bias” towards the department to which he was attached and that it was extremely difficult to insulate the officials discharging adjudicatory functions completely from “policy bias”.

The DIT in question was exercising supervisory functions and had a hand in the reopening of the assessments under section 147/148 and was also a member of the Panel considering the draft assessment which has been made pursuant to the reopening of the assessment. Therefore, real likelihood of bias could not be ruled out. Even if the officer was impartial and there was no personal bias or malice, nonetheless, a right minded person would think that in the circumstances, there could be a likelihood of bias on his part. In that event, the officer should not sit and adjudicate upon the matter. He should recuse himself. This follows from the principle that justice must not only be done but seen to be done.

ExciseLD/60/43

Commissioner of Central ExciseVs.

Doaba Steel Rolling MillsJuly 6, 2011 (SC)

Section 3A of the Central Excise Act, 1944, read with Rule 5 of the Hot Re-rolling Steel Mills Annual Capacity

Determination Rules, 1997 – Power of Central Government to charge excise duty on the basis of capacity of production in respect of notified goodsRule 5 of the 1997 Rules will be attracted for determination of the annual capacity of production of the factory when

any change in the installed machinery or any part thereof is intimated to the Commissioner of Central Excise in terms of Rule 4(2) of the 1997 Rules

The short question for consideration is whether Rule 5 of the 1997 Rules will apply in a case where a manufacturer proposes to make some change in the installed machinery or any part thereof and seeks the approval of the Commissioner of Excise in terms of Rule 4(2) of the 1997 Rules?

The Supreme Court held that Section 3A was inserted in the Act to enable the Central Government to levy Excise duty on manufacture or production of certain notified goods on the basis of annual capacity of production to be determined by the Commissioner of Central Excise in terms of the Rules to be framed by the Central Government. Section 3A is an exception to Section 3 – the charging Section and being in nature of a non obstante provision, the provisions contained in the said Section override those of Section 3. Rule 3 of Hot Re-rolling Steel Mills Annual Capacity Determination Rules, 1997 framed in terms of Section 3A(2) lays down the procedure for determining the annual capacity of production of the factory. Sub-rule (3) of that Rule contains a specific formula for determination of annual capacity of production of hot rolled products. This is the only formula whereunder the annual capacity of production of the factory, for the purpose of charging duty in terms of Section 3A, is to be determined. Second proviso to sub-section (2) of Section 3A contemplates re-determination of annual production in a case when there is alteration or modification in any factor relevant to the production of the specified goods but such re-determination has again to be as per the formula prescribed in Rule 3(3) of the 1997 Rules. It is clear that sub-rule (2) of Rule 4, which, in effect, permits a manufacturer to make a change in the installed machinery or part thereof which tends to change the value of either of the parameters, referred to in sub-rule (3) of Rule 3, on the basis whereof the annual capacity of production had already been determined, would obviously require re-determination of annual capacity of production of the factory/mill, for the purpose of levy of duty. It is plain

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the installed machinery or any part thereof is intimated to the Commissioner of Central Excise in terms of Rule 4(2) of the 1997 Rules.

LD/60/44CCE

Vs. Pals Microsystems Ltd.

July 29, 2011 (SC)Section 11A of the Central Excise Act, 1944 - Recovery of duties not-levied or not-paid or short-levied or short-paid or erroneously refundedWhere alleged suppression of payment of duty by the respondent-company was brought to the notice of the authority on 25th October, 1996, whereas the show cause notice was issued on 26th June, 2000 and department could not establish that there was any suppression of facts or a fraud on the part of assessee, notice could be said to have been issued after expiry of the period of limitation

The alleged suppression of payment of duty by the respondent-company was brought to the notice of the authority on 25th October, 1996, when the Superintendent of Central Excise had inspected the premises of the respondent-assessee, whereas the show cause notice was issued on 26th June, 2000. The department could not establish that there was any suppression of facts or a fraud on the part of the respondent-assessee.

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that in the absence of any other Rule, providing for any alternative formula or mechanism for re-determination of production capacity of a factory, on furnishing of information to the Commissioner as contemplated in Rule 4(2) of the 1997 Rules, such determination has to be in terms of subrule (3) of Rule 3. That being so, it must logically follow that Rule 5 cannot be ignored in relation to a situation arising on account of an intimation under Rule 4(2) of the 1997 Rules. Moreover, the language of Rule 5 being clear and unambiguous, in the sense that in a case where annual capacity is determined/redetermined by applying the formula prescribed in sub-rule (3) of Rule 3, Rule 5 springs into action and has to be given full effect to.

The principle that a taxing statute should be strictly construed is well settled. It is equally trite that the intention of the Legislature is primarily to be gathered from the words used in the statute. Once it is shown that an assessee falls within the letter of the law, he must be taxed however great the hardship may appear to the judicial mind to be.

There is no reason to depart from these well settled principles to be applied while interpreting a fiscal statute. Therefore, bearing in mind these principles and the intent and effect of the statutory provisions, analysed, the conclusion becomes inevitable that Rule 5 of the 1997 Rules will be attracted for determination of the annual capacity of production of the factory when any change in



The Supreme Court held that the honest mistake committed in maintenance of stock register etc. was frankly admitted by the Managing Director of the respondent-assessee. There was no finding to the effect that there was a fraud or willful mis-statement or suppression of facts. Thus, it was very clear that the notice was issued after expiry of the period of limitation and the initiation of proceedings against the respondent-assessee was barred by limitation.

Service TaxLD/60/45

Idea Mobile Communication Ltd.Vs.

CCE & CAugust 4, 2011 (SC)

Section 65 (105) (zzzx) of the Finance Act, 1994 – Telecommunication Service Value of SIM cards sold by mobile telecommunication operators to subscribers is to be included in taxable service under Section 65 (105)(zzzx), which provides for levy of service tax on telecommunication service and it is not taxable as sale of goods under Sales Tax Act

A SIM Card or Subscriber Identity Module is a portable memory chip used in cellular telephones. It is a tiny encoded circuit board which is fitted into cell phones at the time of signing on as a subscriber. The SIM Card holds the details of the subscriber, security data and memory to store personal numbers and it stores information which helps the network service provider to recognize the caller. Kerala High Court, in Escotel Mobile Communications Ltd. vs. Union of India and Others, (2002) 126 STC 475 (Kerala), has held that a transaction of selling of SIM Card to the subscriber is also a part of the "service" rendered by the service provider to the subscriber.

The charges paid by the subscribers for procuring a SIM Card are generally processing charges for activating the cellular phone and consequently the same would necessarily be included in the value of the SIM Card.

The position in law is therefore clear that the amount received by the cellular telephone company from its subscribers towards SIM Card will form part of the taxable value for levy of service tax, for the SIM Cards are never sold as goods independent from services provided. They are considered part and parcel of the services provided and the dominant position of the transaction is to provide

services and not to sell the material i.e. SIM Cards which on its own but without the service would hardly have any value at all. Thus, the value of SIM cards forms part of the activation charges as no activation is possible without a valid functioning of SIM card and the value of the taxable service is calculated on the gross total amount received by the operator from the subscribers. The Sales Tax authority understood the aforesaid position that no element of sale is involved in the present transaction.

Therefore, the value of SIM cards sold by the appellant to their mobile subscribers is to be included in taxable service under Section 65 (105) (zzzx), which provides for levy of service tax on telecommunication service and it is not taxable as sale of goods under the Sales Tax Act.

Companies Act

LD/60/46Legum & Law Awareness Society

Vs.Union of India

August 11, 2011 (DEL)Section 33 read with Section 459 of the Companies Act, 1956 read with

Section 11 of the Limited Liability Partnership Act, 2008 – Registration of Memorandum and ArticlesAdvocates/corporate advocates cannot be included in list of practicing professionals and they cannot issue various certificates integrated into various e-forms notified under Companies Act, 1956 and Limited Liability Partnership Act, 2008

The petitioner filed writ petition praying for direction to respondent to include the advocates/corporate advocates in the list of practicing professionals and enable them to issue various certificates integrated into various e-forms notified under the Companies Act, 1956 and the Limited Liability Partnership Act, 2008 and to eliminate the obligatory certification of e-forms notified under the Companies Act, 1956 and the Limited Liability Partnership Act, 2008.

The respondent, in the counter affidavit, has clarified that full effect is being given to section 33 of the Companies Act and section 11 of the Limited Liability Partnership Act. The said provisions are being fully complied with.

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As far as filing of Forms 18 and 32 under the Companies Act are concerned, these were never filed by advocates. With the introduction of e-filing, the said forms have to be now filed electronically. These forms required declaration and verification to be made in the prescribed format by the parties. There is similarly a provision for making declaration and verification in the prescribed format in respect of limited liability partnerships, which again are required to be filed electronically. In this regard, authentication or certification is required to be made by company secretaries, chartered accountants and cost accountants.

Keeping in view the explanation given by the respondent, the prayer made by the petitioner could not be accepted.

LD/60/47

Sanjay SomaniVs.

The Registrar of Companies, West BengalAugust 3, 2011 (CAL)

Section 295 read with Section 633 of the Companies Act, 1956 read with Section 468 of the Criminal Procedure Code 1973 – Loans to DirectorAlleged violation of Section 295 in advancing money to another company in which directors of lender company had more than 30% of paid-up share capital would fall under section 468 of the Criminal Procedure Code; accordingly, time limit for taking cognizance of the offence is one year from date of its commission or knowledge by inter alia person aggrieved by it

According to the Central Government the amount paid by the Company in question to company H.N.G. was loan and advance. According to them the Directors of the Company were holding 30% of the paid up share capital of the other Company and, therefore, for advancing money, permission of the Central Government was required, which was not obtained. Therefore, there was violation of Section 295 (1) (d).

The High Court of Calcutta held that the first ground taken was on limitation. The alleged violation is of Section 295. The penalty for such violations, if proved is six months imprisonment or fine or both. Hence, under Section 468 of the CrPC the time limit for taking cognizance of the offence is one year from the date of its commission or knowledge by inter alia the person aggrieved by it. The period for which the violation had allegedly taken place ended 31st March, 2008.

Now it is the usual case of the Registrar of Companies, that the date of knowledge is the date of the show cause notice which is 14th July, 2010. Hence limitation did not set in when this application was filed. The commencement of the period of limitation is from the date of the offence or from the date of knowledge of the offence by the person aggrieved (See Section 469 (1) (a) and (b) of the CrPC). Even if it is assumed that on the date of the alleged

offence the Registrar of Companies had no knowledge, but by 22nd December, 2008 the Registrar was deemed to have knowledge of the offence as knowledge by the office of the Regional director is knowledge of the Registrar of Companies.

This application was filed on 4th August, 2010. On that date no criminal complaint was lodged by the Registrar of Companies, West Bengal. Therefore, if he was fixed with knowledge of the alleged offence by 22nd December, 2008, cognizance of the offence was barred when this application was filed. If cognizance of the offence would be barred the alleged complaint would be liable to be dismissed and the accused discharged. The above cognizance of the offence would become barred.

Section 633 of the Companies Act, 1956 read with Section 190 of Code of Criminal Procedure - Power of Court to Grant Relief in Certain CasesPapers in section 633(2) applications constitutes information under Section 190 of Code of Criminal Procedure, on basis of which High Court can dismiss complaint and discharge accused

In the case of In Re S.B.I. Home Finance Ltd. Vs. Regional Director, December 7, 2006 (CAL) it was held that the High Court in a section 633(2) application becomes a criminal Court and has the power to acquit or exonerate an accused. The papers in the Section 633(2) application constituted the information under Section 190 of the Code of Criminal Procedure, on the basis of which the High Court can dismiss the complaint and discharge the accused.

LD/60/48Smt. Anupam Khosla

Vs. Official Liquidator

July 20, 2011 (CAL)Section 543 of the Companies Act, 1956 read with Section 47 of the Presidency Insolvency Act, 1909 - Power of Court to Assess Damages against Delinquent Directors, etc.Section 47 of the Presidency Insolvency Act do not authorise the Company Court to neither reopen decree nor give any authority to adjust the amount realised in execution of decree

An application for misfeasance was filed against the ex-directors of company-in-liquidation in which an ex-parte misfeasance decree was passed. The assets of the judgment debtors who were delinquent directors, were sold in execution of the decree and decretal dues were duly paid. The applicant preferred the instant application for adjustments in decretal dues.

The High Court of Calcutta held that the High Court has no authority and/or power to reopen the decree. The decree had become final and binding upon all the parties. Section 47 of the Presidency Insolvency Act do

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not authorize this Court to reopen decree nor give any authority to adjust the aforesaid amount of rent. Section 70 of the Contract Act had no application in the present case of the petitioner. The applicant did not pray for any variation before the Court when the order was passed.

The amount collected by the Official Liquidator could be refunded only after the payments were made to the secure creditors. The claim of the petitioner, on the basis of the balance sheet prepared in 1958 was also not acceptable to the Court in view of the fact that the order of winding up was passed on 7-9-1965 and, therefore, there was no scope today to consider the balance sheet of 1958, which was lost all its relevance. Furthermore, the claim made by the applicants as regards payment of decretal dues to some persons were disputed questions of facts and there was nothing on record before this Court to come to a conclusion on the same either. Therefore, the claim of making payments to the said persons was also to be rejected.

SEBILD/60/49

Mansukh Securities and Finance Ltd.Vs.

The Adjudicating OfficerJuly 7, 2011 (SAT-MUM)

Regulation 26 of the SEBI (Brokers and Stock Broker’s) Regulations, 1992 - Procedure for Action in Case of Default - Liability for monetary penaltyEven where number of transactions, which were entered into by appellant-stock broker in cash to/from clients in lieu of securities, is small as compared to total number of transactions but he had failed to give strict proof of what were exceptional circumstances that led it to accept or pay to client in cash, irregularity is culpable enough calling for monetary penalty

The appellant/noticee stock broker was alleged to have paid and received cash to/from clients in lieu of securities which was alleged to be in violation of Regulation 26(xv) of the Stock brokers Regulations, read with Board’s circular dated November 18, 1993 and August 27, 2003. The appellant submitted before the Board that the transactions were made against trading obligation of clients in exceptional circumstances and in the interest of commercial prudence. It was further submitted by it that the number of such transactions is negligible when compared to the total transactions during the period covered by the inspection report.

The Tribunal held that Regulation 26 of the stock brokers regulations makes a stock broker or a sub broker liable to monetary penalties in respect of the violations mentioned there under. Clause (xv) of the said regulation makes failure to comply with the directions issued by the Board under the Act or the Regulations framed there under liable to monetary penalty. The violation in the case in hand was neither of the Act nor of the Regulations

framed there under but of the two circulars of Board dated 18-11-1993 and 27-8-2003. Perusal of the record showed that the number of transactions which were entered into by the appellant-stock broker in cash to/from clients in lieu of securities was small as compared to the total number of transactions entered into by the appellant during the inspection report and all such transactions are of amounts less than ` 20,000.

The purpose of carrying out inspection is not punitive and every minor discrepancy/ irregularity found during the course of inspection is not culpable and the object of the inspection could well be achieved by pointing out the irregularities/deficiencies to the intermediary at the time of inspection and making it compliant. While holding the appellant guilty of this irregularity, the adjudicating officer had stated that the noticee failed to give strict proof of what were the exceptional circumstances that led noticee to accept or pay to the client in cash. If that was so, the adjudicating officer could have sought further clarification from the appellant which was not done. In the facts and circumstances of this case the irregularity was culpable enough calling for monetary penalty.

Regulation 26 of the SEBI (Brokers and Stock Broker’s) Regulations, 1992 - Procedure for Action in Case of Default - Liability for monetary penaltyWhere some persons who operated proprietary account trading enabled terminals, were employees of its group company and those employees were seconded to it by said group company and were working under direct control and supervision of appellant, in absence of any bar in Rules or Regulations on this subject, there was no illegality or irregularity in procedure adopted by appellant in this regard

The irregularity for which the appellant/noticee had been held guilty by the adjudicating officer was that the appellant allowed unauthorized persons i.e. the employees of its group company to carry out proprietary account trading besides client based trading. The appellant had admitted that some persons who operated the proprietary account trading enabled terminals were employees of its group company and those employees were seconded to it by the said group company and were working under the direct control and supervision of the appellant. The proof of secondment of the persons by the group company was also submitted by the appellant which was not accepted by the adjudicating officer on the ground that it was not ascertainable whether the persons who were deputed to the noticee carried out the proprietary trading besides client based trading. The other ground for not accepting the appellant’s reply was that the memos of secondment were blanket agreement entered into with a group company.

The Tribunal held that the logic given by the adjudi-cating officer of the Board could not be accepted.

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In the absence of any bar in the rules or regulations on this subject, there was no illegality or irregularity in the procedure adopted by the appellant in this regard.

Regulation 26 of the SEBI (Brokers and Stock Broker’s) Regulations, 1992 - Procedure for Action in Case of Default - Liability for monetary penaltyWhere no explanation is forthcoming on records explaining entries in sample of receipts and payments made through client’s account with regard to salary, interest on FD, telephone charges, FDR etc. Such withdrawals are not permissible under Board’s circular dated 18-11-1993

The appellant had been found guilty for failure to segregate the client’s fund from its own fund which resulted in client’s accounts being used for purposes other than that of clients’ transaction. In its response to the adjudicating officer, the appellant had submitted that the amounts alleged to have been withdrawn by it from the client accounts and used for purposes other than client transaction never exceeded the brokerage due to it on the date of such withdrawal.

The Tribunal held that the Board’s circular dated November 18, 1993 which prescribes regulation of transactions between clients and brokers specifically mandates that no money shall be drawn from clients account other than some specified ones.

No explanation was forthcoming on records explaining the entries in the sample of receipts and payments made through client’s account with regard to salary, interest on FD, telephone charges, FDR, etc. Such withdrawals are not permissible under the Board’s circular referred to above. Therefore, there was no infirmity in the findings arrived at by the adjudicating officer in this regard.

Regulation 26 of the SEBI (Brokers and Stock Broker’s) Regulations, 1992 - Procedure for Action in Case of Default - Liability for monetary penaltyWhere appellant broker failed to mention settlement number and order time in contract notes and thus, failed to issue contract notes in form and manner as required and for such procedural irregularities corrective measures had been taken by appellant, said irregularities did not call for any punitive action

The appellant-broker had been found guilty of not mentioning settlement number and order time in the contract notes and thus, failed to issue the contract notes in the form and manner as required under the Regulations and this amounted to violation of regulation 26(xvi).

The Tribunal held that these procedural irregularities for which corrective measures had been taken by the appellant. Thus, the irregularities did not call for any punitive action.

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LEGAL UPDATE Circulars / Notifications


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

I. CIRCULARS1. Circular No.5/2011 dated August 16, 2011.

The Central Board of Direct Taxes has through this circular, provided the rates for deduction of income-tax from the payment of income chargeable under the head “Salaries” during the financial year 2011-12 and explained certain related provisions of the Income-tax Act, 1961.

2. Circular No.6/2011 dated August 24, 2011. The Central Board of Direct Taxes has through this

circular, modified Circular No.02/2011, dated April 27, 2011, which had prescribed the procedure for regulating refund of amount paid in excess of tax deducted and/or deductible in respect of TDS on residents covered under sections 192 to 194LA of the Income-tax Act, 1961.

In partial modification of Circular No. 2/2011, dated April 27, 2011, it has now been provided that:

“The refund claims pertaining to the period up to March 31, 2009 may be submitted to the Assessing Officer (TDS) up to December 31, 2012.”

The complete details of the text of the circulars can be downloaded from the link http://law.incometaxindia.gov.in/DIT/Circulars.aspx

II.NOTIFICATIONS1. Notification No. 47/2011, dated September 1,

2011. In exercise of the powers conferred by section 90 of

the Income-tax Act, 1961, the Central Government through this notification notifies that, all the provisions of the Second Protocol amending the agreement between the Government of the Republic of India and the Government of the Republic of Singapore for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income, shall be given effect to in the Union of India for taxable periods falling after January 1, 2008, that is, Financial Year 2008-09 and subsequent financial years in accordance with the provisions specified in Article 3 of the Protocol.

2. Notification No. 48/2011, dated September 2,2011.

In exercise of the powers conferred by sub-section (1) of section 90A of the Income-tax Act, 1961 the Central Government had adopted the agreement between India-Taipei Association in Taipei and Taipei Economic and Cultural Center in New Delhi for the

avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and notifies that all the provisions of the said agreement shall be given effect to in the Union of India with effect from the 1st day of April, 2012.

3. Notification No. 49/2011, dated September 6,2011.

In exercise of the powers conferred by section 10(45) of the Income-tax Act, 1961, the Central Government has through this notification, notified certain allowances and perquisites for serving Chairman and members of Union Public Service Commission namely, the value of rent free official residence, conveyance facilities, sumptuary allowance and leave travel concession. The said notification also notifies allowances and perquisites for retired Chairman and retired members of Union Public Service Commission which are as follows:

a) A sum of maximum R14000 per month for defraying the service of an orderly and meeting expenses incurred towards secretarial assistance on contract basis.

b) The value of a residential telephone free of cost and the number of free calls to the extent of R1500 pm (over and above free calls allowed)

This notification shall come into force from April 1, 2008.4. Notification No. 50/2011, dated September 9,

2011. In exercise of the powers conferred by section

80CCF of the Income-tax Act, 1961, the Central Government through this notification, specifies the long term infrastructure bonds to be issued in the financial year 2011-12 by IFCI, LIC, IDFCL, IIFCL and a Non-Banking Finance Company classified as an Infrastructure Finance Company by Reserve Bank of India, as Long Term Infrastructure Bonds for the purpose of the deduction under section 80CCF.

The notification further specifies certain conditions relating to limit on issuance, tenure of the bond, yield of the bond, end-use of the proceeds and reporting or monitoring mechanism.

Further, it shall be mandatory for the subscribers to furnish their PAN to the issuer.

The complete details of the text of the above-mentioned notifications can be downloaded from link http://law.incometaxindia.gov.in/DIT/Notifications.aspx

III. PRESS RELEASE1. Press Release No.402/92/2006-MC (20 of 2011),

dated August 24, 2011. The Government of India has signed an Agreement

for Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income and on Capital (DTAA) with Government of Georgia.

Circulars/NotificationsGiven below are the important Circulars and Notifications issued by the CBDT, CBEC, MCA, RBI and SEBI during the last month for information and use of members. Readers are requested to use the Citation/website or weblink to access the full text of desired circular/notification. You are requested to please submit your feedback and suggestions on the column at [email protected].

DIRECT TAXES

554

LEGAL UPDATECirculars / Notifications


tax paid by him in the preceding financial year. The amendment would be effective from October 1, 2011.

At present, electronic filing of service tax returns is mandatory for the assessees who have paid service tax of R10 lakh or more including the amount of service tax paid by utilisation of CENVAT credit in the preceding financial year.

2. Notification No. 44/2011 ST dated September09, 2011: Business Auxiliary Services provided by Sub Brokers to Stock-Brokers in relation to sale or purchase of securities listed on a registered stock exchange are exempt from payment of service tax vide Notification No. 31/2009 ST dated September 01, 2009. Such exemption has now been extended to the authorised person also.

3. NotificationNo.45/2011STdatedSeptember12,.2011: Taxable services provided to any business entity, by an arbitral tribunal, in respect of arbitration have been exempted from payment of service tax.

II. Circular:1. CircularNo.145/14/2011STdatedAugust19,2011:

CBEC has clarified that fees charged for issuance of country of origin certificate (COOC) by Chambers of Commerce is liable to service tax under ‘technical inspection or certification service’.

The Board has clarified that though the above service may also fall under club or association service, but the ‘technical inspection and certification agency’ service, being a specific description when compared to a general description of ‘club or association service’, would be the correct classification as per the principles of classification provided in section 65A of Finance Act, 1994.

It may be noted that service tax paid on ‘technical inspection & certification’ of export goods is eligible for refund under Notification 17/2009 dated July 7, 2009.

B. CENTRAL EXCISEI. Notifications:1. Notification No. 21 & 22/2011 CE (NT) dated

September 14, 2011: Central Excise Rules, 2002 have been amended to provide that the returns and statements prescribed under rule 12 will have to be filed electronically by all the assessees irrespective of the duty paid in the preceding year. Monthly Return for production and removal of goods (ER-1), Quarterly Return (ER-3), Annual Financial Information Statement (ER-4) are some of the returns and statements prescribed under Rule 12.

Assessees availing exemption under Notification No. 49/2003 CE dated June 10, 2003 or Notification No. 50/2003 CE dated June 10, 2003 have been exempted from the requirement of e-filing of the returns prescribed under rule 12. Notification No. 49/2003 CE dated the June 10, 2003 exempts certain goods when cleared from a unit in the State of Uttaranchal or Himachal

The complete details of the text of the above-mentioned press release can be downloaded from the following link http://www.incometaxindia.gov.in/press_release.asp

IV. LETTERS1. Letter No. DIT(L&R)-I/SLP/393/2011/4589 dated

September2,2011 The revised monetary limit (R4Lakhs) for filing appeals

by the department before Appellant Authorities became effective for the appeals filed on or after February 09, 2011 i.e. the date of issue of instruction no:03/2011. The Hon’ble Delhi High Court, on the basis of revision in monetary limits, had summarily dismissed the appeals filed by the department prior to February 09, 2011 on the ground that the tax effect involved was less than the revised monetary limit.

On this issue, a Special Leave Petition (SLP) was filed by the Surya Herbal, in response to which the Supreme Court has directed that in all such cases review petition be filed in High Court within two weeks and that High Courts not to apply the said instructions ipso facto in respect of appeals filed prior to February 09, 2011. The Directorate of Income-tax (Legal & Research)-I has through this letter requested the Chief CITs and DGIT’s to take immediate steps to file review petition in High Court pointing out the observations of Supreme Court and has also advised the officers not to send any proposals to file SLP in such cases.

In furtherance to the said instructions, letter No. DIT(L&R)-I/NZ/SLP/393/2011/5091 dated September 16, 2011 has been issued by the Office of the Director of Income-tax (Legal & Research)-I to all Chief CITs and DGIT’s. In the said letter, the field officers have been advised to file a recall/ review petition in High Court as may be suggested by the Sr. Standing Counsel in a particular case.

The said letter has also clarified that since appeal to High Court was filed as per the relevant Instruction applicable at the time of filing, review/ recall petition in such cases is also to be filed where tax effect is less than R4 Lacs, if filing appeal to High Court was permissible as per Instruction applicable at the time of filing.

The complete text of the above mentioned letters may be downloaded from http://www.itatonline.org

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

A. SERVICE TAX I. Notification:1. NotificationNo. 43/2011 ST

dated August 28, 2011: Service Tax Rules, 1994 have been amended to provide that every assessee will have to submit half-yearly service tax return electronically, irrespective of the amount of service

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Pradesh. Notification No. 50/2003 CE dated June 10, 2003 exempts certain goods when cleared from a unit located in the Industrial Growth Centre or Industrial Infrastructure Development Centre or Export Promotion Industrial Park or Industrial Estate or Industrial Area or Commercial Estate or Scheme Area.

Hundred per cent Export Oriented Undertakings will also be required to submit the monthly excise return (ER-2) electronically irrespective of the duty paid in the preceding year.

Similar amendment has been made in CENVAT Credit Rules, 2004 to the effect that the assessees will now have to file the annual declaration in respect of principal inputs (ER-5) and the monthly return of information relating to principal inputs (ER-6) electronically irrespective of the duty paid in the preceding year.

The amendments will become effective from October 1, 2011.

2. NotificationNo.20/2011CE(NT)datedSeptember13,2011: CBEC had notified new Form ER-1 & Form ER-3 of Excise Returns vide Notification No. 16/2011 CE (NT) dated July 18, 2011 which were to be effective from October 01, 2011. The forms have been further amended by the CBEC. The new Forms along with the amendments would be effective from January 01, 2012.

Form ER-1 is the form for filing Monthly Return for Production and removal of Goods and Form ER-3 is the form for Quarterly Return for Clearance of Goods & CENVAT credit.

C. CUSTOMSI. Notification:1. CircularNo.37/2011Cus.datedAugust23,2011:

CBEC has formulated an ‘Authorised Economic Operators’ (AEO) programme to address the growing concern amongst Customs administrations about the threat posed through misuse of channels of import and export. The objective of programme is to ensure security in global supply chain from the point of origin i.e., the point of export to import in the receiving country, keeping in view national requirements of respective administrations. The programme has been developed pursuant to guidelines of WCO adopted in SAFE FoS (Framework of Standard) in 2005.

One of the salient features of the AEO programme is that any economic operator such as importer, exporter, logistics provider, Customs House Agent can apply for authorisation subject to certain conditions. The authorisation would normally be granted within 90 days of receipt of application if the same is found to be acceptable and not deficient in any material particulars.

The AEO Programme envisages various benefits to different categories of economic operators such as importers, exporters, Customs House Agents, etc. The intention is to give AEO certified operators

preferential treatment in terms of less Customs examination, relaxed procedural requirements etc.

The AEO programme would be implemented on voluntary basis i.e. those who are interested in getting benefits of the programme may apply for authorisation. The authorisation would be granted after detailed pre-certification verification and validation done by AEO Programme Team.

The complete text of the above-mentioned notifications and circulars can be downloaded from www.cbec.gov.in

(Matter on FEMA has been contributed by CA. Manoj Shah and CA. Hinesh Doshi)1. Opening and Maintenance of Vostro Accounts of Non-resident Exchange HousesA.P. (DIR Series) Circular No.09 dated August 29, 2011

In terms of para (A)(1) of Annex-I of A.P.(DIR Series) No.28 [A.P(FL/RL Series) Circular No.02] dated February 06, 2008, under the Rupee Drawing Arrangements (RDAs), inward remittances for permissible purposes are received in India through Exchange Houses situated in Gulf countries, Hong Kong and Singapore, with prior approval of the Reserve Bank. With a view to extending the scope of the said Arrangement to other jurisdictions, it has been decided to extend the RDAs only under the Speed Remittance procedures to Exchange Houses situated in Malaysia.

2. External Commercial Borrowings (ECBs) – Simplification of ProcedureA.P. (DIR Series) Circular No.11 dated September 07, 2011

As per the extant ECB procedures, any request for change of the lender for an existing ECB is required to be referred by the Authorised Dealer Bank to the Reserve Bank (RBI) for necessary approval.

As a measure of simplification of the existing procedures, RBI has decided to delegate powers to the designated AD Category-I banks to approve the request from the ECB borrowers with respect to change in the recognised lender provided:1. the original lender is an international bank or a

multilateral financial institution (such as IFC, ADB, CDC, etc.) or a regional financial institution or a Government owned development financial institution or an export credit agency or supplier of equipment;

2. the new lender also belongs to any one of the above mentioned categories, subject to the Authorised Dealer ensuring the following conditions:- (i) the new lender is a recognised lender as per the

extant ECB norms;(ii) there is no change in the other terms and

conditions of the ECB; and

FEMA

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(iii) the ECB is in compliance with the extant guidelines.

However, changes in the recognised lender in case of foreign equity holder and foreign collaborator will continue to be examined by the RBI. The changes in the recognised lender should be promptly reported to the Department of Statistics and Information Management, RBI in Form 83.

The above modifications to the ECB guidelines will come into force with immediate effect. All other aspects of the ECB policy shall remain unchanged.

The full text of the above circulars is available on the website www.rbi.org.in

(Matter on Corporate Laws has been contributed by CA. Jayesh Thakur)MCA1. Revised forms 23AC and 23ACA notified by MCA www.mca.gov.in

The MCA has issued Notification F. No. 5/18/2005 - CLV dated August 11, 2011 revising the form 23AC (Form

relating to filing balance sheet and other documents with the RoC) and form 23ACA (Form for filing profit and loss account and other documents with the RoC). These new forms will be effective from August 12, 2011. One may refer to the above citation and website for further details and the forms.

2. Repeal of online incorporation of companies within 24 hourswww.mca.gov.in

The MCA has issued General Circular No. 61/2011 dated September 05, 2011 referring to its earlier Circular whereby the procedures to enable promoters to get their companies incorporated online within 24 hours was provided. It had stated that in case the e-forms 1, 18, 32 and e-form for Memorandum of Association (MOA) and Articles of Association (AOA) have been certified by the practicing professional regarding the correctness of the information and declarations given by the subscribers, the application shall be processed electronically and the digital certificate of incorporation shall be issued immediately online by the Registrar of Companies. The MCA has re-examined the matter and decided that since now companies are being incorporated within 24-48 hours, on-line approval of incorporation forms i.e. STP mode of approval of e-forms 1, 18 and 32 on the basis of certification and declarations given by the practicing professional is not going to be implemented yet. One may refer to the above citation and website for further details.

3. Applicability of revised schedule VI format to companies proposing IPO www.mca.gov.in

The MCA has issued General Circular No. 62/2011 dated September 05, 2011 referring to its earlier notifi-

cation regarding revised schedule VI of the Companies Act, 1956 in relation to which clarification was sought that during the current year, the MCA has amended the Schedule VI which is to take effect for accounts closing on March 31, 2012. During the financial year, in case companies intend to go for Initial Public Offer / Further Public Offer, they are expected to prepare accounts in the new Schedule VI format. If previous figures are reclassified in accordance with new Schedule VI, this will pose enormous amount of administrative work and difficulty in making such changes besides making comparison with previous year unrealistic. Hence, the MCA has clarified that the presentation of financial statements for the limited purpose of IPO/FPO during the financial year 2011-12 may be made in the format of the pre-revised Schedule VI under the Companies Act, 1956. However, for period beyond March 31, 2012, they would prepare only in the new format as prescribed by the present Schedule VI of the Companies Act, 1956. Also, companies would ensure that it will prepare and file the annual accounts for the financial year 2011-12 as per revised Schedule VI of the Companies Act, 1956. One may refer to the above citation for further details.

4. Compliance of the provisions of the Companies Act, 1956www.mca.gov.in

The MCA has issued General Circular No. 63/2011 dated September 06, 2011 referring to its earlier Circular which informed that in order to ensure corporate governance and proper compliances of provisions of Companies Act, 1956, no request, whether oral or in writing or through e-forms, for recording any event based information / changes shall be accepted by the Registrar of Companies (RoCs) from such defaulting companies, unless they file their updated balance sheet and profit & loss accounts and annual return with the RoCs. However, in the interest of stakeholders, certain event based information/changes were being accepted by the RoC from such defaulting companies. Now, on requests received from various quarters of the corporates and professionals, the RoC shall accept Forms 2, 3, 5, 23, 61 in cases of filing by directors of defaulting companies in respect of such companies. Forms 61, DIN-3, 32, 21, FTE in cases of filing by directors of defaulting companies in respect of companies having the status of dormant companies. Forms DIN-3, 32, 2, 3, 5, 21, 23, 61, 23AC, 23ACA, 20B, 21A, 66, 23-B, FTE in cases of filing by directors of defaulting companies in respect of companies having the status as active in progress companies. This circular shall be effective from September 18, 2011. One may refer to the above citation and website for further details.

5. Replacement of LLP annual compliance Form to enable STPwww.mca.gov.in

The MCA has issued Notification No. F.No.2/17/2011-

CORPORATE LAWS

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LEGAL UPDATECirculars / Notifications


CLV dated September 14, 2011 replacing the Form 8 (Statement of Account & Solvency) relating to annual filing for LLPs. The only change in the form is in relation to the enabling of the form for submission / uploading of the same online in a straight-through processing (STP) manner. There is no other change in the content. One may refer to the above citation and website for further details.

SEBI/RBI6. Transparency in payment of commission and load structure of mutual funds www.sebi.gov.in

The SEBI has issued Circular No. Cir/IMD/DF/13/2011 dated August 22, 2011 regarding empowering investors through transparency in payment of commission and load structure. In order to enable people with small saving potential and to increase the reach of Mutual Fund products in urban areas and smaller towns, it has been decided that a transaction charge per subscription of R10,000/- and above be allowed to be paid to the distributors of the Mutual Fund products from the date of this circular. However, there shall be no transaction charges on direct investments. The transaction charge shall be subject to guidelines as per this Circular. Also, in the interest of investors, the need to regulate the distributors through AMCs (Asset Management Companies) by putting in place a due diligence process to be conducted by AMCs is decided and that the due diligence process shall be initially applicable for distributors satisfying one or more of the following criteria, (a) Multiple point presence (more than 20 locations), (b) AUM (Assets Under Management) raised over R100 crore across industry in the non-institutional category but including high net worth individuals (HNIs), (c) Commission received of over R1 crore p.a. across industry, and, (d) Commission received of over R50 lakh from a single Mutual Fund. Earlier, SEBI had stipulated that only compounded annualised yield shall be advertised if the scheme has been in existence for more than 1 year. It has now been decided that when the scheme has been in existence for more than three years, (a) point-to-point returns on a standard investment of R10,000/- shall also be shown in addition to CAGR for a scheme in order to provide ease of understanding to retail investors, and, (b) performance advertisement shall be provided since inception and for as many twelve month periods as possible for the last 3 years, such periods being counted from the last day of the calendar quarter preceding the date of advertisement, along with benchmark index performance for the same periods. One may refer to the above citation and website for further details.

7. Processing of Investor Complaints in SEBI Complaints Redress System (SCORES) www.sebi.gov.in

The SEBI has issued Circular No. CIR/MIRSD/17/2011

dated August 24, 2011 referring to processing of investor complaints in a centralised web based complaints redress system ‘SCORES’ (SEBI Complaints Redress System). The salient features of this system are, (a) centralised database of all complaints, (b) online movement of complaints to the concerned intermediaries, (c) online upload of Action Taken Reports (ATRs) by the concerned entities, and, (d) online viewing by investors of action on the complaints and its current status. Henceforth all complaints shall be forwarded electronically through SCORES only. The pending complaints will be available at http://scores.gov.in/admin and the concerned entities should submit the ATR (Action Taken Report ) along with supporting documents electronically in SCORES. Also, updation of action taken would not be possible with physical ATRs. Hence, submission of physical ATR will not be accepted for complaints lodged in SCORES. Intermediaries can view the complaints in the SCORES system by logging in with their user id and password which will be communicated separately. A daily alert on pending complaints will be forwarded at the e-mail ID registered with SEBI for regulatory communications. Failure on the part of the entity in updating the ATR on the SCORES will be considered as non-redressal of complaint and will be shown as pending against the entity. One may refer to the above citation and website for further details. Similar Circulars are issued in relation to redressal of investor grievances against stock brokers and sub-brokers in (by Circular No. CIR/MIRSD/18/2011 dated August 25, 2011) and in relation to redressal of investor grievances against depository participants (by Circular No. CIR/MIRSD/20/2011 dated September 12, 2011).

8. Business activities of the asset management company and infrastructure debt fund schemeswww.sebi.gov.in

The SEBI has issued Circular No. LAD-NRO/GN/2011-12/27668 dated August 30, 2011 amending the (Mutual Funds) Regulations, 1996 in relation to restrictions on business activities of the asset management company (AMC) which provides that the AMC shall not act as a trustee of any mutual fund and not undertake any business activities other than in the nature of management and advisory services provided to pooled assets including offshore funds, insurance funds, pension funds, provident funds, if any of such activities are not in conflict with the activities of the mutual fund. It is provided that the AMC shall not invest in any of its scheme, unless full disclosure of its intention to invest has been made in the offer documents, in case of schemes launched after the notification of SEBI (Mutual Funds) (Amendment) Regulations, 2011. Also, the AMC shall not carry out its operations including trading desk, unit holder servicing and investment operations outside the territory of India. Also, by this Circular the Infrastructure debt fund schemes regulations are also issued which contain detailed regulations on



applicability, eligibility criteria for launching infrastructure debt fund scheme, conditions for infrastructure debt fund schemes, permissible investments, valuation of assets and declaration of net asset value, duties of asset management company, disclosures in offer document and other disclosures, transactions by employees, etc. One may refer to the above citation and website for further details.

9. Amendment to SEBI (Mutual Funds) Regulations regarding abridged annual reportswww.sebi.gov.in

The SEBI has issued Circular No. Cir/IMD/DF/16/2011 dated September 08, 2011 amending the SEBI (Mutual Funds) Regulations, 1996 in relation to abridged scheme wise annual report format and periodic disclosures to the unitholders and regarding mailing of scheme wise annual report or abridged summary. Now, in order to bring cost effectiveness in printing and dispatching the annual reports or abridged summary and as a green initiative measure, it shall be ensured that, (a) In case of unitholders whose email addresses are available with the Mutual Fund, the AMCs shall communicate to them stating that henceforth, the scheme annual reports or abridged summary would only be sent by email, (b) In case of unitholders whose email addresses are not available with the Mutual Fund, the AMCs shall communicate to the unitholders to obtain their email addresses for registration of the same in their database, (c) The communication in both the above cases shall clearly mention that the scheme annual accounts or abridged summary would henceforth be sent to these email addresses and not as physical copies and the communication shall also have an option for the investors stating that those who still wish to receive the reports as physical copies may indicate as such, (d) In case of any request from these unitholders as detailed above for physical copies notwithstanding their registration of email addresses, AMCs shall provide the same without demur. (e) For the rest of the investors, i.e. whose email addresses are not available with the mutual fund, the AMCs shall continue to send physical copies of scheme annual reports or abridged summary, and, (f) The AMCs shall display the link of the scheme annual reports or abridged summary prominently on their websites and make the physical copies available to the investors at their registered offices at all times. One may refer to the above citation and website for further details.

10. Simplified issuance of non-convertible debentures (NCDs)-minimum rating of NCDs www.rbi.gov.in

The RBI has issued Circular No. IDMD.PCD. 08/14.03.03/2011-12 dated August 23, 2011 relating to regulation of NCDs of maturity up to one year. In view of the standardisation of rating symbols and definitions for credit rating agencies by Securities Exchange Board

of India (SEBI), the Reserve Bank of India has issued an amendment Direction, i.e., Issuance of Non-Convertible Debentures (Reserve Bank) (Amendment) Directions, 2011, inter alia, revising the symbol of minimum rating required for issuing NCDs of maturity up to one year. The minimum credit rating shall be ‘A2’ [As per rating symbol and definition prescribed by Securities and Exchange Board of India (SEBI)].These Directions may be referred to as the Issuance of Non-Convertible Debentures (Reserve Bank) (Amendment) Directions, 2011 and shall be effective from today, i.e., August 23, 2011. One may refer to the above citation and website for further details.

11. Infrastructure Finance Companies (IFCs) - as eligible issuers for FII investment limit in debt instrument for infrastructurewww.rbi.gov.in

The RBI has issued Circular No. CIR/IMD/FIIC/15/2011 dated August 26, 2011 referring to SEBI circular on FII investment in the corporate bonds issued by Indian companies which are in the infrastructure sector, where ‘infrastructure’ is defined in terms of the extant guidelines on External Commercial Borrowings (ECB). The RBI has now clarified that Non-Banking Financial Companies (NBFCs) categorised as Infrastructure Finance Companies (IFCs) by the Reserve Bank of India (RBI) shall also now be considered eligible issuers for the purposes of FII Investment under the corporate debt long term infra category. One may refer to the above citation and website for further details.

12. Dissemination of credit information of suit-filed accounts www.rbi.gov.in

The RBI has issued Circular No. CID.BC.30/20.16.042/2011-12 dated September 05, 2011 regarding submission of credit information to Credit Information Bureau (India) Ltd (CIBIL) and dissemination of credit information as also role of CIBIL in the matter. It is reiterated that currently certificate of registration (CoR) has since been issued to 3 Credit Information Companies (CICs), viz., Experian Credit Information Company of India Pvt. Ltd., Equifax Credit Information Services Pvt. Ltd. and High Mark Credit Information Services Pvt. Ltd. to commence the business of credit information under the Credit Information Companies (Regulation) Act, 2005. It is now advised that such CICs should submit the quarterly list of suit-filed accounts of R1 crore and above, classified as doubtful or loss, to CIBIL and/or any other credit information company which has obtained CoR from RBI and of which the bank is a member. Further, it is advised that the above CICs have been advised to disseminate credit information covering data supplied by banks/FIs on such suit-filed accounts on their respective websites. One may refer to the above citation and website for further details. n

OPINION


Segment Reporting

The following is the opinion given by the Expert Advisory Committee of the Institute in response to a query sent by a member. This is being published for the information of readers.

A. Facts of the Case

1. An unlisted public limited company is engaged in the business of manufacturing products on contract basis. The turnover of the company for the financial year 2009-10 was R260 crore. The company manufactures engineering products, castings, etc. as per the design, engineering standards and specifications prescribed by the customers. The company manufactures industrial valves under brand name of its customer at USA. The company also manufactures castings both machined and unmachined and supplies the same to tractor and auto sector. Again, these are components used by manufacturers of tractors, trucks, etc. The company also supplies components to a public sector undertaking for use in earth moving equipment. According to the querist, the company has only one product sold in its brand name, i.e., gear boxes which account for less than 3% of the turnover. The company has not more than 12 customers who either use components supplied by the company in their own products, for example, tractor, truck, earth moving equipment, etc. or sell the products under their own brand name and the end customer does not recognise the company.

2. The querist has stated that the geographical distribution of the sales of the company is also restricted to one country/region. For example, more than 95% of valves are supplied to USA. Castings are sold in India with a small portion of export.

3. The querist has also stated that the financial statements presented and reviewed by the Board is for the company as a whole without any segmentation. Bank facilities are also arranged based on the financials of the company as a single segment organisation. Banks have accepted this position.

4. Based on these facts, the company has given the

following note under Notes on Accounts in the

published statement of annual accounts:

“Segment Reporting The company has confirmed that they are operating

as a single business and geographical segment. As such, there are no reportable segments as per Accounting Standard 17 on 'Segment Reporting’.”

This is the settled position from the financial year 2001-02 to 2009-10. The company had a change of auditors recently and they desire that the position should be re-examined. The querist has stated that to be consistent, the company would prefer to continue the present practice.

B. Query

5. On the facts and circumstances stated above, the querist has sought the opinion of the Expert Advisory Committee as to whether it is in order to continue the present practice of treating the business as a single segment, i.e., contract manufacturing.

C. Points considered by the Committee

6. The Committee, while answering the query, has considered only the issues raised in paragraph 5 above and has not touched upon any other issue arising from the Facts of the Case. The Committee also wishes to state that in the absence of the facts related to risks and returns associated with various products of the company or various regions/countries in which the company operates, the Committee is, hereinafter, laying down broad principles to be applied while identifying the reportable segment as per the provisions of AS 17.

7. The Committee notes that as per the provisions of Accounting Standard (AS) 17, ‘Segment Reporting’, notified under the Companies (Accounting Standards) Rules, 2006 (hereinafter referred to as the ‘Rules’), the components of an enterprise that

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are required to be reported separately have to first fall within the definitions of the terms ‘business segment’ or ‘geographical segment’ before being considered as ‘reportable segments’ as per the threshold criteria laid down in paragraph 27 of AS 17, notified under the Rules. In this context, the Committee notes the definitions of the terms ‘business segment’ and ‘geographical segment’ as per AS 17, notified under the Rules, which provide as follows:

“5.1 A business segment is a distinguishable component of an enterprise that is engaged in providing an individual product or service or a group of related products or services and that is subject to risks and returns that are different from those of other business segments. Factors that should be considered in determining whether products or services are related include:

(a) the nature of the products or services;

(b) the nature of the production processes;

(c) the type or class of customers for the products or services;

(d) the methods used to distribute the products or provide the services; and

(e) if applicable, the nature of the regulatory environment, for example, banking, insurance, or public utilities.”

“5.2 A geographical segment is a distinguishable component of an enterprise that is engaged in providing products or services within a particular economic environment and that is subject to risks and returns that are different from those of components operating in other economic environments. Factors that should be considered in identifying geographical segments include:

(a) similarity of economic and political conditions;

(b) relationships between operations in different geographical areas;

(c) proximity of operations;(d) special risks associated with operations

in a particular area;(e) exchange control regulations; and(f) the underlying currency risks.”

8. The Committee also notes that paragraphs 7 and 8 of AS 17, notified under the Rules, provide as follows:

“7. A single business segment does not include products and services with significantly differing risks and returns. While there may be dissimilarities with respect to one or several of the factors listed in the definition of business segment, the products and services included in a single business segment are expected to be similar with respect to a majority of the factors.”

“8. Similarly, a single geographical segment does not include operations in economic environments with significantly differing risks and returns. A geographical segment may be a single country, a group of two or more countries, or a region within a country.”

9. The Committee also notes paragraph 12 of AS 17, notified under the Rules, which is reproduced below:

“12. The predominant sources of risks affect how most enterprises are organised and managed. Therefore, the organisational structure of an enterprise and its internal financial reporting system are normally the basis for identifying its segments.”

The Committee notes from the above that to identify business and geographical segments, the enterprise needs to evaluate whether the risks and returns of different components are different as per the factors stated in the definitions of the terms ‘business segment’ and ‘geographical segment’. The organisational structure of an enterprise and its internal reporting system are normally the basis for identifying the segments, subject to their fulfilling the criteria prescribed in the aforesaid definitions.

10. The Committee notes from the Facts of the Case that the company is engaged in the manufacturing of different types of engineering products/components, castings, valves, etc. These products are both machine-made and hand-made. Further, many of these products are manufactured as per the specifications of the clients for either use in the products of the clients or for selling these products in the clients’ brand name and some of these are sold by the company in its own name. However, the information about whether the risks and returns associated with the various products in which the

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company deals in, are different, is not clear from the Facts of the Case. In this context, the Committee notes from the above-reproduced definition of ‘business segment’ and other provisions of AS 17 that if various products of the company are subject to different risks and returns, these would constitute different business segments. For instance, in the extant case, some of the products manufactured by the company, for example, in the case of valves, sales are restricted to a single customer and accordingly, the risks and returns in such cases where the company is relying on a single customer may be different from the risks and returns of a product where the company is not so relying on a single customer. Similarly, risks and returns in case of products manufactured by machines may be different from the products which are hand-made. Thus, the Committee is of the view that considering the nature of the products produced, production processes involved in manufacturing and type or class of customers, the company should evaluate that whether there can be different business segments in the present case.

11. Similarly, in the context of geographical segments, while, on one hand, the querist has stated that the geographical distribution of the sales of the company is restricted to one region, on the other hand, it is stated that more than 95% of the valves manufactured by the company are supplied to USA. Further, castings are sold in India with a small portion of export. However, the information as to whether or not the risks and returns associated with the different regions/countries in which the company supplies its products are different, is not clear from the Facts of the Case. In this context, the Committee is of the view that there may be different pricing strategies, credit risks and exchange control regulations involved for domestic and international sales. In such a case, the risks and returns in different geographical regions may be different and accordingly, the different geographical regions may be considered as different geographical segments in the present case. The Committee is also of the view that geographical segments may also be identified by segregating its total turnover into domestic sales and international sales irrespective of the nature or kind of the products being sold. Thus, the Committee is of the view that considering the above-mentioned

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factors, the company should evaluate that whether there can be different geographical segments in the present case.

12. After identifying various business and geographical segments as discussed above, in the view of the Committee, the company should decide whether these segments can be considered as reportable based on the requirements of paragraphs 27 to 29 of AS 17, notified under the Rules, which provide as follows:

“27. A business segment or geographical segment should be identified as a reportable segment if:

(a) its revenue from sales to external customers and from transactions with other segments is 10 per cent or more of the total revenue, external and internal, of all segments; or

(b) its segment result, whether profit or loss, is 10 per cent or more of

(i) the combined result of all segments in profit, or

(ii) the combined result of all segments in loss, whichever is greater in absolute amount; or

(c) its segment assets are 10 per cent or more of the total assets of all segments.

28. A business segment or a geographical segment which is not a reportable segment as per paragraph 27, may be designated as a reportable segment despite its size at the discretion of the management of the enterprise. If that segment is not designated as a reportable segment, it should be included as an unallocated reconciling item.

29. If total external revenue attributable to reportable segments constitutes less than 75 per cent of the total enterprise revenue, additional segments should be identified as reportable segments, even if they do not meet the 10 per cent thresholds in paragraph 27, until at least 75 per cent of total enterprise revenue is included in reportable segment.”

From the above, the Committee is of the view that if the segments of the company meet the above-

reproduced threshold criteria, the company should report the same as business and/or geographical segments as discussed above as per the other requirements of AS 17. The Committee is also of the view that if it is concluded that there is neither more than one business segment nor more than one geographical segment, segment information is not required to be disclosed. The fact that there is only one ‘business segment’ and ‘geographical segment’ should be disclosed by way of a note as per the requirements of Explanation to paragraph 38 of AS 17, notified under the Companies (Accounting Standards) Rules, 2006.

D. Opinion

13. On the basis of the above, the Committee is of the opinion that the company should identify the reportable business and/or geographical segments based on the considerations stated in paragraphs 9 to 12 above.

1 The Opinion is only that of the Expert Advisory

Committee and does not necessarily represent the Opinion of the Council of the Institute.

2 The Opinion is based on the facts supplied and in the specific circumstances of the querist. The Committee finalised the Opinion on 03.06.2011. The Opinion must, therefore, be read in the light of any amendments and/or other developments subsequent to the issuance of Opinion by the Committee.

3 The Compendium of Opinions containing the Opinions of Expert Advisory Committee has been published in twenty eight volumes. A CD of Compendium of Opinions containing twenty eight volumes has also been released by the Committee. These are available for sale at the Institute's office at New Delhi and its regional council offices at Mumbai, Chennai, Kolkata and Kanpur.

4 Recent opinions of the Committee are available on the website of the Institute under the head ‘Resources’.

5 Opinions can be obtained from EAC as per its Advisory Service Rules which are available on the website of the ICAI, under the head ‘Resources’. For further information, write to [email protected].

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n


ACCOUNTING

Accounting for Credit Value Adjustments

Counterparty credit risk (CVA) is the risk that the counterparty to a financial contract will default prior to the expiration of the contract and will not make all the payments required by the contract. CVA is a measure that adjusts the risk-free value of an instrument to incorporate counterparty credit risk. This article reviews the concept of Credit Value Adjustment (CVA) from the accounting perspective and attempts to provide answers as to what is meant by CVA in accounting and should this be adjusted at the portfolio level, or should this be accounted on a trade by trade basis. This article also attempts to clarify that in a hedging relationship, should hedge effectiveness be calculated with FV inclusive of Credit Value Adjustments (CVA) or not and is this in any way different for a cash flow hedge? The article also discusses how should the CVA be disclosed in the financial statements?

What is Meant by CVA in Accounting?Counterparty credit risk (CVA) is the risk that the counterparty to a financial contract will default prior to the expiration of the contract and will not make all the payments required by the contract. Obviously exchange-traded derivatives are not subject to counterparty risk as the respective exchange guarantees the settlement of cash flows as per the derivative contract. CVA is a measure that adjusts the risk-free value of an instrument to incorporate counterparty credit risk. CVA can be positive or negative depending

CA. R. Venkata Subramani

(The author is a member of the Institute. He can be reached at [email protected])

on which of the two counterparties is most likely to default and the relative balances due or receivable to each other.

There were some concerns expressed in certain quarters as to whether the Debit Value Adjustment (DVA) should be considered in determining the fair value. Now based on the recent exposure draft announced jointly by IASB and FASB on 28th January, 2011 on Offsetting Financial Assets and Financial Liabilities it is amply clear that the DVA also should be recognised along with CVA.

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ACCOUNTING

How Should the CVA Component be accounted?(a) Initial MeasurementAt the inception of the contract, CVA component need not be recognised from the accounting perspective. Aggressive traders may have factored this into the price of the trade that they enter with the counterparties based on the CVA measure provided by the CVA desk if any available. In any case, even if it is not considered while pricing, at the inception of the trade this component need not be considered.

(b) Subsequent MeasurementCVA is a fair value component that should be recognised at every subsequent measurement of a financial instrument. Hence, at each subsequent measurement date, the CVA as a component of adjustment should be aggregated to a separate account and shown as an adjustment from the gross fair value of the financial instrument. This, however, should not be netted with the value of the trade and this is abundantly clear by virtue of the ED cited above. In fact, this exposure draft has come to us as an eye opener putting at rest

several theories as to how the CVA component should be accounted and disclosed in the financial statements. In the ‘Disclosure’ section of the exposure draft it is given that

“…an entity shall disclose, as the minimum, the following information separately for financial assets and financial liabilities recognised at the end of the reporting period by class of financial instruments:(A) the gross amounts (before

taking into account amounts offset in the statement of financial position and portfolio-level adjustments for the credit risk of each of the counter-parties or the counterparties’ net exposure to the credit risk of the entity).

(B) Showing separately,i. the amounts offset in

accordance with the criteria in paragraph 6 to determine the net amounts presented in the statement of financial position;

ii. the portfolio-level adjustments made in the fair value measurement to reflect the effect of the entity’s net exposure to the credit risk of counterparties or the counterparties’ net exposure to the credit risk of the entity; and (emphasis added)

iii. the net amount presented in the statement of financial position.

(Para 12 of the Exposure Draft)Thus the CVA component should be aggregated at the portfolio-level and should be shown as an adjustment against the gross value of the financial assets or financial liabilities as the case may be. This should not be adjusted or accounted for at the trade level.

CVA Component in a Cash Flow HedgeThe next important question is whether the CVA component should be considered in a cash flow hedge

and fair value hedge.

Treatment in a Cash Flow Hedge The ASC Topic 815 (US GAAP) mentions that where the shortcut method is used, the only question to be considered is for the entity to ensure that it will collect the payments under the contractual provisions of the derivative instrument. If the answer is ‘yes’, then the CVA value pertaining to the micro trade will have to be considered in the effectiveness testing. If the answer is ‘no’ i.e., if the entity cannot ensure that it will collect the payments under the contractual provisions of the derivative instrument, then the hedging relationship should be discontinued forthwith without any need to go into effectiveness testing.

Where methods other than the shortcut method are used, the counterparty credit risk in the form of CVA should be recognised to arrive at the fair value for effectiveness testing. In a cash flow hedge, the amount of gains or losses on the designated hedging instrument that can be deferred in the separate component of equity is limited to the lesser of the following (in absolute amounts):a) the cumulative gain or loss on

the hedging instrument from inception of the hedge, and

b) the cumulative change in fair value (present value) of the expected future cash flows on the hedged item from inception of the hedge

The fair value mentioned in the previous paragraph is inclusive of CVA.

CVA Component in a Fair Value HedgeShould the CVA component be considered on the hedging instrument? Yes. The CVA component should be considered on the hedging

hould the CVA component be considered on the hedging instrument?

Yes. The CVA component should be considered on the hedging instrument while doing the effectiveness testing. However, where the CVA component is available only at the portfolio level i.e., for each counterparty, then the same should be allocated to the individual trades based on the gross exposure of each trade, before commencing the effectiveness testing.

S

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instrument while doing the effectiveness testing. However, where the CVA component is available only at the portfolio level i.e., for each counterparty, then the same should be allocated to the individual trades based on the gross exposure of each trade, before commencing the effectiveness testing.

A change in the creditworthiness of the derivative instrument's counterparty in a fair value hedge would have an immediate impact because that change in creditworthiness would affect the change in the derivative instrument's fair value, which would immediately affect both of the following: a. The assessment of whether the

relationship qualifies for hedge accounting

b. The amount of ineffectiveness recognised in earnings under fair value hedge accounting.

Should the CVA component be considered on the hedged item? If the hedged item carries with it any counterparty credit risk, i.e., if there are any contractual cash flows still collectible from such hedged item, then the CVA component attributable to that contract should be considered during effectiveness testing. Usually the hedged item will be a cash instrument, meaning there will not be any cash flows collectible from such instrument. However, in the case of a hypothetical derivative, the hypothetical derivative mimics the hedged item and no CVA component should be attributed for the hypothetical derivative.

CVA - DisclosuresDisclosures as required by the joint ED of IASB and FASBHow should the CVA component be disclosed in the financial statements? The exposure draft announced jointly by IASB and

FASB on 28th January, 2011 on Offsetting Financial Assets and Financial Liabilities gives the disclosures required when offsetting financial assets and financial liabilities. To meet the requirements of such disclosures, additional line items are required to be disclosed and this guides us as to how the adjustments made in the fair value measurement to reflect the effect of the entity’s net exposure to the credit risk of counterparties or the counterparties’ net exposure to the credit risk of the entity should be disclosed.

Under the proposals, an entity would be required to offset (i.e. present as a single net amount in the statement of financial position) a recognised financial asset and a recognised financial liability when it has an unconditional and legally enforceable right of set-off and intends either to settle the asset and liability on a net basis or to realise the asset and settle the liability simultaneously (the offsetting criteria).

Para 11 of the Exposure DraftAn entity shall disclose information about rights of set-off and related arrangements (such as collateral agreements) associated with the entity’s financial assets and financial liabilities to enable users of its financial statements to understand the effect of those rights and arrangements on the entity’s financial position.

Para 12 of the Exposure DraftTo meet the requirements in paragraph 11, an entity shall disclose, as the minimum, the following information separately for financial assets and financial liabilities recognised at the end of the reporting period by class of financial instruments:a) the gross amounts (before

taking into account amounts offset in the statement of

financial position and portfolio-level adjustments for the credit risk of each of the counterparties or the counterparties’ net ex-posure to the credit risk of the entity).

b) showing separately,iv. the amounts offset in

accordance with the criteria in paragraph 6 to determine the net amounts presented in the statement of financial position;

v. the portfolio-level adjustments made in the fair value measurement to reflect the effect of the entity’s net exposure to the credit risk of counterparties or the counterparties’ net exposure to the credit risk of the entity; and (emphasis added)

vi. the net amount presented in the statement of financial position.

(Para 12 of the Exposure Draft)

References1. Accounting Standards issued by the

Financial Accounting Standards Board (FASB)

2. Accounting Standards issued by the International Accounting Standards Board (IASB)

3. Exposure Draft – Offsetting Financial Assets and Financial Liabilities issued by IASB & FASB n

t the inception of the contract, CVA component need not be recognised from

the accounting perspective. Aggressive traders may have factored this into the price of the trade that they enter with the counterparties based on the CVA measure provided by the CVA desk if any available. In any case, even if it is not considered while pricing, at the inception of the trade this component need not be considered.

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Forensic Accounting - Another feather in the Hat of Accounting

Maurice E. Peloubet coined the term ‘Forensic Accounting’ in 1946. Kautilya was the first economist to articulate the need of forensic accountants. the growing arena of business and surging number of white-collar crimes that have led to the development of Forensic Accounting. Forensic Accounting borrows knowledge from Accounting, Finance, Law, Computerisation, Ethics, Criminology, etc. While Forensic Accounting developed as early as 1995 in USA, it put its first step in India just few years back. It is desired that in near future an accounting standard will be formulated on Forensic Accounting. This article aims at throwing light on Forensic Accounting. It encompasses the terminology, a brief note on its origin, role of Forensic Accountants, the techniques involved in their work and the present scenario of Forensic Accounting in India.

IntroductionNecessity is the mother of all inventions. Yes, it is the growing arena of business and surging number of white-collar crimes that have paved the way for the development of Forensic Accounting. According to AICPA, “Forensic Accounting is the application of accounting principles, theories and discipline to facts or hypothesis at issues in a legal dispute and encompasses every branch of accounting knowledge.” According to The Accountant’s Handbook on Fraud and Commercial Crime, Forensic Accounting is the application of financial skills and an investigative mentality to unresolved issues,

Dr. Indrani Ghosh and Dr. Kamal Kishore Banerjee(The authors can be reached at [email protected])

conducted within the context of the rules of evidence. Forensic Accounting borrows knowledge from Accounting, Finance, Law, Computerisation, Ethics, Criminology, etc. Investigation plays a pivotal role in Forensic Accounting. It is the flavour of investigation that demarcates it from the conventional accounting practices. In wide sense, it can be identified as integrity of accounting, auditing and investigative skills to secure a particular result.

Maurice E. Peloubet coined the term ‘Forensic Accounting’ in 1946. Kautilya was the first economist to articulate the need of forensic accountants. Centuries ago he inked his book, Arthashastra (Science

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of Material Wealth) containing 40 ways of embezzlement. He also stressed on checks, accounting and auditing. He also stated that detecting an appointed official’s dishonesty is as difficult as detecting the amount of water drunk by a swimming fish. Another noteworthy person in this context is Birbal, one of the famous Navaratnas of the Moghul Emperor Akbar, who used various tricks to investigate various crimes.

Role of a Forensic AccountantEarlier, we were of the belief that detection and prevention of frauds or white-collar crimes is a part of conventional accounting function. But the recognition of Forensic Accounting has changed this notion of ours that “Auditor is a watchdog and not a bloodhound”. They only check for the compliance of a company’s books to GAAPs, auditing standards and company policies. Hence, the need for a bloodhound was apprehended. Like, a bloodhound, they are to sniff out fraud, criminal transactions out of the financial records of corporate entities, banks or any other organisation. Thus, a forensic accountant is a financial detective with a suspicious mind who can pull out the latent truth and assist in dispute resolution. His duty is to analyse, interpret, and summarise complex financial and business related issues. They are to look beyond the numbers and concentrate on substance over form. This new and groundbreaking accounting has two main spheres: - (i) Litigation support and investigation (ii) Dispute resolution. The former represents factual representation of economic issues encompassing existing litigation. If the dispute reaches the courtroom, he may testify as an expert witness. Whereas in latter case, he quantifies the damages sustained by parties involved in legal disputes and can

assist in resolving disputes, even before those reach the courtroom. A Forensic Accountant is supposed to have a three fold approach:

(a) Base layer – Accounting knowledge(b) Middle layer- Knowledge of auditing, internal controls, risk assessment and fraud detection(c) Top layer- Knowledge of the legal environment and strong communication skills.

According to a Forensic Accounting expert, the traits of a forensic accountant could be compared to a well baked pizza. The base of Forensic Accounting is accounting knowledge. Size and the extent of baking decide the qualities of the pizza. A middle layer is a dispersed knowledge of auditing, internal control, risk

assessment and fraud detection. It is like the spread of the cheese on the pizza. The toppings of this pizza are the basic understanding of the legal environment. The legal environment is essential in order to support the litigations. The cherry on the toppings of the pizza is a strong set of communication skills, both written and oral. It is just the beautification part. As perfect that combination of the pizza base, cheese spread and good toppings makes the pizza delicious similarly the perfect knowledge of account-ing, auditing, legal environment and good communication skills make a Forensic Accountant perfect.A well- equipped forensic accountant can provide the following services:1. Investigate the financial

evidence.2. Analysis and presentation of

the financial evidence in a computerised form.

3. Communicate their findings in the form of reports, exhibits and collection of documents.

4. Assist in legal proceedings, including testifying in court as an expert witness and preparing visual aids to support trial evidence.These services of forensic

accountants can be utilised in various fields. The sphere of their activities is quite large. They take up various types of assignments. While they can be of help in business related fraud investigation, they can also handle matrimonial dispute cases. A list of such cases taken up by a Forensic Accountant is given below.

Criminal Investigations: A Forensic Accountant is normally called for in case of a criminal investigation, if it entails financial and other related frauds. The Investigative Agencies (EOW, CID, SFIO, etc), regulatory bodies (SEBI, TRAI, etc) and other stake-holders seek for these services from them as and when required.

arlier, we were of the belief that detection and prevention of frauds or

white-collar crimes is a part of conventional accounting function. But the recognition of Forensic Accounting has changed this notion of ours that “Auditor is a watchdog and not a bloodhound”. They only check for the compliance of a company’s books to GAAPs, auditing standards and company policies. Hence, the need for a bloodhound was apprehended. Like, a bloodhound, they are to sniff out fraud, criminal transactions out of the financial records of corporate entities, banks or any other organisation. Thus, a forensic accountant is a financial detective with a suspicious mind who can pull out the latent truth and assist in dispute resolution.

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Stakeholders and ownership disputes: These assignments often involve a detailed analysis of financial records over a period for quantifying the issues in a dispute. For example, amount payable to a deceased partner or legal heirs of a deceased partner.

Insurance and other related claims: Insurance policies differ significantly as to their terms and conditions. Accordingly, these assignments involve an in-depth review of the policy to investigate coverage issues and the appropriate method of quantifying the economic losses resulting from an event. These assignments demand great knowledge of the forensic accountant in the local laws and regulations in place. For example, motor accidents, loss on account of fire, natural calamities, business discontinuance, etc.

Business related Fraud investigation: Business investi-gations involve asset identification and recovery, tracing funds, forensic intelligence gathering and due diligence reviews. These investigations are carried out with

the objective of determining the existence, nature, and extent of fraud and may concern the identification of perpetrator. These investigations often involve interviews of personnel who had access to the funds and a detailed review of the documentary evidence.

Dispute settlement: Business firms engage forensic accountants to handle contract disputes, construction claims, product liability claims, infringement of patent and trade marks cases, liability arising from breach of contracts and so on.

Matrimonial dispute cases: Forensic accountants entertain cases pertaining to matrimonial disputes wherein their role is merely confined to tracing, locating and evaluating any form of asset involved.

Thus, we see how forensic accountants help the organisations or individuals and society at large. They are an indispensable part of today’s legal team.

Tools Used in Forensic Accounting AssignmentBesides the various techniques of auditing, forensic accountants adopt some special techniques which are as follows:

Benford’s LawIt is a mathematical tool used in determining whether a variable under study is a case of mistake or fraud. The steps underlying this law are very simple. Once the variable is decided, the left most digit of the variable is extracted and summarised for entire population. The summarisation is done by classifying the first digit field and calculating its observed count percentage. Then Benford’s set is applied. A parametric test called Z-test is carried out to measure the significance of variance between the two populations, i.e. Benford’s percentage of first digit for a particular level of confidence. If the

data conforms to the percentage of Benford’s law, it means that the data is Benford’s set i.e. there is 68% (almost 2/3rd) chance of no error or fraud. The 1st digit may not always be the only relevant field. Benford has given separate sets for 2nd, 3rd

….and for last digit as well.

Theory of Relative Size Factor (RSF)RSF is measured as the ratio of the largest number to the second largest number of the given set of data. This technique is used to identify the highest number in the data but in some relation with the second highest data in the number. In this method the records that fall outside the prescribed range are taken into the books of doubt and it calls for further investigation. It is very helpful in highlighting all unusual fluctuations which may be generated from fraud or genuine errors.

Forensic Accountant is normally called for in case of a criminal

investigation, if it entails financial and other related frauds. The Investigative Agencies (EOW, CID, SFIO, etc.), regulatory bodies (SEBI, TRAI, etc.) and other stake-holders seek for these services from them as and when required. The assignments pertaining to stakeholders and ownership disputes often involve a detailed analysis of financial records over a period for quantifying the issues in a dispute.

A

AATs are computer programs developed for assisting

auditors. Forensic Accounting software comes in two different varieties – data extraction software and financial analysis software. Data extraction software is designed to conduct spreadsheet analysis on all the company’s computer database records, such as billings, accounts receivable, payroll, purchasing, etc. This helps in detecting anomalies and calls for investigation. Financial analysis software uses monthly, quarterly or annual financial statements and benchmarks the ratios between different accounts such as billings by revenues or supply costs as a percentage of revenue.

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ndia’s economy has been rising for the past few years. But this rise is

accompanied by some evils as well. India has also been experiencing white-collar crimes and scams for the past few years. Thus, the need of Forensic Accountants was realised. Forensic Accountants played a major role in letting the cat out of the bag in the 2008 Satyam scam. Of late, the CWG and 2G scams are in limelight in India. They are having a major role in these scams as well. While Forensic Accounting developed as early as 1995 in USA, it put its first step in India just few years back. Forensic Research Foundation has been established in India for the investigation of fraud. Another international investigation organisation has also put its feet on the Indian land. Serious Fraud Investigation Office (SFIO) is another noteworthy organisation set up in India for serving the same purpose.

I

Computer Assisted Auditing Tools (CAATs)CAATs are computer programs developed for assisting auditors. Forensic Accounting software comes in two different varieties – data extraction software and financial analysis software. Data extraction software is designed to conduct spreadsheet analysis on all the company’s computer database records, such as billings, accounts receivable, payroll, purchasing, etc. This helps in detecting anomalies and calls for investigation. Financial analysis software uses monthly, quarterly or annual financial statements and benchmarks the ratios between different accounts such as billings by revenues or supply costs as a percentage of revenue.

Data Mining TechniquesIt is a set of computer-assisted technique designed to automatically mine large volumes of data for new, hidden, or unexpected information or patterns. Data mining techniques are categorised in three ways: Discovery, Predictive modeling, Deviation and Link analysis. It discovers the usual knowledge or pattern in data, without a predefined idea or hypothesis about what the pattern may be, i.e. without any prior knowledge of fraud. In predictive modeling, patterns discovered from database are used to predict the outcome and to guess data for new value items. In deviation analysis the norm is found first and then those items are detected that deviate from the normal. Link discovery has emerged of late for detecting a suspicious pattern. It mostly uses deterministic graphical techniques, Bayesian probabilistic casual networks. This method involves “pattern matching” algorithm to extract any rare or suspicious case.

Ratio AnalysisData analysis ratios are used for

detecting fraud. These ratios help in tracing the possible symptoms of fraud. Such commonly employed ratios are –(i) the ratio of the highest value to

the lowest value (max/min)(ii) the ratio of the highest value to

the second highest value (max1 /max2)Besides the above-mentioned

ratios, the financial ratios also help a forensic accountant. Ratios help in estimating costs, identifying deviations, etc.

Forensic Accounting in IndiaIndia’s economy has been rising for the past few years. But this rise is

accompanied by some evils as well. India has also been experiencing white-collar crimes and scams for the past few years. Thus, the need of forensic accountants was realised. Forensic accountants played a major role in letting the cat out of the bag in the 2008 Satyam scam. Of late, the CWG and 2G scams are in the limelight in India. They are having a major role in these scams as well. While Forensic Accounting developed as early as 1995 in USA, it put it first step in India just few years back. Forensic Research Foundation has been established in India for the investigation of fraud. Another international investigation organisation has also put its feet on the Indian land. Serious Fraud Investigation Office (SFIO) is another noteworthy organisation set up in India for serving the same purpose.

We are looking forward to Forensic Accounting gaining a great momentum in India. We have a great expectation from ICAI in this respect. We expect that in near future an accounting standard will be formulated on Forensic Accounting. This will strengthen the walk of Forensic Accounting from infancy to maturity. This new weapon of Forensic Accounting will be an immense help to law enforcement agencies and regulatory bodies in curbing white-collar crimes and scams.

References 1. Dr. G S Mehta and Tarun Mathur (2007):

Preventing Financial Fraud through Forensic Accounting. The Chartered Accountant.

2. Wikipedia, the free encyclopedia3. Journal of Forensic Accounting: Editor-In

Chief: Crumbley D. Larry, Publisher: Inc.Edwards. R.T.

4. Journal of The Chartered Accountant 2007, Pages: 1000-1010.Dr. Madan Bhasin

5. www.forensicaccounting.com6. www.indiaforensic.com7. www.ezinearticles.com n

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Disclosures in Corporate Annual Reports — A Case Study of Some Selected Public Limited Companies in India

IntroductionCorporate disclosure is a process through which a corporate entity communicates business and financial information to their stakeholders. A strong, informative and transparent system of corporate disclosure is of paramount importance for the efficient and effective allocation of resources as well as integrity of financial markets. High-quality corporate disclosure helps investors and other capital market participants by enabling them to make proper assessment of the potential risks and rewards of alternative investments. Well- informed investment decision-making by capital market participants leads to efficient allocation of capital, which promotes productivity and economic growth.

With more and more business organisations attaining a global edge, and expanding in size; and

Reporting to the shareholders/other stakeholders of the Company such as Regulators, Employees, Bankers, Society at large (collectively referred to as “Stakeholders”) is an important activity on the part of the management of the Company. The quality and the transparency with which such disclosures are made enhance the comfort and the credibility of the Reporting Entity. Globally, the expectations of the readers of the Annual Reports have increased exponentially in the recent past and professional managements are making their best efforts to meet those expectations. The fundamental approach followed in this reporting seems to emanate from the principle of “More you Disclose….More the Comfort to the Reader”; but one has to remember “Quantity is not a substitute for the Qualitative Reporting”. This Article deals with some of the interesting/ qualitative disclosures which are mandatorily / by general practice required to be disclosed in the Directors Reports, Auditors Reports, and in other documents in some of the countries globally and the fundamental principles behind such disclosure stipulations along with a comparison of the requirement / practices followed in India. Read on to know more…

Pintu Sarkar

(The author can be reached at [email protected])

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eporting information voluntarily has become a norm for large companies. In fact, a large pro-portion of corporate disclosures made through annual reporting

concern an agenda of visualising the company’s core values, mission statement, business concept, and social responsibility. This sug-gests that annual reporting plays a central role in legitimising the company’s existence. Of all the forms or ways of corporate disclosure, corporate annual report is the most important, vital and popular source of information in the arena of the corporate world and investment market- a focal point of corporate disclosure mechanism. Annual report today is not simply a means of communication; it is now being used as a vehicle of building and enhancing corporate image.

Rwith more retail and institutional investors entering into capital markets, the corporate disclosure practices have assumed added importance in the recent past. Led by these changes, companies listed on stock exchange have been forced to disclose the minimum information in their annual reports as set out by the statutory requirements. However, particularly large and publicly traded leading companies have gone beyond those minimum requirements. Reporting information voluntarily has become a norm for large companies. In fact, a large proportion of corporate disclosures made through annual reporting concern an agenda of visualising the company’s core values, mission statement, business concept, and social responsibility. This suggests that annual reporting plays a central role in legitimising the company’s existence. Of all the forms or ways of corporate disclosure, corporate annual report is the most important, vital and popular source of information in the arena of the corporate world and investment market- a focal point of corporate disclosure mechanism. Annual report today is not simply a means of communication; it is now being used as a vehicle of building and enhancing corporate image.

Considering the limited scope, a humble attempt is hereby however strived for to make a case study on the disclosures in annual reports of some selected public limited companies in India with an objective to form a bird’s eye view on the emerging scenario of corporate disclosure practices in India.

Selection of SampleThe sample for this case study comprises 12 renowned corporate houses as follows:

Companies, being older than 25 years and more, have been selected on the basis of first 10 BSE Sensex stocks in descending order of market capitalisation as on 31-03-2011. However, the banking, financial and insurance companies have been excluded from the purview of the analysis as their disclosure practices are not entirely guided and controlled by Companies Act,1956; they are rather guided by the Insurance Act, Banking Regulation Act, and RBI Act requiring some typical disclosures pertinent to the distinguishing characteristics of such industries. The logics behind selection of those companies are:

Serial No. Name of Sensex Stocks Market Capitalisation on 31.03.2011(Rs Crores)

Number of AGMSs held including the current year

Total Number of pages in Annual Report

1. Reliance Industries 338106.39 36th 214

2. Infosys Technologies 182010.99 29th 94

3. NTPC 155797.97 34th 244

4. ITC 137506.04 99th 182

5. WIPRO 116056.30 30th 209

6. Larsen & Toubro 100868.18 65th 234

7. BHEL 100750.56 46th 258

8. Tata Motors 79014.34 65th 126

9. HUL 61427.85 77th 148

10. Tata Steel 59125.70 103rd 234

Source: Compilation from Business Standard, Kolkata (Thursday, 31st March, 2011, Page 8) and Annual Reports of Respective Companies

Table 1Top 12 Sensex Stocks Based on Market Capitalisation as on 31.03.2011

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1. they are renowned companies belonging to various industries;

2. their scrips dominate and influence the stock market movement of the country;

3. they are tried, tested and trusted companies for the last 25 years or more having good track records leading to wide experiences and maturities in corporate disclosure practices and,

4. their annual reports are conveniently available.

For this purpose, the published annual reports for the year 2009-2010 of these companies have been considered. The reasons for selection of the said

period lies in the fact that annual reports for the year 2009-2010 would give some glimpses of the state of the latest corporate disclosure practices.

Analysis of Disclosures Made by Sample CompaniesIn order to assess the emerging trends in corporate disclosure practices in annual reports of public limited companies in India, the annual reports of the aforesaid seven companies have been scanned with respect to 22 items of mandatory disclosures shown in Table 2 and 32 items of voluntary disclosures shown in Table 3.

SlNo.

Name of the Company Items Of Disclosure

Rel.IndsLtd.

Info-sysTech Ltd

NTPC

ITCLtd.

WIPRO

L&T

BHEL

Tata Mo-tors

HUL

TATASteelLtd.

No.OfCosRptg

1 Annexure to Auditor’s Report Y Y Y Y Y Y Y Y Y Y 10

2 Annexure to Director’s Report Y Y Y Y Y Y Y Y Y Y 10

3 Auditor’s Certificate on Corporate Governance

Y Y Y Y Y Y Y Y Y Y 10

4 Auditor’s report on Consolidated Financial Statements


5 Auditor’s Report to Members Y Y Y Y Y Y Y Y Y Y 10

6 Balance Sheet-Part I of Sch.VI


7 Balance Sheet Abstract and Company’s General Business Profile(Part IV)


8 Cash Flow Statement Y Y Y Y Y Y Y Y Y Y 10

9 Consolidated Financial state-ment with Indian GAAP


10 Corporate Governance Report


11 Director’s Report includ-ing disclosures required u/s217(1) (e),217(2A) and 217(2AA)


12 M D & A Y Y Y Y Y Y Y Y Y Y 10

13 Notice Y Y Y Y Y Y Y Y Y Y 10

14 Profit & Loss A/C(Part II) Y Y Y Y Y Y Y Y Y Y 10

15 Related Party Disclosures Y Y Y Y Y Y Y Y Y Y 10

Table 2Mandatory Disclosure Practices of sample companies

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SlNo.


Rel.IndsLtd.

Info-sysTech Ltd

NTPC

ITCLtd.

WIPRO

L&T

BHEL

Tata Motors

HUL

TATASteelLtd.

No.OfCosRptg

16 Risk Management Report Y Y Y Y Y Y Y Y Y Y 10

17 Schedules to Financial State-ments


18 Shareholder Information/Ref-erencer


19 Shareholder pattern Y Y Y Y Y Y Y Y Y Y 10

20 Segment Reporting Y Y Y Y Y Y Y Y Y Y 10

21 Share Price Chart Y Y Y Y Y Y Y Y Y Y 10

22 Statement of Significant Accounting Policies and Notes to Accounts


Total out of 22 items 22 22 22 22 22 22 22 22 22 22 220/220 =100%

SlNo.


Rel.IndsLtd.

Info-sysTech Ltd

NTPC

ITCLtd.

WIPRO

L&T

BHEL

Tata Mo-tors

HUL

TATASteelLtd.

No.OfCosRptg

1 Awards/ Achievements Y Y Y Y Y Y Y Y Y Y 10

2 Additional information on Directors recommended for or seeking appointment

Y Y N N N Y Y Y Y N 06

3 Brand Valuation Statement N N N N N N N N N N 00

4 CEO & CFO Certification Y Y Y Y Y Y Y Y Y N 09

5 Chairman’s Letter or CEO’s Message


6 Code of Business Conduct and Ethics

Y Y Y Y Y N Y Y Y Y 09

7 Company Information Y Y Y Y Y Y Y Y Y Y 10

8 Corporate Social responsibil-ity Statement/ Report (sep.)

Y Y Y N Y Y Y Y Y Y 09

9 Current Cost AdjustedFinancial Statements

N N N N N N N N N Y 01

10 Director’s Resume/Profile Y Y Y Y Y Y Y Y Y N 09

11 EVA N Y Y N Y Y Y Y N Y 07

Table 3Voluntary Disclosure Practices of sample companies

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SlNo.


Rel.IndsLtd.

Info-sysTech Ltd

NTPC

ITCLtd.

WIPRO

L&T

BHEL

Tata Mo-tors

HUL

TATASteelLtd.

No.OfCosRptg

12 FAQs Y Y Y N Y Y Y Y N N 07

13 Financial Statements as per GAAP of other Countries

N Y N N N N Y N N N 02

14 Funds Flow Statement N N N Y N N N N N Y 02

15 Graphical Presentation Y Y Y Y Y Y Y Y Y Y 10

16 Global Presence Information N Y N Y Y Y Y Y Y N 07

17 Highlights of Performance Y Y Y N Y Y Y Y Y Y 09

18 Human Resource Accounting Y Y Y N Y Y Y Y Y N 08

19 Intangible Asset Score Sheet N Y Y N N N N N N N 02

20 Management Structure Y N Y N Y Y Y Y Y N 07

21 Market Value Added Y Y N N N N N N N N 02

22 Past Performance or Selective Data/ Financial Highlights


23 Ratio Analysis Y Y Y N Y Y Y Y Y Y 09

24 Reconciliation of Indian GAAP and US GAAP

N Y N N N N Y N N N 02

25 Report on Environment, Health and Safety (Sep.)

Y Y Y N Y Y Y Y Y N 08

26 Product Details with picture Y N N Y Y N Y Y Y Y 07

27 Product Flow Chart Y N N N N N N N N N 01

28 Sustainability Updates (Separate Statement)


29 Value Added Statement N N Y N N N Y N N N 02

30 Value Reporting N Y N N N N N Y N N 02

31 Vision and Mission Statement Y Y Y N Y Y Y Y Y Y 09

32 The Year At a Glance Y Y Y N Y Y Y N Y Y 08

Total out of 32 items 22 25 21 12 21 20 25 22 20 16 204/320 =63.75%

In both the tables 2 and 3, the symbol ‘Y’ stands for the information on the items disclosed in the annual report whereas the symbol ‘N’ stands for the non-disclosure of information relating to the referred items.

It has been observed that all the ten companies under analysis have included in their annual accounts balance sheets with supporting schedules, profit & loss accounts with break-ups, auditor’s reports, director’s reports, cash flow statement and corporate governance report. There is 100% compliance with respect to

all the 22 items mentioned in Table 2. Companies have also ventured to disclose much additional information in Director’s Report, Management discussion and Analysis Statement and corporate Governance Report keeping in view the diversified needs of the users.

In this respect it would be pertinent to mention that accounting policies and notes on accounts of Infosys Ltd. are exemplary because they are elaborate, extensive, unambiguous and significant.

Source: Annual Reports of Companies, 2009-2010; Symbol: Y—Yes, disclosed, N- Not disclosed.

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In relation to the voluntary disclosures of additional information it is observed that there are as many as 32 different items voluntarily disclosed in the annual reports of the investigated companies. Only one company disclosed their financial statements under 'current cost accounting' (CCA) basis as a supplement. Other than this, seven companies out of ten reported ‘management structure’, only two companies presented ‘fund flow statement’ , ' market value added statement' and ‘reconciliation of Indian profits with US GAAPs’ in its annual report. In this context, the vision statement of L&T demands appropriate commendation as it reflects the company’s true spirit of social responsibility as a corporate citizen.

The company’s avowed mission and deep concern for the societal development can also be easily perceived from the preface of its annual report. Such disclosure manifests the company’s ideology in running its business, builds up a socially desirable and operationally efficient work culture, boosts up the morale of the personnel within the organisation and enhances its image.

All the companies reported in the annual reports information regarding awards and accolades received by them during the financial year. Infosys Ltd. exhibited excellence in voluntary disclosure of information on economic value added, human resource accounting, current cost adjusted financial statements and value reporting. ITC Limited used the annual report as a means of making wide range of readers aware of its products by providing product details with pictures. Reliance Industries Limited uniquely disclosed its product flow chart. All the companies disclosed past data in a statement or as a financial highlight. Infosys Limited proclaimed in this respect that they are committed to the highest standards of disclosure as an investor-friendly company. Two out of seven companies, viz., Infosys Limited and BHEL included statement of reconciliation between Indian GAAP and US GAAP in their annual reports. Most distinguishing parts of the annual report of Tata Steel Limited are that the report contains production and financial statistics from 1956-1957, and dividend statistics since 1960-1961 (pp.119—121 of AR). Such time series data help determine trends in their respective fields. Apart from disclosing an audited Cash Flow Statement (as per clause 32 of Listing Agreement), the company has also provided a Funds Flow statement for five years (pp.118 of AR). Almost all the companies used different charts, graphs and diagrams to enable the users easy understanding of the relative facts and figures over the years.

Summary of the FindingsIn fine, it can be concluded:▪ all the companies selected for analysis have

disclosed mandatory information; ▪ there has been an increase in the quantity of

information provided in the annual reports due to change in the legal provisions and introduction of more accounting standards to cope with the changing societal needs.

▪ There exists a wide diversity in the types and presentations of voluntary disclosures among companies for which a common framework needs to be constructed in order to enhance the comparability of the information contained in annual reports.

▪ the quality of information provided by Indian companies having global presence (e.g. Infosys Technologies Ltd., L& T Ltd., Tata Steel Ltd.) has improved considerably and annual reports of such companies are internationally competitive.

However, the following limitations of the present case study should be cautiously noted:▪ The size of the sample is too small to generalise the

findings.▪ The study analyses position for one accounting

period only. Analysis of annual accounts over a period of time would have given better picture and trend in corporate disclosure practices.

▪ Because of limited scope and time constraint, all the relevant issues could not be meticulously put to detailed scrutiny.

▪ The study has unveiled the quantitative aspect of disclosures in annual reports without looking into the quality of disclosure. It is expected that some research study should be conducted to consider the qualitative aspect of corporate disclosure practices.

ConclusionIn view of our findings it can be summarised that the information disclosed in the annual reports of companies today is undoubtedly far more exhaustive and useful than what was being reported earlier. Disclosures are presently made in many forms to address to the needs of shareholders, institutional investors, trade unions and policymakers. As they currently stand, the compliance with the statutory disclosure requirements is a general phenomenon among Indian companies and financial reports provide a glimpse of past performance. However, many Indian companies have taken the initiative to disclose some additional information keeping in view the diversified needs of the users.

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In this respect it should be ensured that voluntary information through business reporting should not be solely used as a branding exercise concerned with illustrating corporate identity and branding the company as a good corporate citizen, more than they are about maximising shareholder value. It is of no doubt that expanded disclosures increase usefulness in annual reports, but a caution should be taken in this direction that redundant or irrelevant disclosures should be avoided to make it meaningful, systematic, and comparable because the rapid expansion in the volume of disclosures in published company accounts may cause in its wake the problems of information overload.

In respect of voluntary disclosures, it should be appreciated that the emergence of narrative disclosures has largely revolutionised the scenario of corporate financial reporting. Nonetheless, voluntary disclosures should cover not only good news but also disappointments. Disclosures would be more useful if they report on previously disclosed plans and goals and the results achieved in meeting those plans to ensure the feed back value of quality financial reporting. Although the metrics used by companies to manage their operations and drive their business strategies often are very useful voluntary disclosures, those metrics should be ex¬plained and consistently disclosed from period to period to the extent they continue to be relevant to a company's success.

Disclosure is good, and it is to be encouraged but at the same time it should be made within a common framework in order to meet the test of comparability. In many cases it has been observed that some voluntary disclosures made by the companies appear in non-comparable and inconsistent form. This will entail some timely effort on the part of regulators and standard setters in right direction to issue some common guidelines.

In conclusion, it may be said that, although there have been a marked improvement in the quantity and quality of information provided in the financial statements by the Indian companies over the years, there exists still some diversity in their reporting practices. Thus, more efforts should be put to unearth the unexplored area of accounting and reporting within the network of statutory requirement with a view to reducing the diversity and ambiguity in their disclosure and hence enhancing the quality, reliability, comparability and comprehensibility of accounting information.

References:▪ AICPA(1994), Improving Business Reporting- A Customer Focus: Meeting

the Information Needs of Investors and Creditors: and Comprehensive Report of the Special Committee on Financial Reporting, New York:

American Institute of Certified Public Accountants.▪ Annual Reports of the ten selected companies for the year 2009-10.▪ Banerjee, B., (2002), Regulation of Corporate Accounting and Reporting

in India, World Press Pvt. Ltd, Calcutta.▪ ------,(2000), ‘Regulation of accounting in India: Issues and a suggested

Frame work’, Indian Accounting Review, Vol.4, No. 2, December.▪ Basu, A. K., (1998)., ‘Creative Financial Reporting: An Overview’; Studies

in Finance and Accounting, Platinum Jubilee Commemorative Volume; Department of Commerce, University of Calcutta.,Calcutta-73.

▪ ------,(1997),‘Narrative Disclosures in Company Accounts’, Indian Journal of Accounting, December, pp. 23-27.

▪ ------, (1995), International Accounting Harmonisation, DSA in Commerce, University of Calcutta, pp. 21-23.

▪ ------, (2006), ‘Towards a Global Financial Reporting Language’, Indian Accounting Review, Indian Accounting Association Research Foundation, Vol. 4,no.2, December.

▪ Beattie, V. & K.Pratt(2002), ‘Voluntary Annual Report Disclosures: What Users Want’; Institute of Chartered Accountants of Scotland.

▪ Chakraborty, T.( 2000); ‘Economic Value Added (EVA)- A Conceptual Study’; Business Studies Vol. XXIII Nos. 1& 2 January and July; pp. 44-62.

▪ Chaudhuri, P. R.,(2001),‘The structure of Company Accounts in India’, Corporate Financial Reporting, Special Assistance Programme(UGC), Department of Commerce, University of Calcutta., pp.29-47.

▪ Eccles, R. G. & S. Mavrinac, (1995),’Improving the Corporate Disclosure Process’, Sloan Management Review, Summer, pp.11-25.

▪ FASB (1978), Statement of Financial Accounting Concept (SFAC) 1,Stanford, USA.

▪ FASB (2001), Improving Business Reporting: Insights into Enhancing Voluntary Disclosures, Steering Committee on Business Reporting Research Project, Norwalk, USA, Financial Accounting Standard Board.

▪ Hasan, A (2005), ‘Corporate Voluntary Reporting Practices in India’, The Cost and Management Vol. 33, No. 5, September-October, pp. 73-79.

▪ Hendriksen,Eldon.S., and Breda, M.F. Van (1992), Accounting Theory,(5e),Irwin.

▪ Jiloka, S.K.,and Verma,S (2006),‘Corporate Financial Disclosures’, The Management Accountant’, Volume 41 No.11,November,pp.867-871.

▪ Kaushik, K., and Dutta, K.,(2006), ‘Corporate Reporting – Without Shades of Grey’,The Chartered Accountant, volume 54, No.07, pp.975-982.

▪ Meek, G.k., C.B.Roberts & S.J. Gray(1995),‘Factors Influencing Voluntary Annual Report Disclosures by U.S. and U.K. and Continental European Multinational Corporations’, Journal of International Business Studies, Vol. 26,pp. 555-572.

▪ Miller,P.B.W.(2002); Quality Financial Reporting; Journal of Accountancy, April.

▪ Porwal, L. S.,(2001), Accounting Theory- An Introduction, Tata McGrawhill Publishin Company Limited, New Delhi.

▪ Rathore, S.,(1996), International Accounting; Prentice Hall of India Private Limited , New Delhi.

▪ Samuel A. DiPiazza, Jr., and Robert G. Eccles(2002), Building Public Trust: The Future of Corporate Reporting, John Wiley & Sons, New York.

▪ Sen, S.,( 2005),Segment Reporting in India, Iyotsna Publishing House, Kolkata.

▪ Taxmann(2005),Taxmann’s Corporate Laws, Taxmann Allied Services(P.) Ltd.; New Delhi.

▪ Vanstraelen, A., M.T. Zarzeski & S.W. G. Robb(2003),‘Corporate Non-financial Disclosure Practices and Financial Analyst Forecast Ability Across Three European Countries’, Journal of International Financial Management and Accounting, Vol.14, No.3, pp 249-278. n

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Global Trends in Reporting to the Stakeholders

The Regulators worldwide have also stipulated various disclosure requirements in the annual reports to the stakeholders for ensuring proper disclosure of qualitative/unbiased information. Though the regulatory requirements of the respective countries might have/are being changed in some of the cases, since the law is always evolving, the underlying principle behind such disclosures and its relevance in our reporting environment is still relevant and, hence, these are taken for analysis in this article.

Annual ReportTypically, the Annual Report sent to the shareholders once in a year would contain the Directors Report, Management Discussion & Analy-sis, Auditors’ Report and Financial Statements. Further, various entities

Reporting to the shareholders/other stakeholders of the Company such as Regulators, Employees, Bankers, Society at large (collectively referred to as “Stakeholders”) is an important activity on the part of the management of the Company. The quality and the transparency with which such disclosures are made enhance the comfort and the credibility of the Reporting Entity. Globally, the expectations of the readers of the Annual Reports have increased exponentially in the recent past and professional managements are making their best efforts to meet those expectations. The fundamental approach followed in this reporting seems to emanate from the principle of “More you Disclose….More the Comfort to the Reader”; but one has to remember “Quantity is not a substitute for the Qualitative Reporting”. This Article deals with some of the interesting/ qualitative disclosures which are mandatorily / by general practice required to be disclosed in the Directors Reports, Auditors Reports, and in other documents in some of the countries globally and the fundamental principles behind such disclosure stipulations along with a comparison of the requirement / practices followed in India. Read on to know more…

CA. Sriraman Parthasarathy


also provide additional details such as the Company’s Historical Performance, Report on Current and Future Operations, Compliance with Corporate Governance Principles and Practices, Report on Corporate Social Responsibility Activities, Shareholder Information, etc. A majority of the disclosures are governed by the regulatory requirements of the respective countries and the trend of pro-viding newer/innovative informa-tion/analysis to the stakeholders, suomoto, by the professional managements of the corporate is also on the rise. Disclosures in Directors ReportIn the Directors Report, in addition to the regular requirements relating to the performance of the Company, the following unique disclosures

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are appearing in several Annual Reports;

Disclosure of Information to Auditors:For certain type of companies in UK, there is a requirement that the Directors’ Report should contain a statement to the effect that, in the case of each of the persons who are directors at the time when the report is approved, the following applies:▪ so far as the director is aware,

there is no relevant audit information (information needed by the company's auditors in connection with preparing their report) of which the company's auditors are unaware, and

▪ each director has taken all the steps that he ought to have taken as a director in order to make himself aware of any relevant audit information and to establish that the company's auditors are aware of that information.

Though there are certain specific provisions relating to directors responsibilities in the preparation of the financial statements in India, there is no such explicit statement which is required to be made by the directors in their report.

Considering the transparency requirement and the expectations of the society, such a requirement on the part of the directors and a confirmation of the same by the auditors in their report would go a long way in enhancing the governance framework of companies in India.

Disclosure of Details Relating to Indemnification of Officers and Auditors:In Australia, there is a requirement on the part of the directors to give the details of indemnification of officers and auditors of the company during the year or of any

of, the company or any other body corporate; or

▫ there have, at any time in that year, subsisted such arrangements as aforesaid to which the company was a party, and if so the report shall contain a statement explaining the effect of the arrangements and giving the names of the persons who at any time in that year were directors of the company and held, or whose nominees held, shares or debentures acquired in pursuance of the arrangements;

Similarly, in Singapore, directors are required to comment specifically about any arrangements which enable directors to acquire benefits by means of the acquisition of shares and debentures. Similarly, details of director’s receipt and entitlement to contractual benefits, if any, also should be disclosed in the Directors Report in Singapore.

In India, there is no such disclosure requirement in the Directors Report as regards the above items, though certain types of contracts or arrangements where the directors are interested would require approval of the regulators/shareholders and would require documentation in the Statutory Register, Review and Reporting by the Auditors as stipulated under the Indian Companies Act, 1956.

Disclosure Relating to Books of Account:In certain countries, such as Ireland, there is a requirement on the part of the directors to specifically comment on the measures taken by them to ensure that proper books and accounting records are kept in accordance with the provisions of the law including the employment of appropriately qualified accounting personnel and the maintenance of appropriate accounting systems. Further, they are also specifically

related body corporate against a liability incurred as such as officer or auditor. Further, they should also give the details as to whether the company has paid or agreed to pay any premium in respect of a contract insuring against a liability incurred by an officer or auditor.

There is no such requirement in India to disclose the details of any indemnification of officers and auditors of the company during the year in the Directors Report.

Disclosure of Directors and Secretary’s Interest in Shares/Debentures:One of the disclosure requirements in Ireland as part of the Directors’ Report is to give details of the interests in the form of shares in the company of the directors and secretary specifically as at the beginning and at the end of the reporting period. This requirement also extends to the shareholding, if any, in the parent company/group companies. Similar requirement is also there in Malaysia, Singapore, etc.There is no such requirement as regards the aforesaid disclosure requirement in the Directors Report specifically in India. Such a disclosure in the Annual Report would go a long way in ensuring governance obligations on the part of the Directors.

Disclosure of Directors Benefits:In Malaysia, directors need to confirm in their Report, the following specifically pursuant to the Malaysian Companies Act;▪ Whether at the end of that

financial year –▫ there subsist arrangements

to which the company is a party, being arrangements with the object or objects of enabling directors of the company to acquire benefits by means of the acquisition of shares in, or debentures

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required to indicate in their Directors Report, the place where the books of account are located.

In India, other than the Directors Responsibility Statement which deals with the preparation of the financial statements, application of accounting standards, accounting policies, maintenance of accounting records, etc, there is no requirement to comment about the location of Books of Account, employment of appropriately qualified accounting personnel, maintenance of appro-priate accounting systems, etc. specifically.

Risks & Uncertainties and Events after the Balance Sheet Date & Future Developments:In some countries such as Cyprus and Ireland, there is a requirement, on the part of the directors to identify the risks and uncertainties their company faces and to disclose these in the Directors Report accompanying the company’s financial statements.

Further, there is also a need for disclosure of any important events since the period end in the Directors Report in many countries. For example, in Malaysia, there is a need for specific disclosure in the Directors Report as to whether there has arisen in the interval between the end of the financial year and the date of the report any item, transaction or event of a material and unusual nature likely, in the opinion of the directors, to affect substantially the results of the company's operations for the financial year in which the report is made and, if so, giving particulars of the item, transaction or event.

Details on any future deve-lopments the directors intend on undertaking within the coming years is also required to be disclosed in the Directors Report mandatorily in some of the countries such as Ireland. The future rather than the past of each company is

becoming increasingly more important. Thus, an emphasis in priority is given to this section of the Directors Report in terms of the detail and the information being presented to the reader of the financial statements.

In India, though there is no specific stipulation to mandatorily comment about the Risks & Uncertainties/Future Developments in the Directors Report, the section relating to Management’s Discussions and Analysis, appli-cable to listed entities, is expected to deal with various Risks & Uncertainties, Future Developments impacting the entity.

Details relating to material changes and commitments, if any, affecting the financial position of the company which have occurred between the end of the financial year of the company to which the balance-sheet relates and the date of report is required to be disclosed in the Directors Report in India as well.

Disclosure relating to Rounding Off of Amounts in Directors Report:There is a requirement in Australia for certain type of companies to specifically indicate the method of rounding off of the amounts disclosed in the Directors Report. This could be in the form of rounding off to nearest thousand of the unit of currency, depending on the size, etc. subject to the terms and conditions stipulated in the regulations.

We do not have any such specific disclosure requirement relating to rounding off of amounts in the Directors Report in India. Though there are stipulations in India relating to rounding off of amounts in the financial statements depending on the size of the company, there is no such requirement as regards the Directors Report and other documents submitted as part of

the Annual Report.

Declaration on Financial Information:In Malaysia, there is a need for specific declaration in the Directors Report from the directors with respect to the following items relating to the financial statements;▪ Whether the directors (before

the profit and loss account and balance sheet were made out) took reasonable steps to ascertain what action had been taken in relation to the writing-off of bad debts and the making of provision for doubtful debts, and satisfied themselves that all known bad debts had been written off and that adequate provision had been made for doubtful debts;

▪ Whether at the date of the report the directors are aware of any circumstances which would render the amount written off for bad debts or the amount of the provision for doubtful debts inadequate to any substantial extent and, if so, giving particulars of the circumstances;

▪ Whether the directors (before the profit and loss account and balance sheet were prepared) have taken reasonable steps to ensure that any current assets which were unlikely to be realised in the ordinary course of business including their value as shown in the accounting records of the company have been written down to an amount which they might be expected so to realise;

▪ Whether at the date of the report the directors are aware of any circumstances -▫ which would render the

values attributed to current assets in the accounts misleading; and

▫ which have arisen which render adherence to the

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existing method of valuation of assets or liabilities of the company misleading or inappropriate; and, if so, giving particulars of the circumstances;

▪ Whether there exists at the date of the report-▫ any charge on the assets

of the company which has arisen since the end of the financial year which secures the liabilities of any other person and, if so, giving particulars of any such charge and, so far as practicable, of the amount secured; and

▫ any contingent liability which has arisen since the end of the financial year and, if so, stating the general nature thereof and, so far as practicable, the maximum amount, or an estimate of the maximum amount, for which the company could become liable in respect thereof;

▪ Whether any contingent or other liability has become enforceable, or is likely to become enforceable, within the period of twelve months after the end of the financial year which, in the opinion of the directors, will or may affect the ability of the company to meet its obligations when they fall due and, if so, giving particulars of any such liability;

▪ Whether at the date of the report the directors are aware of any circumstances not otherwise dealt with in the report or account which would render any amount stated in the accounts misleading and, if so, giving particulars of the circumstances; and

▪ Whether the results of the company's operations during the financial year were, in the opinion of the directors, substantially affected by any

item, transaction or event of a material and unusual nature and, if so, giving particulars of that item, transaction or event and the amount or the effect thereof, if known or reasonably ascertainable.

Such a specific and detailed confirmation by the directors not only adds credibility to the financial statements, but also confirms the care taken by the directors in ensuring all specific accounting aspects.

In India, there is no such requirement for the aforesaid disclosures in the Directors Report other than the Directors Responsibility Statement which deals with the above items by way of giving specific confirmations relating to compliance with Accounting Standards and GAAP and thus, addresses the above requirements indirectly. But a specific confirmation on some of the critical accounting estimates, realisability of the assets, assessing the contingent liabilities by the directors would force those in charge of governance to look into the minute accounting details so as to deal with the same appropriately.

Auditors Independence Declaration:There is a requirement to attach the Independence Declaration obtained from the auditors as part of the Directors Report in certain countries. This independence declaration is obtained from the auditor and will specifically give the required confirmation for ensuring compliance with the independence requirements and the other applicable professional conduct by the auditors.

Such a requirement of including the Independence Declarations of the auditors as part of the Directors Report is not applicable in India.

However, the auditors are required to maintain their independence and confirm the same to the client, but such an explicit confirmation of the fact as part of the Directors Report would provide greater comfort and confidence to the Stakeholders of the Company.

Internal Control Declaration:In Malta there is a requirement of including a specific declaration by the directors on the internal control environment of the company. This declaration would state that the directors through oversight of management are responsible to ensure that the company establishes and maintains internal control to provide reasonable assurance with regard to reliability of financial reporting, effectiveness and efficiency of operations and compliance with applicable laws and regulations.

Further, there will be a declaration that management is responsible, with the oversight from the directors, to establish internal control environment and

hough there are certain specific provisions relating to Directors

Responsibilities in the preparation of the financial statements in India, there is no such explicit statement which is required to be made by the directors in their report. Considering the transparency requirement and the expectations of the society, such a requirement on the part of the directors and a confirmation of the same by the auditors in their report would go a long way in enhancing the governance framework of companies in India.

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maintain policies and procedures to assist in achieving the objective of ensuring, as far as possible, the orderly and efficient conduct of business. This responsibility also includes establishing and maintaining controls pertaining to the company’s objective of preparing financial statements as required by the regulations and managing risks that may give rise to material misstatements in those financial statements. In determining which control to implement to prevent and detect fraud, mana-gement considers the risk that the financial statements may be materially misstated as a result of fraud.

Such a requirement relating to internal control/similar declarations is applicable in some other coun-tries as well such as UK, Ireland, and South Africa. Needless to add that the SOX requirement relating to internal control in the US for certain companies and the related disclosure aspects in the Annual Reports is well known.

In India, there is a requirement relating to Directors Responsibility Statement which deals with the preparation of financial statements

on a going concern basis, by applying Accounting Stand-ards, consistent application of accounting policies, safeguarding of assets, controls for preventing/ detecting frauds and other related declarations. However, there is no such specific requirement relating to a declaration by the directors on internal control aspects for all the companies, though, for listed companies, there is a requirement relating to internal controls in the Management’s Discussion and Analysis Section and also in the Certification by the CEO and the CFO of the Company.

Auditors ReportIn addition to the regular report on the financial statements of the Company by the Auditors, the following disclosures are also mandated by law in various countries;

Auditors Report on Directors Report/Management’s Review:As per the UK Laws, in the Auditors Report, there is a mandatory requirement on the part of the auditors to comment about whether the information contained in the Directors Report is consistent with the financial statements. Hence, naturally, there is a regulatory requirement on the part of the auditors to read the Directors Report and consider the implications for their report as well.

This requirement is also applicable in various other countries such as Denmark which requires a separate opinion on the part of the auditors regarding their reading of the Management’s Review Statements and its consistency with the disclosures made in the financial statements.

Further, as per the Cyprus Companies Law, the auditors are required to comment about the consistency of the information given in the Directors Report

with the financial statements specifically as part of their Other Legal reporting requirements.

The underlying principle behind such a requirement is to make sure the correct information rea-ches the stakeholders irrespective of the form in which it takes. If the director’s report and the financial statements are not in sync, the readers of the annual report may be misguided. Hence this responsibility has been fixed on the part of the auditors.

In India, there is a requirement on the part of the auditors, in view of the new Auditing Standard SA 720, effective for periods beginning on or after 1st April, 2010, which deals with the auditor’s responsibilities in relation to other information in documents conta-ining audited financial statements, to review the “documents containing audited financial statements” as the annual report or other similar documents which are issued to the owners or similar stakeholders containing audited financial statements and the auditor’s report thereon.

The Auditing Standards requires

n India, other than the Directors Responsibility Statement which

deals with the preparation of the financial statements, application of accounting standards, accounting policies, maintenance of accounting records etc, there is no requirement to comment about the location of Books of Account, employment of appropriately qualified accounting personnel, maintenance of appropriate accounting systems etc. specifically.

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here is a requirement in Australia for certain type of companies

to specifically indicate the method of rounding off of the amounts disclosed in the Directors Report. This could be in the form of rounding off to nearest thousand of the unit of currency, depending on the size etc. subject to the terms and conditions stipulated in the regulations. We do not have any such specific disclosure requirement relating to rounding off of amounts in the Directors Report in India.

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the auditor to read the other information to identify material inconsistencies, if any, with the audited financial statements before issuing the auditor’s report on the financial statements. Further, the Standard defines “Other Information” as financial and non-financial information (other than the audited financial statements and the auditor’s report thereon) which is included, either by law, regulation or custom, in a document containing the audited financial statements and the auditor’s report thereon.

However, there is no explicit requirement on the part of the auditors to indicate their Review/Reading of the Directors Report and the result thereof in their Auditors Report, similar to that of UK/Denmark, etc.

Disclosure Relating to Serious Loss of CapitalAs per the Irish Regulations, there is a requirement on the part of the auditors to comment about whether the net assets of the company, as stated in the Balance Sheet, are more than half the amount of its called up share capital and on that basis whether in the opinion of the auditor, there exists, as at the date of the Balance Sheet, a financial situation which would require convening of the extra ordinary general meeting of the shareholders of the company. This requirement is mandated since there is an obligation on the part of the directors to convene an extra ordinary general meeting of the shareholders in the event of serious loss of capital and the auditors have to report this situation on an independent basis.

In India, as part of the Companies Auditors Report Order (CARO), there is a requirement to comment about whether in case of a company which has been registered for a period not less than five years, its accumulated losses

at the end of the financial year are not less than fifty per cent of its net worth and whether it has incurred cash losses in such financial year and in the immediately preceding financial year

However, this is appearing only in CARO (Annexure to the Auditors Report) and also does not directly talk about the requirement relating to any action to be taken on the part of the company, if the financial health of the company is dismal.

Zakat Deduction at Source:In Pakistan, the auditors are required to comment whether any Zakat is deductible at source under the statutory provisions in their audit report in addition to their regular report on the financial statements.

This requirement is similar to that of the requirement relating to commenting on remittance of statutory dues in India as part of the CARO requirements.

Directors Interest in Contracts with Company:In Sri Lanka, the auditors are

required to comment in their report about the details of the director’s interests in the contracts with the company.

This requirement is similar to that of the requirement in India relating to disclosure of Section 301 contracts wherein the auditors are required to comment as to whether the particulars of contracts or arrangements referred to in Section 301 of the Companies Act have been entered in the register required to be maintained under that section;

ConclusionConsidering the global trends emerging in the area of reporting to the stakeholders, the professional managements of corporate could consider implementing such global best practices in disclosures in their Annual Reports, to the extent relevant and applicable, suomoto, without waiting for the mandatory regulatory requirements. Needless to add that many corporate entities in India have already initiated required steps in this direction and are setting benchmarks for ensuring enhanced and value added disclosures in their Annual Reports to the Stakeholders. Cur-rently, the regulatory environment in India is also responding swiftly and favorably to ensure greater/enhanced disclosure requirements to the Stakeholders. Greater transparency and assuming more and more responsibility by those in charge of governance, ensuring unbiased approach in implementing governance practices and following the disclosure requirements in letter and spirit are the corner stones of building greater confidence amongst the investors, general public, regulators and the global international community and this could be well achieved based on enhanced, extensive, qualitative disclosures in the Annual Reports to the stakeholders. n

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here is a requirement to attach the Independence Declaration

obtained from the auditors as part of the Directors Report in certain countries. This independence declaration is obtained from the auditor and will specifically give the required confirmation for ensuring compliance with the independence requirements and the other applicable professional conduct by the auditors. Such a requirement of including the Independence Declarations of the auditors as part of the Directors Report is not applicable in India.

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Information Risk and Risk Assurance in Auditing

Accounting is the art of recording, classifying and summarising of economic events in a logical manner for the purpose of providing financial information for decision making by the users of the accounting information. To provide relevant information, accountants must have a thorough understanding of the principles and rules that provide the basis for the preparation of the accounting information. While conducting the auditing of accounting data, auditors’ attention is on determining whether recorded accounting information properly reflects the economic events that occurred during the accounting period. This is because international accounting standards provide the criteria for evaluating as to whether the accounting information is properly recorded and reflected through financial statements and for this purpose the auditors must also understand those accounting standards. As society becomes more complex, decision makers are more likely to receive unreliable information. There are several reasons for this unreliable information and this unreliability of information invites risk. Auditing has no effect on either the risk-free interest rate or business risk, but it can have a significant effect on information risk. This article analyses the concept of Information Risk and Risk Assurance in auditing.

Need for Accurate Financial InformationIn order to get the idea about the need of accurate information, the process of decision making by a bank manager in granting a loan to a business (customer) can be considered. This decision of the bank manager for granting loan to the customers will be based on a number of factors such as previous financial relationships with the customer and the present financial condition of the business as reflected by its financial state-

Dr. (CA.) Sanjib Kumar Basu

(The author is a member of the Institute and Faculty Member, Department of Commerce, St. Xavier’s College, Kolkata. He can be reached at [email protected])

ments. If the bank makes the loan, it will charge a rate of interest determined primarily by three factors. These are:1. Risk-free interest rate: This

is approximately the rate the bank could earn by investing in Government Bonds for the same length of time as the business loan.

2. Business risk for the customer: This risk reflects the possibility that the business will not be able to repay its loan because of unfavourable economic

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fter comparing costs and benefits and required analysis,

business managers and financial statement users may conclude that the best way to deal with information risk is simply to have it remain unreasonably high. A small company may find it less expensive to pay higher interest costs than to increase the cost of reducing information risk. For larger businesses, it is usually practical to incur costs to reduce information risk.

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or business conditions, such as recession, poor manage-ment decisions or unexpected competition in the industry in which this business belongs.

3. Information risk: Information risk reflects the possibility that the information upon which the business risk decision was made is inaccurate. A likely cause of the information risk is the possibility of inaccurate financial statements.

Auditing has no effect on either the risk-free interest rate or business risk, but it can have a significant effect on information risk. If the bank officer is satisfied that there is minimal information risk because the borrower’s financial statements are audited, then the bank’s risk is substantially reduced and the overall interest rate to the borrower can be reduced. The reduction of information risk can have a significant effect on the borrower’s ability to obtain capital at a reasonable cost.

Causes of Information RiskAs society becomes more complex, decision makers are more likely to receive unreliable information. There are several reasons for this unreliable information and this unreliability of information invites risk.

The reasons for the unreliable information are:i. Remoteness of information In a global economy, it is

nearly impossible for a decision maker to have much firsthand knowledge about the organisation with which they do business. Information provided by others must be relied upon. It is the fact that when information is obtained from others, the likelihood of its being intentionally or unintentionally misstated, increases.

ii. Biases and motives of the

provider If information is provided by

someone whose goals and objectives are inconsistent with those of the decision maker, the information provided may be biased in favour of the provider. The reason can be honest optimism about future events or an intentional emphasis designed to influence users. In either case, the result is a misstatement of information. For example, when a borrower provides financial statements to a lender, there is considerable likelihood that the borrower will bias the statements to increase the probability of obtaining a loan. The misstatement could be incorrect rupee amounts or inadequate or incomplete disclosures of information.

iii. Voluminous data As organisations become

larger, so does the volume of their economic events and transactions. This increases the likelihood that improperly recorded information is inclu-ded in the records- perhaps buried in a large amount of other information. For example,

if a large business organi-sation overpays a vendor’s invoice by R20,000, it is unlikely to be uncovered unless the concern has instituted reasonably complex procedures to find this type of misstatement. If many minor misstatements remain undiscovered, the combined total can be significant.

iv. Complex exchange transac-tions

In the past few decades, economic events and trans actions between organisations have become increasingly complex and therefore more difficult to record properly. For example, the correct accounting treatment of the business combination of one entity with another poses relatively difficult accounting problems. Other examples include properly combining and disclosing the results of operations of subsidiaries with the parent organisation in different industries and properly disclosing derivative financial instruments as prescribed in the applicable accounting standards.

Reducing Information RiskAfter comparing costs and benefits and required analysis, business managers and financial statement users may conclude that the best way to deal with information risk is simply to have it remain unreasonably high. A small company may find it less expensive to pay higher interest costs than to increase the cost of reducing information risk.

For larger businesses, it is usually practical to incur costs to reduce information risk. There are three ways to do so. These are: i. User verifies information The user may go to the business

premises to examine records and obtain information about

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the reliability of the financial statements. Normally, this is impractical because of cost. In addition, it is economically inefficient for all users to verify the information individually. Nevertheless, some users perform their own verification. For example, tax department does considerable verification of business and individual tax returns to determine whether the tax returns filed reflect the actual tax due to the government. Similarly, if a business intends to purchase another business, it is common for the purchaser to use a special investigation team to independently verify and evaluate key information of the prospective business.

ii. User shares information risk with management

There is considerable legal precedent indicating that management is responsible for providing reliable infor-mation to the users. If users rely on inaccurate financial statements and as a result incur a financial loss, they may have a basis for lawsuit against management. A difficulty with sharing information risk with management is that users may not be able to collect on losses. If a company is unable to repay a loan because of bankruptcy, it is unlikely that management will have sufficient fund to repay users.

iii. Audited financial statements are provided

The most common way for users to obtain reliable information is to have an independent financial audit. Decision makers can then use the audited information on the assumption that it is reaso-nably complete, accurate and unbiased.

Typically, management of a private company or the audit committee for a public company engages the auditor to provide assurances to the users that the financial statements are reliable. If the financial statements are ultimately determined to be incorrect, the auditor can be sued by both the users and the management. Auditors obv-iously have considerable legal responsibility for their work, be-cause they are providing required assurance about the reliability of accounting information to the users of the information including the management and the shareholders.

Information Assurance ServicesAn assurance service is an independent professional service that improves the quality of information for decision makers. Such services are valued because the assurance provider is independent and perceived as being unbiased with respect to the information examined. Who are responsible for making business decisions seek assurance services to help improve the reliability and relevance of the information used as the basis for their decisions.

“Information assurance” covers all activities that deal with the issues raised by the following key information security concepts. This includes:▪ Ensuring the integrity, authenti-

city and reliability of info-rmation;

▪ Providing unambiguous iden-tification and availability of this information;

▪ Establishing which individuals are authorised to view, edit and transmit the information;

▪ Protecting sensitive information from illegitimate recipients or interference, and unsuspec-ting recipients from false information;

▪ Regulating what legitimate users do with the information to which they have access.

Key concepts of information securityAssuring information security is central to the success of any business activity. This is particu-larly pertinent in the age of modern technology, when information can leak and spread like a viral infection, and politically sensitive issues such as ID theft can bring down powerful individuals, businesses and government parties.

Nine key concepts of infor-mation security, encompassing technology, law, best practice and ethics are:1. ConfidentialityAs an information security concept, confidentiality relies on the premise that there is some information which should be accessed only by certain people. If this principle is accepted, then we might create in addition information categories that reflect the degree of confidentiality required.

For example, we might argue that medical records should be completely private (available

ssuring infor-mation security is central to the success of any business

activity. This is particularly pertinent in the age of modern technology, when information can leak and spread like a viral infection, and politically sensitive issues such as ID theft can bring down powerful individuals, businesses and government parties. There are nine key concepts of information security, encom-passing technology, law, best practice and ethics.

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only to the individual and the appropriate medical practitioners), internal (shared with all medical practitioners, and perhaps also with members of the individual’s family) or public.

Maintaining confidentiality is a three-step method:▪ authentication (establish the

identity of the proposed recipient)

▪ authorisation (confirm whether the proposed recipient is authorised to receive the infor-mation)

▪ access control (regulate the level of access available to the proposed recipient, e.g. through the use of ‘read-only’ texts).

2. IntegrityWithin the context of information security and risk management, ‘integrity’ means ensuring that data remains unchanged while in storage or transmission. This affects policies regarding both official records and also communication systems.

When sending an e-mail, we rely on the security of the IT system to ensure that the e-mail reaches the intended recipient intact. When we enter or retrieve data from a spreadsheet, we do not expect the information to change, either by technological fault or through illegitimate interference.

One means of establish-ing the integrity of data stor-age or communication systems are computational techniques for verifying data, including comparisons, checksums, mess-age authentication and message digests.

3. Accountability‘Accountability’ holds an unusual position within the world of information security and risk management. Essentially, it is a means of protecting information. However, unlike the digital sign-

atures, passwords and encryption familiar to the technology savvy, accountability deals with the interface between information security, law and ethics.

According to Andreas Schedler (in his article Conceptualising Accountability) the basic illustration of accountability can be states as follows: "A is accountable to B when A is obliged to inform B about A’s (past or future) actions and decisions, to justify them, and to suffer punishment in the case of eventual misconduct." In real terms, this means understanding and fulfilling one’s own responsibilities regarding information security. At its simplest, these might include not sharing the contact details of customers with commercial organisations. At higher levels of management, individuals might be responsible for communication or even establishing suitable information security policies.

Within the sphere of corporate governance, accountability also encompasses issues such as: to which individual or organisation a business leader should be accountable; how organisational policies can be regulated; and how much control the government should exercise over the information security policies of individual public sector departments.

4. Non-repudiationAs a general concept, ‘repudiation’ means that a party denies the validity of a statement or a contract (for example, by claiming that a signature has been forged). Within the context of information security, ‘non-repudiation’ means that a statement or contact cannot be repudiated. This might be provided by a service that guarantees authentication or proof of the integrity and origin of the data. Familiar technological means of providing non-repudiation are digital signatures and certificates.

5. AuthenticityIf a toy car says Made in Japan, we usually take this on trust. If a wine-seller claims that the bottle we have bought is from Singapore, then we would expect this information to be accurate. If we receive a new pin code from the bank, then it is vital that we can rely on the authenticity of the information – that is, assurance that the information exchanged is from the source that it claims to be from.

This assurance can be provided through something that the user knows (e.g. a password or a pin code), something that the user has (e.g. an ID card or a digital certificate) or even something that the user is (e.g. checking fingerprints and iris-scanning).

6. IdentificationSo much of information security is concerned with protecting sensitive information from illegitimate users that there is a danger of forgetting the importance of protecting unsuspecting users from false or inaccurate information. Within the context of information security,

nformation assurance is the practice of managing risks related to the

use, processing, storage, and transmission of information or data and the systems and processes used for those purposes. While focused dominantly on information in digital form, the full range of Information Assurance encompasses not only digital but also analog or physical form. Information assurance as a field has grown from the practice of information security which in turn grew out of practices and procedures of computer security.

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‘identification’ means the capability to retrieve, edit and report specific data without ambiguity. This capability is usually delivered through the use of unique reference codes, such as ID numbers.

7. ReliabilityInformation reliability is primarily concerned with the information that needs to be retained about the author or source of information to assure its authenticity. This raises issues regarding version control (logging information about the changes made to versions of a document or product), archiving and document reviews.

In terms of information security, ‘reliability’ also means ensuring that information or an information system is protected against tampering and fraud.

Information Assurance ProcessThe Information Assurance process typically begins with the enumera- tion and classification of the information assets to be protected. Next, the Information Assurance practitioner will perform a risk assessment. This assessment considers both the probability and impact of the

undesired events. The probability component may be subdivided into threats and vulnerabilities. The impact component is usually measured in terms of cost. The product of these values is the total risk.

Information assurance is the practice of managing risks related to the use, processing, storage, and transmission of information or data and the systems and processes used for those purposes. While focused dominantly on information in digital form, the full range of Information Assurance encompasses not only digital but also analog or physical form. Information assurance as a field has grown from the practice of information security which in turn grew out of practices and procedures of computer security.

In the 1960s, Information Assurance was not as complex as it is today. Information Assurance was as simple as controlling access to the computer room by locking the door and placing guards to protect it. Since the 1970s, information security has held confidentiality, integrity and availability (known as the CIA triad) as the core principles. One newer model of Information Assurance adds Authentication and Non-repudiation to create the five Pillars of Information Assurance. In contrast, Donn B. Parker developed a model that added three attributes of authenticity, utility, and possession to the core C-I-A.

Therefore, there are three basic models used in the practice of Information Assurance to define assurance requirements and assist in covering all necessary aspects or attributes.▪ The first is the classic information

security model, also called the CIA Triad, which addresses three attributes of information and information systems, confidentiality, integrity, and availability. This C-I-A model is

extremely useful for teaching introductory and basic concepts of information security and assurance; the initials are an easy mnemonic to remember, and when properly understood, can prompt systems designers and users to address the most pressing aspects of assurance.

▪ The next most widely known model is the Five Pillars of Information Assurance model, promulgated by the U.S. Department of Defense in a variety of publications, beginning with the National Information Assurance Glossary, Committee on National Security Systems. The Five Pillars model is sometimes criticised because authentication and non-repudiation are not attributes of information or systems; rather, they are procedures or methods useful to assure the integrity and authenticity of information, and to protect the confidentiality of the same.

▪ A third, less widely known Information Assurance model is the Parkerian Hexad, first introduced by Donn B. Parker in 1998. Like the Five Pillars, Parker's Hexad begins with the C-I-A model, but builds it out by adding authenticity, utility, and possession (or control). It is significant to point out that the concept or attribute of authenticity, as described by Parker, is not identical to the pillar of authentication as described by the US Department of Defense.

Information assurance is closely related to information security and the terms are sometimes used interchangeably. However, Information Assurance’s broader connotation also includes reliability and emphasises strategic risk management over tools and

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ome practitioners make the mistake of thinking of the

integrity attribute as being only data integrity. While data integrity is a major part of this attribute, it is not everything. This attribute also addresses whether the physical and electronic systems have been maintained without breach or unauthorised change. It even refers to the people involved in handling the information; are they acting with proper motivation and integrity.

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shoulder at your computer screen while you have confidential data displayed on it would be a breach of confidentiality if they were not authorised to have the information. If a laptop, which contains employ-ment and benefit information about 100,000 employees, is stolen from a car could result in a breach of confidentiality because the information is now in the hands of someone who is not authorised to have it. Giving out confidential information over the telephone is a breach of confidentiality if the caller is not authorised to have the information.

b. IntegritySome practitioners make the mistake of thinking of the integrity attribute as being only data integrity. While data integrity is a major part of this attribute, it is not everything. This attribute also addresses whether the physi-cal and electronic systems have been maintained without breach or unauthorised change. It even refers to the people involved in handling the information; are they acting with proper motivation and integrity.

Integrity means data cannot be created, changed or deleted without proper authorisation. It also means that data stored in one part of a database system is in agreement with other related data stored in another part of the database system (or another system).

For example, a loss of integrity occurs when an employee accidentally or with malicious intent, deletes important data files. A loss of integrity can occur if a computer virus is released onto the computer. A loss of integrity can occur when an on-line shopper is able to change the price of the product they are purchasing.

c. AvailabilityAvailability is timely, reliable access

to data and information services for authorised users. Availability means that the information, the computing systems used to process the information, and the security controls used to protect the information are all available and functioning correctly when the information is needed. The opposite of availability is the lack thereof, one example of this is a common attack known as a denial of service attack.

II. Additional Pillars as Given in Newer Modela. AuthenticationSecurity measure designed to establish the validity of a trans-mission, message or originator or a means of verifying an indi-vidual's authorisation to receive specific categories of information is considered as authorisation in this context. Authentication breach can occur when a user's login id and password is used by unauthorised users to send unauthorised information.

b. Non-repudiationNon-repudiation indicates the

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tactics. In addition to defending against malicious hackers and code (e.g., viruses), Information Assurance includes other corporate governance issues such as privacy, compliance, audits, business continuity, and disaster recovery. Further, while information security draws primarily from computer science, Information Assurance is interdisciplinary and draws from multiple fields, including accounting, fraud examination, forensic science, management science, systems engineering, security engineering, and criminology, in addition to computer science. Therefore, Information Assurance is best thought of as a superset of information security.

The core principles as described in different models are discussed below:I. Core Principles as per CIA Triada. ConfidentialityConfidentiality is the assurance that information is not disclosed to unauthorised individuals, processes, or devices. Confidential information must only be accessed, used, copied, or disclosed by users who have been authorised, and only when there is a genuine need. A confidentiality breach occurs when information or information systems have been, or may have been, accessed, used, copied or disclosed or by someone who was not authorised to have access to the information.

For example, permitting someone to look over your

uthenticity is necessary to ensure that the users or objects (like documents)

are genuine (they have not been forged or fabricated). As files are shared across multiple organisations, there can be circumstances when duplicate copies of that file may exist. In such cases, it is important to establish not only which is the master copy, but also to establish a way for those who use the data to know where file, and all of the tagged data sets in the file, came from. A Tagged Data Authority Engine is one way to do this.

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assurance the sender of data is provided with proof of delivery and the recipient is provided with proof of the sender's identity, so neither can later deny having processed the data. Non-repudiation implies that one party of a transaction cannot deny having received a transaction nor can the other party deny having sent a transaction. For example, electronic commerce uses technology such as digital signatures to establish authenticity and non-repudiation.

III. Donn B. Parkers’ Additional Issuesa. AuthenticityAuthenticity is necessary to ensure that the users or objects (like documents) are genuine (they have not been forged or fabricated). As files are shared across multiple organisations, there can be circumstances when duplicate copies of that file may exist. In such cases, it is important

to establish not only which is the master copy, but also to establish a way for those who use the data to know where file, and all of the tagged data sets in the file, came from. A Tagged Data Authority Engine is one way to do this.

b. UtilityUtility means usefulness and usability. For example, suppose someone encrypted data on disk to prevent unauthorised access or undetected modifications – and then lost the decryption key that would be a breach of utility. The data would be confidential, controlled, integral, authentic, and available – they just wouldn’t be useful in that form. Similarly, conversion of salary data from one currency into an inappropriate currency would be a breach of utility, as would the storage of data in a format inappropriate for specific computer architecture. A tabular representation of data substituted for a graph could be described as a breach of utility if the substitution made it more difficult to interpret the data. Utility is often confused with availability because breaches such as those described in these examples may also require time to work around the change in data format or presentation. However, the concept of usefulness is distinct from that of availability.

c. PossessionPossession means custody or control over the information, i.e., under whose control the information is kept. If everyone would have the access to the information generated, that can be considered as a good sign for the organisation. However, if the unauthorised possession of the information is with the persons at the input end, that creates problems to the information users and also it throws a great challenge

to the information security profile of the organisation.

ConclusionBased on the risk assessment, the Information Assurance practitioner will develop a risk management plan. This plan proposes countermeasures that involve mitigating, eliminating, accepting or transferring the risks and considers prevention, detection, and response. Countermeasures may include tools such as firewalls and anti-virus software, policies and procedures such as regular backups and configuration hardening, training such as security awareness education or restructuring such as forming a computer security incident res-ponse team or computer emer-gency response team. The cost and benefit of each countermeasure is carefully considered. Thus, the Information Assurance prac-titioner does not seek to eliminate all risks, were that possible, but to manage them in the most cost-effective way.

After the risk management plan is implemented, it is tested and evaluated, perhaps by means of formal audits. The Information Assurance process is cyclical; the risk assessment and risk management plan are continuously revised and improved based on data gleaned from evaluation.

References1. Auditing and Assurance Services- Arens,

Elder and Beasley: ACL Publisher (13th Edition).

2. Principles of Auditing- An Introduction to International Standards on Auditing- Rick Hayes, Roger Dassen, Arnold Schilder and Philip Wallage: Pearson Education Schweiz.

3. Auditing Cases- Beasley, Buckleas, Glover and Prawitt: Prentice Hall (4th Edition).

4. Parker, Donn B. (1998). Fighting Computer Crime. New York.

5. Parker, Donn B: Towards a New Framework of Information Security- The Computer Security Handbook (4th Edition) - John Wiley, New York. n

ased on the risk assessment, the Information Assurance practitioner will

develop a risk management plan. This plan proposes countermeasures that involve mitigating, eliminating, accep-ting or transferring the risks and considers prevention, detection, and response. Countermeasures may include tools such as firewalls and anti-virus software, policies and procedures such as regular backups and configuration hardening, training such as security awareness education or restructuring such as forming a computer security incident response team or computer emergency response team.

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Is Goodwill an Intangible Asset Eligible for Tax Depreciation?

Intangible assets are those which create significant values for an organisation beyond its tangible assets and Goodwill is a part of it. However, some of the intangible assets are not capable of recognition in books of accounts in accordance with Accounting Standard-26. In spite of this, intangibles constitute a larger part of acquisition price in present era of mergers and acquisitions. Therefore, while structuring M&A deals, the prospective buyer, apart from considering other legal and commercial considerations, also considers tax cost and benefits involved in the deal. Thus, the acquirer is always interested to factor-in the tax incidence in the form of tax depreciation that would be eligible to him on intangible assets which are acquired and embedded within goodwill. Keeping this view in mind, the article explains accounting principles for recognition of goodwill in financial statements as per prevailing Accounting Standards. Whether goodwill recognised as above is eligible for tax depreciation? An attempt is also made to analyse some landmark judgements which provide valuable insights on eligibility of depreciation on intangible assets accounted for as goodwill. Section 32(ii) – Intangible Assets Eligible for

DepreciationDepreciation on intangible assets was, for the first time, recognised by Finance (No.2) Act, 1998. However, it is interesting to note that not all intangible assets qualify for depreciation. The legislature in its wisdom had identified few intangibles for depreciation. It is evident from provisions of Section 32(1)(ii) of the Act which provides that “any know-how, patents, copyrights, trade marks, licences, franchises or any other business or commercial rights of similar nature, acquired by the assessee on or after 1-4-1998, shall be eligible for

(The author is a member of the Institute. She can be reached at [email protected])

CA. Namita Kedia

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he term ‘Goodwill’ has not been defined in the Income-tax Act, 1961 though in Section 55(2)(a) it has been recognised as a ‘capital asset’ for purposes of computing

capital gains. The cost of acquisition in case of purchased goodwill is to be taken as the ‘amount of purchase price’ and the cost is taken to be ‘Nil’ when it is self generated goodwill. Thus, the fact that goodwill is a ‘capital asset’ is recognised under Income-tax Act, 1961.

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ue to this non-alignment between provisions of Income-tax Act, 1961 and the accounting methods followed by assesses in respect of goodwill recognition and its

subsequent amortisation and/or depreciation, allowance of depreciation on Goodwill (embedded with other intangible assets) has always been a subject matter of considerable uncertainty and litigation.

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depreciation allowance with effect from the assessment year 1999-2000.”

Assets like know-how, patents, copyrights, etc., form a distinct category since all those items are specific and represent rights of business or commercial nature. It is, therefore, important to understand whether goodwill recognised in books pursuant to business purchase is an intangible asset and whether same qualifies for depreciation under Section 32(ii).

Goodwill – A Capital Asset under Income Tax ActThe term ‘Goodwill’ has not been defined in the Income-tax Act though in Section 55(2)(a) it has been recognised as a ‘capital asset’ for purposes of computing capital gains. The cost of acquisition in case of purchased goodwill is to be taken as the ‘amount of purchase price’ and the cost is taken to be ‘Nil’ when it is self generated goodwill. Thus, the fact that goodwill is a ‘capital asset’ is recognised under Income-tax Act, 1961.

Purchased Goodwill is Generally “Goodwill Embedded With Intangible assets”Normally, purchased goodwill is the only type which appears in financial statements since self-generated goodwill cannot be recognised in books in accordance with AS – 26 on Intangible Assets. This purchased goodwill is valued as “the excess of price paid for a business as a whole over the agreed value of all tangible net assets purchased” unless any specific value has been allocated to it.

It is to be noted that alike self-generated goodwill, those intangible assets which cannot be identified separately or cannot be reliably measured, are also not recognised in the financial statements. Therefore, when a business is purchased such intangible assets are not assigned separate values, but are embedded together and recognised as “Goodwill” in accordance with AS-26, which states as follows, in respect of intangible assets acquired as part of amalgamation:

31. In accordance with this Statement:(a) a transferee recognises an intangible asset that

meets the recognition criteria in paragraphs 20 and 21 (i.e. future benefits attributable to the asset will flow to the enterprise and the cost can be measured reliably), even if that intangible asset had not been recognised in the financial statements of the transferor; and

(b) if the cost (i.e. fair value) of an intangible asset acquired as part of an amalgamation in the nature of purchase cannot be measured reliably, that asset is not recognised as a separate intangible asset but is included in goodwill.

Amortisation or Depreciation on Goodwill - Accounting Methodology vis-a-vis Tax ProvisionsFurther to above, it is pertinent to note that, for accounting purposes, goodwill recognised in financial statements is amortised over its systematic life (preferably five years) as per Indian Accounting Standards; whereas Goodwill as such is not included in the list of intangible assets eligible for depreciation under Section 32(ii) of Income-tax Act, 1961. Therefore, it can be said that provisions of said section do not appreciate the fact that consequent to existing accounting norms, such purchased goodwill recognised in books of accounts may have intangibles embedded within it which are eligible for depreciation.

Due to this non-alignment between provisions of Income-tax Act, 1961 and the accounting methods followed by assesses in respect of goodwill recognition and its subsequent amortisation and/or depreciation, allowance of depreciation on Goodwill (embedded with other intangible assets) has always been a subject matter of considerable uncertainty and litigation.

Jurisprudence for Eligibility of Depreciation on GoodwillAlthough the few existing judicial precedents on this subject summarised below lends a possible view that goodwill is eligible for depreciation; these rulings have not been too successful in putting a conclusive end to this issue:

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Rulings Facts of the Case Decision Held1(CIT vs. Hindustan Coca Cola Beverages Pvt. Ltd).

(Delhi High Court)

1. Assessee was engaged in manufacturing and trading of non-alcoholic beverages.tt

2. It paid amounts to various bottlers for marketing and trading reputation, trading style and name, territory know-how, know-how related to business, customer database, distribution network, contact and other commercial rights

3. A part of slump price paid was allocated to aforesaid intangible assets and recognised under the head goodwill on which depreciation under Section 32 (ii) was claimed

4. Notes to income tax return stated the fact that Goodwill represented difference between consideration paid for business and value of tangible assets determined by a reputed valuer.

1. Nomenclature given to the entries in the books of accounts is not relevant for ascertaining real nature of transaction.

2. As per Section 32(ii), intangible assets includes, along with other things, any other business or commercial rights of similar nature

3. Commercial rights are rights for effectively carrying on business and commerce and therefore any such right is an intangible asset, and so as goodwill which has intangible assets i.e. know-how, patents etc. embedded within it

4. Depreciation on such Goodwill is allowed

2(Jeypore Sugar Company Ltd. v ACIT)

(Visakhapatnam ITAT)

1. Assessee purchased Chagallu distillery and difference between price paid and assets taken over was recognised under Intangible assets as Goodwill.

2. Goodwill acquired vide sale/purchase agreement was defined as "goodwill, interest and connection of transferor inand concerning business together with right to carry on business as going concern in succession but forbidding right to use existing name

1. Goodwill is a bundle of commercial benefits and commercial rights and by virtue of Goodwill assessee acquired these benefits and rights to run Chagallu distillery.

2. Commercial benefits are not eligible for depreciation whereas commercial rights being akin to know-how, patents etc. is eligible for depreciation

3. Since cost of acquistion of commercial rights and commercial benefits cannot be made available, Goodwill should be bifurcated into two equal parts and allow depreciation thereon on 50% of Goodwill treated as cost of acquisition of commercial rights

3(B.Raveendran Pillai vs. Commissioner of Income Tax)

(Kerala High Court (Ernakulam)

1. Assessee purchased hospital under two separate sale deeds, one for immovables and other for movables (covering trademark, goodwill etc.

2. A value was assigned in sale deed to Goodwill including name of hospital, its logo and trademark

1. Trade marks and franchises covers name, logo etc. value of which is included in Goodwill

2. It is important that assessee continued running the hospital in the very same building, same premises, same town and with same name.

3. Purchase of Hospital as going concern with its name and trade mark is nothing but acquisition of goodwill and cannot be termed anything other than a commercial/ business right and therefore Goodwill is entitled for depreciation.

1 This ruling of Delhi High Court in Hindustan Coca Cola Beverages [(ITA Nos. 1391/2010, 1394/2010 & 1396/2010 ) / (2011-TMI-201786)] has been followed by Mumbai Tribunal in case of Koch Chemical Technology Group India Pvt. Ltd. vs. Deputy Commissioner of Income Tax in ITA No. 2680/Mum/09 (AY 2009-10)

2 [ (ITA Nos. 255 & 256 (Vizag) of 2010) / (2010-TMI-203250-ITAT)]3 [2011] 332 ITR 0531 / 2010-TMI-203081

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Rulings Facts of the Case Decision Held4(KEC International Ltd vs. Addl. Commissioner of Income Tax)

(ITAT Mumbai)

1. Assessee acquired Power Transmission Business and revalued the assets acquired. It valued Brand and Goodwill and recognised the same separately in its books

2. Brand valuation was conducted under three methods and value assessed in valuation report was recognised

1. Brand is an intellectual property right and can be equated with Trademark. Hence, it falls within the ambit of Section 32(ii) and hence depreciation should be granted

2. When arms length price is determined in valuation report, it must be regarded as actual cost

3. Depreciation will be allowed on Brand but not on Goodwill

A combined reading of aforesaid cases reveals that:i. The true basis for claiming depreciation is the

real nature of intangible asset with reference to rights obtained by the acquirer. Nomenclature given to entries in books of accounts is not relevant for ascertaining actual nature of the transaction.

ii. Goodwill is made up of many components. Depreciation is eligible on intangible assets recorded as goodwill if same can be established by the taxpayer.Therefore, the views expressed by judicial

authorities in above rulings highlights that it may be possible to claim depreciation on goodwill, where the facts demonstrate that, it represents underlying benefits in the nature of know-how, trademark, brands, or such rights which could be considered as any other business or commercial rights of similar nature, etc. which per se are eligible for depreciation.

Like various other issues, allowability of tax depreciation on goodwill is also surrounded by contrary rulings. Having regard to what is discussed above, attention is also invited to these cases where depreciation was not allowed on goodwill based on the relevant facts of the case and the matter is still pending before Special Benchi. R.G.Keswani v. Assistant Commissioner of Income

Tax [2009] 308 ITR (A.T.) 0271ii. Borker Packaging 40 DTR 29 (Panaji)iii. Madular Infoyech 131 TTJ 243 (Pune)

Depreciation on Intangibles under DTC RegimeOn a concluding note, a visit to provisions of Direct Tax Code 2010 (DTC) in respect of depreciation on intangible assets is of considerable importance. Under DTC, assets are divided into two categories i.e. (1) Business Asset and (2) Investment Asset. Business Asset is further classified into (a) Business Trading Asset and (b) Business Capital asset.

Section 314(39) of the Code defines a “Business Capital Asset” as:

(a) any capital asset self-generated in the course of business;

(b) any intangible capital asset in the nature of— (i) goodwill of a business .............................

Therefore as specified above, goodwill whether self-generated or acquired will be classified as a business capital asset under DTC regime and any income arising from transfer, demolition, destruction or discardment of a business capital asset will be classified as income from business for the transferor of such asset.

As regards depreciation allowance on intangible assets under DTC; it is important to note that there is no change in the status of a prospective buyer of intangible assets (including goodwill). As per provisions of Section 37 of the Code, depreciation will be allowed on those business capital assets which are listed in the Fifteenth Schedule. The said Schedule includes and defines intangible assets as follows for the purposes of depreciation:(1) Any right by way of license or franchise, to operate

a business or to use a know-how, patent, copyright, trademark or any other business or commercial right of similar nature.

Further to above, Section 38(1)(b) of the Code specifically provides that “depreciation would be nil in case of those assets which are not specified in Fifteenth Schedule”

Having regard to above, it is well established that goodwill, as such, is not included in the list of intangible assets eligible for depreciation under proposed DTC regime also. Therefore, uncertainty and litigation on eligibility of depreciation on intangible assets embedded within goodwill is expected to continue due to lack of clarity on the subject and contrary views held by the judicial authorities. n

4 [ITA No. 4420/Mum/2009] / [2010-TMI-204449-ITAT]

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Proposed ‘Goods and Services Tax’ and Latest Developments towards its Implementation

The proposed goods and services tax (GST) is in fact the brainchild of Ex-Finance Minister Mr. P. Chidamabram. It will be a multi-stage consumption tax to be imposed on wide range of goods and services. With the implementation of GST the government will surely be able to make the indirect tax regime more transparent and widen. The consumers shall also be equally benefited by availing the goods and services at lower prices as the cascading effect will be eliminated under proposed GST. The manufacturers and intermediate sellers shall also get relief from handling hazards of multiple indirect taxes. Cost of tax collection will be reduced due to merging of existing different indirect taxes into proposed GST. The revenue of both Central Government and State Governments shall be increased in the long run. Initial loss of revenue to States will be compensated by the Centre. The only hurdles to cross over in implementation of GST at the earliest is the disagreement of BJP-led States to implement it from 01-04-2012 after necessary constitutional amendments. Hopefully, the Union Finance Minister along with the ‘Finance minister of Bihar and Chairman of the empowered committee’ will be able to convince all other States’ finance ministers, to arrive at a desirable consensus.

GST or ‘Goods and Services Tax’ has been proposed in Union Budget for the year 2006-2007 to replace existing indirect tax regime. GST, if implemented, will replace most of the existing indirect taxes. As of now, more than 120 countries of the world have implemented GST to minimise the complexity of multiple taxes. Considering the fact of globalisation and complexity of existing multiplicity of indirect taxes, the Government of India has proposed to introduce GST. As proposed, it shall be levied or charged at the point of sale of goods and services by replacing existing indirect taxes, i.e., central sales tax (CST), State Sales Tax/ Value Added Tax (VAT), Turnover Tax, Entry Tax,

CA. Rabin Kr. Ray


etc. including Service Tax. Hence, it will actually be a multi-based consumption tax imposed on wide range of goods and services, which shall have to be ultimately borne by final consumers. The seller of goods or service provider shall be able to claim input credit as is being claimed in existing VAT. Read on to know more.

GST as a Broad-Based Comprehensive Indirect TaxMODVAT was implemented in India with effect from 01-03-1986 on selective goods and gradually it had been extended to all commodities in the name of Cenvat from April 2002. Services were also included with Cenvat from 2004-2005.

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By replacing sales tax, Value Added Tax (VAT) was introduced in the States from 01-04-2005. At present custom duty and additional duty in lieu of excise duty and VAT are levied on import of goods, central excise is being levied on manufacturing goods, VAT is charged on sale of goods within the states, CST on inter-state sale of goods and service tax on prescribed services are being charged. Hence, the proposed GST will be a broad-based compre-hensive indirect tax.

Brief Characteristics of GST Presently Being Observed in Some CountriesGST in France: France was the first country to introduce GST in 1954.

GST in Canada: Tax is designed and collected by the Federal Government; the Provinces are empowered to vary tax rates for the respective Provinces. Here combined Federal and Provincial rate is 13%, allocated as 5% for Federal and 8% for respective Provinces. The seller acts as an agent of the Government to collect tax on behalf of the Government. The tax revenue is shared among the participating Provinces on the basis of consumer expenditure data for the Provinces.

GST in China: Centralised GST system is observed here. However, the revenue is shared between the Federal Government and concerned Provinces.

GST in USA: Here the GST is levied only by the states and thus there is no dependence on the centre.

GST in Australia: Here both the Federal Government and States are empowered to levy tax on sale of goods or on rendering of services. Each Province is entitled to collect tax for sale in its Province only. The

Federal Government does not levy tax on State property.

GST in Germany: The tax is designed and controlled by the Federal Government. However, the States are entitled to collect tax.

GST in New Zealand: Here also GST is framed by the Centre and the States are entitled to collect tax from the consumers and buyers. Initially GST was introduced @10% with a base consisting of almost all goods and services.

GST in Austria: Here tax is designed and controlled by the Centre and the States collect the tax.

Hence, the basic structure of GST is more or less same in most of the implemented countries. The incidences of levy of tax are purely on consumption basis and accordingly there is a system of availing input credit for intermediary parties.

Proposed Operating System of GST in IndiaThe basic purpose of introducing GST is to eliminate the cascading effect of all indirect taxes in valuation of goods and services. The cascading effect of Cenvat and service tax would be removed with comprehensive set-off relief. If buyer is a registered dealer he/she will be allowed to avail input credit for the tax already paid by him/her to his/her seller or service provider subject to holding of proper tax invoice. The ‘input tax-credit’ can be set-off only against tax payable by the dealer to the Government. The registered dealer under GST shall collect tax as collection agent of government from the customers. Unregistered dealer shall not be allowed to avail input credit. All taxable goods and services shall be brought under GST umbrella.

An empowered committee has been formed under 13th Finance Commission for the purpose of smoothly implementing GST in India. The initial propositions of the committee are given below:1) The Union and States will levy

tax on sale of goods or provision of services concurrently on common and identical base.

2) It will be structured on destination principle by shifting the tax base from production to consumption. Accordingly, out of export and import transaction only import goods and services shall be within the purview of GST. In case of inter-state sale GST shall be levied in the state where the final consumption will take place.

3) GST will be levied on invoice credit method.

4) Tax shall be levied on all goods and services excluding items like unprocessed food items, education services, health care etc.

5) Organisations having turnover more than R10 lakh per annum shall have to register themselves under the concerned Act.

6) GST will replace all existing indirect taxes including service tax.

Initially the Government pro-poses three rates- namely, 20% for goods, 16% for services and 10% for essential items under GST.

Obstacles or Barriers in Implementation of GSTThe introduction of GST has already been delayed by a year and a half mainly due to differences amongst the Centre and States. The introduction of GST will need constitutional amendment, which is required to be passed with two-third majority in both the houses of parliament and ratification by a simple majority by at least half of state assemblies. Accordingly, the support of all chief ministers is

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he basic purpose of introducing GST is to eliminate the cascading effect

of all indirect taxes in valuation of goods and services. The cascading effect of Cenvat and service tax would be removed with comprehensive set off relief. If buyer is a registered dealer he/she will be allowed to avail input credit for the tax already paid by him/her to his/her seller or service provider subject to holding of proper tax invoice. The ‘input tax-credit’ can be set-off only against tax payable by the dealer to the Government.

T

extremely crucial for such radical reform of indirect taxes. Thus, the support of the main opposition party BJP is obviously required to pass the bill in Parliament.

Initiatives towards ImplementationThe optimistic Union Finance Minister believes to double the size of India’s economy within a short span of time. By the implementation of GST, India will be able to promote exports, raise employment, boost growth and thereby it will be able to gain yearly $15 billion as estimated by the experts. The revenue from GST shall be shared equally between the centre and states; implying that out of 20% tax proposed for goods, 10% would go to the Centre and balance 10% would go to the State concerned. Similarly revenue from services and essential items shall also be shared equally. The peak effective rate will be about 15%, which is quite acceptable to the trade and industry.

A joint working group has been formed comprising officials of finance and other concerned

ministries at the Centre and finance secretaries or commissioners of commercial taxes at the State level to decide on the framework for the constitutional amendment and model legislation on GST for the Centre and States in timebound manner.

The Centre has decided to review the existing exemptions from central excise duty so that list of goods exempt from Central Goods and Services Tax (CGST) is aligned to the State Goods and Services Tax (SGST) list and the 99 items exempted from VAT are taken off from both the components of GST. Presently VAT on bulk items in different States ranges between 8% and 20% and both the service tax and excise duty attract a rate of 10%. Union Finance Minister Pranab Mukherjee said that the effort should be given to make the transition to GST ‘smooth and painless’ and thus proposed to adopt a single rate structure with a unification of rate for goods and services in a phased manner over three years.

CGST and SGST shall be treated separately. The payment of CGST shall be allowed to be taken as input credit and will only be utilised against CGST payment on that particular goods and services. As far as SGST is concerned same rule will be followed; i.e., cross utilisation of input credit shall not be allowed between CGST and SGST. The Union and States shall have concurrent jurisdiction for entire value chain and for all tax payers based on the thresholds for goods and services prescribed for the Centre and the States.

In the second year depending upon the revenue receipts by the Centre and the States the standard rate may be reduced to 9% and in the third year, the standard rate could be further reduced to 8%, while raising the concessional rate on goods to 8% and retaining

the rate on services at 8%. The Centre has also decided to fully compensate the States for their revenue losses on account of CST losses. The Centre has assured the states compensation for submitting purchase tax on food grains in GST will be considered along with VAT compensation for the next four years. The union Finance Minister urged for a consensus to uniform threshold of R10 lakh for both the goods and services under the CGST and also SGST.

The empowered committee of State Finance Ministers under the chairmanship of West Bengal Finance Minister held a meeting to redraft the constitutional amendment bill after the first bill prepared by the centre was rejected by the states on the charge that it would provide veto power to the Union Finance Minister over the states taxation issues. The empowered committee requested the centre to consider retaining the exemption threshold of R1.5 crore for the goods under CGST, while CGST threshold for services and SGST threshold for both goods and services at R10 lakh. It is fundamental to dual GST that every transaction constituting a supply of goods and services receives similar treatment under CGST and SGST.

On 18th July, 2011, the union finance minister met with state finance Ministers to appoint chairman of the empowered com-mittee and after a prolonged discussion, Bihar Finance Minister- Mr. Sushi Modi has been elected as chairman of the empower committee replacing ex-finance minister of West Bengal- Mr. Asim Dasgupta. The J&K finance minister, Mr. A.R. Rather, said that the critical issue that is likely to crop up soon is the extent to which the Centre will offset the CST loss. Also Tamil Nadu Food grain Merchant Association has requested Mr. S.K. Modi to ensure

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that tax exemption under VAT must continue under GST also.

Hopefully, amidst the prevailing varied notions, the new chairman will try his best possible effort, to build a consensus on the proposed GST regime at the earliest as the same has been pending for years.

According to CBEC chairman –Mr. S. Dutta Majumder, the task force set up to put together the legislation on GST will take necessary immediate steps to finalise the concerned business rule.

The proposed structure of GST shall definitely increase the tax burden on the common man in spite of some cascading effects. However, if the manufacturers pass on their benefits to the consumers then their tax burden would only be reduced.

The Confederation of Indian Industry (CII) and ASSOCHAM have already welcomed the announcement of GST. According to CII, consensus between Centre and States’ empowered committee on the design of GST would pave

the way for introduction of GST from April 2012, as desired by the industry. According to ASSOCHAM, the proposal is most equitable distribution of GST which industry will have to accept and adjust after implementation of new indirect Tax regime. However, FICCI expressed its reservations by saying that the rates seem to be very high. ConclusionIt is encouraging that when GST was introduced in New Zealand in 1987, it resulted in 45% higher revenue than expected, mainly due to improved compliance.

Additionally, with such radical reforms of indirect taxes, tax burden due to cascading effect will be eliminated; the efficiency in tax administration will be improved; indirect tax revenue will be increased considerably due to inclusion of more goods and services; the cost of compliance will be reduced for the dealers. The implementation of GST will be in favour of free flow of trade and commerce throughout the country. This single most important tax reform initiative by the Government of India since independence will provide a significant fillip to the investment and growth of the country’s economy. However, to get the desired result it should be assured that the benefit of input credit is ultimately enjoyed by final consumers. The concerned tax administering authority should look into the matter for final consumers’ interest and at the same time, the authority should ensure that the intermediate sellers would not suffer from availing genuine input credit within the shortest possible time. The constitutional amendments are needed without further delay but BJP-led States have already stalled the plans to bring in constitutional amendments by objecting to giving the parliament power to set up the GST council, albeit the Union

Finance Minister Pranab Mukherjee has promised to compensate the states from revenue loss to be faced by them as a result of implementa-tion of proposed GST. Hopefully, the Union Finance minister, along with Shri Sushil Modi, Finance Minister of Bihar and Chairman of the empowered committee, will be able to convince all other States’ Finance Ministers by alleviating their genuine grievances. It may be noted that Shri Pranab Mukherjee promised at a meeting of Empow-ered Committee to compensate R14,000 crore for the loss suffered by the state governments in 2010-2011 due to reduction of CST rate from 4% to 2%. The cabinet has already approved around 50% of the loss on 10th February, 2011, of which R3000 crore will be distributed immediately to the States on ad-hoc basis. The Union Finance Minister has also assured to include necessary legitimate issues in the amendment bills as desired by the states through the empowered committee. Introduction of GST is a dire need for the multinational companies as most of the countries have already implemented GST. Hence, in spite of several hurdles there is hope of implementing flawless GST from 01-04-2012. As GST is transaction-based, even if the deadline is missed, it may be implemented any time in next fiscal year.

References:i) The Management Accountant –July 2010

issueii) www. expressindia .comiii) www.moneycontrol.comiv) en.wikipedia.orgv) www.ey.comvi) THE TELEGRAPH dated 12-02-2011vii) BARTAMAN dated 12-02-2011viii) Brochure of 33rd Regional conference of

EIRC.ix) Arnaadvisors.comx) Taxindiaonline.comxi) GSTindia.com n

he introduction of GST has already been delayed by a year and a half mainly

due to differences amongst the Centre and States. The introduction of GST will need constitutional amendment, which is required to be passed with two-third majority in both the houses of parliament and ratification by a simple majority by at least half of state assemblies. Accordingly, the support of all chief ministers is extremely crucial for such radical reform of indirect taxes. Thus, the support of the main opposition party BJP is obviously required to pass the bill in Parliament.

T601

INTERNATIONAL TAXATION


Taxability of Software Payments under the Act – The Controversy Continues

Taxability of software payments is one of the most debated topics in the field of international taxation. The controversy basically relates to whether payment for use of computer software can be termed as royalty as per provisions of Section 9(1)(vi) of the Income-tax Act, 1961 (‘the Act’) or under provisions of relevant double tax avoidance agreement (‘DTAA’). There have been series of judgements analysing this issue and more or less the issue was settled with majority rulings holding that payment for use of computer software would not be covered under definition of royalty under various DTAAs. However, the said position was revisited in the judgement of Delhi Income-tax Appellate Tribunal (‘ITAT’) in the case of M/s Gracemac Corporation1 , wherein Delhi ITAT held that payment for use of computer software is taxable as royalty both under the Act as well as DTAAs. The above ruling of Delhi ITAT as well as position of taxability of computer software under various DTAAs has been analysed in depth in the article published in the March edition of the Chartered Accountant Journal. However, as against series of judgements analysing taxability of software payments under DTAAs, there are few judgments analysing taxability of software payments under the Act. Further, as the definition of royalty under the Act is wider as compared to royalty definition under provisions of the DTAAs, judgements analysing the provisions of DTAAs may not be applicable while determining taxability under the Act. Hence, in the instant article, we have examined taxability for software payments under provisions of the Act.

Types of Software PaymentsBefore analysing whether payment for use of computer software would be taxable under the Act it would be imperative to determine type of software payments. Generally, software payments can be categorised under any of the following categories:

(i) Use of ‘Off-the-shelf’ software or ‘shrink wrapped’ software

Computer software which are ready to use and are not customised for any single person are termed as

(Contributed by the Committee on Interna-tional Taxation of the ICAI. Comments can be sent to [email protected])

‘off-the-shelf’ software or ‘shrink wrapped’ software. Common example of these types of software is Microsoft Office, Microsoft Win-dows, Accounting software like Tally etc.

Normally, before using any off the shelf software, a licence agreement is required to be signed electronically by the user. This licence agreement contains restrictions in terms of its use and grants its user only a non-exclusive right to use the software only for the purpose specified in the licence agreement. Further, the

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source code for these software is kept by the companies and hence, the user cannot modify the software for its own use.

(ii) Use of Customised software

Customised software is software which is developed based on specific requirement of its user. Accordingly, they can be used only by the user for which it is produced and not by any other user. An example of customised software would be specific accounting software which is produced and modified based on requirements given by the user.

Here, the distinction needs to be drawn between software made for a specific industry vis-à-vis, software made for a specific user. For example, a software like AutoCAD may be used only by the architectural industry or engineering industry only but is not made for any one specific user. Hence, such computer software would still qualify as off-the-shelf software and not fall in the category of customised software.

However, if AutoCad is

developed specific for a user, it may fall under the category of customised software.

(iii) Granting of rights (excluding right to use) pertaining to Off-the-shelf or customised software

Sometimes, software compan-ies also grant rights permitting to modify the software or use the software for commercial exploitation to its users. These rights, which are normally proprietary rights of developer of computer software are granted to the user for certain additional consideration.

Thus, once we have examined nature of software payments, we would now proceed to determine its taxability under the Act.

Definition of Royalty under the ActUnder the Indian tax laws, royalty is deemed to accrue or arise in India if payable by a resident. Furthermore, royalty payable by a non-resident is also deemed to accrue or arise in India if it is utilised for the purpose of a business in India or for earning income from a source in India.

The term ‘royalty’ has been defined in Explanation 2 to Section 9(1)(vi) of the Act as follows:

“royalty means consideration (including any lump sum consideration but excluding any consideration which would be the income of the recipient chargeable under the head “Capital gains”) for—(i) the transfer of all or any

rights (including the granting of a license) in respect of a patent, invention, model, design, secret formula or process or trade mark or similar property;

(ii) the imparting of any infor-mation concerning the working of, or the use of, a

patent, invention, model, design, secret formula or process or trade mark or similar property;

(iii) the use of any patent, invention, model, design, secret formula or process or trade mark or similar property;

(iv) the imparting of any infor-mation concerning tech-nical, industrial, commercial or scientific knowledge, experience or skill;

(iva) the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in Section 44BB;

(v) the transfer of all or any rights (including the granting of a license) in respect of any copyright, literary, artistic or scientific work including films or video tapes for use in connection with television or tapes for use in connection with radio broadcasting, but not including consideration for the sale, distribution or exhibition of cinematographic films ; or

(vi) the rendering of any ser-vices in connection with the activities referred to in sub-clauses (i) to (iv), (iva) and (v).”

Thus, the phrase ‘royalty’ has been widely defined under the Act and hence, based on the above definition, one would need to analyse whether software payments would fall under any of the above clauses of royalty definition i.e. (i) to (vi).

I. Payment for Use of ‘Off the Shelf’ Computer Software Applicability of clause (v) of royalty definition▪ On an analysis of above clauses

of royalty definition, it can be observed that clause (v) of the

n determining whether or not a payment is for the use of copyright, it is important

to distinguish between a payment for the right to use the copyright in a program and the right to use the program itself. A payment for the right to use the program itself only allows the licensee to operate or run the program on a computer. On the other hand, a payment for the right to use the copyright in a program allows the licensee to modify, adapt or copy, or otherwise do what would ordinarily be the exclusive right of the copyright owner.

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Royalty definition specifically covers consideration for transfer of all or any rights (including the granting of a license) in respect of any ‘copyright’. The term ‘copyright’ has not been defined under the Act. Accordingly, one could take its meaning from the provisions of Copyright Act, 1957 (‘Copyright Act’).

The Authority of Advance

Rulings (‘AAR’) in the case of FactSet Research Systems Inc2, and Dassault Systems KK3 has also held that as the expression ‘copyright’ has not been defined in the Income Tax, it must be understood in accordance with the law governing the copyright in India i.e. Copyright Act, 1957.

Under the provisions of Copyright Act, a computer programme is considered as literary work and hence, covered under the provisions of Copyright Act.

Applicability of clauses (iv) and (iva) of royalty definition▪ In case of purchase of packaged

software, it can be said that the purchaser or licensee obtains nothing more than a set of coded computer instructions, without the underlying source code. Hence, it cannot be said that knowledge or information about the program in the relevant sense of know-how has been transferred.

▪ Thus, as payments made for using a software cannot be considered as imparting of any technical, industrial, commercial or scientific knowledge, experience or skill or granting any use or right to use any industrial, commercial or

results, and not the process of execution of instructions embedded therein.

Similar view was also taken by

AAR in the case of Dassault Systems wherein it held that by making use of or having access to the computer programs embedded in the software, it cannot be said that the customer is using the process that has gone into the end product or that he acquired any rights in relation to the process as such.

Thus, although there are

divergent judicial precedents on this issue, it could be fairly argued that payment for computer software cannot be considered to be payment for use of “process” so as to be covered under clauses (i), (ii) and (iii) of the royalty definition.

Whether covered by the expre-ssion ‘similar property’ under clauses (i), (ii) and (iii) ▪ As against clause (v) which

specifically covers payment in relation to ‘copyright, remaining clauses, i.e. clauses (i) to (iii) covers payment in relation to other similar property like patent, invention, trademark etc. Hence, as clause (v) specifically covers copyright,

scientific equipment, clause (iv) and (iva) of the royalty definition would not be applicable to software payments.

Applicability of clauses (i), (ii) and (iii) of the royalty definitionWhether covered by expression ‘use of process’ under clauses (i), (ii) and (iii) ▪ As regards clauses (i), (ii) and

(iii), use of computer software also cannot be considered to be as use of any patent, invention, model, design, secret formula or trademark. However, it may need to be evaluated if computer software can be considered to be a “process” so as to be covered by clauses (i), (ii) and (iii) of the royalty definition.

In this regards, Delhi ITAT in

the case of Gracemac (supra) held that computer programme is a process when it executes instructions lying in it in passive state. Therefore, any consideration made for the use of process would amount to royalty under provisions of the Act.

However, recently Mumbai ITAT in the case of TII Team Telecom International Pvt. Ltd4 has after analysing the provisions of Copyright Act and relying on the judgement of Delhi High Court in the case of Asia Sate-llite Telecommunications5 held that although software contains written instructions or codes, payment for computer software cannot be construed as payment for using the process encoded in the software. The Mumbai ITAT specifically held when someone pays for the software, he actually pays for a product which gives certain

hile arguments exist in favour of non-taxability under the Act, it needs to be

appreciated that the judicial precedence on taxability under the Act is limited as majority of the favourable rulings dealt with the interpretation of tax treaties.

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which includes computer software, one can argue that the said clause being more specific in nature would be applicable over other general clauses.

▪ Similar view was also held by Special Bench of Delhi ITAT in the case of Motorola Inc, Ericsson Radio Systems AB and Nokia Corporation6 which observed that the main issue in relating to software payments is to examine whether the payment is for a copyright or use of a copyrighted article. Hence, even Delhi ITAT held that clause (v) is the relevant clause while analysing taxability of software payments.

Thus, based on the above analysis, it should be possible to argue that the operative clause should be (v) to Explanation 2 to Section 9(1)(vi) and the payment would be taxable under the Act, if it is for a copyright as per the said clause.

Accordingly, meaning of the term ‘copyright’ as per the provisions of the Copyright Act is analysed below:

Copyright Act, 1957 As per Section 14 of the

Copyright Act, ‘copyright’ means the exclusive right to do or authorise the doing, of certain acts, which in the case of a literary work, includes the following: a) In the case of a literary,

dramatic or musical work not being a computer programme:-

(i) to reproduce the work in any material form including the storing of it in any medium by electronic means;

(ii) to issue copies of the work to the public not being copies already in the circulation;

(iii) to perform the work in public, or communicate it to

the public,(iv) to make any cinematograph

film or sound recording in respect of the work,

(v) to make any translation of the work;

(vi) to make any adaptation of the work;

(vii) to do, in relation to translation or an adoption of the work, any of the acts specified in relation to the work in sub clauses (i) to (vi)

b) In the case of a computer programme:-

(i) to do any of the acts specified in clause (a),----

(ii) to sell or give on commercial rental or offer for sale or for commercial rental any copy of the computer programme (as amended by Copyright (Amendment) Act, 1999)

Provided that such

commercial rental does not apply in respect of computer programmes where the programme itself is not the essential object of the rental

c) …

d) …

Explanation: For the purposes of this section, a copy which has been sold once shall be deemed to be a copy already in circulation.’

Thus, based on the above definition, key points in relation to computer software for being covered under the Copyright definition are summarised below:

i) Presence of an exclusive right to undertake acts listed in clause (a) and (b)

Hence, as per above provisions of the Copyright Act, the copyright clearly vests in a person who has an exclusive right to do all or any

of the above mentioned acts to the exclusion of others. Such a person may either exercise these exclusive rights himself or alternatively authorise others to exercise a particular right (such as the right to reproduce) or a combination of the abovementioned rights. However, presence of exclusive right is absolutely essential to be covered in the definition of copyright.

In the following rulings it has been held that presence of an exclusive right is essential to cover within the ambit of ‘copyright’.

▪ Fact Set Research Systems Inc (supra)9.1 The learned Departmental Representative has argued relying on Section 14a(i) and (vi) of the Copyright Act that the rights specified therein are granted to the customers and therefore there is a transfer of rights in respect of the copyright. We find no substance in this contention. The expression 'exclusive right' in the opening part of Section 14 is very important and it qualifies all the components of clause(a). The applicant is not conferred with the exclusive right to reproduce the work (including the storing of it in electronic medium), as contemplated by sub clause (i) of Section 14(a). The exclusive right remains with the applicant being the owner of the copyright and by permitting the customer to store and use the data in the computer for its internal business purpose, nothing is done to confer the exclusive right to the customer. Such access is provided to any person who subscribes, subject to limitations.

▪ Delhi SB in case of Motorola (supra)Secondly, under the definition of "copyright" in Section 14 of the Copyright Act, the emphasis is that it is an exclusive right granted to the holder thereof. This condition is not satisfied in the case of JTM

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because the license granted to it by the assessee is expressly stated in clause 20.1 as a "non exclusive restricted license".

Thus, if the right and license granted is not exclusive, based on the above judicial precedents, it would not tantamount to ‘copyright’ within the meaning of Section 14 of the Copyright Act, 1957.

ii) Right to reproduce software is not a right granted under the Copyright Act

One of the prescribed rights in a copyright as per Section 14 of the Copyright Act is the right to reproduce software including storage of the same by electronic means. However, Section 52(1)(aa) of the Copyright Act provides that making copies of lawfully procured software program in order to utilise the software for the purpose for which it was supplied/or making backup copies to protect the lawfully acquired software program does not tantamount to infringement of copyright.

Accordingly, based on a combined reading of Sections 14 and 52(1)(aa) of the Copyright Act, it could be said that the ‘right to use’ a software is not one of the rights which are vested with the owner of the copyright under the provisions of Section 14 of the Copyright Act. Therefore, making copies of the software for a purpose for which it was procured does not result in a right in the copyright.

iii) Right to sell or give on commercial rental any copy of the computer programme

Section 14(b)(ii) refers to the right to sell or give on commercial rental any copy of the computer programme. In this regards, reference is invited to the Delhi SB ruling of Motorola (supra) wherein it was held that

the right noted in Section 14(b)(ii) is only available to the owner of a computer program.

Normally, the above right is not available to a user of a computer software and hence, the said granting the user right cannot be construed as giving right to give computer programme on commercial rental.

Use of Copyright vis-à-vis use of Copyrighted ArticleIn determining whether or not a payment is for the use of copyright, it is important to distinguish between a payment for the right to use the copyright in a program and the right to use the program itself. A payment for the right to use the program itself only allows the licensee to operate or run the program on a computer. On the other hand, a payment for the right to use the copyright in a program allows the licensee to modify, adapt or copy, or otherwise do what would ordinarily be the exclusive right of the copyright owner.

In this regards, Supreme Court in the case of Tata Consultancy Services v. State of Andhra Pradesh7 while determining the issue of “goods” under Sales Tax Act held that programmed software when put on a media like a CD are “goods” under Andhra Pradesh Sales Tax Act as well as under Article 366(12) of the Constitution of India. Thus, sale of programmed software loaded on a CD would be chargeable as sales tax.

The Supreme Court even held that a software program may consist of various commands which enable the computer to perform the designated task and the copyright in that program may retain with the originator of the program. However, the moment copies are made and marketed, they become goods which are susceptible to sales tax.

It was further held that even intellectual property once it is put on

the media whether it is in the form of books or canvas or computer discs or cassette and marketed would become goods.

Thus, based on the above ruling, as sale of software is chargeable to sales tax, it can be contended that sale of software is sale of a copyrighted article and not sale of copyright.

Therefore, for the purpose of categorising income from a transaction as amounting to ‘royalty’ what is to be seen is whether the transferee has the exclusive right of commercial exploitation of the intellectual property contained therein.

Thus, based on the above, it could be contended that in case payment is made for use of standard off-the-shelf software wherein no exclusive rights are granted to the user as well as any no right in the computer software is granted to the user to undertake any activities as mentioned in Section 14 read with Section 52 of the Copyright Act, the payment for use of software would be said to be sale of copyrighted article and not copyright so as to be covered under clause (v) of royalty definition under the Act.

n case payment is made for use of standard off-the-shelf software wherein no

exclusive rights are granted to the user as well as any no right in the computer software is granted to the user to undertake any activities as mentioned in Section 14 read with Section 52 of the Copyright Act, the payment for use of software would be said to be sale of copyrighted article and not copyright so as to be covered under clause (v) of royalty definition under the Act.

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Judicial Precedents under the ActFavourable judicial precedents under the ActIn below mentioned judicial precedents, Indian Courts have distinguished between a ‘Copyright’ and a ‘Copyrighted Article’ and have held that payments for purchasing software which does not grant any right to use a copyright but merely grants a right to use a copyrighted article does not amount to royalty within the definition of the Act and hence, should not be subject to withholding tax. ▪ In the case of Dassault Systems

K.K (supra), AAR has held that a non-exclusive and non-transferable licence enabling the use of a copyrighted product cannot be construed as to enjoy any or all of the rights ingrained in a copyright. Accordingly, parting of intellectual property rights inherent and attached to the software product in favour of the licencee/customer is required so as to be covered under the royalty definition under the Act. Hence, merely authorising or enabling a customer to have the benefit of data or instructions contained in the computer software without any further right to deal with them independently would not amount to transfer of rights in relation to copyright or conferment of the right of using the copyright. The AAR accordingly, held that the payments received by the ABC from various Value Added Resellers on account of supplies of software products to the end customers does not result in income in the nature of royalty. Specific observations of AAR are reproduced below:

17.1. Passing on a right to use and facilitating the use of a product for which the owner has a copyright is not the

same thing as transferring or assigning rights in relation to the copyright. The enjoyment of some or all the rights which the copyright owner has, is necessary to trigger the royalty definition. Viewed from this angle, a non-exclusive and non-transferable licence enabling the use of a copyrighted product cannot be construed as an authority to enjoy any or all of the enumerated rights ingrained in a copyright. Where the purpose of the licence or the transaction is only to establish access to the copyrighted product for internal business purpose, it would not be legally correct to state that the copyright itself has been transferred to any extent. It does not make any difference even if the computer programme passed on to the user is a highly specialised one. The parting of intellectual property rights inherent in and attached to the software product in favour of the licencee/customer is what is contemplated by the definition clause in the Act as well as the Treaty. As observed earlier, those rights are incorporated in Section 14. Merely authorising or enabling a customer to have the benefit of data or instructions contained therein without any further right to deal with them independently does not, in our view, amount to transfer of rights in relation to copyright or conferment of the right of using the copyright.

….Different considerations will arise if the grant is non-exclusive that too confined to the user purely for in-house or internal purpose. The transfer of rights in or over copyright or the conferment of the right of use of copyright implies that the transferee/licencee should acquire rights - either in

entirety or partially co-extensive with the owner/transferor who divests himself of the rights he possesses pro tanto. That is what, in our view, follows from the language employed in the definition of 'royalty' read with the provisions of Copyright Act, viz., Section 14 and other complementary provisions.

▪ In the ruling of the Special Bench of Delhi ITAT in the case of Motorola Inc, Ericsson Radio Systems AB and Nokia Corporation (supra), payments were made for transfer of a non-exclusive restricted license in software (not being shrink-wrap software). The Special Bench distinguished between payments for a ‘copyrighted article’ and for a ‘copyright right’ held that payment for purchase of software cannot be taxable as royalty. The Special Bench reached its conclusion based on following observations:▫ Merely because the

terminology of the Agreement is a ‘license’, it cannot be said that the payment should be categorised as royalty.

▫ Under the Copyright Act, 1957, ‘copyright’ is an exclusive right granted to the holder thereof; whereas in this case, a non-exclusive license to use the software has been given.

▫ The holder of a copyright can commercially exploit the same by making multiple copies of the software; whereas in the present case, restricted right to use the software for the assesse’s own purpose and maintenance has been given.

▫ To constitute a copyright right, the assessee should have had one or more of the rights mentioned in clause (a)/ (b) of Section 14 of the

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Copyright Act, 1957 (such as reproduce or make copies of the work); whereas it was clear that the assessee has not been given any of the rights mentioned in the section and therefore the assessee has not acquired any copyright but only a copyrighted article.

▪ Further, the Delhi ITAT in the case of Infrasoft Ltd.8 following the above decision held that if the licensees do not have any of such rights as mentioned in clauses (a) & (b) of Section 14, it would mean that they do not have any right in the copyright and in such a case, the payment made to them could not be characterised as royalty either under the Income-tax Act or under the DTAA. Relevant observations of Mumbai ITAT are as follows:

“The sum and substance of the relevant clauses material in this context of the agreement entered into by the assessee with the licensee in the present case thus were similar to that of the agreement analysed and relied upon by the Special Bench in the case of Motorola Inc. (supra) to come to the conclusion that the payment made for transfer of right to use the software was not for any copyright in the software but only for the software as such as a copyrighted article and the same, therefore, could not be considered as royalty within the meaning of explanation (2) below Section 9(1) of the Income-tax Act or Article 13.3 of the relevant DTAA.:

▪ The above decision has been followed by the Mumbai ITAT in the case of Tata Communications Ltd.9 and

Alcatel USA International Marketing Inc.10 wherein the ITAT held that payment for use of copyrighted article cannot be brought to tax as royalty.

▪ Further the Bangalore ITAT in the cases of Sonata Software Limited11 held as follows:

“This Tribunal in the case of

Samsung Electronics Co. Ltd. v. ITO [IT Appeal Nos. 264 to 266 (Bang.) of 2002, dated 18-2-2005] has recently held that where the software imported which is a shrink wrapped software or off the shelf software, same amounts to purchase of goods and not payment of royalties. The payment is for use of copy rights article and not for acquiring any copy right. This view has been arrived at after considering various decisions on the subject as well as the decision of the Supreme Court in Tata Consultancy Services 'case (249 ITR 99). We accordingly hold that the payments for import of software do not amount to payment of royalty chargeable under Section 9(1)(vi) of the Act. The payments partakes the character of purchase and sale of goods. Actually, the payee has no permanent establishment in India. Hence, it can be concluded that no income is deemed to accrue or arise in India. Accordingly, the provision of Section 195 is not applicable to such payment.”

▪ Further, the Bangalore ITAT in the case of Velankani Mauritius Ltd. and Bydesign Solutions12 Inc. after placing reliance on the judgement of Motorola Inc (supra) and Sonata Software (supra) also held that sale of off-the-shelf shrink-wrapped software amounted to the sale

of copyrighted articles and hence, cannot be treated as income from royalty under the Act. The specific observations of Bangalore ITAT are as follows:

“15. Therefore, in the facts and

circumstances of the case, and in the light of the above binding decisions, we find that the sale of software cannot be treated as income from royalty either under the IT Act or under the terms of DTAA.”

▪ In the case of GeoQuest Systems B. V.13, the AAR placing reliance on the decision in the case of Dassault Systems K.K (supra) and Fact Research Systems Inc. (supra) has held that the transfer of rights envisaged by sub-clause (v) of Explanation 2 to Section 9(1)(vi) of the Act should be in respect of copyright. Mere transfer of computer software de-hors any copyright associated with it does not fall within the ambit of the said sub-clause.

▪ In the recent ruling of Delhi High Court in the case of M/s Dynamic Vertical Software India Pvt. Ltd14, the High Court has held that payment made to

he operative clause for determining the taxability under the head

royalty would be clause (v) to Explanation 2 to Section 9(1)(vi) and would be taxable in India if the same constitutes a payment for transfer of all or any rights in respect of a copyright. Whether the payment constitutes for a copyright would need to be determined as per Section 14 of the Copyright Act, 1957.

T

8125 TTJ 539 138 TTJ 25710 2009-TIOL-733-ITAT-MUM11 6 SOT 70012 132 TTJ 12413 327 ITR 114 332 ITR 222

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15 ITA No. 160 (Bang)/201016 134 TTJ 34217 ITA No.3817/Mum/2008

Microsoft towards purchase of software for distributing in India is not taxable as royalty. The specific observations of Delhi High Court are as under:

“What is found, as a matter of

fact, is that the assessee has been purchasing the software from Microsoft and sold it further in Indian market. By no stretch of imagination it would be termed as "royalty".

Adverse Judicial PrecedentsWhile arguments exist in favour of non-taxability under the Act, it needs to be appreciated that the judicial precedence on taxability under the Act is limited as majority of the favourable rulings dealt with the interpretation of tax treaties.

Delhi ITAT in the case of Gracemac Corpn. (supra), held that consideration received from licensing of computer software would be in the nature of royalty under the provisions of the Indian Tax Laws and did not accept the above principles of distinction between “use of copyright” and “use of copyrighted article”. The ITAT held that the consideration from license of shrink wrapped software is in the nature of royalty as defined in the Act.

Applicability of phrase ‘including the granting of licence’ as mentioned in clause (v) of the royalty definition

Further, we would like to point out that the clause (v) also includes the phrase ‘including the granting of a license’ in respect of the copyright. Accordingly, the issue for consideration is whether mere grant of a non-exclusive license would also be covered within the ambit of royalty as construed under clause (v) of the Act. ▪ Favourable Judicial Pre-

cedents Mere grant of a

license would be covered within the ambit of royalty

Reference is invited to the recent ruling of the Bangalore tribunal in the case of ING Vysa Bank Ltd.15 dated 5th August, 2011 wherein it has been held that license to use off the shelf software would be taxable as royalty under the Act and tax treaty.

▪ Adverse Judicial Precedents– Mere non-exclusive license not covered within the ambit of royalty

The AAR in the case of Dassault (supra) while analysing the phrase “including the granting of licence” as mentioned in clause (v) of the royalty definition held that the said phrase has to be read in conjunction with preceding words i.e. “transfer of rights in respect of copyright". Hence, a mere non-exclusive licence to use a computer software would not be covered under the definition of royalty. The specific observations of AAR are also reproduced below:

17.2. We may refer to one

more aspect here. In the definition of royalty under the Act, the phrase "including the granting of a licence" is found. That does not mean that even a non-exclusive licence permitting user for in-house purpose would be covered by that expression. Any and every licence is not what is contemplated. It should take colour from the preceding expression "transfer of rights in respect of copyright". Apparently, grant of 'licence' has been referred to in the definition to dispel the possible controversy a licence - whatever be its nature, can be characterised as transfer.

The above ratio was also followed by the Mumbai Tribunal in the case of Kansai Nerolac Paints Ltd.16 and Daimler Chryslar AG.17

II. Payment for Use of ‘Customised’ Computer Software

In case of customised computer software, as the software is made for a specific user, an exclusive licence is granted by the developer to the user. Further, additional rights relating to the computer software are also granted by the developer to the user.

In such a scenario, as explained above, it may be covered under the definition of copyright as per Copyright Act and consequently, payment in relation to use of customised computer software may be covered as royalty under clause (v) of the royalty definition under the Act.

III. Payments for Granting of Rights (Excluding Right to Use) Pertaining to Off-the-Shelf or Customised Software

In situations, where software companies grant additional rights pertaining to the software to the user like the right to modify the software, use the software for commercial exploitation etc. which are normally available with the copyright holder, for some additional consideration, as explained above, the same may be covered under the phrase “transfer of all or any rights (including the granting of a licence) in respect of a copyright” as per clause (v) of the royalty definition.

Hence, in such cases, software payments may be covered under royalty definition under the Act.

Applicability of Provisions of Section 115(1A) of the Act▪ It is also worthwhile to examine

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Section 115A(1A) of the Act which states as under:

(1A) Where the royalty referred to in clause (b) of sub-section (1) is in consideration for the transfer of all or any rights (including the granting of a licence) in respect of copyright in any book to an Indian concern or in respect of any computer software to a person resident in India, the provisions of sub-section (1) shall apply in relation to such royalty as if the words the agreement is approved by the Central Government or where it relates to a matter] included in the industrial policy, for the time being in force, of the Government of India, the agreement is in accordance with that policy] occurring in the said clause had been omitted

The issue for consideration is

whether as per Section 115A(1A) of the Act, it is not necessary that the copyright therein should be specifically transferred as consideration in respect of any computer software is stated to be taxable under Section 115A. In this regards, reference is invited to the rulings of the AAR in the case of GeoQuest Systems BV (supra) and Dassault Systems KK (supra) wherein it was held that Section 115A(1A) cannot be interpreted dehors of clause (v) to Explanation 2 to Section 9(1)(vi).

In the case of GeoQuest Systems BV (supra), it was held as under:

11. Then, coming to Section

115A, it prescribes the rate of tax applicable to a foreign company on the income by way of 'royalty' or 'fees for technical services'. Sub-section 1A to the extent relevant reads as under:-

"where the royalty is in

consideration for the transfer of all or any rights (including the granting of a licence) in respect of copyright in any book to an Indian concern or in respect of any computer software to a person resident in India.........."

This provision, prima facie, cannot be interpreted to mean that the transfer of any rights could only be in respect of the computer software without reference to copyright. It is reasonable to interpret the word 'copyright' to qualify not only the 'book' but also the 'computer software'. If the transfer of computer software, per se was contemplated to fall within the definition of 'royalty', it should have been stated so in the definition clause contained in Explanation 2 to Section 9(1)(vi). Clause (v) as noticed earlier speaks of "transfer of all or any rights' in respect of any copy right". Thus, whether copyright has been transferred or not is the line of inquiry which should precede the application of clause (v).

ConclusionGiven the analysis above, it may be possible to summarise the issue as under: ▪ The operative clause for

determining the taxability under the head royalty would be clause (v) to Explanation 2

to Section 9(1)(vi) and would be taxable in India if the same constitutes a payment for transfer of all or any rights in respect of a copyright. Whether the payment constitutes for a copyright would need to be determined as per Section 14 of the Copyright Act, 1957.

▪ Section 14 of the Copyright Act, 1957 refers to grant of an exclusive right. Accordingly, if no exclusive right is granted under the agreement, it may be possible to argue that the same would not be covered as royalty.

▪ If payment is for the use of ‘off-the-shelf’ software, based on the current law and limited judicial precedents on the issue under the Act, it could be highly litigative to contend that the payment for use of computer software is not taxable as royalty under the Act.

▪ If payment is for the use of customised software, it is possible that licence may be exclusive in nature and hence, may be covered under clause (v) of royalty definition under the Act.

▪ If payments are made for transfer of all or any right (as covered by the Copyright Act) pertaining to computer software, the same may be covered under clause (v) of the royalty definition under the Act.

It is also important to take note of evolving nature of the issue and rulings from the High Court are also expected in the near future (e.g. Karnataka HC in the case of GE Technology/ Samsung, after the case was remanded by the SC for consideration on merits, Delhi HC in the case of Nokia, Ericsson, Motorola).

Hence, till the time, the issue gets settled at the highest level, litigation over taxability of software payments is likely to continue. n

n the recent ruling of Delhi High Court in the case of M/s Dynamic Vertical

Software India Pvt. Ltd 18, the High Court has held that payment made to Microsoft towards purchase of software for distributing in India is not taxable as royalty.

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CORPORATE AND ALLIED LAWS


Changing Methodologies- Interpreting Exemption Notification

As we all know Revenue and Taxation laws usually bristle with uncertainties and ambiguities and there was a time when the legal position was that in interpreting such provisions the benefit of doubt went to the subject i.e. assessee and tax payers. Now with the passage of time the parameters have changed and in the construction of statutes in the event of doubt the beneficiary is now the Revenue. This is termed as an interpretive technique which moderates letters of law in tune with the spirit of times. This is what has happened in the case of interpreting an exemption notification. The author in this article very critically examines the interpretative cannon to be applied in the case of an exemption notification under excise laws as on today.

The Supreme Court has held that for availing the benefit of exemption notification under Central Excise Rules, it is mandatory to follow the procedure as laid down in those Rules. A provision especially a fiscal statute providing for an exemption, concession or exception is required to be construed strictly

S.M. Jain

(The author is Vice President (Person-nel) Rajasthan Textile Mill, Bhawanimandi, Rajasthan. He can be reached at [email protected])

and similarly an exemption notification would be required to be interpreted in the light of the words employed by it and not on any other basis. The concept of “substantial compliance” and “intended use” as propounded in the Thermax and J.K. Synthetics case have been distinguished by

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the Apex court in case of Harichand & Sri Gopal and its application has been limited to a great extent. The law relating to the interpretation of fiscal statute should be restructured and restated to provide for uniformity and promotion of trade, commerce and business.

The author in this article very critically examines the interpretative cannon to be applied in the case of an exemption notification under excise laws as on today.

The “whys, whens and et alls” of the exemption notification have been correctly spelled herein above.

It may not be irrelevant to point out that whenever we start thinking, writing or evaluating the verdicts of our Supreme Court, we find that it has done laudable work whenever a complicated legal proposition was required to be interpreted. It has mostly displayed a rare juristic vision although many a time it unwarrantedly unsettles the already settled legal issues.

The Constitution Bench of the Supreme Court very recently in the case of Commissioner of Central Excise Vs. Harichand Shrigopal & ors. (2011) 1 SCC 236 unequivocally and categorically held that for availing the benefit of exemption notification under Chapter X of Central Excise Rules 1944, it is mandatory to follow the procedure laid down in that chapter. In Chapter X a detailed procedure had been laid down so as to curb and prevent the diversion and mis-utilisation of goods which are otherwise exciseable under the statute. It has further been held that a provision specially a fiscal state providing for an exemption, concession or exception is required to be construed strictly. Then an exemption notification has to be interpreted in the light of words employed by it and not on any other basis. A person who

claims exemption or concession is required to establish clearly that he is covered by the provision concerned and in case of doubt or ambiguity, the benefit of it would go to the State. So far the majority position was that in the event of any doubt or ambiguity the benefit went to the assessee. Henceforth the assessee would not have a liberty to make the interpretation of fiscal statute subservient to his preconceived desire of extracting benefit in a marginal case.

On factual matrix it so happened that M/s. Gopal Jarda Udyog, M/s. Harchand Srigopal and M/s. Gopal Industries had manufactured and removed from their factories a certain quantity of preparation containing Kimam, collectively valued at several crores during the period 18.3.1994 to 15.4.1995, 16.6.1995 to 19.6.1996 and 14.6.95 to 24.9.96. The amount of duty involved was also fixed at some crores. Consequently the department. issued notices to these persons to show cause why the amounts of duties should not be demanded from them jointly and severally under Rule 9(2) of the Excise Rules read with the proviso to Section 11-1 (1) of the Tariff Act and interest thereon under the same Act besides penalty under rule 173-Q of the Excise Rules read with Section 11-AC of the Tariff Act etc. They were further asked to show cause why the land, building, plant and machinery used in their respective factories for the manufacture of Kimam should not be confi-scated. The respondents filed their detailed objections disputing the subject liability and also claimed exemption under notification No. 121/94 – CE. The Commissioner (Excise) rejected the objections as filed by the respondents and determined that M/s. Gopal Jarda Udyog., M/s. Gopal Industries and M/s. Harichand Sri Gopal

were liable to pay Central Excise Duty. The matter went before the Tribunal by way of Appeal and the Tribunal agreed with the findings of the adjudicating Commissioner. Ultimately the Commissioner rejected all the contentions of the respondents and held that the benefit of the exemption notification would be available only if the procedures laid down were complied with and that plea of substantial compliance was not substantiated and consequently the duty liability, interest and penalty was confirmed.

Now the interpretation of the exemption notification became the bone of contention and contentions were advanced for and against the compliances. At the level of the Tribunal, reliance was placed on the judgements of the Supreme Court in Thermax (P) Ltd.

he Constitution Bench of the Supreme Court very recently in the case of

Commissioner of Central Excise Vs. Harichand Shrigopal & ors. (2011) 1 SCC 236 unequivocally and categorically held that for availing the benefit of exemption notification under Chapter X of Central Excise Rules 1944, it is mandatory to follow the procedure laid down in that chapter. In Chapter X a detailed procedure had been laid down so as to curb and prevent the diversion and mis-utilisation of goods which are otherwise exciseable under the statute. It has further been held that a provision specially a fiscal state providing for an exemption, concession or exception is required to be construed strictly.

T613



Vs. Collector of Customs (1992) 4 SCC 440 and CC Vs. JK Synthetics (2000) 10 SCC 393. In these two cases the theory of “intended use” of the goods was invented and it was held that though there was no compliance of the procedural conditions of Chapter X even then the exemption should not be denied if the concept of “intended use” was established. The Tribunal, therefore, allowed the appeals and the Commissioner of Central Excise New Delhi preferred appeals before the Supreme Court which has conclusively laid down the law in the case referred hereinabove. It was argued on behalf of the Revenue before the Supreme Court that the respondents at the supplier’s end did contravene the provisions of Rules and that mere maintenance of some record at the recipients

end would not be enough even for the intended use or the plea of substantial compliance. It was also argued that the assessee must comply with the notification strictly and bring himself within the ambit of the notification.

The Assistant Solicitor General appearing on behalf of the Revenue cited catena of case laws amongst which some important ones are Novopan India Ltd. Vs. CCE & Customs 1994 Supp (3) SCC 606, CCE Vs. Ginni Ltd. (2005) 13 SCC 789; CCe Vs. Mewar Bartan Nirmal Udyog (2010) 13 SCC 753; State of Haryana Vs. Samtel India Ltd. (2010) 13 SCC 737 and G.P. Ceramics (P) Ltd. Vs. CTT (2009) 2 SCC 90. On the other hand Sr. Advocate Shri Harish Salve submitted that there was documentary evidence to prove that the entire quantity of Kimam was transferred from their one unit to another and was utilised in the manufacture of branded chewing tobacco and cleared on payment of duty. His entire argument was based on the theory of “intended use” and “substantial compliance” with the procedure set out in Chapter X of Excise Rules and he cited time and again cases of Thermax and J.K. Synthetics as referred above.

The Apex court in the instant case after discussing the pros and cons of intended use and substantial compliance held that for applicability of this doctrine, a mere attempted compliance would not be sufficient but actual compliance with those factors which are considered essential was needed. This doctrine was a judicial invention, equitable in nature intended to avoid hardships in cases where party did all that could reasonably be expected of it but only failed or faulted in some minor or inconsequential aspects which could not be described as “essence” or “substance” of

the requirement. It is ruled that mandatory requirements must be obeyed and fulfilled exactly. However, a condition might be given a liberal meaning if the same was directory in nature. If mandatory requirements were complied with, it would be proper to say that the enactment had been substantially complied with, notwithstanding the non-compliance of directory requirements, which are mere technical provision. In substance it has been concluded that the doctrine of substantial com-pliance sought to preserve the need to comply strictly with the conditions or requirements that were important to invoke a tax or duty exemption and to forgive non-compliance for either unimportant and tangential requirements that were so confusingly or incorrectly written and that an earnest effort at compliance should be accepted.

The Supreme Court was, therefore, reluctant to sustain the reasoning of the Tribunal that the procedure laid down in Chapter X was meant only to establish the receipt of goods by the recipient unit and their utilisation and ultimately the benefit of exemption was declined to the parties.

The obvious reckoning of this case for the assessee of excise duty would be that they should be all cautious in complying with the mandatory requirements for availing exemption benefit and that the prevalent misconception that the benefit of doubt of inherent ambiguity in a statute would invariably go to the assessee must abate once for all. With the passage of time the interpretative technique of statutes is also undergoing changes and assuming to be Revenue-oriented by adopting a pragmatic and functional approach. The law in action is more significant than law in the book. n

ollowing judgement in Commissioner of Central Excise Vs. Harichand Shrigopal &

ors. (2011) 1 SCC 236, the interpretation of the exemption notification became the bone of contention, arguments were advanced far and against the compliances. At the level of the Tribunal reliance was placed on the judgements of the Supreme Court in Thermax (P) Ltd. Vs. Collector of Customs (1992) 4 SCC 440 and CC Vs. JK Synthetics (2000) 10 SCC 393. In these two cases the theory of “intended use” of the goods was invented and it was held though there was no compliance of the procedural conditions of Chapter X even then the exemption should not be denied if the concept of “intended use” was established.

F

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SPEECH

SPEECH


Following are excerpts of the speech of Shri Sachin Pilot, Union Minister of State for Communication and Information Technology given as the Chief Guest at the Orientation Programme of newly qualified CAs organised on 8th and 9th August, 2011 at Vigyan Bhawan, New Delhi. ICAI President CA. G. Ramaswamy, Vice President CA. Jaydeep N. Shah and Chairman of Committee for Members-in-industry CA. K Raghu were among the large gathering of distinguished guests and newly qualified Chartered Accountants on the occasion.

“You have chosen a profession which, by no means, is easily gotten one. This is the profession which speaks of dedication and hard work. But to my mind, once you are a qualified CA, you have to certainly upgrade your skills, learn best practices, attain those standards, not just in India but across the world. So the challenge before you is not to just graduate and get a job today or tomorrow, but the challenge is how do you maintain skill sets, how do you learn those accounting best practices, how can you make a name for yourself, your firm, your family, your State, more importantly for your country.

An individual can become a leader once they are

getting scales and success but the nation becomes a leader when the society is moving together, when there is equitable distribution of opportunities of resources. So, we as a nation of 1.2 billion people have a very large responsibility to move together in tandem.

How do we as Professionals, as Members of Parliament, as political activists, as members of Government, Civil Society ensure that what we have achieved today can also be readily available for those people who don’t have the access to resources of money, education or opportunities. That challenge will lie with you as you work as an Accountant. I am here only to convey to you that,

As India Grows, CAs Have to Share aLot of Responsibilities: Sachin Pilot

Shri Sachin Pilot, Union Minister of State for Communication and Information Technology addressing the newly qualified Chartered Accountants at the Orientation Programme held on 8th August 2011 at Vigyan Bhawan, New Delhi. Others seen on the dais are (L-R) Council Member CA. Pankaj Tyagee, Vice Chairman, Committee for Members in Industry, CA. G. Ramaswamy, President, ICAI, CA. Jaydeep N. Shah, Vice President, ICAI, Council Member CA. K. Raghu, Chairman, Committee for Members in Industry and CA. Rajesh Sharma, Chairman, NIRC of ICAI.

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SPEECH


as India moves forward, a lot of responsibilities lie on your shoulders as well. As the economy grows, as the country grows, the expectations will also grow.

…While you make the best of the opportunities available, as you move along in your professional career, please do a little bit, whatever you can individually to help those who perhaps have not been lucky enough as you and I have been.

These examinations (CA) that we conduct in India, I am told that if you have cleared the examinations, there is no country in the world where you cannot go and become qualified accountants, whether it is US or UK. I think the quality of the teaching, the quality of the students who take these examinations and the whole eco system that we have been able to create in the last five or six decades, I think it is a tremendous symbol of the single minded focus on training young professionals. About 1,72,000 Chartered Accountants being associated with one body, the second largest in the world, is amazing.

The future to India’s growth will be from the Information Technology source. In future whatever field of profession one may choose, but IT will remain with you. Therefore, it is important for you to inculcate these skills and make yourself able to demonstrate these skills as we go along. The Electronic Services Delivery Bill, I think, is a very powerful Legislation, which, once put passed by Parliament, will bring a paradigm shift in India. The poor person in India does not have access to a lot of things because he has to go to the collectors, the BDOs, SDMs, MLAs, MPs to get something notified, to get his land records, to get his certification done. If you are able to give all of them, I think in local, regional languages at the click of a button, you can imagine that the amount of transparency it will bring about at the lowest levels.

I know we are battling with the issue of corruption. I do also want to make a point that we will work together to make sure that corruption does not become a bottleneck

for our progress. What bothers the common people in this country is the corruption at the lowest levels. Therefore, accountability and transparency and really digitising a lot of services will hopefully take away a lot of loopholes that exist in PDS systems and in our allocation systems, in subsidies. These are the ways we are trying to make sure that we are helping and contributing to make sure that the services, the goods, the finances, the programmes, the allocations, the budget that we give from the Government are reaching the common man. Every entity in this country whether it is a company or Government or NGO needs to be audited. Therefore you have a lot of work to do, no matter which field you work in, you will be required to be good accountants to make sure that there is proper book-keeping and we in the Government are fully committed in this regard. I also appreciate the efforts of ICAI. It is not just about coaching and making you take the examinations but they are here to guide you, how to get placed, how to get better jobs. This hand-holding, this capacity-building,

I think, is really the very essence of a good partnership, a life-long association that ICAI will have with all

of you and that is why it has gone stronger and bigger and better as the years went by.

I am quite hopeful that in the times to come, the fraternity of CAs in India grows and expands in quality as well as in quantity. I think in success and victory, one has to be more humble than anywhere else. So

you approach your job with confidence with humility. If you do the right thing, you know

the efforts will be appreciated and in the times that we are going to be working as professionals.

I am working as a politician and like you need to get the licence every five years, I have to go back and take my examinations every five years…But as we move along people, I hope to work with you, with the ICAI, with the Council Members and hopefully be able to engage with you in time to come in future with new ideas and I hope that we become a participative society.” n

very entity in this country whether it is a company or Government or NGO needs to be audited. Therefore you have a lot of work to do, no matter which

field you work in, you will be required to be good accountants to make sure that there is proper book-keeping and we in the Government are fully committed in this regard. I also appreciate the efforts of ICAI. It is not just about coaching and making you take the examinations but they are here to guide you,

E

am quite hopeful that in the times to come, the fraternity of CAs in India grows and expands in quality as well as in quantity. I think in success and victory, one

has to be more humble than anywhere else. So you approach your job with confidence with humility. If you do the right thing, you know the efforts will be appreciated and in the times that we are going to be working as professionals. I hope to work with you, with the ICAI, with the Council Members and hopefully be able to engage with you in time to come in future with new ideas

I

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CBDT’s Business Intelligence Data Warehousing to Boost Tax Mop-Up

To enhance revenue realisation and catch tax evaders quickly, the Central Board of Direct Taxes is working on a comprehensive data warehousing system which will transform the functioning of the Income Tax Department. From data pertaining to mobile users to electoral records and database of high net worth individuals, a universe of diverse information will be assembled in the I-T warehouse for analysis and generating credible information and reports for investigation purposes and revenue forecasting. Information available with the ministry of corporate affairs, select data from excise and Customs and the Goods and Services Tax, customised data from think-tanks such as CMIE and data received from other enforcement agencies in India and abroad, will also be available at the facility, to be known as the Revenue Forecasting & Business Intelligence Data Ware-house (RFBIDW). These external data would complement the internal database of the department which includes informa-tion on permanent account number (PAN), e-filing data, tax deducted at source, share transaction tax payments, annual information returns on high-value transactions and specific information gathered by the Central Information Branch. With this, RFBIDW is also expected to have certain locally relevant information, especially for investigation, and also specialised database on venture intelligence, trade analyst reports, equity analysis and fiscal reports. (Source: http://www.business-standard.com/india/)

CAG Seeks Powers to Evaluate Performance of SEBI, TRAI, IRDA

Government auditor CAG is seeking to widen the scope of its powers to audit the performance of regulators such as SEBI, TRAI and IRDA as part of the new legislation that will replace the CAG Act, 1971. The proposed CAG Bill, now under consideration of the Finance Ministry, is likely to be tabled in Parliament in its next session. CAG is looking into the books of regulators like TRAI, SEBI and IRDA, but now wants to audit their performance also, official sources said. The Comptroller and Auditor General of India (CAG) has already submitted a draft Bill to the Finance Ministry for replacing the CAG Act. The new law is aimed at significantly expanding the scope of the CAG’s audit responsibilities. We are looking at auditing the regulators. We have asked in the draft Bill to replace the CAG Act of 1971 to allow audit of the financial (statements) and performance of regulators and PPPs. We are hoping that the Bill would be tabled in the Winter Session, the official said. The draft Bill is likely to have provisions for punitive action against companies that delay submission of details sought by the auditor.(Press Trust of India)

Amnesty Scheme in Works to Get Back Money in Foreign Accounts

India could announce an amnesty scheme to give its citizens an opportunity to come clean on their undeclared assets and bank accounts held overseas, joining the likes of the US, UK, Italy, and Germany that have announced

Online Filing for Service Tax Return is Compulsory

The CBEC vide notification No.43/2011- Service Tax dated 25th August, 2011, made amendments to the service tax rule 7 with effect from 1st October, 2011, where in the provision which stated that where an assessee has paid a total service tax of R10 lakh or more including the amount paid by utilisation of Cenvat Credit, in the preceding financial year, he shall file the return electronically has been deleted and after sub rule (2), a new sub rule (3) has been inserted namely: (3) Every assessee shall submit the half-yearly return electronically. With this notification now all assesses who are registered with the service tax will have to file all service tax half yearly returns electronically from 1st October, 2011. This means that the half yearly return for the period 1st April, 2011, to 30th September, 2011 will have to be filled electronically through the ACES site of service tax as the due date for filling of the return for the period is 25th October, 2011, and by then this notification will be applicable. Assesses who have not filed previous returns of service tax will also have to file the same electronically if they are going to file the same after 1st October, 2011. Hence, after 1st October, 2011, based on this notification, all assesses will have to file their service tax returns compulsorily online. Penalty for non filling of service tax return electronically will be as per Section 77(2), penalty for contravention of any provisions of the chapter or rules (of service tax) for which separate penalty has not been provided shall be up to R10,000. This amount was R5,000 till 7th April, 2011.(Source: http://beta.profit.ndtv.com/news)

CBEC Waives Onsite Post Clearance Audit for Exporters

The chairman of the Central Board of Excise and Customs (CBEC) has confirmed that for the present, the on-site post clearance audit (OSPCA) system by the Customs will not be applied to exporters. This assurance is given in a letter dated September 1 by him in response to certain apprehensions expressed by the President of the Delhi Exporters Association (DEA) through his letter dated 23rd

August, that OSPCA by the Customs will cause hardships and inconvenience to the exporters. The apprehensions of DEA followed the introduction of self assessment in the Customs Act of 1962, and provisions that were introduced in Section 17 of the Act to empower the Customs officers to carry out verification of correctness of assessment of duty relating to import or export of goods at the premises of the importer or exporter. CBEC had clarified this will lead to introduction of On-Site Post Clearance Audit in Customs in near future. The worry of the trade is that the Customs auditors will indulge in fault finding that will only increase harassment and costs for managing the auditors in their premises. Their view is that the officers can check all their documents at the port itself. The CBEC chairman has clarified that the OSPCA system will be implemented in a phased manner, starting only with importers who avail the accredited clients programme. (Source: http://www.economictimes.com)

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similar schemes. The finance ministry is considering a scheme - offshore voluntary compliance scheme - that could allow for voluntary declaration of undisclosed assets held overseas, helping put such funds to productive use in the country and also raise revenues. “The scheme is under consideration. The income-tax department’s flow of information has become robust. So, it is time to consider such a scheme,” said a finance ministry official. A panel on black money headed by the Central Board Direct Taxes chairman is expected to take up the proposal at its next meeting later this month. (Source: http://www.hindustantimes.com)

Government Receives Info about 7700 Cases of Black Money: FinMin

The government has said it has collected specific information from treaty countries on 7,704 cases where payments were received from non-residents in various countries over the past two years and was investigating the cases. “In the last 24 months Income Tax Department have collected 7,704 discrete items of information from treaty countries containing details of payments received by Indian citizens in various countries besides informations of LGT Bank accounts,” the Finance Ministry said in its document on the measures taken to tackle black money. This information, the Ministry added, is in various stages of processing and investigation. The Ministry further said that based on the prosecution by the Central Board of Direct Taxes (CBDT) of the LGT bank accounts holders, the Enforcement Directorate is also taking necessary action under Foreign Exchange Management Act. Besides, the government has made more than 175 requests to treaty partners in case of specific taxpayers in the 2009-2010 financial year, it said.(Source: http://www.economictimes.com)

RBI Rate Hike to Bring Down Inflation to Comfortable Level: FM

Finance Minister Pranab Mukherjee has said the 25 basis points rate hike by the Reserve Bank will help in moderating inflation to a comfortable level without hurting growth. “I am hopeful that measures taken by RBI would get us back to a more comfortable inflation situation earlier rather than later... while (leaving) scope for growth to pick up in the second half of the year,” Mukherjee told reporters. The Reserve Bank in its mid-quarterly review hiked interest rates by 25 basis points making credit costly. This is the twelfth time since March 2010 that the RBI hiked rates in its efforts to tame inflation. “Today’s step is consistent with RBI’s monetary stance for the first half of 2011-2012 and overall concern on growth sustainability in the medium term,” Mukherjee said.(Source: http://timesofindia.indiatimes.com/)

Govt Unveils Anti-Graft Steps, To Set Up Fast-Track Courts

Weeks after activist Anna Hazare’s fast for a stronger anti-graft law grabbed national attention, the government has unveiled a host of steps to curb corruption that included

setting up of 71 fast-track special CBI courts, fixing a limit of three months to grant sanction for prosecution and abolishing discretionary powers enjoyed by ministers. Announcing that the government has accepted the recommendations of a Group of Ministers on corruption, Union Law Minister Salman Khurshid and Minister of State for Personnel V. Narayanasamy said ministers will no longer have discretionary powers in the allotment of land, telephone and petrol pumps. “These powers have been removed”, barring in cases of compensation to victims of Maoist violence by the home ministry and to war widows by the defence ministry, said Narayanasamy. The GoM also decided to bring a new policy and a bill on public procurement in the winter session of Parliament to tackle corruption and make the procedure more transparent. The Group of Ministers (GoM), set up by the government to curb corruption and improve transparency in governance, was headed by Finance Minister Pranab Mukherjee. Among the proposed measures are: Mere retirement would not be a ground for dropping proceedings against corrupt government servants who will now face a 10% cut in pension in case of minor penalty, for a period not exceeding five years. (Source: http://timesofindia.indiatimes.com/)

Government Panel for Slashing Customs Duty on Imported LNG to Zero

A high-level government panel has called for slashing customs duty on imported liquefied natural gas (LNG) to zero, instead of cross-subsidising the high-priced imported fuel by making domestic natural gas users pay more. An inter-ministerial committee headed by Planning Commission Member Saumitra Chaudhuri, in its final report, has recommended that the import duty on liquefied natural gas (LNG) should be aligned with that of crude oil, on which customs duty was brought down to zero from 5% in June. Also, the government should treat LNG/natural gas as a “declared good”, so that they have a common concessional rate of VAT. “The Department of Revenue (which was also part of the committee) has not agreed to the proposal for aligning import duty on LNG with that of crude. On the issue of declared good status in regard of VAT, the Department of Revenue did not wish to record a view,” the report noted. (Source: http://www.thehindubusinessline.com/)

Direct Tax Collection Up 6.7%Net direct tax collection in the current financial year up

to 15th September is higher by 6.7% at R1,27,858 crore as against R1,19,849 crore collected from 1st April to 15th September last year. The net collection has been impacted by R61,000 crore of refunds. Gross direct tax mop-up during the period has been R1,88,868 crore, a growth of 29.5% over the previous years collection during the period of R1,45,825 crore. 15th September was the due date for payment of the second installment of advance tax. Interestingly, smaller centres have been doing better in growth of direct tax collection this year as compared to Mumbai and Delhi. (Source: http://www.indianexpress.com/)

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comparability between financial statements in accordance with IFRSs that are electronically submitted. (Source: http://www.ifrs.org/News)

Effect Analysis for IFRS 10 and IFRS 11 AvailableThe effect analysis for IFRS 10 Consolidated Financial

Statements, which also includes the effect analysis for IFRS 12 Disclosure of Interests in Other Entities, and the effect analysis for IFRS 11 Joint Arrangements are now available for download on the project pages at IFRS website. The effect analyses provide detailed insights into the potential impacts of the new requirements using case studies and other quantitative and qualitative material, as appropriate(Source: http://www.ifrs.org/News)

IFAC Begins Search for Next Chief Executive Officer

The International Federation of Accountants (IFAC), the global organisation for the accountancy profession with members and associates in 125 countries is seeking an outstanding individual to become its next chief executive officer (CEO), based in New York City. The candidate will succeed current CEO Ian Ball, whose contract is set to expire in February 2013 and who is not seeking a further term. An executive search firm, which is premier global provider of talent management solutions, based in Los Angeles, has been retained for the search. IFAC’s management team will partner with the search firm to actively engage IFAC member bodies, the accountancy community, and other stakeholders in the recruitment process to encourage a diverse and international applicant base. IFAC is initiating the recruitment process in the fourth quarter of 2011 to allow time for a comprehensive search, Board approval, and relocation, and to provide the new CEO with a positive and seamless transition before Ian Ball’s departure. Current CEO Ian Ball joined IFAC as its chief executive officer in March 2002, having previously served IFAC as chair of its Public Sector Committee (now the independent International Public Sector Accounting Standards Board) and as a member of its Nominating Committee. Prior to that, Mr. Ball was Professor of Accounting and Public Policy at Victoria University of Wellington, an international consultant in public management, an accounting standard setter, and a senior official in the New Zealand Treasury. (Source: http://press.ifac.org/news)

EFRAG Invites Companies to Participate in the Field-testing of New Standards

The European Financial Reporting Advisory Group (EFRAG) will conduct field-testing of the new requirements on joint arrangements (IFRS 11 Joint Arrangements and IFRS 12 Disclosure of Interests in Other Entities) and the new requirements on consolidation (IFRS 10 Consolidated Financial Statements and IFRS 12 Disclosure of Interests in Other Entities), all published by the IASB in May 2011. The purpose of the field-testing is to identify potential implementation and application difficulty, and to estimate the effort required to implement and apply the new requirements. The findings of the field-testing will be used by EFRAG in developing its technical and its cost and benefit assessment of the new standards against the EU endorsement criteria.(Source: http://www.iasplus.com)

GRI and ISO Co-operate on Sustainability The Global Reporting Initiative (GRI) and the International

Organization for Standardization (ISO) have signed a Memorandum of Understanding (MoU) to increase their

IASB Proposes to Exempt Investment Entities from Consolidation Requirements

The International Accounting Standards Board (IASB) recently published proposals to define investment entities as a separate type of entity that would be exempt from the accounting requirements in IFRS 10 Consolidated Financial Statements. Investment entities are commonly understood to be entities that pool investments from a wide range of investors for investment purposes only. Currently, IFRS 10 Consolidated Financial Statements would require consolidation if an investment entity controls an entity it is investing in. However, when developing IFRS 10, investors commented that this would not provide them with the information they need to assess the value of their investments. To address this issue, the exposure draft published recently proposes criteria that would have to be met by an entity in order to qualify as an investment entity. These entities would be exempt from the consolidation requirements and instead would be required to account for all their investments at fair value through profit or loss. The exposure draft also includes disclosure requirements about the nature and type of these investments. This project is being undertaken jointly by the IASB and the US national standard-setter, the Financial Accounting Standards Board (FASB). Both boards’ proposals are broadly aligned. However, the FASB is considering proposing that the exemption would extend to cases in which the investment entity is owned by a larger group that is not itself an investment entity. The FASB will publish its exposure draft in due course. The exposure draft Investment Entities is open for public comment until 5th

January, 2012. The FASB will align its comment period with that of the IASB to ensure joint redeliberations. If adopted, the proposals would be integrated into IFRS 10.(Source: http://www.ifrs.org/News)

IFRS Taxonomy Interim Release for Common-Practice Concepts

The IFRS Foundation, the oversight body of the International Accounting Standards Boards (IASB), recently completed the first part of its project to address requests by regulators and preparers for extensions to the full International Financial Reporting Standards (IFRS) XBRL Taxonomy. The IFRS XBRL Taxonomy is used to help those filing IFRS financial statements electronically to ‘tag’ the information with identification tags (called ‘concepts’ in an XBRL taxonomy). Currently, the IFRS taxonomy includes all core concepts included in IFRSs as issued by the IASB. However, preparers often need to provide more detailed financial information than is reflected by the core IFRS concepts. To ensure that those creating and using electronic filings do not need to create their own extensions to the IFRS taxonomy, the IFRS Foundation has created an ‘extension taxonomy’ by analysing and drawing from common practice. For instance, although IFRSs require the disclosure of an analysis of expenses, the IFRSs do not include a prescriptive listing of all the possible categories of expenses. The common-practice taxonomy includes concepts for the most commonly used types of expenses, such as ‘sales and marketing’. The interim taxonomy released recently completes the first part of a project to address this issue, by providing about 350 extensions for the most common concepts used in the financial statements. Work is continuing on extensions to the detailed tagging of the footnotes to the financial statements. The IFRS XBRL team expects to publish proposals this month. The common-practice concepts are in line with IFRS requirements and will help to alleviate the burden on preparers and to increase the

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co-operation on sustainability matters. GRI has developed a widely used sustainability reporting framework (“G3.1”, with work commenced on the fourth generation guidelines, “G4”). GRI also participated in the development of ISO 26000 Social Responsibility, published by the ISO in November 2010. The MoU is intended to leverage the activities of the two organisations related to reporting and benchmarking by business and on sustainable development by sharing information on ISO standards and GRI programs, teaming up with other partners, participating in the development of new or revised documents, joint promotion and communication.(Source: http://www.iasplus.com)

Monitoring Board Summary of Comments on IFRS Foundation Governance Review

The Monitoring Board has released a document summarising responses to its Consultative Report on the Review of the IFRS Foundation’s Governance, published on 8th February, 2011. The report provides a summary of responses from the 80 comment letters received, which expressed a wide variety of views. (Source: http://www.iasplus.com)

IIRC Issues Discussion Paper on Integrated Reporting, Proposes a New Approach to Corporate Reporting

The International Integrated Reporting Committee (IIRC) recently released a Discussion Paper Towards Integrated Reporting – Communicating Value in the 21st Century. The IIRC seeks to bring together world leaders from the corporate, investment, accounting, securities, regulatory, academic, civil society and standard-setting sectors to develop a new approach to reporting. The Discussion Paper is the first step in the development of an ‘International Integrated Reporting Framework’, with an exposure draft expected to be published in 2012. It seeks to build on existing developments in reporting such as the international convergence of accounting standards, sustainability guidance published by organisations such as the Global Reporting Initiative (GRI), and the IASB’s IFRS Practice Statement Management Commentary. Integrated reporting aims to combine the different strands of reporting (financial, management commentary, governance and remuneration, and sustainability reporting) into a coherent whole that explains an organisation’s ability to create and sustain value. The focus of an Integrated Report would be a broader explanation of performance than traditional reporting, by describing and measuring where practicable, the material components of value creation and, more importantly, demonstrating the links between an organisation’s financial performance and the social, environmental and economic context in which it operates. The IIRC believes an Integrated Report should be an organisation’s primary reporting vehicle, replacing rather than adding to existing requirements. Under the IIRC’s vision, much information currently produced (including detailed financial reporting information, operational data and sustainability information) would move to an online environment enabled by technology, reducing clutter in the primary report so that report can focus only on the matters the organisation considers most material to long-term success.(Source: http://www.iasplus.com)

EFRAG Draft Comment Letter on IASB’s Exposure Draft on Mandatory Effective Date of IFRS 9

The European Financial Reporting Advisory Group (EFRAG) has issued its draft comment letter on the IASB

Exposure Draft Mandatory Effective Date of IFRS 9. In this draft letter, EFRAG agrees that there should be a delay in the effective date of IFRS 9 Financial Instruments, but expresses concern about the revised effective date of 1st January, 2015. An excerpt from the draft letter: EFRAG believes that, rather than setting a fixed effective date, it would be more appropriate to allow entities at least three years to implement IFRS 9 after the completion of all phases of IFRS 9 and the standard on insurance contracts. We believe that not requiring restatement of comparative information in the first year of application of IFRS 9 would be an inappropriate alternative to setting a proper effective date in the first place. EFRAG is seeking comments on its draft letter by 17th October, 2011. (Source: http://www.iasplus.com)

2011 IFRS ‘Green Book’ Coming SoonThe IFRS Foundation has announced that A Guide through

IFRS July 2011 will be available in October 2011.This volume (nicknamed the “Green Book”) will include the full text of the Standards and Interpretations and accompanying documents (such as the Basis for Conclusions) issued by the IASB as at 1st July, 2011 with extensive cross-references and other annotations. This edition does not contain documents that are being replaced or superseded but remain applicable if a reporting entity chooses not to adopt the newer versions early. Accordingly, this edition will include new standards such as IFRS 10 Consolidated Financial Statements and IFRS 11 Joint Arrangements, but will not contain IAS 31 Interests in Joint Ventures. (Source: http://www.iasplus.com)

US SEC Outlines Alternative for Moving to IFRSUS securities regulators outlined recently, an alternative

way of merging US and international accounting standards that could keep down transition costs, especially for small issuers. The approach would allow the United States to keep generally accepted accounting principles, or GAAP, and incorporate international standards into GAAP over a period of time. Outlined in a staff paper from the Securities and Exchange Commission, the approach could avoid a so-called “big bang,” or immediate move to new international rules. The SEC has been grappling with whether to move US companies to international accounting standards and has said it would decide this year whether to make the switch. Under the alternative approach, the SEC could keep its authority over standard-setting, according to the staff paper from SEC’s office of the chief accountant. While US companies are required to use GAAP, much of the rest of the world has been adopting International Financial Reporting Standards, or IFRS. Financial centres such as Hong Kong and the European Union already require the international rules, set by the International Accounting Standards Board. The alternative approach, dubbed “condorsement” has been mentioned by SEC staff at accounting conferences. It shares features of endorsing IFRS and converging it with GAAP. The Financial Accounting Standards Board, responsible for US accounting rule-making, would be able to change IFRS when it was in the public interest, the SEC said. FASB and IASB have been working to converge US and international standards and eliminate as many differences as possible, although the two groups are still divided on several key issues. Under the alternative approach, differences between IFRS and GAAP would be eliminated through FASB standard-setting over a period of perhaps five to seven years, the SEC said.(Source: http://bx.businessweek.com)

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Index of some useful articles taken from Periodicals/Newspapers received during August-September 2011 for the reference of Faculty/Students & Members of the Institute.

Full Texts of the above articles are available with the Central Council Library, ICAI, which can be referred on all working days. For further inquiries please contact on 011-23370154 or by e-mail at [email protected]

ACCOUNTANT’S BROWSER‘PROFESSIONAL NEWS & VIEWS PUBLISHED ELSEWHERE’

1. ACCOUNTINGComparison of XBRL Filings to Corporate 10-

Ks – Evidence from the Voluntary Filing Program by Jom Bartley, etc. Accounting Horizons, Vol.25/2, 2011, pp.227-245.

European IFRS Experiment: Objectives, Research Challenges & Some Early Evidence by Peter F. Pope & S.J. Mcleay. Accounting & Business Research, August 2011, pp.233-266.

IFRS: The First Quarter by Robert Colapinto. CA Magazine, August 2011, pp.28-34.

IFRS Monopoly: The Pied Piper of Financial Reporting by Shyam Sunder. Accounting & Business Research, August 2011, pp.291-306.

Issues in Lessor Accounting: The forgotten half of Lease Accounting by M. P. Bauman & R.N. Francis. Accounting Horizons, Vol.25/2, 2011, pp. 247-266.

Management Reporting in Current Business Environment – XBRL as a tool for business reporting by Mahesh Kumar. Chartered Secretary, August 2011, pp.1063-1067.

New Era of Business Reporting by Naveen Garg. Chartered Secretary, August 2011, pp.1061-1062+1067.

New Institutional Accounting & IFRS by Peter Wysocki. Accounting & Business Research, August 2011, pp.309-328.

Reporting of General Infrastructure Assets under GASB Statement No.34 by Thomas E. Vermeer, etc. Accounting Horizons, Vol.25/2, 2011, pp.381-407.

Why India should consider adopting the IFRS for SMEs by Paul Pacter. Chartered Secretary, August 2011, pp. 1041-1043.

XBRL – Enabler of Digital Financial Reporting by Vinod Kashyap. Chartered Secretary, August 2011, pp.1047-1049.

XBRL: Revolutionizing Financial Reporting by Ram Iyer. Chartered Secretary, August 2011, pp. 1044-1046.

XBRL – A Revolution in Financial Reporting World by Amit Kumar Sharma. Chartered Secretary, August 2011, pp.1053-54.

XBRL – What is in it for Accounting Professionals? By Aman Puri. Chartered Secretary, August 2011, pp. 1050-1052.

2. AUDITINGAuditors liability & risk: a changing world indeed by

Steven Louw. Accountancy SA, Aug. 2011, pp.28-29.

Effect of section 404 of the Sarbanes-Oxley Act on earnings quality by Zvi Singer & Haifeng You. Journal of Accounting Auditing & Finance, Vol.26/3, pp.556-589.

Industry specialist Auditors, outsider directors, & financial analysts by Jerry sun & Guoping Liu. Journal Account. Public Policy, Vol.30, 2011, pp.367-382.

Reputation concerns & herd behavior of Audit Committees – a corporate Governance problem by B.S. Pirchegger & J.R. Schondube. J. Account. Public Policy, Vol.30, 2011, pp.327-347.

Stupid Fraud tricks by David Malamed. CA Magazine, August 2011, pp.36-38.

3. ECONOMICSAftermath of the US debt downgrade by EPW Research

Foundation. Eco. & Pol. Weekly, August 20, 2011, pp.61-67.Economic crisis & Accounting evolution by Gregory

Waymire & Sudipta Basu. Accounting & Business Research, August 2011, pp. 207-232.

Economic reforms for sustainable growth by Subir Gokarn. RBI Bulletin, August 2011, pp.1267-1277.

Employment guarantee & its environmental impact: are the claims valid ? by M. Dinesh Kumar etc. Eco. & Pol. Weekly, Aug. 20, 2011, pp. 69-74.

Striking the balance between growth & inflation in India by Subir Gokarn. RBI Bulletin, August 2011, pp.1253-1262.

4. MANAGEMENTEffect of managerial ownership on the cost of debt:

evidence from Japan by Akinobu Shuto & Norio Kitagawa. Journal of Accounting, Auditing & Finance, Vol.26/3, pp.590-620.

Management & oversight: a key driver for clean Audits by Terence Nombembe. Accountancy SA, August 2011, pp.16-17.

Strategic revelation of differences in segment earnings growth by Qian Wang etc. J. Account. Public Policy, Vol.30, 2011, pp.383-392.

Voluntary disclosure & the cost of equity capital: evidence from Management earnings forecasts by Joung W. Kim & Yaqi Shi. J. Account. Public Policy, Vol.30, 2011, pp.348-366.

5. TAXATION & FINANCEIs a single European VAT rate viable? by Rachel

Fielding. Accountancy, August 2011, pp.31-34.Taxation of Capital gains under Direct Taxes Code by

P.N. shah. BCAJ, August 2011, pp.9-15.

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Report on Campus Placement Programme –August-September, 2011The Committee for Members in Industry organises Campus Placement Programmes for all levels of Chartered Accountants at frequent intervals throughout the year. The Committee for Members in Industry is committed to provide world class placement services to the Members and best accounting and finance talents to the industry.

In its endeavour to provide quality Accounting, Finance, Tax, Audit and Management Consultancy personnel to recruiting entities, the Committee has successfully organised one more round of Campus Placement Programme for newly qualified Chartered Accountants at 16 centres viz. Ahmedabad, Bangalore, Bhubaneswar, Chandigarh, Chennai, Coimbatore, Ernakulam, Hyderabad, Indore, Jaipur, Kanpur, Kolkata, Mumbai, Nagpur, New Delhi and Pune in August-September, 2011.

Brief summary of the placement programme of both the phases is as follows:

Number of Candidates Registered 10317

Number of Interview Teams 177

Number of Organisations 74

Number of Jobs Offered 1262

Percentage of jobs offered vis-a-vis registered candidates

12.23%

Executive Summary 1. Highest salary offered for Domestic posting in the

Campus Placement Programme is R13.93 lacs per annum.

2. The minimum salary paid is R3.75 lacs per annum. 3. The average salary offered was R6.25 lacs per

annum.4. Total 9460 candidates have participated in phase I

interviews and 8299 candidates have participated in phase II interviews after merger of candidates from Bigger centres. In all 10317 candidates registered for availing the services of Campus Placement Programme.

5. Around 12621 jobs were offered to the candi-dates who participated in Campus Placement Programme.

6. In all 12.23% of registered candidates were offered jobs.

7. 1098 candidates accepted the job offers.8. 74 entities, including the corporate organisations

and the Chartered Accountancy Firms, have participated in the Campus Placement Programme.

9. 177 Interview Panels have participated in this Campus Placement Programme.

Salient Features1. Candidates have been given two choices to meet

the recruiting organisations. First at bigger cities and second (if the candidates has not been selected at bigger cities) at smaller cities.

2. The committee organised Orientation Programme for candidates to sharpen their soft skills and give updates on the technical side.

3. In this Campus Placement Programme all the candidates have been permitted to attend the orientation programme at any of the centres to avoid the requirement to travel to centres chosen for interviews for attending the orientation programme.

The following table shows the statistical information of campus interview at a glance:

Phase ICentre Number of

Interview Teams

Total RegisteredCandidates

Number of Offers Made

Number of Offers Accepted

Bangalore 16 624 136 132

Chennai 15 678 98 90

Hyderabad 7 274 52 33

Kolkata 15 1067 89 87

Mumbai 29 3421 227 201

New Delhi 24 3396 291 254

Rank Holder List

3 Result Awaited

Total 109 9460 893 797

Phase IICentre Number

of Interview Teams

Total RegisteredCandidates*

Offered Accepted

Ahmedabad 9 1522 54 44

Bhubaneswar 6 631 52 43

Chandigarh 3 815 12 12

Coimbatore 6 305 22 9

Ernakulam 3 136 4 3

Indore 7 266 23 23

Jaipur 12 1860 82 72

Kanpur 3 200 13 9

*Comments/suggestions for improvement in placement programme, particularly to improve the penetration are welcome at [email protected] 1This write up reflects the status as on 20/09/2011 04:00 PM. Results are awaited from some of the companies. For further details kindly visit http://www.cmii.icai.org

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CAREER WATCH


Centre Number of Interview Teams

Total RegisteredCandidates*

Offered Accepted

Nagpur 5 123 20 20

Pune 14 2441 87 66

Total 68 8299 369 301

* The figures also include candidates merged from bigger centre to the smaller centres as per their choice.

Salary RangeSalary Range (per annum)

Number of Candidates Aug-Sept, 2010

Number of Candidates Feb-March, 2011

Number of CandidatesAug-Sept, 2011

R9,00,000 and above

79 108 72

R7,50,000 to R8,99,000

169 413 119

R5,00,000 to R7,49,000

756 989 780

R3,50,000 to R4,99,000

137 142 127

R2,50,000 to R3,49,000

3 11 0

Total 1144 1663 1098

The Chart above depicts the comparison between the number of the candidates selected within the various salary ranges offered during Campus Placement Programme August-September, 2011, February-March, 2011 and August-September, 2010.

Top 10 Remunerations Offered During August- September, 2011 Campus InterviewsS No.

Company Name

Remuneration Offered (R In lacs P. A.)

Candidates Selected

Centre

1 ITC Limited Finance

1393000 12 Bangalore, Kolkata & New Delhi

S No.

Company Name

Remuneration Offered (R In lacs P. A.)

Candidates Selected

Centre

2 Bharat Petroleum Corporation Limited

1180000 12 Mumbai & Chennai

3 Nestle India Ltd.

1100000 3 New Delhi

4 Indian Oil Corporation Ltd,

930000 49 Kolkata, Mumbai, Chennai & New Delhi

5 Vedanta Resources

926000 45 Multi Locations

6 Narayana Hrudayalaya Private Limited

840000 7 Bangalore

7(A) Hindustan Petroleum Corporation Limited

800000 31 Bangalore, Chennai, Mumbai & Chandigarh

7(B) Tata Steel 800000 16 Kolkata & Bhubaneshwar

7(C) Wipro Ltd, 800000 23 Bangalore, Kolkata, Bhubaneshwar & New Delhi

8(A) Aviva Life Insurance Company Ltd.

750000 2 New Delhi

8(B) Hindustan Coca Cola Beveraged Pvt. Ltd.

750000 6 Ahmedabad & Jaipur

8(C) Axis Risk Consulting

750000 21 New Delhi

8(D) Essar Investments Limited

750000 7 Mumbai

8(E) IIFL 750000 4 Mumbai9(A) TVS Motor

Limited700000 16 Coimbatore,

Bangalore & Chennai

9(B) Schneider Electric

700000 6 New Delhi & Mumbai

9(C) Titan 700000 3 Bangalore10 Evolutionary

Systems Private Ltd.

669000 5 Ahmedabad

Top Recruiters during the August-September, 2011 Campus InterviewsS No

Name of Company Accepted

1 Genpact 1002 Tata Consultancy Services Ltd. 673 Bank of Baroda 534 Indian Oil Corporation Limited 495 Vijaya Bank 476 Jindal Steel & Power Limited 467 Vedanta Resources 458 L&T 449 Canara Bank 3210 Indiabulls Financial Services 28

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TECH FOR YOU


The Digital RevolutionThe confluence of communication and information technology (known as ICT) has powered the massive growth in the deployment of ICT in automation of business process as well as new features in personal appliances. When rightly deployed, it is said that more technology results in less work, transformation of business processes and increased employee productivity. Digital power is the resultant effect of growth in the technologies relating to computers, communication, storage and content. The following extracts from research studies show the enormous growth of ICT components:• Moore’s law predicted 50 years

back that computing power will double every 18 months and this has so far proven to be right and is expected to continue.

• Fibre (communication cable) is doubling every nine months.

• Traffic on the world’s networks has been nearly doubling every two years.

• Mobile data traffic is roughly doubling every year.

• Storage capacity is doubling every year.

• Content for the known Internet - the Internet excluding the Deep Web is growing by more than 10 million new, static pages each day.

Mobile ComputingMobile computing is enabled by use of mobile devices (portable and hand held computing devices) such as PDA, laptops, mobile phones, MP3 players, digital cameras, tablet PC and Palmtops on a wireless network. Mobile technology is at the forefront of the digital revolution and its usage is no longer optional but imperative to remain productive in an increasingly connected world. In the near future, going to work could include flexible locations and schedules that suit individual

professional needs and personal lifestyles leading to a reinvention of the workplace. It is predicted that emerging Internet cloud and mobile technologies will increasingly shift work lives away from the corporate office altogether and towards an in-my-own-place and on-my-own-time work regimen. It is predicted that smart phones, tablets and other mobile computing devices will become the go-to-computing devices for most of the world.

Growth of Mobile DevicesResearchers foresee shift to mobile computing devices and include mobile computing as one of the top 10 strategic technologies for 2011. It is estimated that more than 1.2 billion people carry handsets capable of rich, mobile commerce providing an ideal environment for the convergence of mobility and the Web. Mobile devices are becoming computers in their own right, with high processing ability and bandwidth. The Mobile devices available in the market now have enough processing power and storage capacity for software vendors to make some reasonably good applications for them. One of the factors contributing to this growth is the development of processors by chip makers that look like the PC processors of earlier years with the potential to create an environment on smart phones which support an enormous pool of PC applications. The importance of Mobile devices can be understood from these surveys by AICPA:1. “Control and Use of Mobile Devices”

ranks No. 1 in the list of 2011 Top Ten Technology Initiatives

2. “Control and Use of Mobile Devices” ranks No. 2 in the list of top issues identified by CPAs in Public Accounting in the Top Technology Initiatives for Business & Industry.

3. “Remote Access” ranks No. 3 in

2011 Top Technology Initiatives for Public Accounting

4. “Mobile Technology” ranks No. 8 in the Top 10 Technologies to watch in 2011

Mobile Devices/Mobile TechnologyMobile technology has inherent communication capabilities which facilitate use of wireless networks to communicate via phone, e-mail and text. Mobile technology refers to a large range of mobile devices such as: full-featured mobile phones with personal computer-like functionality, or “smart phones”, laptop, notebook and tablet computers, portable digital assistants (PDAs), portable universal serial bus (USB) devices for storage (such as “thumb drives” and MP3 devices) and for connectivity (such as Wi-Fi, Bluetooth and modem cards), digital cameras, radio frequency identification (RFID) and mobile RFID (M-RFID) devices for data storage, identification and asset management, infrared-enabled (IrDA) devices such as printers and smart cards. BenefitsMobile technology is changing the way business processes are performed and services are rendered by enterprises and individuals. It enables enterprises to scale up their process efficiency and also instantaneously customise specific services used by customers, suppliers and employees which are capable of being individually identified and located through their mobile devices. Mobile devices enable authorised users to access and update information as required anytime, anywhere, anyhow based on the access rules defined, on an online and real-time basis thus enhancing employee productivity and enterprise services. Some of the benefits of mobile technology are: increase in workforce productivity, better customer service, employee satisfaction, etc.

TECH FOR YOU

Mobile Computing: Concepts, Challenges and Opportunities for Chartered Accountants1

1 Contributed by CA A. Rafeq (The Author is a member of the Institute. He can be reached at [email protected].)

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TECH FOR YOU


Most of the high-end and medium ERP and business software applications have in-built capabilities of mobile computing. Risk ManagementAs with every technology, mobile devices offer enterprises considerable benefits primarily on account of portability and location free access. However, these benefits also have inherent risks and these need to be mitigated by implementing appropriate controls. Mobile devices may contain an enterprise’s sensitive information, data obtained from business/customer applications, customer information which is private, corporate e-mails, and documents. The mobile computing devices may be used to provide input to business applications on wireless networks which can impact enterprise data on a real-time basis.

Some of the business risks are given below: • Loss or theft of enterprise

information/asset due to virus attacks or malware.

• Exposure due to information interception through wireless sniffers/intrusion resulting in a loss or breach of sensitive data, privacy impacting enterprise reputation and legal implications.

• Propagation of malware resulting in data leakage, data corruption and non-availability of required data.

• Physical damage to devices, data corruption, data leakage, interception of calls and possible exposure of sensitive information.

• Possibility of fraud through remote access and inability to prevent/detect it.

• Copying of critical enterprise information by hackers using remote access.

• Lost devices or unauthorised access to unsecured devices allowing exposure of sensitive data, resulting in loss to the enterprise, customers or employees

Risk Mitigation Strategy The risk mitigation strategy should be holistic and derived from the overall enterprise risk strategy. It is advisable to use best practices from standard frameworks as appropriate. The overall approach should consider the risks of mobile technology and commit

resources to take decisive actions that will control their vulnerabilities. Risk register should be prepared with detailed inventory of high-value data, relevant risks and related counter-measures to be implemented to mitigate these risks. Mobile computing security policy should be implemented covering all mobile devices used in the enterprise. The policy should include security procedures covering appropriate physical and logical aspects. The access policy for mobile devices should define user rights, type of information, and kind of devices and information services that may be accessible through the devices. Specific controls for mitigating each of the identified risks need to be implemented as required. These could be relating to implementing: anti-virus software on regular basis, classification and protection of data, secure transmission of data, asset management policy, user training, user accountability, performance management and monitoring.

Opportunities for Chartered Accountants

As with any technology, Chartered accountants need to understand mobile computing technology from three perspectives:A. Using Mobile computing within a

CA firm.B. Provide consulting services on

mobile computing for clients.C. Provide assurance services on

mobile computing for clients.

A. Using Mobile computing in CA firm:Mobile computing can be used by Chartered Accountants in their own offices for enhancing overall efficiency and effectiveness of services rendered by the firm. However, implementation has to be based on the overall IT strategic plan of the firm and should take into consideration the current technology deployed, organisation structure, technical competency of the staff, services offered currently and planned in the future, client profile, usage of technology by clients, cost benefit analysis, etc. A detailed project plan with specific milestones and timelines has to be prepared and implemented considering all the above factors rather than just buying mobile devices with connectivity.

B. Consulting on mobile technology implementation:1. Business strategy/business

process transformation.2. Risk Assessment, risk mitigating

strategy and security at different layers of technology.

3. Designing security policy for the enterprise.

4. Access controls at different layers of technology and for devices/employees.

5. Application and business process controls to be implemented.

6. Training to users on risks, security and controls.

C. Assurance services on Mobile technology implementation:1. Information systems audit of all/any

aspect of security policy, business continuity, environmental access, physical access, logical access and application security.

2. Compliance with enterprise policies, procedures, standards and practices as relevant

3. Physical verification or confirmation of usage of mobile devices.

4. Compliance with regulations as applicable.

5. Network security, Database security and Penetration testing as required.

ConclusionMobile technology can lead to transformation of business processes and how customers are serviced by leveraging the two key advantages of location independence and personalisation. There will a drastic increase in use of mobile computing by enterprises. Every technology offers immense benefits but has inherent risks. Chartered Accountants with good understanding of security, risks and controls of mobile computing can not only use it within their firm to enhance overall effectiveness of deliverables but they can also offer consulting/assurance services as required by their clients. However, required competence and skill sets need to be identified and enhanced as required. Mobile computing implementation has generic aspects which Chartered accountants are already conversant with but there may also be technical skills which need to be acquired internally or added by using help of technology experts.n

627

UDIN


scheme is available at the link http://www.icai.org/uidUDIN is a maximum 32 character Unique Document

Identification Number which will be issued to every document certified/attested by a Chartered Accountant and registered with the Institute of Chartered Accountants of India (ICAI). Step 1: Practicing Chartered Accountants can visit

the link: www.icai.org/uid?mode=login and get themselves registered

Step 2: For initial registration, please click on “For first time sign up, click here”; on submission of member’s details as regards to Membership No., date of birth and date of enrolment as a member, a registration password will be generated which will

UNIQUE DOCUMENT IDENTIFICATION Way to Authenticate Attested Documents

T ime and again, various authorities across the country have reposed their faith in chartered accountants as professionals realising the

work of their attributes like Integrity, Excellence and Independence. Based on the same, they are relying on various certifications being issued by chartered accountants in practice in the normal course of business. They look up to Chartered Accountants as reliable source of authentic information and to ensure compliance with various rules, regulations and procedures stipulated under different statutes.

However, many instances have been brought to our attention wherein financial statements and certificates issued either by non members or members not holding Certificate of Practice have been relied upon by authorities as true statements and certificates. It needs no reiteration that a certificate issued by a practicing chartered accountant binds him to its accuracy and subject him to Disciplinary Proceedings of the Institute, in case a complaint in that regard is filed with the Institute by the concerned authorities (or any affected party).

To ensure the authenticity of various statements and documents being certified/attested by Chartered Accountants, ICAI has introduced the new concept of Unique Document Identification Number. The said

628

UDIN


yyyy) when certificate is issued. Document can be registered and UDIN can be generated within 30 days of being issued only.

▪ Firm Registration Number: It is the number on whose behalf you are issuing this report or document. You should be an active partner of this firm. Even a sole practitioner can generate UDIN with membership number.

▪ Narration: Narration is a brief description for this report or document.

The (maximum) 32 Characters UDIN so generated is ready for registration.

2. List and search certificates: You can select this option to view and search already added certificates. These reports and certificates can be searched through various criteria like UDIN, Client Code, Type of report or document, Date of Issue, FRN or Firm Registration Number, Check Digits and Status. You can select Search Type "Match All" to filter list according to all matching input criteria or you can also select Search Type "Match Any" to filter list according to any matching input criteria.

3. Change Password: You can set a new password for your MyICAI login activities.

4. Log Out: You can click logout, if you wish to leave this application. Please note, you will be automatically logged out after 5 minutes of non activity.

Q2. Is UDIN necessarily to be registered for the search?A. Only after registration UDIN will be available for search by the end user.

Q3. What are the key values to be entered?A. Key values can be any financial figure extracted from attested statement or certificate such as balance in

be sent by the system to the e-mail ID provided and also to the mobile number registered with the ICAI. On non-receipt of the password, please get in touch with the respective regional office for data correction. The board numbers are: CRO: (0512) 3989398 ([email protected]), ERO: (033) 39893989 ([email protected]), NRO (011) 39893990 ([email protected]), WRO: (022) 39893989 ([email protected]), SRO (044) 39893989 ([email protected]). To reset the password, please make use of the same link.

Q1. What are the facilities available in the said module?A. In the said module, one can add a certificate, list and search already added certificates, change password or logout: 1. Add a certificate: The Add certificate option

provides an algorithm, using which a member can generate the 30 digit UDIN so the same can be indicated on the certification done by the member. Algorithm so used comprise of:▪ Client Code: This is a 5 characters client code

for your internal reference. You are free to use any combination of alphabets and characters here.

▪ Type of Certificate: This is a document type that you intend to add in the system. If you do not find a suitable document type, you can select "Any other report or document". Please note that you must specify other type of report or document.

▪ Date of Issue: This will be the date (dd/mm/

629

UDIN


general reserve, balance in building account, printing and stationery expenses, sales, etc. Please enter key values while registering the UDIN, this is compulsory. When UDIN is registered, the User would enter the given Key values (minimum two and maximum five) which are found in the document or certificate issued.

Q4. What is the link to cross check whether the certificate number so indicated is valid or not?A. The link to cross check the certificate numbers so generated is http://www.icai.org/searchudin.html

When key values are provided then the system displays the details with the key values entered when the UDIN was registered.

Q5. Whether UDIN is mandatory for the Members of ICAI for each certification done?A. No. Using this facility is optional for the time being. But ICAI is mulling to make the same compulsory in due course. The objective is to curb the menace of probable fake or forged documents.

Q6. Shall I change the password after I login?A. The passwords generated at the end of the ICAI is in encrypted format so proper safety is ensured. However, in your own interest, you may change the password any time.

Q7. What the Add Certificate option does?A. The Add certificate option provides an algorithm using the same one can generate the 30 digit UDIN so the same can be indicated on the certifications done by the ICAI Members. Using UDIN, the user of Certificate can cross check whether the certificate is authentic or not.

Q8. Can a Certificate number once issued can be revoked?A. The Certificate number once generated can be withdrawn with narration and hence if any user searches for this certificate number appropriate narration indicated by the ICAI Member will be displayed for reference.

Q9. Whether one can see the various certificate numbers generated?A. Yes one can see and search the various certificate

numbers generated using the search option with the dashboard.

Q10. How to reach the Central IT Department in case of any issue?A. You may reach to the Central IT Department at (0120) 3045912 or [email protected].

For registration of the UDIN, there will be time limit of 30 days. If UDIN is not registered after generation, an alert SMS, MAIL would be auto sent by 10th, 20th and 25th day.

Why UDIN?▪ Once the practicing Chartered Accountants are on UDIN database, it will enable them to establish the authenticity of the documents certified by them.▪ It will help in tracing fake or forged documents prepared by any person in the

name of any Chartered Accountants as that person will not be able to upload the documents to this portal.

▪ The UDIN will consequently form the basic, universal identity for the document certified by CAs and filed with various authorities such as ROC, Income Tax Department, Sales Tax Department, excise department, banks, financial institutions, etc. It will ensure increased transparency, trust among all the concerned stakeholders.

▪ UDIN will make certified/attested documents easily verifiable on ICAI website in a cost-effective way by making them available online.

▪ It will help in bringing more accountability as well as transparency and also help the regulators and other stakeholders to check the authenticity of the document used.

▪ Chartered Accountants will be required to upload the key values (minimum two and maximum five) at ICAI website in one month time.

▪ It will be Unique and robust enough to eliminate the large number of duplicate, fake and forged Financial Documents shown before various authorities. n

630

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ICAI NEWS


The Committee on Public Finance & Government Accounting of The Institute of Chartered Accountants of India is regularly coming up with its E-Newsletter -‘Prudence’ featuring various articles on economic issues and measures on bi-monthly basis. The August-September 2011 issue of the E-Newsletter is available at the URL http://www.icai.org/new_post.html?post_id=3825&c_id=241.

The Committee invites experts, researchers and writers to contribute articles in different areas of Public Finance and Government Accounting preferably on Public Debt, Public Expenditure, Fiscal Policy, Monetary Policy, Accounting Reforms, Accrual Accounting, Accounting for Intangible Assets and Restructuring of Chart of Accounts in Accrual System in Public Sector for publication in the October-November 2011 issue of its E-newsletter. If the article is published, a token honorarium of R2000/- per article shall be paid. Discretion of the Committee regarding publication /non-publication of the article shall be final and abiding therewith under copyright of the Committee.

Material of this E-Newsletter may not be reproduced, whether in part or in whole, without the consent of Editorial Board of Committee. Authors may only submit original work that has not been appeared elsewhere in any publication.

The articles (500 to 700 words) may be sent to us in the form of soft copy through mail/CD or in printed format through post giving details of the subject matter.

Those desirous may please contact at the following address:

The Secretary Committee on Public Finance and Government

Accounting The Institute of Chartered Accountants of India ‘ICAI Bhawan’, A-29, Sector-62, Noida- 201 309 Phone: 0120-3045950(O) Email: [email protected]

Committee on Public Finance & Government AccountingInvitation to Contribute Articles for E-Newsletter - ‘Prudence’

The Peer Review Board has revised the notification cost to be paid by the Practice Unit to the Peer Reviewer for conducting the Peer Review. The revised cost is as follows :-

Notification No: PRB/Notfn./008/11-12, issued on: August 2011

In exercise of power vested in the Peer Review Board by the Statement on Peer Review, the Board hereby notifies that the cost of Peer Review for Stages-I, II, III, including honorarium and TA/DA for reviewer and his qualified assistant, shall be as under:

In terms of the existing guidelines, an audit firm can take up statutory central audit of one PSB, four private sector banks and four foreign banks simultaneously each year. The policy has been reviewed and it has been decided that an audit firm which takes up statutory central audit

Total Revenue from Attestation service clients of practice unit (Per Annum)

Cost

Less than R10 lakh p.a. R15,000/-

From R10 lakh to 50 lakh p.a. R25,000/-

From R50 lakh to 1 crore p.a. R40,000/-

From R1 crore to 3 crore p.a. R60,000/-

From R3 crore to 5 crore p.a. R75,000/-

Above R5 crore p.a. R1,00,000/-

assignment in private and foreign banks will not qualify to take up statutory audit in public sector banks during that particular year. The revised guidelines will come into effect from the year 2012-2013.

Announcement - Peer Review Board

Statutory audit of public sector and private/foreign banks simultaneously

632

ICAI NEWS


The Committee for Capacity Building of CA Firms and Small & Medium Practitioners (CCBCAF & SMP) of ICAI has arranged a MCA-21 Compliance Software namely ICAI-ROC, for members in practice and CA firms. ICAI-ROC software was launched on 1st July, 2011 by Honourable CA. K. Rahman Khan, Deputy Chairman of Rajya Sabha, Parliament of India.

Salient FeaturesThe ICAI-ROC software provides a complete package to manage secretarial requirements & generates forms as per MCA21 Requirements. It provides the facility to prepare Auto filing of e-Forms, Shares Records/Certificates, Meetings and Minutes, Resolutions/Drafting, Annual Return forms and maintenance of Registers and Reports etc.

▪ Generates Forms as per MCA 21 Requirement▪ Picks Up Data Directly From MCA Site▪ Predrafted Resolutions▪ Maintains Minute Book▪ Calculation of Filing Fees▪ Preparation of Memorandum and Articles▪ Complete Shareholder Management▪ Consolidation/Splitting of Share Certificates▪ Share Certificate Printing▪ Annual Return Preparation in Minutes▪ Preparation of Statutory Registers▪ Mortgage and Charges Management▪ Manages Unlimited Companies

ICAI- ROCA MCA-21 Compliance software for Members in practice and CA Firms of ICAI...An Initiative of the Committee for Capacity Building of CA Firms and Small & Medium Practitioners, ICAI...

An Overview of the arrangement of ICAI-ROC1. About the arrangementi) The ICAI-ROC will be provided initial license for free of

cost for two years.Description of the Software Offer to Members in Practice & CA

Firms

ICAI-ROC Free

ii) The license renewal charges will be Rs. 1,500/- after 30th September, 2013. Statutory taxes on License Renewal shall be extra as applicable.

2. Downloading the SoftwareThe ICAI-ROC Software may be downloaded free of cost from the website of Committee for Capacity Building of CA Firms and Small & Medium Practitioners, www.icai.org.in on request by members.

3. Support on use of Software The MDA Softwares Ltd. will provide technical support to the users and renewed customers via Phone, Email and Remote PC access from the date of registering the license.

E-Mail: [email protected] Phone No.-09621813973, 09621387418

ChairmanThe Committee for Capacity Building of CA Firms and

Small & Medium Practitioners, ICAI

The Committee for Capacity Building of CA Firms and Small & Medium Practitioners (CCBCAF & SMP) of ICAI has launched its exclusive website www.icai.org.in for members in practice and CA firms. The website www.icai.org.in was launched on 1st July, 2011 by Honourable Shri R.P.N. Singh, Minister of State of Corporate Affairs, Government of India.

▪ Creating Firm’s Website: In the website www.icai.org.in, the Firms and Practitioners may create their websites as per the norms laid down by the Council of the Institute of Chartered Accountants of India. The website provides a platform for the CA Firms to upload their firms’ details and gives them an opportunity to reach out to the members and CA firms practicing worldwide.

www.icai.org.inA Exclusive Website for Members in practice and CA Firms of ICAI...An Initiative of the Committee for Capacity Building of CA Firms and Small & Medium Practitioners, ICAI...

▪ Knowledge Resources: The website has various downloadable software useful for office management and efficient documentation for the members and CA firms. The website includes e-library facility containing various Knowledge resources such as Guidance Notes, Accounting Standards, Publications, Expert Advisory Opinions etc. for easy reference by the practitioners. This will be helpful in enhancing the knowledge base of the members and CA Firms.

▪ Code of Ethics: The website also contains the Code of Ethics issued by the Council of the Institute of Chartered Accountants of India so that members may be aware of the ethical standards and ensure ethical compliance while rendering their services.

▪ Minimum Recommended Scale of Fees: The website contains Minimum Recommended Scale of Fees for the Professional Assignments done by

633

ICAI NEWS


the Chartered Accountants, which is about the fee as per the work performed for various professional assignments and the amount quoted under respective heads of professional work for Metro and Non Metro cities separately.

▪ Forum for Consolidation: The website also acts as a forum for consolidation of the members and CA Firms by providing for consolidation measures like Networking, Merger and Corporate Form of Practice. The members may visit portals of other members and firms and like-minded persons may join hands to grow big to compete in the international front. The website also contains a Discussion Forum wherein the members may share their knowledge and experience gained through their practice.

▪ Discussion Forum: The website also contains a Discussion Forum wherein the members may share their knowledge and experience gained through their practice.

▪ Awareness through Website: The Committee has initiated various measures to strengthen and enhance the portfolio of members and CA Firms and awareness on such measures is being created through this website so that the Practitioners may be benefitted by such endeavors of the Committee.

Chairman,The Committee for Capacity Building of

CA Firms and Small & Medium Practitioners, ICAI

ICAI- Tax SuiteA Tax Compliance software for Members in practice and CA Firms of ICAI...An Initiative of the Committee for Capacity Building of CA Firms and Small & Medium Practitioners, ICAI...

The Committee for Capacity Building of CA Firms and Small & Medium Practitioners (CCBCAF & SMP) of ICAI has arranged a Tax Compliance Software namely ICAI- Tax Suite for members in practice and CA firms. The ICAI- Tax Suite software was launched on 1st July, 2011 by Honourable CA. K. Rahman Khan, Deputy Chairman of Rajya Sabha, Parliament of India.

Salient Features of ICAI- TAX SuiteICAI- Tax Suite is a comprehensive package that combines features of Income Tax, Audit Reports, Service Tax, e-TDS, e-AIR, CMA/Project Report, Form manager software and Document manager.

1. Physical ITR Forms (ITR 1 to ITR 7 Including Form Sahaj and Sugam (As per Department Print Specification) and Return Form BA (Wealth Tax)

2. XML File ITR 1 to ITR 6 according to schema provided by the Income Tax Department and Upload of XML

File directly from Software without browsing Income Tax Portal manually

3. Computation of Total Income, thereof Tax and Computation Summary along-with comparison of previous assessment year

4. Option to manage the sequence of Set Off of current year losses and unabsorbed depreciation.

5. Tax details import from 26AS.6. Import from excel is available for various inputs7. Comparison of Financial Ratios of Current and

Previous Assessment years8. Tax Audit Reports, Company Audit reports, Trial

Balance import from Tally, Busy and Excel.9. Facility to prepare Quarterly, Annual TDS Returns, for

form No. 24Q, 26Q, 27Q and 27EQ and correction returns also.

10. Generation of TDS Certificates Form 16/16A/27D.

11. Error locator in TDS.12. Online TAN Registration, e-Payment, Challan

verification and CSI File download.13. Option to Import New Deductee entries in TDS

correction returns.14. Bulk TDS data Import from Excel /TDS /FVU file.15. Generation of various MIS Reports for Income Tax

and TDS Returns.16. Preparation of Form ST-1, ST-3 and e-Filing of ST-1,

ST-3, GAR 7 Challan & Online Payment and Refund Form R.

17. Enable Client wise documents management for easy listing, storing.

18. Preparation of CMA Project Report with relevant ratios.

19. Preparation of CMA data and calculation of MPBF as per Tandon and Nayak Committee.

20. Approximately 1000 Blank forms and filled forms with Circulars & Notification of Income Tax

21. Facility to Prepare Annual Information Return and e- Filing thereof (with correction statement).

Features of the Arrangement▪ ICAI- Tax Suite to CA Members holding COP and

Practicing Firms: ICAI- Tax Suite will provide initial license free of cost with first two years activation for CA members holding COP and Practicing Firms as per the following table:

ICAI-Tax Suite

Income Tax/ Service Tax

Balance Sheet/ AIR

TDS

1st Year Activation

A. Y. 2011-2012 F.Y. 2010-2011 A.Y. 2012-2013

2nd Year Activation

A. Y. 2012-2013 F.Y. 2011-2012 A.Y. 2013-2014

▪ For activation of assessment year immediately next to initial free license, license renewal charges would be Rs2,100/-. Software capacity to accommodate 700

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ICAI NEWS


returns would be increased to 1000 returns for each assessment year/ financial year.

▪ Downloading the software The software may be downloaded free of cost from the

exclusive website of Committee for Capacity Building of CA Firms and Small & Medium Practitioners (http://www.icai.org.in)

▪ Technical Support for software KDK Software(I) Pvt. Ltd. will provide the technical

support to users and renewed customers via phone,

email and remote PC access from the date of registering the license.

Phone: (0141) - 4123456Email: [email protected]

ChairmanThe Committee for Capacity Building of

CA Firms and Small & Medium Practitioners, ICAI

ICAI CARES FOR YOU!CABF Group Term Insurance Scheme for Chartered Accountants and Spouse

CABF OF ICAI has tied up with the Life Insurance Corporation of India for a special scheme for insuring the Life of its members and their spouse. The scheme is effective w.e.f. 1.1.2007 and open for all the members of the Institute.The salient highlights of the scheme are as under:▪ Offering a High Insurance Cover of R10 lacs per

member.▪ A provision for spouse for insurance cover of R5

lacs.▪ A unique SINGLE PREMIUM approach to the

scheme.▪ No EVIDENCE OF HEALTH OR MEDICAL

UNDERWRITING REQUIREMENTS – For member as well as for Spouse

▪ Highly Competitive Premium Rates specially for ICAI members.

▪ 24 Hrs. Comprehensive, Global Death Risk cover without any Pre conditions. The amount of cover can be increased up to double in case of death due to Accident.

▪ FULL PREMIUM RETURN OFFER in case of Normal Death within Lien Period

▪ Easy administration of insurance premium payment and claim settlement through CABF.

Details of the Scheme are as underS.No Particulars Terms1) Age at entry 18-60 years2) Validity Period of

Life CoverThree years

3) Type of Cover 24 hour Comprehensive Global risk cover for the period of insurance from date of commencement which also includes death due to accident

4) Sum Assured R10 lacs5) Mode of

PremiumSingle Premium payable for Three Years

6) Single premium to be paid in case of Members for the sum assured of R10 lacs for a term of 3 years

Age [Completed Years]

Total Amount R

18-30 439031-35 470036-40 624041-45 789046-50 1181051-55 1988056-60 29160

7) Single premium to be paid in case of spouse for the sum assured of R5 lac for a term of 3 years

18-30 219531-35 235036-40 312041-45 394546-50 590551-55 994056-60 14580

(*This scheme includes an Accidental death cover in addition to the life cover. This cover will, in case a member dies through an accident, provide additional cover to the extent of R10,00,000/- and in case of spouse of R5,00,000/-).

Special ConditionsLien : The assurances granted under the scheme are subject to a lien clause. No claim is admissible for deaths during the first 45 days from the entry date, except for cases of death due to accident. However, in case of a Normal Death, taking place during the Lien Period, PREMIUMS charged on the life of the deceased Member shall be refunded in full.

Special BenefitsInsurance cover for : Will be considered to theMember’s Spouse : extent of 50% i.e. up to R5,00,000/- Premium for Spouse to be charged as per Spouse’s age

Evidence of Health: No medical examination nor any self-declaration of health is required.

1. The Scheme has been established and shall be administered with the P&GS Delhi Division I Office of LIC at New Delhi.

2. All matters relating to the Scheme including settlement of claim etc shall be looked after by the said office in New Delhi.

3. The period of 3 years & the lien period of 45 days will reckon from the date of entry in the scheme.

4. CABF will forward premium received from members to LIC. The date for the lien period & 3 years insurance scheme will start from the date of receiving premium by LIC subject to realisation of cheque.

5. The updation of members’ list will be done on quarterly basis. For renewal of scheme members are required to forward the due premium to CABF in one month

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ICAI NEWS


Committee on Financial Markets and Investors’ Protection Invitation for Empanelment of Resource Persons for Investor Awareness Programmes

The Committee on Financial Markets and Investor’s Protection (CFM&IP) is one of the Non-Standing Committees of the Institute. The functions of the Committee include spreading awareness among the investor about their rights and responsibilities besides preparing suggestions on various Regulations/Circulars relating to Financial Markets for submission to the Government/Regulators.

We are pleased and proud to state that the Institute of Chartered Accountants of India has been designated as the nodal authority by the Ministry of Corporate Affairs, Government of India to organise 4000 Investor Awareness Programmes across India through the Institute’s vast network of Regional Councils and Branches during the year 2011-2012.

The Committee invites proposals from Chartered Accountants, Bankers, Capital Market experts, MBAs, professors and teachers having a flair of capital market and public speaking skills for acting as Resource Persons for conducting the aforesaid programmes. The resource persons have to plan and organise such programmes

of two hours duration in small towns (other than district headquarters) at their own initiative. Arranging venue, assembling at least 50 participants per programme and disseminating financial literacy will be their key responsibilities. For this, MCA will pay a lump sum amount of R5,000/- per programme inclusive of TA/DA and honorarium of the Resource Person.

Interested persons are requested to send their detailed profile along with name of the towns where they can conduct programmes to the following address:

The Chairman,Committee on Financial Markets and Investors’ ProtectionThe Institute of Chartered Accountants of India,A-29, Sector 62Noida--201309Ph: 09350799912, 0120-3045905/945E-Mail: [email protected]

The students of Integrated Professional Competence Course [Paper 7 - Section B – Strategic Management] and Professional Competence Course [Paper 6 - Section B – Strategic Management] may note that there will be no Case Study (carrying 15 marks) in the examinations.

Instead of the Case Study a compulsory question

containing five sub-divisions carrying three marks each would be included to cover maximum possible topics from the syllabus.

The new pattern of the question paper shall be applicable from November, 2011 examinations.

Director, Board of Studies

Integrated Professional Competence Examination [Paper 7 - Section B] and ProfessionalCompetence Examination [Paper 6 - Section B]

Strategic Management

advance.6. The members may apply for the life insurance by

giving the following details along with the premium in duplicate :

*a) Name b) Address, Contact details such as Phone No, Email & Fax no. etc c) Membership no. of ICAI d) Date of Birth e) Age f) Name of Nominee g) Name of spouse h) Date of Birth of spouse i) Age of spouse j) Name of Nominee (in case of spouse)

Basic sum assured PremiumSelfSpouse Yes/No(* a sample format is given on icai website at www.icai.org alongwith disablement)

Example : A member aged 36 years with a spouse of 32 years decides to opt for insurance along with double accidental coverage for both. The total premium would be calculated as under :Self - Premium - R6240/-Spouse - Premium - R2350/-

7. Demand Draft needs to be drawn in favour of

“CABF – Insurance Scheme” and forwarded to The Institute of Chartered Accountants of India, ICAI Bhawan, Post Box No. 7100, Indraprastha Marg, New Delhi – 110 002.

8. On receiving premium by CABF at ICAI, New Delhi, copy of Master Policy covering the name of the member will be sent subsequently.

9. This is a group policy. Acknowledgement of pr-emium will be issued by ICAI.

10. For any clarification with regard to the scheme may please write to :

Sr.Branch ManagerLIC of IndiaP&GS Department,Delhi Divisional Office- I”6th Floor,Jeevan Prakash”25 K.G.Marg,New Delhi,Pin Code-110001

Members are urged to avail of this unique offer specially brought for the members of the Institute and their spouses.

636

EVENTS


Training Programme on “An insight on the concepts applicable to Autonomous Bodies”

CPE

Hours

12

Date 3rd & 4th October 2011 (Monday & Tuesday)

VenueAhmedabad Branch of WIRC of ICAI

‘ICAI Bhawan’, 123, Sardar Patel Colony, Near Usmanpura Under Bridge, P.O. Navjivan, (Behind

Swastik School), Naranpura, Ahemdabad-380 014Organised by

Committee on Public Finance & Government AccountingTheme

With ever increasing outlays of the Government and changes & complexities introduced in the system of public service delivery, the task of audit has become not only more extensive but also more onerous. This Training Programme is primarily intended for enhancing the quality of financial reporting in Autonomous Bodies and to help the organisations to prepare their financial statements within the stipulated time.

Day 1-Monday, 3rd October 20119.00 a.m. to 11.00 a.m.

Registration of Participants and Inaugural Session

Technical Session I- 11.15 a.m. to 12:45 p.m.

Basic principles of Accounts such as principle of accrual accounting, dual concept, going concern concept and consistency concept

Technical Session II-1:45 p.m. to 3:15 p.m.

Uniform Format Linked with accrual basis, dual concept, going concern concept and consistency concept

Technical Session III- 3:30 p.m. to 5:00 p.m.


Day 2-Tuesday, 4th October 2011Technical Session I- 9.30 a.m. to 11.00 a.m.

Internal Control

Technical Session II-11.15 a.m. to 12:45 p.m.

Practical Problems related to preparation of annual accounts of Autonomous Bodies

Technical Session III-1:45 p.m. to 3:15 p.m.

Accounting Standards – An overview – AS 1, 4,5,10,6

Technical Session IV-3:30 p.m. to 5:00 p.m.

Accounting Standards: 9, 12, 13, 15, 21, 29 and Introduction of IFRS

Registration Fees: R1500/- per ParticipantDD/Pay order/Cheque should be drawn in favour of “Ahmedeabad Branch of WIRC of ICAI” payable at Ahmedabad and sent to Ahmedabad Branch of ICAI, “ICAI Bhawan”, 123 Sardar Patel Colony, Nr. Usmanpura Underbridge, PO. Navjivan, Ahmedabad – 380014. Please mention your name, membership number and contact details at the back of the cheque/demand draft.Please contact: Ahmedabad Branch on Phone no (79) 27680946, 27680537.

Registration on First Come, First Serve Basis.

Programme ChairmanCA. Anuj Goyal, ChairmanCommittee on Public Finance & Government Accounting, ICAI

Programme DirectorCA. Mahesh P Sarda, Central Council Member, ICAI

Programme ConvenerCA. Devang A. Doctor, Chairman, Ahemdabad Branch of WIRC of ICAI

For further details & information, please contact:Secretary, Committee on Public Finance & Government Accounting, Phone: (0120) 3045950, 3045968, E-mail: [email protected], Website: www.icai.org

Workshop on Capacity Building Measures of Practitioners & CA Firms

CPE

Hours

6

Date 15th October, 2011

Venue2nd Floor, Saifee Building, Dutch Road, Nanpura, Surat

Organised byCommitte for Capacity Building of CA Firms and Small &

Medium Practitioners, ICAI Hosted By

Surat Branch of WIRC of ICAI 9.30 a.m. to 10.30 a.m. - Registration of Participants and

Inaugural sessionSession- I [10.30 a.m. to 12.00 p.m.]

Capacity building measures : Networking, Merger & Corporate form of practice

Session-II [12.00 p.m. to 1.30 p.m.]

Emerging opportunities for practice development & office management for Chartered Accountants

Session-III [2.30 p.m. to 4.00 p.m.]

Code of ethics – Emerging issues

Session-IV [4.00 p.m. to 5.30 p.m.]

Effective use of presentation skills as a part of business

Registration Fees: R400/- per participantCheque/DD should be Drawn in Favour of “Surat Branch

of WIRC of ICAI” and sent to Surat Branch of WIRC of ICAI,

2nd Floor, Saifee Building, Dutch Road, Nanpura, Surat

Phone: 0261- 2472932; 2464413 E-mail: [email protected] confirmation of registration is required.

Programme Chairman Programme Coordinator

CA Vijay Kumar Garg Chairman Committee for Capacity Building of CA Firms and Small & Medium Practitioners, ICAIEmail: [email protected]: 9414041872 (M)

CA. Harishankar TosniwalChairmanSurat Branch of WIRC of ICAIPhone: 9327140497, 9925532000Email: [email protected]

For Registration & Information, contact details: CA. Nishith Mehta, Secretary, Surat Branch of WIRC of ICAI, Email: [email protected], Phone: 09099050888

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EVENTS


Training Programme on “An insight on the concepts applicable to Autonomous Bodies”

CPE

Hours

12

Date13th & 14th October 2011 (Thursday & Friday)

VenueBangalore Branch of SIRC of ICAI

‘ICAI Bhawan’ 16/0, Millers Tank Bed Area, Bangalore-560 052

Organised byCommittee on Public Finance & Government Accounting

ThemeWith ever increasing outlays of the Government and changes & complexities introduced in the system of public service delivery, the task of audit has become not only more extensive but also more onerous. This Training Programme is primarily intended for enhancing the quality of financial reporting in Autonomous Bodies and to help the organisations to prepare their financial statements within the stipulated time.

Day 1-Thursday, 13th October 20119.00 a.m. to 11.00 a.m.

Registration of Participants and Inaugural Session

Technical Session I- 11.15 a.m. to 12:45 p.m.

Basic principles of Accounts such as principle of accrual accounting, dual concept, going concern concept and consistency concept

Technical Session II-1:45 p.m. to 3:15 p.m.


Technical Session III- 3:30 p.m. to 5:00 p.m.


Day 2-Friday, 14th October 2011Technical Session I- 9.30 a.m. to 11.00 a.m.

Internal Control

Technical Session II-11.15 a.m. to 12:45 p.m.

Practical Problems related to preparation of annual accounts of Autonomous Bodies

Technical Session III-1:45 p.m. to 3:15 p.m.

Accounting Standards – An overview – AS 1, 4,5,10,6

Technical Session IV-3:30 p.m. to 5:00 p.m.

Accounting Standards: 9, 12, 13, 15, 21, 29 and Introduction of IFRS

Registration Fees: R1500/- per ParticipantDD/Pay order/Cheque should be drawn in favour of Bangalore Branch of SIRC of ICAI payable at Bangalore. Please mention your name, membership number and contact details at the back of the cheque/demand draft.Please contact: Phone no. 080-30563500/513 email: [email protected] for registration.

Registration on First Come, First Serve Basis, Restricted to 200 Members.

Date 15th October, 2011

VenueHotel rang Inn, Nr. ABC Crossing, Dahej By Pass Road,

Bharuch-392002Organised by

Committe for Capacity Building of CA Firms and Small & Medium Practitioners, ICAI

Hosted By Bharuch Branch of WIRC of ICAI

9.30 a.m. to 10.30 a.m. - Registration of Participants and Inaugural session

Session- I 10.30 a.m. to 12.00 p.m.

XBRL-Introduction & Analysis

Session-II - 12.00 p.m. to 1.30 p.m.

E-filing under Company’s Act

Session-III - 2.30 p.m. to 4.00 p.m.

FEMA provisions and investment by NRI in Immoveable Properties

Session-IV - 4.00 p.m. to 5.30 p.m.

NRI Investment, Various Remittances and FEMA.

Registration Fees:- R750/- per participantCheque/DD should be Drawn in Favour of “Bharuch Branch of WIRC of ICAI” and sent to Bharuch Branch

of WIRC of ICAI, 104, First Floor, Vadilo-nu-ghar, Kasak Circle, Bharuch 392 002, Gujarat. Phone Nos:-2642-

246224. E-mail Id: [email protected]

Limited Seats, Registration on First Come First Serve Basis.

Advance confirmation of registration is required.Programme Chairman Programme Coordinator

CA Vijay Kumar Garg Chairman, Committee for Capacity Building of CA Firms and Small & Medium Practitioners, ICAIEmail: [email protected]: 9414041872 (M)

CA. Niraj Surti ChairmanBharuch Branch of WIRC of ICAIPhone: 9825327360Email: [email protected]

For Registration & Information, contact details: Secretary, CCBCAF&SMP Phone: 011-30110561 Email: [email protected]


CPE

Hours

6

Programme ChairmanCA. Anuj Goyal, ChairmanCommittee on Public Finance & Government Accounting, ICAI

Programme DirectorCA. K. Raghu, Central Council Member, ICAI

Programme ConvenerCA. Venkatesh Babu TRChairman, Bangalore Branch of SIRC of ICAI

For further details & information, please contact:Secretary, Committee on Public Finance & Government Accounting, Phone: (0120) 3045950, 3045968, E-mail: [email protected], Website: www.icai.org

638

EVENTS


NATIONAL RRC on CA Profession towards excellence through Capacity Building

CPE

Hours

15

Date 11th, 12th and 13th November 2011

VenueShree Balaji Seva Sadan, Salasar, Churu(Rajasthan)


Medium Practitioners, ICAI

Hosted By Jaipur Branch of CIRC of ICAI

11th November 2011- 12 p.m. to 2.30 p.m.- Registration of participants and Inaugural session

Chief GuestShri Namo Narain Meena, Union Minister of State for Finance

Session ChairmanCA Jaydeep N Shah, Vice President, ICAI

Day 1: 11th November, 2011Session- I (2.30 p.m. to 4.30 p.m.)

Critical issues in Direct TaxesSession Chairman : CA. S. C. Jain

Practical Issues in Income Tax - Dr Girish AhujaTaxation and accounting in Real estate transactions - CA Vijay Goyal

Session-II [4.45 p.m. to 6.45 p.m.]Panel Discussion on New Challenges in CA

ProfessionSession Chairman : CA Amarjit Chopra, Past President ,

ICAI• CA Satish Gupta• CA Ravi Raniwala• CA Prakash Sharma• CA Sudhir Bhansali

Day 2: 12th November, 2011Session-III [8.00 AM to 10.00 AM]Critical Issue in Indirect Taxes

Chairman: CA Ravindra Holani, Council Member, ICAIPractical issues in service tax - CA Ashok BatraCritical Issues in Rajasthan VAT - Shri K B Gupta

Session-IV [10.15 a.m. to 12.15 p.m.]Panel Discussion on Audit Documentations for SMPs

Chairman: CA Rajkumar Adukia, Central Council Member, ICAI

▪ CA K L Jhanwar▪ CA Shyam Lal Agarwal▪ CA Pawan Goel, Past Chairman CIRC

Session-V [12.30 p.m. to 2.00 p.m.]Panel Discussion on Profession with Ethics

Chairman: CA Subodh Kumar Agrawal, Chairman, ESB, ICAI

▪ CA Devaraja Reddy M, Central Council Member, ICAI▪ Special Address by CA. S S Bhandari, Past Council

Member, ICAI▪ CA Vimal Chopra, Past Chairman, CIRC

Day 3: 13th November, 2011Session-VI [8.00 AM to 11.00 AM]

Office Management & Corporate form of PracticeChairman: CA Sanjeev Maheshwari, Central Council

Member, ICAI

Office Management - CA. Nilesh Vikamsey, Central Council Member, ICAI

Corporate form of Practice - CA. Atul C. Bheda, Vice-Chairman, CCBCAF & SMP, ICAI

Session-VII [11.15 a.m. to 1.45 p.m.]Capacity Building through IT Tools

Chairman: CA Atul C. Bheda, Vice-Chairman, CCBCAF & SMP, ICAI

K-Doc & e-Sec - CA. B C ChechaniICAI- ROC - CA. Manu AgarwalICAI-Tax Suite - CA Kapil GoyalOpen House and Valedictory Session [1.50 p.m. to 2.30 p.m.]Chief GuestShri Rajendra Pareek, Cabinet Minister-Industry, Government of RajasthanSession ChairmanCA Vijay Kumar Garg, Chairman, CCBCAF & SMP, ICAI

Registration Fees Particulars

With Accommodationin Rupees

Without AccommodationIn Rupees

FCA 3000 2500

ACA 2800 2300

Accompaning Person

1800 1300

Child(3-12 Yr) 1200 700

Child(above 12 Yr) 1800 1300

Note ▪ Payment may be made by Cheque / Demand Draft

in favour of Jaipur Branch of CIRC of ICAI & Should be sent to-Jaipur Branch of ICAI, The Institute of Chartered Accountants of India, ICAI Bhawan, D-1, Jhalana Institutional Area, JLN Marg, Jaipur-302004

▪ Special Attraction:a) Special Darshan Salasar Balaji(Churu), Rani Sakti Dadi

Mandir(Jhuujhunu), Khatu Shyam ji (Sikar), Reengus Bheru Ji

b) Bhajan Sandhaya and Shekhawati folk Dancec) Pick up & Drop facility from Jaipur ( Pickup on

11/11/2011 at 7.00AM from ICAI Jaipur Branch and Drop on 13/11/2011 at 8.00 PM at Jaipur)

▪ Limited Seats, Registration on First Come First Serve Basis.

Programme Chairman Programme Convenor

CA Vijay Kumar Garg Chairman Committee for Capacity Building of CA Firms and Small & Medium Practitioners (CCBCAF & SMP), ICAIE-mail: [email protected],[email protected]: 9414041872

CA. Rakesh JhalaniChairman Jaipur Branch of CIRC of ICAIPhone: 09829064513E-mail: [email protected], [email protected]

For Registration & Information, contact details: CA. C. L. Yadav, Past Chairman, Jaipur Branch of CIRC of ICAI, E-mail: [email protected], Phone: 09829291148 or CA. Sunil Mor, E-mail: [email protected], Phone: 09414039265

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EVENTS


* Subject to the consent

“Auto Connect”- CMII National Conference on Auto Industry Pune

CPE

Hours

12

Date 4th and 5th November (Friday, Saturday), 2011

VenuePune

Organised byCommittee for Members in Industry of ICAI

Hosted By Pune Branch of WIRC of ICAI

Theme and programme outlinePune is the hub of automobile industry in India. CMII is organizing this conference to bring together leaders from the industry to discuss the current state of the industry and vision for the future. The conference is divided into four broad themes. Each theme will be covered in a half-day session consisting of speeches by eminent speakers followed by panel discussion by industry veterans.

Inaugural Session -9:00 am to 10.30 am

CA. Jaydeep N Shah, Vice – President , ICAICA. Jaydeep N Shah, Vice – President , ICAI

Day 1: 4th November 2011

Technical Session 1- 10.30 am to 1:00 pmVision for Auto industry in India ▪ Vision from the Government of India (Government

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

Technical Session 2 – 2:00 pm to 5:00 pmRegulatory Environment▪ Current regulatory matters▪ Compliance beyond regulations▪ Direct Tax, Indirect Tax and International Tax issues for

Auto IndustrySpecial Session

Auto Industry as Growth Engine of the EconomyDay 2: 5th November, 2011

Technical Session 4- 10:00 am to 1:00 pmFinancing, including corporate finance, private equity, working capital and also auto financing▪ Effectiveness of supply chain management

(component/ automobiles)▪ Finance to Auto Industry▪ Auto consumer finance- trends▪ Panel discussion

Technical Session 5- 2:00 pm to 5:00 pmAccounting and internal controls with specific reference to auto industry▪ Beyond internal controls/ audit – Risk management▪ Key accounting matters/ IFRS/ Issues in Accounting

Standards impacting Auto Industry▪ Opportunities for Chartered Accountants in auto

industry▪ Panel discussion.Conference DirectorCA K. Raghu, Chairman – Committee for Members in Industry

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

For Registration and Further Details---Fees: R3,000 for members, R4,000 for non-membersPayment should be made by Cheque / DD in favour of “Pune Branch of WIRC of ICAI” payable at Pune and should be sent to - Pune Branch of Western India Regional Council,The Institute of Chartered Accountants of India,ICAI Bhawan, Plot No.8, Parshwanath Nagar, CTS No. 333, Sr. No. 573,Munjeri, Opp. Kale hospitale, Near Mahavir Farniture, Bibawewadi, Pune 411 037. Phone No. - 020-24212251/52 E-mail : [email protected], [email protected]


CPE

Hours

6

Date Sunday, 23rd October, 2011

VenueOm Complex, Near Neetan Hospital, Circular Road,

Bharatpur ( Rajasthan)Organised by


Hosted By Mathura Branch of CIRC of ICAI

9.00 a.m. to 10.30 a.m. - Registration of participants and Inaugural session

Chief GuestCA Jaydeep Narendra Shah*, Vice President, ICAI

Session- I [10.30 a.m. to 1.30 p.m.]Practical Aspect in Rajasthan VAT - CA Natwar Sarda, JaipurPractical Issue in Capital Gain , TDS & Assessment Procedure of Income Tax Act - CA Sandeep Jhanwar, JaipurAudit Documentation and SMP’s - CA Mukesh Singh Kushwah, Regional Council Member CIRC

Session-II [2.30 p.m. to 5.30 p.m.]Capacity Building through IT Tools

K-Doc & e-Secretary - CA B C Chechani, MumbaiICAI- ROC Software - CA Amit Agarwal, KanpurICAI-Tax Suite Software - CA Vinod KhandelwalOpen House and Valedictory Session [5.30 p.m. to 6.30 p.m.]Session ChairmanCA Vijay Kumar Garg, Chairman, CCBCAF & SMP, ICAIRegistration Fees:- R500/- per participant ( excluding those members who contributed CPE fees for the year 2011)Cheque/DD should be Drawn in Favour of “Mathura Branch of CIRC of ICAI” and sent to ICAI Bhawan, Bohreji Ka Bada, Near K R Degree College, Bhains Bahora, Mathura-281001. Phone Nos:-0565-2501122. E-mail :[email protected] Limited Seats, Registration on First Come First Serve Basis. Advance confirmation of registration is required.

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EVENTS


Residential Refresher Course on Tax Reforms and SMP’s: Issues, Suggestions & Solutions

CPE

Hours

12

Date & Time6th and 7th October, 2011 (8 am to 4 pm)

VenueAranya Hill Resort, Mount Abu, Rajasthan


Medium Practitioners, (CCBCAF & SMP),ICAIHosted By

Jodhpur Branch of CIRC of ICAI Thursday, 6th October,201108.00AM to 9.30 AM-Registration of Participants and Inaugural session Chief Guest : Respected Pujya Janki Dadi Ji, (The International Chief of Brahma Kumari)Guest of Honour: CA Uttam Prakash Agarwal, Past president, ICAI and Member SMP Committee, IFACFirst Technical Session - 9.30 AM to 1.30PMUtilisation of the power within. Be an efficient Communication – CA. C.S. Nanda, Central Council MemberAn Overview of XBRL – CA. Tanuj Agarwal, MumbaiPractical Aspect-Survey under Income Tax Act, 1961 – CA. Amit Kothari, JodhpurSecond Technical session - 2.30 PM to 4.30 PMAn Overview-New Amendments in Service Tax – CA. Pradeep JainPenalty provision on Concealment of income under Income Tax – CA. Arun Choradia, JodhpurSecond DayFriday, 7th October,2011Third Technical session - 9.00 AM to 1.00 PMPractical Aspects- Accounting Standards – CA. O.P. Maheshwari, Regional Council member, CIRC of ICAICritical Issue- Capital Gain & Exemption – CA. Surendra Chopra, JodhpurFourth Technical Session- 12.15 P.M. to 2.15 P.M.An Overview- Rajasthan VAT – CA. Arpit Haldia, JodhpurFifth Technical session - 3.00 PM to 4.00 PMPractical Approach- Auditing Standards and SMP’s – CA. Abhijit Bandyopadhyay, Central Council Member, ICAIOpen House & Valedictory SessionSession ChairmanCA Vijay Kumar Garg - Chairman, CCBCAF & SMP, ICAI

Residential refresher Course on Capacity Building Measures of Practitioners & CA Firms

CPE

Hours

10

Date 10th & 11th December, 2011

VenueShri Saurastra Leswa Patel Samaj Trust, Opposite Girls College, Udaipur Highway, Nathdawara (Rajsamand),

Rajasthan.


Medium Practitioners, ICAIHosted By

Bhilwara Branch of CIRC of ICAI 10th December, 20119:30 a.m. to 11.00 a.m.

Registration of participants and Inaugural session

Programme Chairman Programme coordinator


CA K K AgarwalChairman, Mathura Branch of CIRC of ICAIPhone: 94122-79707(M)Email: [email protected]

For Registration & Information, contact details: CA Girish Kumar Garg Phone: 94142-22311 Email: [email protected]

Delegates FeesApplicable Fees: Residential Fees (including registration, accommodation, meals, transportation and course material) Super Deluxe R11,000/- (Member with

Spouse)

Deluxe R7,000/- (Member with Spouse)

Normal R5,500/- (Member with Spouse)

Single Member R3,500/- (On Twin Sharing Basis, Normal)

For children above 8 years R2000/- extra

Registration Fees R2,500/- (without accommodation and transportation)

* Cheque/DD Should be drawn in favour of “Jodhpur Branch of CIRC of ICAI” and sent to Jodhpur Branch of CIRC of the ICAIGuru Rooprajat, E-32, Kalpatru Shooping Centre, Jodhpur-342003, Email: [email protected]

* Registration shall be on the First Come First Served basis for each of above Category and non refundable and will close Immediately after total 50 registration. *Advance confirmation of registration is required.

Conference ChairmanCA Vijay Kumar Garg Chairman-CCBCAF & SMPEmail: [email protected] Mobile: 9414041872

Conference ConvenorCA Manish Sukhani, JodhpurEmail: [email protected]: 09828126465

For Further Details & Registrations, Please Contact:CA Ramesh Mundara, Mobile: 098280-30235, [email protected] or CA Sudhir Bhansali, Mobile: 093147-13923, [email protected]

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EVENTS


* Subject to the consent

Chief GuestDr. C. P. Joshi*, Union Cabinet Minister for Road Transport & Highway, Government of India Vice Presidential Address CA Jaydeep N Shah, Vice President- ICAI Special By Address Shri Madan Lal Paliwal, M.D.,Miraz group

Capacity Building & Office ManagementSession-I [11:00 am to 02:00 pm]

Capacity Building of Practitioners - CA. Dhinal Ashvinbhai Shah, Central Council member, ICAIOffice management & Opportunity in Stock Market - CA. C.S. Nanda, Central Council member, ICAI

Importance of Audit Documentation & XBRLSession-II [03:00pm to 05:00pm]

XBRL- Overview - CA Rajkumar Adukia, Central Council member, ICAIDocumentation & SMP’s - CA Shyam Lal Agarwal, Jaipur

Sunday,11th December, 2011

Critical Issues & Opportunities In Direct & Indirect TaxSession-III [10:00am to 01:00pm]

Interpretation of Law – CA. Ravindra Holani, Central Council member,ICAICritical Aspects in Direct Taxes & Issues in TDS and Assessment - CA. (Dr.) Girish AhujaCritical Aspects in Service Tax – CA. Manoj Jain, JaipurCritical Aspects in Rajasthan VAT – CA. Ajay Saria, Udaipur

Capacity Building through IT Tools Session-IV [02:00pm to 04:00pm]

K Doc & E-Secretary - CA B C Chechani

ICAI-Tax Suite - CA Vinod Khandelwal, JaipurICAI-ROC - Mr. Amit Mehta

Open House and Valedictory Session [04:00 p.m. to 04:30 p.m.]Session ChairmanCA Vijay Kumar Garg, Chairman, CCBCAF & SMP, ICAIRegistration Fees Particulars

With Accommodation(R)

Without Accommodation (R)

FCA 1500.00 1100.00

ACA 1400.00 1000.00

Accompanying Person

1100.00 900.00

Child (above 12 Yrs.)

1100.00 900.00

Child (3-12 Yrs.)

900.00 700.00

Cheque/DD should be drawn in favour of “Bhilwara Branch of CIRC of ICAI” and sent to Bhilwara Branch of CIRC of the ICAI,ICAI BHAWAN, Opp. Hotel Surya Mahal, Shastri Nagar, Bhilwara, Rajasthan-3011001, Ph: 01482-252434, e-mail: [email protected], [email protected] Seats, Registration on First Come First Serve

Basis.Advance confirmation of registration is required.



CA Ajay Kasliwal Chairman, Bhilwara Branch of CIRC of ICAIEmail: [email protected] Phone: 09828146872 (M)

For Registration & Information, contact details: CA Ashok Jathliya,Past Chairman, Bhilwara Branch of CIRC of ICAI,* [email protected], [email protected] (09414112165, 09414112304)


CPE

Hours

6

Date14th October, 2011

VenueHotel Allahabad Regency,

Tashkand Marg, Civil Lines, AllahabadOrganised by


Hosted By Allahabad Branch of CIRC of ICAI

9.30 a.m. to 10.30 a.m. - Registration of participants and Inaugural sessionSession Topics to be discussed

Session- I - 10.30 a.m. to 12.00 p.m.

Capacity Building Measures: Networking, Merger & Corporate Form of Practice

Session-II - 12.00 p.m. to 1.30 p.m.

Representation before Authorities

Session-III - 2.30 p.m. to 4.00 p.m.

Issues related to Uttar Pradesh VAT Audit

Session-IV - 4.00 p.m. to 5.30 p.m.

Issues relating to Uttar Pradesh VAT Annual Return

Registration Fees:- R750/- per participantCheque/DD should be Drawn in Favour of “Allahabad Branch of CIRC of ICAI” and sent to Allahabad Branch of CIRC of ICAI, ICAI Bhawan, Tulsiani Plaza, 2nd Floor, M. G. Marg, Civil Lines, Allahabad - 211 001. Phone:- 0532 2427614 E-mail: [email protected] Limited Seats, Registration on First Come First Serve Basis. Advance confirmation of registration is required.Programme Chairman Programme ConvenorCA Vijay Kumar Garg Chairman Committee for Capacity Building of CA Firms and Small & Medium Practitioners, ICAIEmail: [email protected]: 9414041872 (M)

CA. Mukesh Singh Kushwah Regional Council Member, CIRC of ICAI Phone: 09810470274, 09310470274Email: [email protected]

For Registration & Information, contact details: CA. Amit Agarwal, Chairman, Allahabad Branch of CIRC of ICAI Phone: 09415238605 Email: [email protected]

642

EVENTS


Residential Refresher Course

CPE

Hours

12Fourth Technical Session - 1.00 PM to 4.00 PMTopic: Capacity Building Through I T ToolsChairman session: CA. O.P. Maheshwari, Regional Council member

Speaker:1) CA B C Chechani, K doc & E Secretary2) CA Vinod Khandelwal, ICAI Tax Suite3) CA Saurabh Mishra, Delhi, ICAI ROC

Open House & Validatory Session4.00 PM to 4.30 PMChairman Session: CA Vijay Kumar Garg, Chairman CCBCAF & SMP Committee, ICAI

Registration Fees ParticularsWith Accommodation(In Rupees)

Without Accommodation(In Rupees)

FCA 2100 1200

ACA 2000 1100

Child (3-12 Yrs.) 800 500

Child (above 12 Yrs.)

1500 800

Note: 1) Payment may be made by cheque /Demand draft

in favour of Jaipur Branch of CIRC of ICAI & should be sent to Jaipur Branch of ICAI. The Institute of Chartered Accountants of India, ICAI Bhawan,D-1,Jhalana Institutional Area, JLN Marg,Jaipur-302004

2) Limited seats, Registration on First come First serve basis.

3) * Pick & drop Facility from Balotra to Venue.

Conference ChairmanCA. Vijay Garg Chairman-CCBCAF & SMPEmail:[email protected]: 9414041872

Conference Co- ChairmanCA. Rakesh JhalaniChairman Jaipur BranchEmail:[email protected]: 9829064513

For Further Details please Contact:CA. Ashok Jain , *[email protected], [email protected], (09414078881, 09829048278)

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Date & Time21st and 22nd January, 2012 (8 AM to 5 PM)

VenueValley View, Club & Resort, Near Nakoda Ji Gate,

Nakoda Ji Tirth Road, Balotra, Rajasthan

Organised byCommittee for Capacity

Building of CA Firms and Small & Medium

Practitioners(CCBCAF & SMP),ICAI

Jointly Hosted byJaipur Branch of CIRC of ICAI

and Pali Branch of CIRC of ICAI

Saturday, 21st January, 201208.30AM to 10.00 AM-Registration and Inaugural Session Chief Guest : *CA Jaydeep Narendra Shah, Vice President , ICAI

Technical SessionFirst Technical Session - 10.00 AM to 1.00 PMTopic: Office Management & Capacity BuildingChairman session: Kamal Kishore Kasat, JodhpurSpeaker:1) Offfice Management For SMP’s – CA. Nilesh

Vikamsey, Central Council Member, ICAI2) Capacity Building of SMP’s – CA. Pankaj Tyagee,

Central Council member, ICAI3) SMP’s & Minimum Recommendatory Fees – CA. C.L.

Yadav, Jaipur

Second Technical Session - 2.00PM to 5.00 PMTopic: Importance of Audit Documents and Ethical IssuesChairman session: CA. V.P. Goyal , JodhpurSpeaker:1) Importance of Audit Documentations – CA. K.L.

Jhanwar, Jaipur2) Practical Aspects in Ethical Issue for Members – CA.

Rajendra P. Kumar, Central Council Member, ICAI3) Practical aspects of Audit Documentation – CA.

J.K.Agarwal, JaipurSunday, 22nd January,2012

Third Technical Session- 9.00AM to 12.00 PMTopic: Critical Issues in Direct Tax & Indirect TaxChairman session: CA Jeetmal Parakh Binraj, PaliSpeaker:1) Practical issues in Direct Tax – Dr. Girish Ahuja2) Issues in Service Tax & Central excise – CA. Pankah

Malik, Jaipur3) Issues In Rajasthan VAT – CA. Sumer Patawa,

Jodhpur

EVENTS



CPE

Hours

6

Date22nd October, 2011

VenueHotel Radisson, Taj East Gate Road, Agra-282001


Medium Practitioners, ICAIHosted By

Agra Branch of CIRC of ICAI 9.30 a.m. to 10.30 a.m.- Registration of participants and Inaugural sessionChief GuestShri Ram Shanker Katheria, Member of Parliament, AgraShri Raj Babbar*, Member of Parliament, Firozabad

Guest of HonourCA. Jaydeep N Shah*, Vice President, ICAI

Session- I (10.30 a.m. to 1.30 p.m.)An Overview-XBRL - CA H R Iyer, DelhiAudit Documentation & SMP’s - CA Mukesh Singh Kushwah, Regional Council Member CIRCAmendments in Schedule VI - CA Amarjit Chopra, Past President, ICAI

National Conference on Excellence in Profession through Capacity Building

CPE

Hours

12

Date 9th & 10th October, 2011

VenueICAI Bhawan, G-Block, Sector No.-14,

Hiran Magri, Udaipur (Raj.)


Medium Practitioners, ICAI

Hosted By Udaipur Branch of CIRC of ICAI

9th October, 2011

8:30 a.m. to 10:15 a.m. Registration of participants and Inaugural Session

Chief GuestShri C. P. Joshi*, Minister for Road & Transport, Government of India Presidential Address CA G. Ramaswamy, President- ICAISpecial Address CA Jaydeep N. Shah, Vice President- ICAI Session-I10:30am to 01:30pm

IFRS & SMP’s - CA. Yagnesh Desai, MumbaiStrategic Planning for Development of Small & Medium CA FirmsCA. Mahesh P. Sarda, Central Council Member, ICAI

Session-II02:00pm to 03:30pm

Taxation on Real Estate Transactions including provisions of Section 50C & 55A of the IT Act, 1961 - CA. (Dr.) Girish Ahuja, New Delhi

Session-III03:45pm to 05:15pm

An Overview on XBRL - CA. Atul C. Bheda, Vice-Chairman, CCBCAF & SMP

10th October, 2011Session-IV10:00am to 12:00noon

Recent Issues under Service Tax - CA. Ashok Batra, New Delhi

Session-V12:00noon to 02:00pm

Issues related to Assessment & Concealment of Income - CA. Kapil Goel, New Delhi

Session-VI02:30pm to 04:30pm

Technicalities of RTI Act, 2005 - Shri Naresh Gupta, Advocate, Jaipur

Taxation on Charitable Trust - CA. Sanjay Kumar Agarwal, Chairman Direct Tax Committee , ICAI

Open House and Valedictory Session [4:30 p.m. to 5:00 p.m.]Session ChairmanCA Vijay Kumar Garg, Chairman, CCBCAF & SMP, ICAI

Registration Fees: For Member- R1100/- , For Members: Spot Registration R1250/-, For Non-Members- R1500/-, For Students R900/-)Cheque/DD should be drawn in favour of “Udaipur Branch of CIRC of ICAI” and sent to Udaipur Branch of CIRC of the ICAI,ICAI BHAWAN, G-Block, Sector No.-14, Hiran Magri,, Ph: (0294) 2641515, 2641616, e-mail: [email protected] Seats, Registration on First Come First Serve Basis. Advance confirmation of registration is required.Conference Chairman Conference Coordinator

CA Vijay Kumar Garg Chairman Committee for Capacity Building of CA Firms and Small & Medium Practitioners, ICAIPhone: 9414041872 (M)Email: [email protected]

CA. Sudhir MehtaChairmanUdaipur Branch of CIRC of ICAIPhone: 09414169128 (M)Email: [email protected]

For Registration & Information, contact details: Secretary, Udaipur Branch of CIRC of ICAI, Phone: 09414470818 Email: [email protected], CCBCAF & SMP, ICAI, New Delhi, Email: [email protected], Phone: 011-30110561

*Subject to the consent

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EVENTS


Study Tour on International Taxation to Vienna, Austria

Organised by Committee on International Taxation of ICAI

2nd to 6th November, 2011 (5 days & 4 nights)

With a view to acclimatise the members of the Institute about the best practices in the area of International Taxation and to provide an opportunity to participate and interact with the renowned experts of Institute for Austrian and International Tax Law, Vienna University, Austria, the Committee on International Taxation of the Institute of the Chartered Accountants of India proposes to organise a Study Tour on International Taxation to Vienna, Austria from 2nd to 6th November, 2011 for the members on self-financing basis.

Institute for Austrian and International Tax Law, Vienna University of Economics and Business, Austria will provide Certificate of Participation to all the participating members in the course as per their norms.

Most current topics are selected for the short duration course of this study tour to ensure maximisation of

benefits and to empower members of the profession to render high quality professional services in the field of International Taxation. It will be a great opportunity to update your knowledge on the latest development in the field of International Tax.

Schedule and Course ContentsA tailor-made course for the Indian group which would contain the following topics:Day I (3rd November)08:00 to 09:30 Introduction to Tax Treaty Law10:00 to 11:30 Tax Treaty Entitlement, Abuse of Tax Treaties – Where are the Limits?12:00 to 13:30 Scope of Tax Treaties, Business Profits14:00 to 15:30 Transfer Pricing: Attribution of profits to permanent Establishments; Associated EnterprisesDay II (4th November)08:00 to 09:30 Interest, Dividends and Royalties in Treaty Law10:00 to 11:30 Employees, Stock Options12:00 to 13:30 Artists and Sportsmen; Capital Gains14:00 to 15:30 Methods to Avoid Double Taxation: Exemption and CreditDay III (5th November)08:00 to 09:30 Qualification Conflicts and the Tax Treaty Treatment of Partnerships10:00 to 11:30 Protection against Discrimination on Double Tax Treaties, Exchange of Information and Legal Protection in Treaty Law12:00 to 13:30 The Impact of European Law (ECJ Decisions) on Tax Treaty Law14:00 to 15:30 Inheritance Tax; Recent OECD Developments with regard to Income Taxes

Overall professional co-ordination:Prof. Dr. Michael Lang, Prof. Dr. Josef Schuch, Prof. Dr. Claus Staringer, Prof Dr. Pasquale PistoneProf. Dr. Alfred StorckDuration: 3 training days, 8:00 to 15:30 Venue: Seminar Room at the Institute for Austrian and International Tax Law or equivalent room in the same building, modern technical equipment (incl. overhead, smart board, Internet-Access on demand)Lecturers: Senior Research and Teaching Staff of the Institute for Austrian and International Tax Law

The cost of the above study tour has been tentatively fixed at R1,50,000/- (Rs. One Lakh Fifty Thousand only) per person Ex-New Delhi inclusive of Course session fees, economy class airfare, relevant visa fee, hotel accommodation on twin-sharing basis, meals, applicable taxes and transport arrangements for meetings, sight seeing etc.

Session- II (2.30 p.m. to 5.30 p.m.) SMP Initiative and Capacity Building through I T Tools

K-Doc & e-Sec - CA B.C Chechani, MumbaiICAI- ROC Software - CA Amit Agarwal, KanpurICAI-Tax Suite Software - Sahib Singh SatsangiOpen House and Valedictory Session [5.30 p.m. to 6.00 p.m.]Session ChairmanCA Vijay Kumar Garg, Chairman, CCBCAF & SMP, ICAIRegistration Fees:- R1200/- per participantCheque/DD should be Drawn in Favour of “Agra Branch of CIRC of ICAI” and sent to ICAI Bhawan, Block No.77, M-K Towers, Sanjay Place, Agra-282002. Phone Nos:-0562-2856598, 4040598. e-mail Id:[email protected] Seats, Registration on First Come First Serve Basis.Advance confirmation of registration is required.Programme Chairman Programme coordinator

CA Vijay Kumar Garg Chairman Committee for Capacity Building of CA Firms and Small & Medium Practitioners, ICAIE-mail: [email protected]: 9414041872

CA. Nitesh GuptaChairmanAgra Branch of CIRC of ICAIPhone: 9837073938E-mail: [email protected]

For Registration & Information, contact details: CA Alok Agarwal Phone: 9997165253 E-mail: [email protected]

645

EVENTS


Workshop on Capacity Building Measures for Practitioners & CA Firms

CPE

Hours

6

Date5th November, 2011

VenueICAI Bhavan, 20/1, Behind Vijayanand Society, Dhantoli,

Nagpur 440 012.

Organised byCommitte for Capacity Building of CA Firms and Small

& Medium Practitioners, ICAI

Hosted By Nagpur Branch of WIRC of ICAI

9.30 a.m. to 10.30 a.m.- Registration & Breakfast and Inaugural session

9.30 a.m. to 10.30 a.m.- Registration & Breakfast and Inaugural session

After the completion of the learning course sessions in Vienna, if any member interested to go to Munich, Prague, Budapest, then they are allowed to have two night extension on self-financing basis. The Supplement Cost on FIT Basis/ tentative cost per person are also available with the Study Tour Coordinator.

Since, the delegation size would be limited; registration for the study tour would be on first-come-first-serve basis.

For registration, the interested members may kindly send the registration form along with Passport, duly filled Visa application Forms which appear at web site: www.icai.org relevant enclosures and payment of full amount, as aforesaid, by Demand Draft only drawn in favour of “The Secretary, The Institute of Chartered Accountants of India” payable at New Delhi so as to reach us latest by Wednesday 10th October, 2011 at below mentioned address:

Study Tour CoordinatorAshish Bhansali,Secretary, Committee on International Taxation, The Institute of Chartered Accountants of India, ICAI Bhawan, Administrative Office Block,4th Floor, A-29, Sector-62, Noida (U.P.) - 201301, India, Telephone Direct - +91 120 3045923 Mobile No. 09310532063; E-mail: [email protected]

Session- I10.30 a.m. to 12.00 p.m.

Capacity Building Measures-Networking, Merger and Corporate Form of Practice

Session-II12.00 p.m. to 1.30 p.m.

Strategies for Wealth Creation, Wealth Maximisation and Wealth Management

Session-III2.30 p.m. to 3.30 p.m.

Frequently found shortcomings in Auditing Annual Statement of Accounts

Session-IV3.30 p.m. to 4.30 p.m.

Small & Medium Practitioners – The Future

Session-V4.30 p.m. to 5.30 p.m.

Modus operandi for calculation of professional charges - Ways and Difficulties

Registration Fees:- R750/- per participantCheque/DD should be Drawn in Favour of “Nagpur Branch of WIRC of ICAI” and sent to Nagpur Branch of WIRC of ICAI, ICAI Bhawan, 20/1, Behind Vijayanand Society, Dhantoli, Nagpur 440 012. Phone:- 0712 2443968, 2441196 E-mail: [email protected] Limited Seats, Registration on First Come First Serve Basis. Advance confirmation of registration is required.



CA. Satish SardaChairman, WIRC of ICAI Phone: 09822229601Email: [email protected]

For Registration & Information, contact details: CA. Abhijit Kelkar, Vice-Chairman Nagpur Branch of WIRC of ICAI Phone: 09422126890, 09096021215 Email: [email protected]

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INSPIRATION


Where There is a Will, There is a WaySome are born great; some achieve greatness through single minded devotion. But they are rare who can triumph a tragedy— a serious physical disability—and make a mark for themselves as a budding music maestro and newly qualified Chartered Accountant. A naturally gifted strong-willed Bhushan Toshniwal is one of those rare personalities, who has not only excelled as a budding singer but has also recently become Chartered Accountant despite being blind.

A resident of Pimpri Chinchwad in Maharashtra, 24 years old Mr. Bhushan passed his CA Final Exam in May 2011. His success story is an inspiration for all those who pursue their professional careers.

Born in a very educated and cultural family he lost his eye sight due to detachment of his retina when he was just 20 days old. However, discovering his liking for music, his parents taught him Indian Classical music from the age of four and half year. He was sent to Blind school at Koregaon Park to pursue his education. He showed signs of brilliance in both fields from a tender age. He sang five ragas at the age of five in a Grand Musical Function and was felicitated by the then Governor Shri C. Subramaniam. His success graph continued to rise high as he won Tak-Dhina-Dhin competition at Doordarshan.

He scored 87% in 10th and was 11th in Merit List Hsc- Pune board. After that he decided to take up CA course as a challenge, although he was discouraged by people saying that it is a very difficult course. But he never gave up; he proved his ability by passing PE I Exam in the first attempt.

Even while pursuing CA course, music didn’t take a back seat. He participated in Reality Shows like “Idea Sa Re Ga Ma Pa” at Zee TV and “Maharashtra Sangeet Ratna” at Sahyadri and got great acclaim from the doyens of music and reached the semifinal in both the shows.

His striving for perfection and determination helped him pass the CA final Exam with good marks. He had to take help of an undergraduate writer for writing his

CA exams. He learnt music from Padmashree Padmaja Fenani Joglekar, Bhajan Samrat Anup Jalota Ustad Rasid Khan. Presently he is learning Karnatic music and the violin.

When asked about his way of studying he revealed that he didn’t join any classes for any of his course.

He believed in self study and understanding the intricacies of the subject. His

parents use to read for him and he took the help of Internet to read

the various laws, accounting standards, auditing standards and other theory part. He did this with the help of the screen-reader software which reads whatever comes on the screen of a computer. His parents were instrumental

in his upbringing as they put enormous efforts in his studies

and helping him out through thick and thin in his life.

His talents have been appreciated and recognised on

various occasions as he has been conferred with several awards like Swami Vivekanand Purskar, Swami Dayanand Sarswati

Purskar, Moraya Purskar, Yuva Gaurav Purskar, and Rashtraguarav Purskar. He is also a winner of classical and semi-classical competition at national level. He has received the National Scholarship of Government of India and Sawai Gandharv Mahotsav Samitee. He was awarded the Dheerubhai Ambani Scholarship to pursue Academic Education after his remarkable performance in 12th exams.

Indeed, Bhushan is a great example of grit and determination and inspires all those striving to excel against all odds. n

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Bhushan Toshniwal

GENERAL


How to Succeed in Life Against All Odds

Success is not measured by what you accomplish, but by the opposition you have encountered, and the courage with which you have maintained the struggle against overwhelming odds. To know how to succeed in life, it is imperative to know at first hand what success actually is. Let us understand some definitive terms used in the article, before proceeding to look into the requisites to achieve success. Success: It is something you achieve (or) conquer. Success is a relative term and it differs from person to person. Example: Becoming a Chartered Accountant is one of the most successful events of an aspiring CA’s life. Odds: Odds are the roadblocks/obstacles which come in the success path. Succeeding against all Odds: It means to achieve what you are desirous of even when others are trying to ensure you don’t do so.

Just like there are two sides of a coin, the success strategies consist of four components. This article classifies the topic into four parts (the first two are the positive ones and the next two are the negative ones).

CA. K. S. Karthikeyan


The Positive Components1. Dreams/Goals: Dreams/Goals are yardsticks, which you would want to achieve in your life. It brings purpose to your life. If you want to succeed in life you must know what to succeed at and you must write

649

GENERAL


them down. “Unless you write down your goals it remains just a Wish”. It is difficult to understand as to how it happens, that wishes are nurtured without undertaking any actions for the achievement of the same. This is when wishes come from the mind and not from the heart. If the heart is not in harmony with the mind the wish will not come true, as any mental discomfort will push away the desired events from you. When the mind finds something, that is in sync with your heart, you are ready to work and put your efforts towards achieving your dream. Then you simply stop wishing, and start acting. You realise that it is already yours, but when it appears in your physical reality is just a matter of time. The belief becomes so strong that you start realising that your desire is on its way to you. Your goal tells you the destination to reach. Unless you know where you would want to go, no road will take you there. So write down your goals and make a habit of reading them at least once in a week so that you would be constantly reminded of your purpose in Life.

A Quote to Ponder“The Future Belongs to all those people who believe in the Beauty of their Dreams” – George Washington.

2. Belief/Confidence: Once you know your desired Destination, its time to ensure that you are

confident enough of reaching there. This is what is called as “Believing in yourself” (or) “Backing yourself”. The Question you might want to ask is why should I believe in myself? The answer is extremely simple: “If you don’t believe in your ability and talent, who else will”. As long as you believe in yourself you will be doing all the necessary things to reach your destination. Belief is what separates the Successful people from the Talented Ones.

A Quote to Ponder“You have to have belief in yourself when no one else does, that’s what makes you a winner” - Venus Williams.

The Negative Components1. Criticism: It means expressing an unfavourable judgement or giving the expression of disapproval. As you are on your road to success, you will have to face a lot of criticism. So you better be prepared for it. Why should someone criticise you in the first place? The answer is very simple you are doing something which all these critics have never ever dreamt of doing in their lives. However, it is suggested to take criticism positively, as someone

who is testing your determination to the achievement of the Goal.

A Quote to Ponder“If you don’t want to be criticised be nothing and do nothing”

2. Worry: We often worry about what others think about us. What others think of you is none of your business. To be practical, there are seven billion people in this world and if you were to worry about what these people think about you, you will have no time living your life your way.

A Quote to Ponder“I would rather be alone at the Top rather than to be at the Bottom with crowded mediocre people”

ConclusionTo conclude the above discussed positive and negative components of success strategies in a single sentence, it may be put as; “If you have a Dream and if you believe in that Dream no matter how much criticism and worry is thrown at you, it won’t cause you much trouble in the achievement of your goals.

“We often wait for the ideal path to appear in front of us, but what we forget is that paths are made by walking and not by waiting". n

our components that revolve round success are dream, belief, criticism and worry. If you have

a Dream and if you Believe in that dream no matter how much Criticism and Worry is thrown at you, it won’t cause you much trouble in the achievement of your goals.

F

s you are on your road to success you will have to face a lot of Criticism. So you

better be prepared for it. Why should someone criticise you in the first place? The answer is very simple you are doing something which all these critics have never ever dreamed of doing in their lives. However, it is suggested to take criticism positively, as someone who is testing your Determination to the achievement of the Goal. “If you don’t want to be criticised be nothing and do nothing”

A650

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BACKPAGE


064

ACROSS1. Name India’s first film producing

company to go public that was set up by a Chartered Accountant? (1,1,5)

5. One of the car brands in India, which is one of the names of Lord Hanumana. (6)

6. Language for electronic communication of business and financial data.(4)

9. New Secretary of the Ministry of Corporate Affairs.(5,6)

11. India has recently signed an Agreement and Protocol for Avoidance of Double Taxation with the Government of _______. (9)

12. First ‘Intellectual Capital Report’ was published by this company. (7)

14. A practicing member cannot use the designation of ‘Distract _______’ in his rotary visiting card along with the designation ‘Chartered Accountant’. (8)

15. New Chairman of CBDT.(1,1,5)

DOWN1. The head quarter of ‘European

Central Bank’ is situated at _________. (7)

2. A new Corporate Form of practice which is a hybrid between the limited liability company and a partnership firm. (3)

3. Software launched by the ICAI which combines features of Income-tax, Audit Reports, Service Tax, e-TDS, e-AIR, CMA/Project Report, Form Manager software and Document Manager. (3,5) SOLUTION CROSSWORD 0 6 3

4. Who was the longest serving President of ICAI?

7. ‘Board of Studies’ of ICAI was known as ‘_______ Board’, when established in the year 1954. (8)

8. The major considerations governing the selection and application of accounting policies are _______, Substance over Form, and Materiality. (8)

10. Club or association service provided by an association of _____ units in relation to the specified project has been exempted from the payment of service tax. (6)

13. The oldest chapter of ICAI.

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

1 An investment advisor decided to start his own business. He was sharp and diligent, so business kept coming in, and soon he realised that he needed an in-house counsel. The investment banker began to interview young lawyers.“ I’m sure you can understand,” he started off with one of the first applicants, “in a business like this, our personal integrity must be beyond question.” He leaned forward. “Are you an honest lawyer?”

“Honest?” replied the job applicant. “Let me tell you something about my honesty. I’m so honest that my father lent me R50,000 for my education, and I paid back every penny the minute I finished my very first case.”“Impressive. And what sort of case was that?” asked the investment counselor.The lawyer squirmed in his seat and admitted, “He sued me for the money.”

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