November, 2016 - Chartered Accountants Association

Volume : 40 | Part 8 | November, 2016

Ahmedabad Chartered Accountants Journal November, 2016 493

Volume : 40 Part : 8 November, 2016

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

C O N T E N T S To Begin with

- Is Money Everything ?...................................................... CA. Manthan Khokhani .............495

Editorial - Demonetization V/s Corruption......................................... CA. Ashok Kataria .................... 496

From the President.............................................................................CA. Raju Shah..............................497

Articles

Ind AS Adoption by Banks in India.....................................................Dr. (CA.) Rajkumar S. Adukia .......498

Digital Footprint : A Two Sided Digital Business Model......................CA. Umesh Jintanwala &CA. Zalak Jintanwala....................504

Direct Taxes

Glimpses of Supreme Court Rulings....................................................Adv. Samir N. Divatia...................379

From the Courts.................................................................................. CA. C.R. Sharedalal &CA. Jayesh Sharedalal............... 442

Tribunal News.....................................................................................CA. Yogesh G. Shah &CA. Aparna Parelkar.................. 446

Unreported Judgements......................................................................CA. Sanjay R. Shah.................... 450

Controversies.......................................................................................CA. Kaushik D. Shah....................453

Judicial Analysis..................................................................................Adv. Tushar P. Hemani................456

FEMA & International Taxation

FEMA Updates....................................................................................CA. Savan Godiawala................467

Indirect Taxes

Service Tax

Service Tax Decoded...........................................................................CA. Punit R. Prajapati..................329

Recent Judgements..............................................................................CA. Ashwin H. Shah.....................470

Value Added Tax

From the Courts.................................................................................. CA. Priyam R. Shah................... 472Judgements and Updates ...................................................................CA. Bihari B. Shah.....................475

Corporate Law & Others

Mergers and Acquisition Corner..........................................................CA. Kush Desai.............................478

Corporate Law Update....................................................................... CA. Naveen Mandovara...............481

Allied Laws Corner..............................................................................Adv. Ankit Talsania.......................484

From Published Accounts .................................................................CA. Pamil H. Shah..................... 412

From the Government ......................................................................CA. Kunal A. Shah.......................489

Association News................................................................................CA. Dilip U. Jodhani &CA. Riken J Patel........................491

ACAJ Crossword Contest......................................................................................................................492

- caaahmedabad

Ahmedabad Chartered Accountants Journal November, 2016494

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

Office within one month. A copy of the Journal would be sent, if extra copies are available.2. You are requested to intimate change of address to the Association's Office.3. Please mention your membership number in all your correspondence.4. While sending Articles for this Journal, please confirm that the same are not published / not

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

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

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

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

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

Auditing' and 'Allied Laws and Others' will be awarded the Trophies/ Certificates of Appreciationafter being vetted by experts in the profession.Articles and reading literatures are invited from members as well as from other professional colleagues.

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

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

Journal CommitteeCA. Ashok Kataria CA. Pitamber Jagyasi

Chairman ConvenorMembers

CA. Gaurang Choksi CA. Jayesh SharedalalCA. Nalin Thakkar CA. Rajni Shah CA. Shailesh Shah

Executive CommitteeCA. Raju Shah CA. Dilip Jodhani

President Hon. SecretaryCA. Kunal A. Shah CA. Riken J. Patel

Vice - President Hon. SecretaryMembers

CA. Jayesh M.Shah CA. Jignesh J. Shah CA. Malav K. MehtaCA. Mihir H. Pujara CA. Nalin K. Thakkar CA. Naveen R. MandovaraCA. Pradeep G. Tulsian CA. Rakesh B. Lahoti CA. Umang B. Saraf

Imm. Past President - CA. Yamal A. Vyas


Since the dawn of November, 9 2016, right in everycorner, it is only MONEY that people are puttingtheir heads on. From Buzz feed to News Feed, theunrivaled point in question is MONEY.

The question that emanates for deliberation at themoment is – ‘WHETHER MONEY ISEVERYTHING?’ “Money is like a sixth sense;and you cannot make use of the other five, withoutit”, said Somerset Maughum and quite rightlybecause unfortunately, money is how we keep theworld posted about where we belong to and whowe are. UNFORTUNATELY!

Despite of all the aesthetic philosophies and sanity,the harsh and naked truth is that even though moneyis a stupid measure of achievement it is the onlyUNIVERSAL measure that we have and thereforewhether we akin to the idea or not, the fact remainsthat money power is the muscle power,Atra:Tatra:Sarvatra.

But if someone opines that winning a lottery orearning millions and billions of money will leavehim/her contended for the rest of the life, then it istime to ponder over the proposition once more.Yearning for money can be satisfactory for a shortterm, but beyond some point in time it is just thesame burger.

Initially, it commences as a ‘NEED’ for moneywhich gradually converts into ‘GREED’ for moneyand the ‘GREED’ turns into ‘SHOW OFF’ whichleads to an artificial life. The commonality longsand yearns for money exactly in the same manneras an alcoholic craves for another drink. ThisADDICTION for money can end up beingcatastrophic and disastrous. Today, the disposableincome of people has risen but this has given riseto everything being disposable, being cell phonesto old parents! In this crazy craving for money,

Is Money Everything ?

people have started forgetting the values and

customs and this maniacal and berserk appetite formoney has eventualized with the youth of thenation falling in the ambush of various diseases. Inthis fast paced life, the difference between ‘price’and ‘value’ has submerged and in this blind race, itis the ‘price’ that we are paying for the erosion of‘values’.

Money can buy all the materialistic pleasures in theworld but not the happiness that every human beingdesires for at the end. If one calculates, more than80% of our physical and mental time is spent by usto earn Money. But then the obvious question is,how much is ENOUGH? At what point do wehalt? The question arises because happiness is arelative term. But it is the human nature, which isnot appeased with what he/she has and thereforethe quench for the peerless is incessant andperpetual.

Whether more money brings more happiness? Thegeneric answer to this age old question would be abig ‘YES’ and this would also hold true in amaterialistic society. But a research carried out byan American Economist suggested that even thoughthe average income of the Americans increased in1970 as compared to 1946, the Americans werenot as happy in 1970 as they were in 1946! (This ismore popularly known as ‘Easterlin Paradox’ ineconomics.)

The ambiguity of money is that albeit earningmoney accords pleasure and exhilaration, we canbecome happier by giving it away to those in need.It is time we lend our hand in scratching out thesocial inequalities. Money bought for materialisticpleasures may infuse short lived happiness ascompared to its usage for the poor and needy. Theextra time that we spend for quenching our thirstfor earning more and more money, if utilized for

CA. Manthan [email protected]

contd. to page 517


Though the last piece of editorial was onDemonetization, I would still like to continue withthe topic considering the effect it has been havingon the life of people, be it rich or poor, corrupt orhonest, white or black. And those who haven’t beenaffected are loving it for a debate.

A large section of people are in favour of the movetaken by the government however, many are raisinga valid question, how demonization can solve theproblem of black money and corruption. Whetherthis measure of the central government can bringin a clean system without corruption and menaceof black money? Let’s put a serious thought ontoit. We need to understand and appreciate thatCorruption is not an independent isolated actionhappening elsewhere without our involvement. Ithas become our convenient and direct participationin the process.

We are involved in corruption! Yes, the explanationis simple. Do we not comprise each and every setof rule just for our trivial selfish gains? Majority ofpeople today, unfortunately are falling in thisbracket! This can be proved with easiest of example.How many of us love to stop at the crossroads whenthe signal is red? How do we behave when there isno control and what level of patience do wedemonstrate during that period? This is howcorruption is born in our minds and we try to findeasy escape routes without any willingness to acceptslightest of inconvenience. Each one of us wants tobe first.

This corrupt mind which brings such a selfishbehavior to the forefront in form of our actions isthe only cause of corrupt practices in the world.Each one of us today is trying to save the worth ofhis last 500 rupee note, irrespective of the mannerin which it is earned. When everyone is working

[email protected] V/s Corruption

for his own selfish interests, there develops a systemwhere one accommodates other for an easy escaperoute. Payment of bribe by one person to another isthe best example to prove this.

The intent of the Prime Minster may be clear but itseems he could not assess the mindset of the majorityof the people of this country. That is the only reasonwe are every day finding instances being reportedof new currency being found in huge quantity.Where on one hand many bank personnel haveworked hard to provide new currency to their fellowcountrymen, there are also bankers who for theirpersonal gain have accommodated and entertainedblack money hoarders.

When we as a citizens are involved in these corruptpractices how can there be an end to corruption byany action or measure taken outside. How can wesee a change when nobody wishes to change? It issaid that the world is nothing but the projection ofour mind. If this absolute idea is too difficult tounderstand, relatively, we may appreciate thingsoutside would be the same as we think and thuswill be our actions.

The fight against corruption and black money inIndia has just begun. If successful, this will go downas the biggest reform in India. Even if this fightdoes not resolve to the issue of further creation ofblack money or corrupt practices, there is a hope ofbetter days ahead. This hope can be a reality if westart arresting our corrupt thoughts of personal pettygains. Let’s not view the world outside, let’s lookat ourselves that’s what is reflected outside. Sowould say: Be careful while forming an opinionof the world, it’s just like that!

CA. Ashok Kataria


From the PresidentCA. Raju Shah

[email protected]

Respected seniors and dear professional colleagues,

Do all the good you can, by all the means youcan, in all the ways you can, as long as ever youcan.

The Chartered Accountants’ Association

Ahmedabad (CAA) was established as a voluntary

organization on 15th December, 1950. CAA in its

journey, completing 66 years, has achieved the

recognition as an esteemed voluntary body of

professionals due to the untiring efforts of all the

Past Presidents, Office Bearers & the Executive

Committee Members and Chairmen/Conveners/

Members of all the sub-committees.

All the Past Presidents in these 66 years have been

the torch bearers for the Association whose vision,

mission and goal was to serve the members of the

Association and in turn the Profession of Chartered

Accountancy.

GST class room study- 8 study lectures on GST

covering various topics was arranged to have a

preliminary knowledge of the new law coming and

I am please to share that members attended in large

with their active participation. In the days to come,

the Association will be coming up with yet another

such series on GST. The members will be informed

as soon as the dates and speakers are finalized.

As part of sports activity, a CRICKET match wastharranged on 10 of December, 2016. Two matches

were played, President XI vs. Secretary XI and

second, Vice-president XI vs. Secretary XI. As

many as 40 members participated including very

senior members. This sports activity of the

Association is a wonderful medium of fellowship

where a young member of 25 plays along with a

senior member of 65. My compliments to all

members who participated.

The government has come with the Income Tax

Amendment Bill after demonetization. To have an

overview and better understanding, we have

arranged 4th Brain Trust Meeting on

“Demonetization vis-à-vis Bill proposing

Amendments in the Income Tax Act” by CA. Jayesh

C. Sharedalal on 14th December at 04.45 p.m. at

ATMA Hall.

thThe International Study tour is to be held from 5thJanuary, 2017 to 13 January, 2017 at “Magical

Thailand-Krabi (2N), Phuket (3N) and Bangkok

(2N). I thank members for the over whelming

response.

Frank Outlaw aptly put it : “Watch your thoughts;

they become your words. Watch your words; they

become your actions. Watch your actions; they

become your habits. Watch your habits; they

become your character. Watch your character for it

will become your destiny.

For us feedback is the most important guide to

improve the performance. Please send your

feedback regularly.

With best regards,

CA. Raju ShahPresident


Ind AS Adoption byBanks in India

Indian Accounting Standards are a reality now. Withlarge Indian corporates(those with Net Worth of Rs.500 crores or more and their holding, subsidiary,joint venture or associate companies) already busyin preparing their first quarterly financials based onInd AS, it is high time for banks to gear up as theytoo are required to prepare their half yearly“Performa Ind AS Financial Statements” as on

thSeptember 30 2016. Banks are also required todisclose the strategy for Ind AS implementation,including the progress made, in their AnnualReports for FY 2016-17 and FY 2017-18.Theseries of announcements by MCA and then by RBIhas set the ball rolling for inducement of Ind AS asreporting language for banks, NBFCs and insurancecompanies in near future.

MCA Announcement

MCA through its press release No. 11/10/2009 CL-V dated January 18, 2016 announced requirementsfor Scheduled commercial banks (excluding RRBs),All-India Term-lending Refinancing Institutions(i.e. Exim Bank, NABARD, NHB and SIDBI),NBFC and Insurance Companiesto prepare Ind ASbased standalone and consolidated financialstatements for FY 2018-19 with comparatives ofFY 2017-18. Notwithstanding the roadmap forother corporates, this would apply to the holding,subsidiary, joint venture or associate companies ofScheduled commercial banks. Urban CooperativeBanks (UCBs) and Regional Rural Banks (RRBs)are however, not required to apply Ind AS andshould continue to comply with the existingAccounting Standards.

RBI’s Announcement

The above announcement was followed by theReserve Bank notification no DBR.BP.BC.No.76/21.07.001/2015-16 dated February 11, 2016issued under Section 35A of the BankingRegulation Act, 1949. The salientfeature of thesedirections are:

- It mandates banks to comply with Ind ASasper the implementation Roadmap issued by theMCA.

- It advises Banks to set up a Steering Committeeheaded by an official of the rank of an ExecutiveDirector (or equivalent) comprising membersfrom cross-functional areas of the bank toimmediately initiate the implementationprocess.

- It requires banks to send by email to the RBI –the name and details of the designated officialand the team.

- The Board of the bank has been cast with theultimate responsibility of determining the IndAS direction and strategy and overseeing thedevelopment and execution of the Ind ASimplementation plan.

- It casts responsibility on the Audit Committeesof the Boards to oversee the progress of theInd AS implementation process and report tothe Board at quarterly intervals.

- It introduces additional reporting requirementsuntil implementation, according to which banksneed to submit ‘ProformaInd AS FinancialStatements’ to the RBI from half year ending30 Sept 2016 onwards and disclose the strategyfor Ind AS implementation, including theprogress made, in their Annual Reports for FY2016-17 and FY 2017-18.

- It requires banks to assess the impact of the IndAS implementation on their financial position,including the adequacy of capital, taking intoaccount the Basel III capital requirements.

- RBI has identified the following as criticalissues which need to be factored in the Ind ASimplementation plan:o Ind AS Technical Requirementso Systems and processes

Dr. (CA.) Rajkumar S. [email protected]


o Business Impacto Evaluation of human resourceso Project management

The RBI itself has undertaken the responsibility tofacilitate the implementation process and issuenecessary instructions/guidance/clarifications onrelevant aspects as and when required and holdperiodic meetings with banks in this regard.

Implementation Issues

Effective Ind AS conversion is far more than atechnical challenge of adopting a new accountingstandard as it would require considerablecontribution from almost every functional anddecision-making unit within the organization,including IT, HR, finance, marketing and investorrelations. Inappropriate preparation can result in thevolatility of reported results beyond the expectedlevels and the level of execution risk may becomeunsustainable. Further, income volatility caused dueto implementation of Ind AS would be required tobe explained to the markets, to avoid undermininginvestor confidence.

Implementation of Ind AS by banks is not going tobe a simple affair as this would require profoundtransformation in the way the banks judgeperformance and value, and may require a decisiveshift in areas ranging from product design, lendingpolicies and earnings management to informationsystems, market communications and performance-based pay. Besides, Ind AS has broad disclosuresrequirements, which would require extensive datamining. Banks need to carefully analyze thedifference between current accounting practicesfollowed and the requirement of Ind AS and planthe transition accordingly.

Even before the announcement by the RBI inregards to transition to Ind AS, RBI has constituteda Working Group on the Implementation of Ind ASby banks in India (herein after referred to as WG)under the Chairmanship of the ShriSudarshan Sen.The group submitted its report on September 8, 2015wherein it identified the following key areas with afocus on financial instruments:

A. Classification and Measurement of FinancialAssets

B. Classification and Measurement of FinancialLiabilities

C. Hedge Accounting and Derivatives

D. Fair Value Measurement

E. Impairment of Financial Assets

F. Presentation of Financial Statements andDisclosure

G. Derecognition, Consolidation and OtherResiduary Issues

Let’s briefly understand the underling transitionissues and recommendation in respect to above:

A. Classification and Measurement of FinancialAssets:

Currently classification of investments by banksis made as per the guidelines of the RBI. Theentire investment portfolio (including SLR andnon- SLR category) of the bank is classifiedunder three categories viz. ‘Held to Maturity’(HTM), ‘Available for Sale’ (AFS) and ‘Heldfor Trading’ (HFT). Such classification isdecided on model based on “intention” and“ability’ which is completely dispensed with inunder Ind AS 109 Financial Instruments whichnow requires classification based on BusinessModel and the Cash Flow characteristics. IndAS 109 requires all financial assets to beclassified at amortized costs, fair value throughother comprehensive income (FVOCI) or fairvalue through profit or loss (FVTPL). The cashflow characteristics should be ascertained andthose that are solely payment of principal andinterest (SPPI criteria) on the principal amountoutstanding alone qualify to be classified as‘amortised cost category’. To bridge the gap,the WG has advised RBI would need to suitablyalign/withdraw the extant instructions onclassification of investment portfolios as outlinedin the Master Circular on Prudential Norms forClassification, Valuation and Operation ofInvestment Portfolio by Banks dated July 1,2015. Implementation of Ind AS would requirethe extensive exercise of reclassifying the eachitems of Financial Asset according to Ind AS as

Ind AS Adoption by Banks in India


this would ultimately affect the retained earningsor the profit and loss account on an on-goingbasis. Moreover since the above classificationwould be based on the business model test andthe contractual cash flow tests, banks would haveto document approved policies and processes asdetermined by their Key Management Personnelto justify classification. The business model testhas to be performed at the portfolio level or sub-portfolio level requiring Banks to bifurcate itsportfolio as per the business model objective.There could, of course, be more than onebusiness model, meaning there could be a sub-portfolio meant for trading and another meantfor collecting contractual cash flows or for bothcollecting contractual cash flows as well as fortrading purposes. The challenge would be todetermine these and make an appropriateclassification.

B. Classification and Measurement of FinancialLiabilities

Ind AS 109 requires all financial assets andfinancial liabilities to be initially measured atfair value (plus / minus transaction cost in caseof those not measured at FVTPL) as againstthe current practice of recording them attransaction price. In most situations, thetransaction value will be the fair value on initialrecognition and as such no significant changesfrom current practices will be required exceptfor certain types of transactions.e.g. wherepreferential rates of deposits offered.

In respect to demand deposits which aregenerally interest free, the current practices neednot be altered. However, in case of saving bankdeposit since the rate of interest have been de-regulated and rate fixed by banks may bedifferent from the market rate, banks will needto consider if their deposit rates are in line withthe market range of rates being offered. In casethey are different, fair value of such depositwould be required to be determined which asper the requirement of Ind AS cannot be lowerthan the amount that can be withdrawn ondemand. Therefore, a process needs to beinstituted to ensure that there is a periodic

comparison / analysis of market rates. Similarprocess would be required in case of termdeposits. It is interesting to note here that ifincentive based interest rates are offered toemployees and ex-employees for term deposits,the difference between fair value andtransaction price would be considered as anemployee cost whereas where preferentialinterest rates are offered to senior citizens itwould not normally require adjustment as theseare industry practice. In case of financialguarantee contracts, issue would arise in caseswhere guarantees are not adequately priced bythe bank or where the bank recognises the entireguarantee commission upfront on the issuanceof such a product as Ind AS requires guaranteecommissions to be recognised over the life ofthe commitment period.

As regards subsequent measurement ofFinancial Liability, Ind AS 109 requiresfinancial liabilities held for trading andderivatives to be classified under FVTPL whileall other financial liabilities are measured atamortised cost, unless the FVTPL designationoption is used subject to certain stringentconditions. This is considerable departure fromcurrent practice of recognizing all FinancialLiabilities except for certain derivatives at cost.One other important aspect of Ind AS is thatthe transaction costs incurred in issuance offinancial liabilities subsequently measured atamortisedcost, that are incremental for an entityand are directly attributable to the issuance ofthe related liability are capitalized andrecognised as part of the Effective Interest Rateof the instrument issued. This would result inrecognision of these costs over the period ofthe related liability which is against the currentprovisions of Section 15 of the BankingRegulation Act. Therefore, WG has suggestedamendment of this section.

Ind AS 32 prescribes stringent requirementsoffsetting/ netting of financial assets andliabilities based on ‘legally enforceableunconditional right’ and ‘intention’. The issuemay arise in respect to Presentation of Inter



Bank Participation Certificates (IBPC) with risksharing where the issuing bank, show itsadvances as net amount after deducting theaggregate amount of participation. This practicewould not meet Ind AS 32 Financial InstrumentPresentation, requirements and hence RBI mayconsider withdrawing the accounting relatedaspects of the circular DBOD.No.BP.BC.57/62-88 dated December 31, 1988, so that thereis no contradiction with Ind AS.

Certain issues may also arise in respect to debtequity classification as per Ind AS 32 in respectto following instruments for which banks needto carefully study the Ind AS requirement andWG recommendation:- Perpetual Debt Instruments (PDI)

qualifying for Additional Tier 1 Capital

- Perpetual Non Cumulative PreferenceShares (PNCPS) as Additional Tier 1Capital

- Debt instruments qualifying as Tier IICapital

- Perpetual Cumulative Preference Shares(PCPS) / Redeemable Non CumulativePreference Shares(RNCPS) / RedeemableCumulative Preference Shares (RCPS) –qualifying for Tier II capital

C. Hedge Accounting and Derivatives

Derivatives and hedging has close nexus withbanks as banks undertake transactions inderivatives both as market makers and ascustomers for hedging their own underlyingrisks. Indian banks has been following variedproduct based guidance on different types ofderivatives unlike Ind AS 109 which hascomposite fundamental based approachtowards hedging and requires all financialderivatives to be measured at fair valueirrespective of the derivative type with gainsand losses being recognised in profit & lossaccount except in case of derivatives whichform part of an effective hedging relationship.The following are notable issues in this regards:

· RBI through its circular no. MPD.BC.187/07.01.279/1999-2000 dated July 7, 1999, has

instructed banks to account for Interest RateSwap which hedges interest bearing asset orliability on accrual basis except the swapdesignated with an asset or liability that iscarried at market value or lower of cost ormarket value in the financial statements. Thisis not in line with the requirements of Ind AS109, hence RBI may consider its withdrawal.

· In respect to Exchange Traded Interest RateDerivatives, banks currently follow GuidanceNote on Accounting for Equity Index Futuresissued by ICAI. Based on IFRS 39, it requiresdogmatic 80% to 125% testing range forassessing the hedge effectiveness which hasbeen dispensed with in Ind AS 109 that requiresan objective test that focuses on the economicrelationship between the hedged item and thehedging instrument.

D. Fair Value Measurement

Fair Value measurement is another area ofconcern for banks due absence of deep bondand security markets in India. Though theinvestment by banks in liquid and listed equityinstrument are not cause of concern, it will beinteresting to observe the stand taken by RBIin respect to complex and illiquid instrumentsthat may require valuations certified by anexternal valuer/ expert and equity instrumentsthat are neither quoted nor traded and wheredata for valuation is neither reliable, noradequate or timely. WG is of opinion that RBImay provide an carve out by requiring suchinstruments to be measured at carrying cost andsubjected to testing for impairment or by othermeasures including limiting6 the extent of suchinvestments, imposing additional capitalrequirements, etc. Determination of fair valueaccording to Ind AS 113 Fair ValueMeasurement would also be a departure fromRBI extant guidelines and RBI would therebyrequired to modify or withdraw those to complywith Ind AS 113.

E. Financial Instruments Impairment

Identifying impairment loss on financialinstrument by banks at right time is of utmost



importance for economic viability of anybank.The impairment model in Ind AS 109 isbased on the expected credit losses. WhereasRBI’s prudential norms require percentage-based provisioning based on days past dueconcept (“90 day norm”) that ensures consistentapplication across the banking system. To builda cushion against the build-up of non-performing assets (NPA), the RBI has alsoprescribed a provision on standard assets,which is broadly based on the principle ofexpected loss provisioning. The Ind AS 109application would require complete change inapproach as banks would have to designprocesses to get forward looking approach toidentify expected credit losses. AS per Ind AS109 on day one, impairment loss allowance isto be recognised on the 12-month expectedcredit losses (stage 1), which reflects unbiasedand probability weighted amount that isdetermined by evaluating a range of possibleoutcomes adjusted for the time value of moneybased on reasonable and supportableinformation that is available withoutundue costor effort about the past performance, currentconditions and forecast of future economicconditions as well. If the credit risk increasessignificantly in future and the resulting creditquality is not considered to be low credit risk,full lifetime expected credit losses arerecognised (Stage 2).Once the credit risk of afinancial asset increases to the point that it isconsidered credit-impaired, interest revenue iscalculated after netting the impairmentallowance from the gross carrying amount(Stage 3). When the asset moves from stage-3to stage-2 (where the credit risk increasessignificantly from the credit risk at the date ofinception), interest would be recognised on thecarrying value. For a purchased or originatedcredit impaired asset interest recognition wouldalways be on the amortised cost and wouldnever revert back to the carrying value.

The application of impairment model prescribedunder Ind AS 109 would be huge challengeand would greatly enhance the provisioning

requirements thereby also affecting the openingcapital and retained earnings. WG hasconsidered alternative on this issue and hassuggested the following approach for RBI’sperusal. “The extant income recognition, assetclassification and provisioning (IRACP) normshave stood the test of time and served thebanking system well. In order to facilitate a fullmigration to Ind AS as well as ensureregulatory comfort with the provisioning forimpairment, the RBI could consider prescribingthe current IRACP norms with suitablemodifications11 as a prudential floor. Whereimpairment requirements as per the banks’ ownECL models are lower than the prudential floor,banks may be required to appropriate thedifferential amount to a prudential reserve,below the line. Any subsequent withdrawalsfrom such a prudential reserve would requireprior RBI approval”.

F. Presentation of Financial Statements andDisclosure

Currently bank follow format prescribed inSchedule III of Banking Regulation Acthowever, Ind AS does not prescribe any fixedformat. The current format may require changesand to ensure uniformity and comparability, RBImay prescribe a format keeping in view therequirements of Ind AS. particularly ascontained in Ind AS I Presentation of FinancialInstruments, Ind AS 107 Financial InstrumentsDisclosure and Ind AS 32 Financial InstrumentPresentation. It should be noted that RBI hasalready prescribed a format for “performaIndAS half yearly statement via its circular no. D.R.BP.BC. No.106/21.07.001 / 2015-16 dated

rd23 June, 2016.

G. Derecognition, Consolidation and OtherIssues

There would be further issue in implementationof Ind AS by banks like in relation toderognition of financial assets, segmentalreporting, consolidation, etc. Some of them arediscussed briefly:



(a) Derecognition criteria as per RBIguidelines are very strict as compared toInd AS and financial assets which requiresderecognition under Ind AS may notqualify for derecognition under extant RBIguidelines. The extant guidelines are basedon “true Sale’ model. For instance currentRBI guidelines for derecognition ofSecuritization financial assets require thesale to be only on cash basis and theconsideration to be received not later thanat the time of transfer of assets to the SPV.Further, if the originator indulges in marketmaking or dealing in the securities issuedby the SPV it shall result in a violation ofthe true sale criteria. Ind AS109 does notspecify such requirements implying thateven where the sale is on a non-cash basisor subsequent trading is carried out in thefinancial assets sold, the assets wouldremain derecognised subject to the Ind AS109 specified derecognition criteria.

(b) Segment Reporting: Identification ofsegments under existing GAAP is basedon related product and services andgeographical areas. RBI has also specifiedthe business segments as ‘Treasury’,’Corporate/ Wholesale Banking’, ‘RetailBanking’ and ‘Other Banking Business’.An indicative list of items to be includedunder each category has been prescribed.The geographical segments will bedomestic and international. However,under Ind AS 108 Segment Reporting, theidentification of segments would be basedon management approach, though thethreshold remains the same.

(c) Consolidation :The present RBIguidelines require all related entities of thebank to be consolidated with the parent onthe lines prescribed in the variousAccounting Standards issued by the ICAI.Investment in Regional Rural Banks(RRBs) sponsored by banks are treated asinvestments in associates for the purposeof consolidated financial Statements and

accounted by “Equity Method” asprescribed under AS 23. The accountingof investments in subsidiaries which are notconsolidated and associates which areexcluded under AS 23, is as per therelevant valuation norms issued by ReserveBank of India. Investments in joint venturesare to be accounted for using the‘proportionate consolidation’ method as perAS 27 on “Investments in Joint ventures”issued by ICAI. The main issue inimplementation of Ind AS will be becauseof change in definition of control. Thedefinition of control in existing GAAP isrule based i.e. ownership of more than 50%of voting power or control of compositionof Board whereas those under Ind AS isprinciple based. AS per Ind AS 110,Investor control investee when it is exposedor has right to variable returns frominvolvement with investee and has abilityto effect those returns and this model isapplicable to all entities including specialpurpose entities, structured entities andvariable interest entities. Therefore,implementation of Ind AS will requiremanagements to exercise significantjudgment to determine which entities arecontrolled and hence would beconsolidated.

Conclusion

Since Ind AS 109 is similar to IFRS 9, which isglobally going to be implemented from 1st January2018 and Indian banks will be implementing itahead of it, from 1st April 2017 it would not haveany precedents of experience. Thus, the banks willtake a big leap from rule-based to principles-basedprovisioning and accounting. Besides change inAccounting Norms, implementing Ind AS wouldrequire wide range restructuring in IT Needs,Investor relationship, product groups, marketing,etc. Therefore, those at helm of affairs in IndianBanks need to gear up for the daunting task of IndAS implementation.

❉ ❉ ❉



Digital Footprint : A TwoSided Digital Business Model

Technology is constantly changing around us. Weuse it every day to understand, store, manage, share,navigate and communicate with the world aroundus. But, what we are leaving behind is DigitalFootprints. Just as we walk, we leave footprintsin the sand; we leave Digital footprints as we surf.Unlike footprints left in the sand at the beach, ouronline data trails often stick around long even afterthe tide has gone out and even can say about wherewe have been, for how long, and how often andthe Inter-relationships.

What is Digital Footprint ?

On the Internet, a digital footprint is the word usedto describe the trail, traces or “footprints” thatpeople leave online. This is information transmittedonline, such as forum registration, e-mails &attachments, uploading videos or digital images andany other form of transmission of information —all of which leaves traces of personal informationabout yourself available to others online. A digitalfootprints serves as a kind of history of what you’vedone online, and forms basis of your onlinereputation. It’s important to know not just what yourdigital footprint is, but what it might be saying aboutyou.

Digital Footprints are more often called as twosided business model, as there are many activeInternet users who create their Digital Footprintson the Internet to create their own Digital identitythrough Blogs, Posts, Presentations etc. And asmore internet users have become comfortable withthe idea of authoring and posting content online,they have also become more aware of theinformation that remains connected to their nameonline. While there is another side to it as well.When we use some form of digital service, media,application, appliance, object or device, or in somecases as we pass through or by, we knowingly orunknowingly leave behind digital footprints,which in turn is used to monetize by theorganizations, with which we might not have anyrelations.

Types of Digital Footprints:

There are mainly two types of Digital Footprints :Active and Passive Digital Footprints.

(1) Active Digital Footprint:

Personal data made accessible online throughdeliberate posting or sharing of informationby the user. The more content we contributeto the public or semi-public corners of the Web,the more we grow our active digital footprint.

(2) Passive Digital Footprint:

Personal data made accessible online with nodeliberate intervention from an individual.

In an Online mode, Active Digital footprints arestored by a User by logging into a site, creatingblog or post. And Passive Digital Footprints maybe stored in an online data as a Hit. This footprintmay track the User IP Address, when it was createdand where they came from, with the footprint laterbeing analysed.

CA. Umesh [email protected]

CA. Zalak [email protected]


In an Offline Mode, Active Digital footprints arestored in Files using keylogger, so logs can showthe actions performed on the machine and whoperformed them. Whereas Passive footprints maybe stored in files, which can be accessed byadministrators to view the actions performed on themachine, without being able to see who performedthem.

In this digital era, where Digital footprints aregaining importance, We need to stop talking aboutData privacy and start talking about control overdata. A survey says that about 56% of Internet UsersSearch about themselves on Internet. Males andFemales search for information about themselvesin equal numbers, but those with higher levels ofeducation and income are considerably more likelyto monitor their online identities using a searchengine. The digitization of public records and theincreasing accuracy of search engines has made iteasy in recent years for the general population tojoin creditors, law enforcement, and otherprofessional investigators in the hunt for individuals’personal information

Difference between Identity and DigitalFootprints

There is very thin line between your Identity andDigital Footprints. Identity is something which isproof of who I Am? Your Driving License, Passport,Bank Details, Credit History, Social Security,Certification etc define your Identity. WhereasDigital Footprints are the Collections, Store,analysis and Value created from digital Data fromMobile, Web and TV click data, content data, mydata and social context of an individual.

Think Twice, Digital Footprints Matters:

There are often people who says, “I have nothingto hide about myself, then why should I care aboutmy Digital Footprints?” But, you must be awarethat your digital footprints reveal a lot about youthan you might have thought about. Your likings,your Habits, your interests and also theseinformations have a lot of commercial value.

Reasons why Digital Footprints Matters?

(1) Protecting your reputation :

Even if you have nothing to hide, not all theinformation are appropriate to share with allthe audience, all the time. Your digital footprintscan be taken out of context and may bemisinterpreted, which in turn may causedamage to your reputation. Reputation is asocial Inter-personal Judgement, tempered byforgiveness and forgetfulness. You cannot relyon Internet for any of those.

(2) Maintaining your ability to decide whetherand how your personal information isshared :

Are you logged into Twitter, Facebook, orGoogle right now? If so, they’re tracking yourvisits to any webpage with a Like, Tweet, or+1 button whether or not you click on thatbutton. We all are comfortable sharing certaininformation in specific context only. We mightshare certain Informations with certainorganisations only for specific purpose, but thatdata might spread across. With today’s trackingmechanism most Internet users don’t havecontrols, which prevents that kind of spread.

(3) Preventing Financial Loss :

Identity Theft is a global issue. As digitalfootprints are aggregated into LargerDatabases, digital thieves can facilitate intoidentity related crimes. They can also hack yourpersonal accounts. For example, if you havekept security question as, “What was the nameof your First Pet?” and which you have alreadyshared somewhere in some other context,without thinking about probable damage it cancause. It would be all easier for digital thievesto impersonate all those profiles for financialGain or other privacies. Even other personsdigital footprints can affect your creditworthiness. It may be possible that otherestablishments who has used your accounts orcredit cards are performing poorly, which maycause reducing your credit limits or HigherInterest rates on credit facilities you enjoy.

Digital Footprint : A Two Sided Digital Business Model

contd. to page 511


Right to practice and right to appear/plead in court:

The right of an advocate to practice envelopes a lotof acts to be performed by him in discharge of hisprofessional duties. Apart from appearing in thecourts he can be consulted by his clients, he can givehis legal opinion whenever sought for, he can draftinstruments, pleadings, affidavits or any otherdocuments, he can participate in any conferenceinvolving legal discussions, etc. The right to practiceand right to appear in the courts are not synonymous.An advocate may carry on chamber practice or evenpractice in the courts in various others ways e.g.drafting and filing of pleadings and vakalatnama forperforming those acts. For that purpose his physicalappearance in courts may not all be necessary.Conduct in court is a matter concerning the courtand hence the Bar Council cannot claim that whatshould happen inside the court could also be regulatedby the Bar Council in exercise of his disciplinarypowers. The right to practice, no doubt, is thus thegenus of which the right to appear and conduct casesin the court may be specie. But, the right to appearand conduct cases in the court is a matter on whichthe court must have the major supervisory power.Hence, the court cannot be divested of the control orsupervision of the court merely because it mayinvolve the right of an advocate.

[Mahipalsingh Rana, Advocate vs. State of UttarPradesh (2016) (8 SCC 335)]

Exercise of judicial powers by a judge:

It is well settled position in law that a judge isexpected to act in consonance and accord with thelegal principles. He cannot assume the power onthe basis of his individual perception or notion. Hemay consider himself as a candle of hope butapplication of the said principle in all circumstancesis not correct because it may have the effectpotentiality to affect the society. While using the

Glimpses of SupremeCourt Rulings

Advocate Samir N. [email protected].

14power he has to bear in mind that “discipline” and“restriction” are the two basic golden virtues withinwhich a Judge functions. He may be one whowould like to sing the song of liberty and glorifythe same abandoning passivity, but his solemnpledge has to remain embedded to the Constitutionand the laws. There can be deviation.

[State of Gujarat and another vs. Lalsingh aliasManjitsingh and others (2016)(8 SCC 370)]

PE in India:

SLP granted against High Court ruling that even ifthe place of business squarely falls within thedefinition of paragraph 1 of the article 5 and isspecifically listed in paragraph 2 of the said article,same would, nonetheless, not be construed as PEof an enterprise, if it falls within any of theexclusionary clauses contained in sub-paras (a) to(e) of paragraph 3 of article 5 of DTAA. SLPgranted against High Court’s ruling that whereassessee, a UAE-based company, in course ofcarrying out contract with ONGC for installationof petroleum platforms, availed services of ASL forproviding marketing information and other facilitiesIndia, since ‘ASL’ was not authorised to concludecontract on assessee’s behalf, it could not beregarded as department agent PE (DAPE) of theassessee in India.

SLP granted against High Court’s ruling that whereassessee company, in order to carry out contractwith ONGC for fabrication and installation ofpetroleum platforms, opened its project office inMumbai, since said office was merely acting as acommunication channel, it would clearly clarify asan activity of axillary character and, therefore, itcould not be construed as assessee’s PE in India.

[DIT vs. National Petroleum Construction Co.(2016) (242 Taxman 250) ]❉ ❉ ❉

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(1) Requirement for a political party toclaim exemption u/s 13A :

(2) Four kinds of report by CharteredAccountant.

CIT v/s. Janata Party(2016) 383 ITR 146 (Delhi)

Issue:

(1) What are the requirements for a political partyfor maintaining accounts?

(2) How a Chartered Accountant has to give reporton the accounts of a political party.

Held:

The three mandatory requirements for availing ofthe benefit of exemption under section 13A of theIncome Tax Act, 1961 are that a political party (a)has to keep and maintain such books of accountand other documents as would enable the AssessingOfficer to properly deduce its income therefrom (b)has to, in respect of each voluntary contribution inexcess of Rs. 10,000, (now enhanced to Rs. 20,000/-) keep and maintain a record of such contributionand the name and address of the person who hasmade such contribution; (c) has to have its accountsaudited by an accountant as defined in theExplanation below section 288(2) of the Act.Therefore, the role of the auditor in the matter ofpolitical parties claiming exemption under section13A of the Act is critical. The provisions of sections142 to 145 of the Act are applicable to politicalparties as much as they are to other assessees. Aslong as a political party continues to avail of theexemption from payment of income-tax, there canbe no excuse for not maintaining its accountswhether it has one or more State units. Where inany particular financial year, a political party isunable to maintain its accounts for any reasonwhatsoever, or satisfy the pre-conditions set out in

CA. C. R. [email protected]

the proviso to section 13A of the act, an exemption

cannot possibly be granted from payment of incometax for that financial year.

A chartered accountant can possibly give four kindsof audit reports. The first is to state that the completeaccounts have been produced and they representthe “true and fair view” of the financial affairs ofthe assessee. The second is to give a qualified auditreport highlighting which matters have not beenfully explained by the assessee. The third is to givean adverse report to the effect that the completeaccounts have not been placed before the auditorand therefore it cannot be said that they depict trueand fair view of the financial affairs of the assessee.The fourth is to candidly state that it is not possibleto give an audit report since the accounts have notbeen maintained in the manner required.

Principle of Natural JusticeZuari Global Ltd v/s. Pr. CIT(2016) 383 ITR 171 (Bom)

Issue:

Whether refusal of adjournment on a valid reasonis breach of natural justice?

Held:

On the date when the matter was posted for hearingof the assessee’s appeal before the Tribunal, counselfor the assessee could not appear owing to a deathin his family. The Tribunal refused to grant anadjournment and proceeded to decide the matteron the merits. On appeal:

Held, allowing the appeal, that considering that theassessee was not unnecessarily delaying the matterand as on the relevant date there was justifiablereason which prevented counsel for the assesseefrom being present before the Tribunal, the Tribunalwas not justified to refuse an adjournment. Failureto grant a short adjournment had resulted in passingthe order in breach of the principle of natural justice.

From the Courts

CA. Jayesh C. [email protected]

[The order passed by the Tribunal without giving

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opportunity of hearing to the assessee was quashedand set aside. The appeals preferred by the assesseebefore the Tribunal were restored. The Tribunal wasdirected to decide the appeals afresh after hearingthe parties in accordance with law.]

(1) Importance of Budget Speech ofFinance Minister.

(2) Tests for determining whether profitarising from business.

CIT v/s. Meghalaya Steel Ltd(2016) 388 ITR 217 (SC)

Issue:

(1) Weight of Finance Minister’s speech forinterpreting the Act.

(2) What are the tests for determining whetherprofit is arising from business?

Held:

(1) The speech of a Minister is relevant in so far itgives the background for the introduction of aparticular provision. It is not determinative ofthe construction of the provision, but gives thereader an idea as to what was in the Minister’smind when he sought to introduce it.

(2) An important test in order to determine whetherprofits and gains are derived from business oran industrial undertaking is that there shouldbe a direct nexus between such profits andgains and the industrial undertaking or business.Such nexus cannot be only incidental.

Conversion of firm into LimitedCompany : No Capital GainCADD Centre v/s. Asst. CIT(2016) 383 ITR 258 (Mad)

Issue:

Whether Capital Gain arises on conversion of apartnership firm into a limited company?

Held:

When a firm is transformed into a company, thereis no distribution of assets and no transfer of capitalassets as contemplated by section 45(1) of theIncome Tax Act, 1961.

From the Courts

There is no authority for the proposition that evenin cases where the subsisting partners of a firmtransfer assets to a company, there would be atransfer, covered under the expression “orotherwise” in section 45(4). When a firm istransformed into a company with no change in thenumber of partners and the extent of property, thereis no transfer of assets involved and hence, there isno liability to pay tax on capital gains.

In order to bring a transaction under the ambit ofcapital gains, it is a must that the receipt or accrualmust have originated in a “transfer” within themeaning of section 45(1) read with section 2(47)of the Act. The transfer presumes the existence ofboth the asset and the transferee, to whom, it istransferred.

Reassessment notice u/s 143(2) and Sec.292BBPr. CIT v/s. Silver Line(2016) 383 ITR 455 (Delhi)

Issue:

Whether non issuance of notice u/s 143(2) of theAct would make reassessment u/s 148 valid byvirtue of Sec. 292BB of the Act?

Held:

The proposal to reopen an assessment under section147 of the Income Tax Act, 1961, is to be based onreasons to be recorded by the Assessing Officer.Such reasons have to be communicated to theassessee. Merely because the assessee participatesin the proceedings pursuant to such notice undersection 148 of the Act, it does not obviate themandatory requirement of the Assessing Officerhaving to issue to the assessee a notice under section143(2) of the Act before finalizing the order ofreassessment. A reassessment order cannot bepassed without compliance with the mandatoryrequirement of notice being issued by the AssessingOfficer to the assessee under section 143(2). Therequirement of issuance of such notice is ajurisdictional one. It does go to the root of the matteras far as the validity of the reassessment proceedingsunder section 147/148 of the Act is concerned.

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Section 292BB was inserted in the Income Tax Act,with effect from April 1, 2008. It talks of thedrawing of a presumption of service of notice onan assessee and is basically a rule of evidence. Itintroduces a fiction that once the assessee appearsin any proceeding or has co-operated in any enquiryrelating to assessment or reassessment it shall bedeemed that any notice under any provision of theAct that is required to be served has been dulyserved upon him in accordance with the provisionsof the Act and the assessee in those circumstanceswould be precluded from objecting that a noticethat was required to be served upon him under theAct was not served upon him or not served in timeor was served in an improper manner. The failureof the Assessing Officer, in reassessmentproceedings, to issue notice under section 143(2)of the Act, prior to finalizing the reassessment order,cannot be condoned by referring to section 292BBof the Act.

Note: Also see: Pr. CIT v/s. Shri Jai ShivshankarTraders Pvt. Ltd. (2016) 383 ITR 448 (Delhi)

Recovery proceedings : Disposal of StayPetition is a mustKhandelwal Laboratories Pvt. Ltd. v/s.Deputy CIT(2016) 383 ITR 485 (Bom)

Issue:

Whether before proceeding to recover I.T. demand,is it necessary for Assessing Officer to dispose offstay petition and pass an order thereon?

Held:

Section 220(6) of the Income Tax Act, 1961provides that where an assessee has filed an appealagainst the assessment order to the Commissioner(Appeals) it is entitled to file an application to theAssessing Officer to treat the assessee as not beingan assessee in default, consequent to the noticeunder section 156 of the Act, till such time as itsappeal filed before the Commissioner (Appeals) isdisposed of. This right to file an application undersection 220(6) of the Act is a statutory right availableto an assessee. Any action to recover taxes adoptingcoercive means is not permissible till the assessee’s

application for stay under section 220(6) of the Actis disposed of. An order disposing of the stayapplication must give some prima facie reasons inthe context of the submission for stay made by theassessee.

Precedent : Effect of decision ofJurisdictional High Court andCoordinate TribunalsHDFC Bank Ltd. v/s. DCIT(2014) 383 ITR 529 (Bom)

Issue:

How the decisions of Jurisdictional High Court andCoordinate Tribunals are to be given effect to?

Held:

The doctrine of precedent ensures certainty of law,uniformity of law and fairness meeting some of theessential ingredients of the rule of law. The lawdeclared by decisions of the High Court will bebinding upon all the authorities and the Tribunalsfunctioning within the State. A decision would beconsidered to be a binding precedent only if it dealswith and decides an issue which is the subject matterof consideration. When an appeal is not entertainedthen the order of the Tribunal holds the field andco-ordinate benches of the Tribunal are obliged tofollow it unless there is some difference in the factsor law applicable and the difference in fact and/orlaw should be reflected in its order taking a differentview. The test to decide whether or not twodecisions are in conflict with each other is to firstdetermine the ratio of both the cases and if the ratioin both the cases are in conflict with each other,then alone, can it be said that the two decisions arein conflict. Once there is a binding decision of theHigh Court, it continues to be binding on allauthorities within the State till such time as it is stayedor set aside by the Supreme Court or the High Courttakes a different view on an identical factual matrixor a larger Bench of the court takes a view differentfrom the one already taken.

From the Courts

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High Court’s remarks on AssessingOfficer’s conduct on applications byassessee.Piramal Fund Mgmt. P. Ltd. v/s DeputyCIT (2016) 383 ITR 581 (Bom)

Issue:

What are the duties of Assessing Officer when anassessee presents application/petition?

Held:

“We find this conduct on the part of the AssessingOfficer to accept a stay application and notimmediately give acknowledgement of its receiptis unacceptable. The least that is expected of a civilservant is to be fair and civil. In the absence of theabove, his conduct is not one becoming of an officerbelonging to the prestigious Indian RevenueService. The least that is expected of an Officer isthat when a person files an application or/letter,which is accepted by him, an acknowledgementshould be forthwith given to the party filing theapplication or letter. In case he refuses to accept theletter he should endorse on the letter or applicationthe reason why it is not being accepted with a lineor two for the refusal to accept. In case he doesaccept it and gives an acknowledgment he can dealwith the applications/letters as is appropriate inaccordance with law. We believe that what hashappened in this case is an aberration. However,the Chief Commissioner of Income tax wouldensure that his officers do not behave in such a highhanded and unfair manner, not expected of civilservants.

Be that as it may, the stay application is still pendingdecision. Normally, we would have let theAssessing Officer decide the same. Howeverlooking at the manner in which the petitioner hasbeen dealt with by the Assessing Officer in regardto its stay application dated February 17, 2016, itwould be in the interest of justice that the applicationfor stay filed by the petitioner be heard by anotherOfficer different from the Assessing Officer, i.e.respondent No. 1 herein. The Officer to deal withthe petitioner’s stay application is to be selected or

Keyman Insurance Premium paid on

nominated by the Revenue”.

Policy of a partner is allowable.Principal CIT v/s. Ramesh Steels(2016) 384 ITR 437 (P & H)

Issue:

Whether Premium paid by a firm on KeymanInsurance Policy taken on the life of a partner isallowable as expense?

Held:

High Court has quoted the following words of theTribunal.

The object and purpose of a Keyman InsurancePolicy is to protect the business against a financialsetback which may occur, as a result of a prematuredeath, to the business or professional organization.There is no rational basis to confine the allowabilityof the expenditure incurred on the premium paidtowards such a policy only to a situation where thepolicy is in respect of the life of an employee. AKeyman insurance policy is obtained on the life ofa partner to safeguard the firm against a disruptionof the business that may result due to the prematuredeath of a partner. Therefore, the expenditure whichis laid out for the payment of premium on such apolicy is incurred wholly and exclusively for thepurposes of business.

Further Gujarat High Court has expressed thesimilar view in CIT v/s. Gem Art (2012) 252 CTR(Guj) 451.

In view of the above, there is no error in theapproach of the Tribunal accepting the claim of theAssessee.

Attachment of cash credit/loan accountis invalidKaneria Cran Ltd. V/s. Asstt. CIT(Decided by Hon. Gujarat High Courtin civil Application No. 14497 of 2014decided on 27/06/2016).

Issue:

Whether u/s 220 (3) of the I.T. Act cash credit/loanaccounts can be attached?

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From the Courts

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Held:

Hon. Gujarat High court has quoted decision ofMadras High Court on similar subject as under:

Somewhat similar situation arose before the learnedSingle Judge of Madras High Court in case of K.M.Adam v/s. Income Tax Officer, II Additional IICircle, Madras reported in 33 ITR 26. TheAssessing Officer desired to invoke powersanalogous to section 226(3) of the Act for recoveryof the tax dues of the assessee from the overdraftaccount that the assessee maintained with its bank.In such background, referring to similar provisionscontained in Section 46 of the Income Tax Act,1922, it was observed as under:

“It will be seen that this provision is analogous toan attachment of a debt or what is commonly termsa garnishee summons. The classes of persons towhom such notice could be served are two (i) anyperson from whom money is due or may becomedue to the assessee; and (2) any person who holdsor may subsequently hold money for or on accountof the assessee. The question which arises forconsideration in the present case is, as to whether abank, which has afforded overdraft -facilities to itscustomer, holds the amount, specified as that up towhich the customer may draw as either “a debtor”of the customer or holds that money on behalf of oron account of the customer”.

❉ ❉ ❉

(4) Preventing your freedom :

Your digital footprints can also affect yourfreedom, limiting your freedom to expressyourselves and in some cases even your libertyof well being. Many governments track digitalfootprints on social media and punish for givingcontroversial political statements. Surveillanceteams may be engaged in tracing data to andfrom Human Rights Activists and resulting inarrest or torture to them. Sometimes, You mayalso find your access to certain informations islimited based on the assumptions of Locationwhere you are, using data from your digitalfootprints, which may or may not be reliable.

So, more footprints we generate, more we arerisking ourselves to reputation damage,publishing our intimate details, financial loss

Audio Finger Printing

Most Internet users believe, blocking scripts and

or even limiting our freedom.

advertisement is enough to avoid being tracked. But,that is not the case. Some websites are able tomonitor and track users through audiofingerprinting. It is technique used to de-anonymiseusers surfing through a VPN network withoutdecrypting traffic. Today most of the data is nottexted data, but a data in the form of multi-media.Audio fingerprinting allows tracking users basedon HTML Canvass API and WebRTC Local IPDiscovery. It relied on audio stack of the machineand harvest audio signals of the machine to revealunique browser and device combinations.Fortunately, the Audio Fingerprinting technique isyet not widespread.

❉ ❉ ❉

contd. from page 505 Article : Digital Footprint : A Two Sided Digital Business Model

From the Courts


Grama Vidiyal Trust vs. ACIT [2016] 71taxmann.com 88 (Chennai)Assessment Year: 2009-10, 2010-11 and2011-12 Order Dated: 30th June, 2016

Basic Facts

The assessee trust was duly registered trust undersection 12AA and also under section 80Gestablished with the ideology of poverty eliminationthrough empowerment of women. Micro Creditprogramme had also been started where credit wasgiven at affordable cost. The surplus was spent oneducation of the poor and needy. During theassessment year the AO treated the assessee asbusiness entity and taxed accordingly. The CIT(A)reversed the AO contention.

Issue

Whether assessee trust was carrying on microfinance business in a commercial manner so asto earn profit and there was no charity carriedon by assessee trust, exemption under section11 could be have be granted to assessee?

Held

The activities carried on by the assessee cannot beconsidered as activities of medical relief oreducation or relief of the poor. It is true that theactivities carried on by the assessee take care of thepoor people also. But those activities cannot beclassified under any of the specific activities of reliefof the poor; education or medical relief. The correctway to express the nature of the activities carriedon by the assessee is to say that the assessee iscarrying on ‘advancement of any other object ofgeneral public utility’. Therefore, the case of theassessee is hit by proviso to section 2(15) and theassessee is not entitled for the benefit of section 11for that part of income generated in the hands ofthe assessee from running its micro finance business.Thereafter the tribunal examined the applicability

of section 11(4A). As per the Tribunal in the presentcase, there was no dispute on the fact that theassessee is carrying on the business of micro finance.The assessee is maintaining separate accounts forthe above business activities. But, the crucialquestion is whether running of micro finance is abusiness incidental to the attainment of theobjectives of the trust or not. As per Tribunal byany stretch of imagination, it is not possible to holdthat the business of micro finance is incidental tothe above stated objectives of the assessee-trust.Even if activities of the assessee were stated to berelief of poor, it was not possible to conclude thatrunning of business in the form of micro finance isincidental to carrying on of main objective of theassessee-trust and it is the main business of theassessee. Therefore, the assessee is not protectedby the provision stated in section 11(4A), either.As per the Tribunal the assessee was lending moneyat commercial rate prevailing in the market. Byadvancing loans at that rate of interest, it cannot beconsidered as an activity carried on by the assesseeas charitable and for the benefit of the public. Whenthe assessee carried on micro finance activity in acommercial line, then it is not a charitable activitybut an activity to expand the finance business bycontracting weaker section of the public and it doesnot involve any charitable activity. Therefore,looking into the activities carried on by the assessee,the tribunal agreed with the findings of the AO.

Surat Textile Mills Ltd. Vs. DCIT [2016]70 Taxmann.com 158/ 181 TTJ 181(Ahmedabad)Assessment Year: 2012-13 Order Dated:

rd23 May, 2016

Basic Facts

The assessee-company was carrying on businessof polyester chips and polyester yarn at its plant at

Tribunal News

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

Jolwa, Surat. The case of the assessee was referred

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to Board for Industrial and FinancialReconstruction (“BIFR” for short) under SickIndustrial Companies (Special Provisions) Act. Theboard sanctioned a rehabilitation scheme. . In theAY 2008-09, a rehabilitation account was openedto give effect to the order of the BIFR. Inrehabilitation scheme account, all credit amountslying in various accounts, such as, equity sharecapital account, share premium account, reservesand surplus and secured loan accounts, which wereof capital nature were transferred to credit ofrehabilitation account, and ultimately, the creditbalance in that account was used to liquidate thedebit balance of profit & loss account by way oftransfer of debit balance of P&L account to therehabilitation scheme account to the extent of creditbalance available therein was made. The adjustmentdoes not have statutory backing, and merely it wasdone as part of rehabilitation scheme as per thedirections given by the BIFR. Therefore, whilepreparing the accounts, under Schedule-VI of theCompanies Act, the assessee has considered thebrought forward loss as well as unabsorbeddepreciation, under Explanation to 115JB(2)(iii) andaccordingly has reduced the unabsorbeddepreciation of earlier years. The ld. AO observedthat the assessee ought to have computed NILunabsorbed depreciation, and it is not entitled forreduction of the book profit the unabsorbeddepreciation. The CIT (A) concurred with the AOand on merit, he was of the opinion that onceunabsorbed depreciation/loss were form part of theprofit & loss account, and such debit balance wasset-off against the credit balance available in therehabilitation account, then nothing remained withthe assessee in the books of account, which can beclaimed as reduction while computing the bookprofit for the purpose of section 115JB of theIncome Tax Act.

Issue

Whether restructuring credits brought intoprofit & loss account against accumulated debitbalance while giving effect to rehabilitationscheme would not extinguish loss anddepreciation from accounts of assessee in actualterms?

Whether such loss would be available as peraccounts prepared under Parts-II and III ofSchedule-VI of Companies Act and, therefore,assessee will be entitled to claim reduction of loss/unabsorbed depreciation, whichever is lower,from book profit?

Held

The case of the assessee is that Part-II of the Schedule,nowhere contemplates that anything recorded ontransaction of exceptional nature is to be debited orcredited to the profit & loss account. The primarypurpose of preparing profit & loss account ascontemplated in the initial provisions of Part-II ofSchedule-VI states that the profit and loss accountshall be so made out as clearly to disclose the resultof the working of the company during the periodcovered by the account and shall disclose everymaterial feature, including credits or receipts anddebits or expenses in respect of non-recurringtransactions or transactions of an exceptional nature.The profit and loss account shall set out the variousitems relating to the income and expenditure of thecompany arranged under the most convenient headsand in particular, shall disclose certain informationin respect of the period covered by the account likeprofits or losses in respect of transactions of a kind,not usually undertaken by the company orundertaken in circumstances of an exceptional or non-recurring nature, if material in amount. Apart fromthe above, the guidance note issued by the Instituteof Chartered Accountants of India on the revisedSchedule-VI to the Companies Act, 1956 lays downthat while preparing the statement of profit & lossaccount, under Part-II of the Schedule VI, companyhas to disclose the items of revenue expenses, otherdetails and profit & loss etc. There is a list of differentheads from I to XVI under which details are to bedisclosed. It provides that the expression ‘income’or ‘revenue’ is to be considered as increase ineconomic benefit during the accounting period in theform of inflows or encashment of assets or decreaseof liabilities that result in increase in equities, otherthan relating to contributions from equity participants.Similarly, expression ‘expenses’ has been defined tomean decrease in economic benefits during theaccounting period in the form of outflows, the

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depletion of assets or increase of liabilities that resultin decreases in equities, other than those relating todistributions to equity participants. There cannot beany question for including capital surplus whichcannot be regarded as income. The items in therestructuring credit came from the reserve, capitalcontribution of the equity participants etc. Therefore,there was no element of income involved in thealleged restructuring credit. In such situation, the losscannot be set-off in the accounts, which are to beprepared as per Parts-II and III of the Schedule-VI.Considering all these factors in their setting as awhole, it was held that restructuring credits broughtby the assessee to the profit & loss account againstaccumulated profit and loss/debit balance, whilegiving effect to the scheme sanctioned by the BIFRwould not extinguish alleged loss and depreciationfrom the accounts of the assessee in actual terms.Such loss would be available to the assessee as perthe accounts prepared under Parts-II and III ofSchedule-VI, and the assessee will be entitled toclaim reduction of loss/unabsorbed depreciation,whichever is lower, from the book profit whilemaking computation for the purpose of section115JB.

Mahindra TelecommunicationsInvestment (P.) Ltd. Vs. ITO69taxmann.com 431/ 180 TTJ 2016 (Mum)Assessment Year: 2008-09 Order

thDated: 24 May, 2016

Basic Facts

The assessee pursuant to a shareholders’ agreementwith AT & T Globalagreed to subscribe to andinvest in shares ofAT & T India, a company underthe Companies Act, 1956 promoted by AT & TGlobal, up to 26% of the equity capital of AT & TIndia. The balance 74% was to be held by AT & TGlobal, i.e., to the extent of the cap on the foreigndirect investment (FDI) under the extant policyregime of the Government of India (GOI) for thetelecommunication sector. AT & T Global had underthe agreement an irrevocable call option to increaseits’ holding in AT & T India to the extent permissibleby laws in India by requiring appellant company tosell shares to it or to its’ affiliates at the option price.Similarly, the assessee-company also had an

irrevocable option to sell these shares at the optionprice to AT & T Global (or its affiliates), which hadthe right to first refusal. The option by either couldbe exercised on or after three years of investmentor the elimination of the Indian Governmentregulation on foreign equity holding levels,whichever is earlier. The option price for thepurpose of the aforesaid purchase and sale wasdefined as the equity contribution plus return at 11per cent per annum compounded annually on thesaid contribution over the period of holding. Theassessee-company is also entitled to ‘call option fee’,on each anniversary of the capitalization date @5.5% of its equity contribution. For the brokenperiod since the last anniversary, the assessee wasentitled to a fee on a proportionate basis, calculatedat the said rate, from the last anniversary to the dateof divesture. As per the assessee, the income hadnot accrued in asmuch as the option had not beenexercised i.e. accrued and would only be so on the(sale) transfer of shares. In view of the revenue,income being defined to arise on the basis of time,i.e. as a linear function of and by elapse of time,accrued to assessee on time basis and accordingly,income worked out as accrued for the current year,reflected by an increase in the option price duringthe year was brought to tax.

Issue

Whether the income by way of return on ‘equity’accrues to the assessee from day to day, i.e., onthe basis of the holding period, for each previousyear comprising the holding period, or shallaccrue only on the sale of shares, i.e., on theexercise of the put option or, equivalently, calloption by AT & T Global?

Held

The Hon’ble ITAT held thatthe assessee’sinvestment in shares has to be considered inconjunction with the said agreement. The provisionof ‘call option fee’ and ‘compounding’ in theagreement are considered inconsistent withinvestment in shares proper. The arrangement is infact- AT & T not requiring any financer, but enteringthe arrangement all the same only to comply withthe GOI policy as to a cap on the foreign equity

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participation in the telecom sector for the time being,not even a financing arrangement. Regarding theright to receive, the ITAT held that it is only therealizability of the right accrued that is postponedto a later defined date, signified as the due date,which is at convenient or agreed dates of time. It isonly because the debt has arisen and accrued that itbecomes liable to be realized, even if at a later date.The ITAT held that the income being also inagreement with the matching principle ofaccountancy, also judicially approved, is thus foundto accrue from year to year, i.e., on time basis and,thus, for the relevant year.

Gera Developments (P.) Ltd VS. DCIT[2016] 72 taxmann.com 238(Pune)Assessment Year: 2008-09and 2009-10

thOrder Dated: 29 July, 2016

Basic Facts

The assessee engaged in the business of land andconstruction of buildings and it engaged Gensler,US based company to render services related toreviewing of various aspects of site and to provideconceptual designs. Assessee paid totalconsideration without deduction of withholding tax.The AO held that the payments made by theassessee to Gensler were in the nature of ‘Fees fortechnical services/royalty’ and computed the tax tobe deducted at source under section 201(1) andfurther charged interest under section 201(1A). TheCIT (A) confirmed the findings of the AO and heldthat architectural services rendered by Gensler weretaxable as ‘technical or consultancy services’ undersection 9(1)(vii)(b) and under article 12(4)(b) of theIndia-US DTAA.

Issue

Whether Payments made by assessee, Indiancompany to US company for architecturaldesign and drawings of different buildings andfacilities could not be held as fees for technicalservices as mere passing of project specificarchitectural drawings & designs withmeasurements did not amount to ‘makingavailable’ technical knowledge, know-how orprocess and, consequently, no TDS wasdeductible from said payment

Held

The tribunal held that the facts that have emergedfrom the analysis of material available on recordare: The assessee is not having any PE in India;The services were rendered by Gensler from itsoffice USA; There was no transfer of anytechnology or technical know-how; There is notransfer of any copyrighted scientific work; Thedesigns, drawings and layouts are project specific;The ownership on the drawings, specifications anddocuments have not been passed on to the assesseeand are the property of Gensler. Thus, from the factsand circumstances of the case and documents onrecord, the payment made by assessee to Gensler,USA are not in the nature of ‘royalty’ or ‘Fee forTechnical Services’. No technical know-how wasmade available to the assessee so as to bring thepayments made by assessee within the meaning of‘Fee for Included Services’. The payments madeby assessee to Gensler USA were merely for projectspecific drawings and designs without transfer oftechnology or know-how or even title in drawingand designs. The impugned order was set aside andappeal of the assessee was allowed.

Tally Solutions (P.) Ltd. Vs. ACIT [2016]160ITD 465/73 taxmann.com 70(Bangalore)Assessment Year: 2007-08; Order Dated:19th August, 2016

Basic Facts

The assessee is a private limited company engagedin the business of development and export ofcomputer software specialized in financialmanagement and accounting software. The assesseerenders software research and development servicesand other related services to its AssociatedEnterprise (‘AE’). For the year under consideration,the assessee entered into following two internationaltransactions:

Marketing expenses met during the year notrecovered and hence interest free loan; and

1. Technical services rendered to AE.

The Transfer Pricing Officer (‘TPO’) acceptedthe international transaction viz. technical

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46


services rendered by the assessee to its AE atarm’s length price (‘ALP’). However, the TPOproposed to proceed to apply the provisions ofChapter X by treating the outstanding due withthe AE as international transaction.

The TPO observed that the assessee hadextended credit facility similar to a workingcapital loan to its AE without charging anyinterest. Similar uncontrolled transaction wouldhave provided for interest.

Accordingly, the TPO was of the view that theinternational transaction representing extendedcredit facility without charging interest was notat arm’s length. Consequently, the arm’s lengthinterest was determined by the TPO byapplying Comparable Uncontrolled Price(‘CUP’) method wherein the interest rate wasdetermined at the rate of 14 per cent per annum(average yield on unrated bonds for FY 2006-07). Accordingly, the TPO proposed anadjustment.

The assessee raised objections against the actionof the TPO/AO before the DRP but could notsucceed.

Issue

Whether transaction of extending credit periodto AE was to be regarded as an internationaltransaction even if it did not give rise to anyincome?

Whether extending credit period to AE was aclosely linked transaction with transaction ofproviding services to AE or could it be treatedas an individual and separate transaction ofadvance or loan for the purpose ofdetermination of ALP?

Held

As regards the first proposition put forth by theassessee that the extending credit period cannot beregarded as international transaction in the absenceof any income arising from the said transaction, theHon’ble ITAT held that the such a proposition isnot agreeable. In this regard, the Hon’ble ITAT heldthat, if the argument advanced by the assessee is

accepted then it would result to render the provisionsof Chapter X redundant. The proposition advancedby the assessee would lead to the followingsituation:

a. If assessee charges a price lower than the ALPfrom its AE - then the said transaction wouldbe decided as per the provisions of Chapter X;and

b. On the contrary if the assessee does not chargeany price for the international transaction withthe AE - then the provisions of Chapter X cannotbe applied as claimed by the assessee.

The Hon’bleITAT held that such a propositionwould be inconsistent with the object and schemeof the Chapter X and hence cannot be accepted.

Further, the Hon’ble ITAT explained that the intentof the legislature to introduce the provisions ofChapter Xcould not be to compute income frominternational transaction, only in the case where theassessee is charging/receiving the price for theinternational transaction. If the legislature had suchan intent, then the said provision of Chapter Xwould be conveniently circumvented by each andevery assessee by not charging/receiving any pricefor the international transaction.

Further, in relation to the assessee’s reliance on thejudgment of the Bombay High Court in VodafoneIndia Services (P.) Ltd. v. UOI [2014] 368 ITR 1/50 taxmann.com 300/[2015] 228 Taxman 25, theHon’ble was rejected by tribunal on the ground thatit related to transaction which is capital in nature.Only because the related parties decide not to chargeor pay any consideration to each other, the basiccharacter and nature of transaction would notchange. In view of the same, the Hon’ble ITATheld that there is no substance in the argument andproposition raised by the assessee that provisionsof Chapter X are not applicable in this case.

As regards the alternative plea, that extending creditto AE is not an independent internationaltransaction, the Hon’ble ITAT held that extendingcredit period for realization of sales to the AE is aclosely linked transaction with the transaction ofproviding services to the AE, and, therefore,

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extending credit period cannot be treated as anindividual and separate transaction of advance orloan. In view of the same, the Hon’ble ITAT directedthe TPO / AO to redo the exercise of determinationof ALP by considering the credit period allowed inrealization of sales proceeds as closely linkedtransaction with the transaction of providingservices to the AE.

Reckitt Benckiser (India) Limited vs.JCIT [2016] 70 taxmann.com 143(Kol)Assessment Year: 2003-04 & 2004-05

thOrder Dated: 25 May, 2016

Basic Facts

The assessee was engaged in the business ofmanufacturing and trading of household products.It had made payment to its associate, a UK basedCompany which was in form of reimbursement ofthe salaries paid to two of its employees deputed inIndia for rendering technical services. The assesseefurnished Form 16 to show that it had duly deductedtax of the entire portion of salary payable to theexpats i.e. on the amount paid by the assessee plusamount paid by UK based company which issubsequently reimbursed. However the AOdisallowed under section 40(a) (i) for alleged failureof assessee to deduct tax at source

Issue

Whether payment to a non-resident companytowards reimbursement of salaries paid to itsemployees deputed in India and claim of assessee

of having paid and deducted tax at source fromamount in question as salary income was dulysupported by TDS certificates, disallowancemade by Assessing Officer under section 40(a)(i) for alleged failure of assessee to deduct tax atsource was sustainable?

Held

The tax at source was duly deducted by the assesseefrom the entire salaries paid to the concerned twoemployees including that part, which was paid byRBESL-UK in foreign currency and subsequentlyclaimed to be reimbursed by the assessee toRBESL-UK. This claim of the assessee of havingpaid and deducted tax at source from the amount inquestion as salary income is duly supported by TDScertificates issued in Form No. 16 and the same issufficient not only to establish that the amount inquestion is already subjected to TDS but also thatthere was employer-employee relationship betweenthe assessee and the concerned two employees. TheTribunal having regard to all the facts of the case,held that the assessee was not liable to deduct taxat source from the amount in question paid toRBESL-UK towards reimbursement of salary paidto expatriate employees and the disallowance madeby the AO under section 40(a)(i) for the allegedfailure of the assessee to deduct tax at source wasnot sustainable. Accordingly said disallowance wasdeleted and the assessee’s appeal on this groundwas allowed.

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47

contd. from page 495

purposes other than the materialistic pleasures couldgive immense joy and satisfaction. Instead ofunnecessarily craving for money, a person candevote his time for travelling across the globe,enjoying the nature and helping others. Acts ofkindness and brotherhood may grant morehappiness and satisfaction in the long run ascompared to the short term and short lived happinessreceived from money. In the quest to earn moneywe have started compromising with our age oldethics, values and morality.

To summate, one thing is unquestionable thatmoney and happiness may co-exist but in solitudesans linkages. What we need to be conscious of isthat Money is not bad, but the love and obsessionof it is.

The idea is not canvassing this piece as a merephilosophy but it is rather an introspection orretrospection in a generation where everyone is insearch of the twenty fifth hours. As it is rightly said,“The goal is the same - life itself; and the price isthe same - life itself”… So, relish the life to fullestand yes, “Live Life King Size”.

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In this issue we are giving gist of Hon’ble GujaratHigh Court decision in the case of EleconEngineering Company Ltd. v/s ACIT in SpecialCivil Application No. 1641 of 2015, wherein theHon’ble High Court has given a legal perspectiveas to in which case even at the behest of theobservations of the Audit party the assessment canbe re-opened u/s 147. Though this decision in away is partly against the assessee, the principleslaid down therein can be useful to decide whetherto challenge the re-opening proceedings by filing awrit petition in the Hon’ble High Court whenreopening is done on the basis of audit objection.

We hope the readers would find the same useful.

In the High Court of Gujarat at Ahmedabad

Special Civil Application No. 1641 of 2015

Elecon Engineering Company Ltd.…….Petitioner(s)

v/s

Assistant Commissioner of Income Tax –Anand Circle & 1 …. Respondent(s)

Appearance :

Mr. R. K. Patel, Mr. B. D. Karia with Mr.Darshan R. Patel, Advocate for the Petitioner(s)No. 1

Mr. K. M. Parikh, Advocate for theRespondent(s) No. 1 - 2

Coram : Honourable Mr. Justice Akil Kureshi

and

Honourable Mr. Justice A. J. Shastri

Date of decision : 30,31/08/2016

CA. Sanjay R. [email protected]

Unreported Judgements

Gist only

Facts of the case :

In this case reopening notice was issued u/s 148 byAO on nine grounds. The assessee had raisedobjections before AO in respect of all these issuesand the AO had also disposed off the objections.Thereafter the assessee carried the matter by filingwrit petition in the Hon’ble High Court. Thereopening was within a period of four years.

In the hearing before Hon’ble High Court theassessee in its assessments as well as rejoinder tothe reply filed by the department mentioned thatthe case was reopened on the basis of the auditqueries raised by the audit party and AO has notindependently applied his mind as to whether therewas a reason on his part to believe that income hasescaped assessment. For this purpose, the assesseerelied on the following decisions of Hon’ble GujaratHigh Court:

i) Gujarat Power Corporation Ltd. v/s ACIT 350ITR 266

ii) Cadila Health Care Ltd. v/s ACIT 355 ITR393

Decision :

The Hon’ble Gujarat High Court dealt with all theobjections raised by the assessee during the courseof the assessment proceedings and also in the replyfiled before them by both the parties and thenconcluded that except one Ground No. (2a), theAO had raised queries during the course of originalassessment proceedings for all the issues and theassessee had replied to all of them. For the GroundNo. (2a), the Hon’ble Gujarat High Court held thatthe AO had not enquired into that issue raised inthe reassessment notice in the original assessmentproceedings.


Thereafter, the Hon’ble Gujarat High Court dealtwith the issue about validity of the reassessmentproceedings as well as under what circumstancesthe observations of audit party could be consideredby AO for reopening of the assessment.

The Hon’ble High Court further observed that it iswell settled that even if one ground succeeds, as inthe present case, reopening would have to bepermitted. It is in this context, the question of noticeof reopening having been issued by AO at thebehest of the audit party assumed significance. TheHon’ble Gujarat High Court thereafter referred tothe following decisions to decide the point as tounder what circumstances the reopening can bedone by AO on the basis of audit objection :

i) CIT v/s PVS Beedies Pvt. Ltd. 237 ITR 13

ii) Indian and Eastern Newspaper Society v/sCIT 119 ITR 996

iii) Adani Exports v/s DCIT 240 ITR 224

and ultimately held as under :

“23.Thus there is clear distinction between asituation where the Assessing Officer acts onan information supplied by the audit party andissues a notice for reopening the assessment.In some cases, we have also noticed that theAssessing Officer is himself convinced that theaudit objection do not form valid reasons toform a belief that income chargeable to tax hasescaped assessment. He nevertheless, issues anotice for reopening clearly indicatingcompulsion to do so. In such cases, decision incase of Indian and Eastern Newspaper Society(supra) and Adani Exports (supra) wouldsquarely apply. However, situations may alsoarise where the audit party merely brings tothe notice of Assessing officer, a certain elementhaving relation to the income of the assessee.If the Assessing officer on the basis of suchinformation forms an independent belief thatincome chargeable to tax has escapedassessment, there is nothing preventing himfrom exercising power of reassessment, as washeld by the Supreme Court in case of P.V.S.Beedies Pvt. Ltd. (supra) and also noted in

judgement in case of Adani Exports (supra). Itwould therefore, be necessary for us to ascertainin which category the present case would fall.The petitioner has been contending from theoutset that the entire exercise was undertakenby the Assessing Officer at the instance of auditparty. The denials on these aspects by theAssessing Officer while rejecting the objectionsand in the reply to this petition were rathermuted. Instead of therefore, replying on thepleadings, we had called for the original filesto satisfy ourselves. We notice that the auditparty had raised several objections to theassessment carried out in case of the assesseeand these objections were brought to the noticeof the Assessing Officer. The file shows that thiswas followed by the reasons recorded by theAssessing Officer for issuing the notice. If wecompare the audit objections and the reasonsrecorded, we find that the Assessing Officer hasincluded all objections pointed out by the auditparty but has also included one more groundnamely, of the escaped capital gain on sale ofland by the petitioner to Shri Ashwin KumarB. Patel. This ground was not part of the auditobjection. In our opinion, this would indicatethat the Assessing Officer had independentlyapplied his mind and formed a belief that onthe grounds mentioned by the audit party in itsobjection letter and additional ground whichis recorded in the reasons, the incomechargeable to tax in case of assessee hadescaped assessment. We may recall the issueof capital gain tax on sale of land was referredin the letter dated 24/10/2003 by the AssessingOfficer of Shri Ashwin Kumar B. Patel. In ouropinion therefore, on this ground also, petitionmust fail.

24. In the result, petition is dismissed.”

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Unreported Judgements


The Hon. Bombay High Court in the case of CITVs. Amritaben R. Shah (238 ITR 777) has held asunder:

“The expenditure incurred by way of interest onthe loan taken by the assessee for the said purposecould not be held to be expenditure incurred whollyand exclusively for the purpose of earning incomeby way of dividends. From the nature of transaction,it was clear that the expenditure was not for thepurpose of earning income by way of dividendsbut for the purpose of acquiring controlling interestin the company and, therefore, it would not beallowable as a deduction u/s. 57(iii) of the Act.”

The Mumbai ITAT in the case of LIOYDS SteelIndustries Ltd V/s. ACIT Range 6(3) Mumbai,20SOT 40 (Mum) following the Bombay High Courtcase (Supra) has held that, “ the assessee had madethe investment of the borrowed funds in thesubsidiary companies to have a controlling interestand not to earn a dividend income. Since theinvestment in shares of subsidiary companies forcontrolling interest therein was not a part of thebusiness activities of the assessee, the interestexpenditure could not be allowed u/s. 37(1). Thisexpenditure could only be examined u/s. 57(iii), butin the light of the judgment of the judgment of theBombay High Court in the case of Amritaben R.Shah (Supra), in which it has been held that in orderto get deduction u/s. 57(iii), the expenditure shouldbe incurred wholly and exclusively for the purposeof making or earning the income from other sourcesand that it should not be in the nature of capitalexpenditure, as the investment was made to havecontrolling shares in the subsidiary companies.

View in favour of the Proposition:

In the case of CIT V/s. Srishti Securities Pvt. Ltd.

ControversiesCA. Kaushik D. Shah

[email protected].

(321 ITR 498) had notes are as under:

If the loan is taken and is invested in the sharesof subsidiary company, whereby the controllinginterest is acquired whether interest on such loanis capital expenditure or revenue expenditure?

Issue:

XYZ Ltd. had taken loan from ABC Bank Ltd.and invested in shares of its subsidiary company.RST Ltd.

whereby it has acquired controlling interest, Inassessment proceedings the AO is of the view thatinterest paid to ABC Bank Ltd. on loan is capitalexpenditure as against the claim of the assessee thatit is revenue expenditure.

Proposition:

Though ultimate motive of the assessee companywas to acquire controlling interest, yet immediatepurpose for acquisition of shares was to earn incomeby way of dividends on such shares and therefore,the assessee was entitled to deduction u/s. 57 of theIncome Tax Act, 1961 and hence the same is to betreated as revenue expenditure.

View against the Proposition:

Payment of interest on borrowed fund is allowableas deduction either u/s. 36(i)(ii) or u/s. 57(iii) of theIncome Tax Act 1961 which provide that when theassessee claims deduction of interest paid on capitalborrowed it has to show that the capital which wasborrowed was used for the business purpose in therelevant year. The sections provide as under:

1. Section 36(i)(iii):the amount of the interest paidin respect of capital borrowed for the purposesof the business or profession.

2. Section 57(iii): any other expenditure (notbeing in the nature of capital expenditure) laidout or expended wholly and exclusively for thepurpose of making or earning such income.


Controversies

“The assessee acquired shares in the financial year1993-14. They were shown as investment in thebalance sheet as on March 31, 1995 and March 31,1996 they were shown as stock-in-trade. Theassessee had borrowed funds on which the assesseepaid total interest of Rs. 14,37,255/- for whichdeduction was claimed u/s. 57(iii) of the IncomeTax Act, 1961. During the course of assessmentproceedings, the assessee claimed deduction u/s.36(1)(iii) of the Act. The assessing officerdisallowed the entire interest u/s. 36(1)(iii) on theground that the primary object of acquiring shareswas not to earn dividends but to acquire controllinginterest in the company. In an appeal preferredbefore the Commissioner (Appeals), theCommissioner (Appeals) bifurcated the interest onpro rata basis between investment and stock-in-trade. He held that to the extent the borrowed fundswere used for acquiring shares by way of stock-in-trade, the assessee was entitled to deduction ofinterest and on that basis allowed interest at Rs.96,040. The balance interest was considered asneither allowable u/s. 57(iii) nor u/s. 37(1) of theAct. The Tribunal held that the interest expenditurewas allowable u/s. 36(1) (iii) and therefore, directeddisallowance to the extent sustained by theCommissioner (appeals). On appeal to the Highcourt:

Held, dismissing the appeal that the object of theloan was irrelevant and the interest which wasdisallowed to the extent of investment would haveto be allowed.”

In the case of Pistabhai Rikhabchand Kothari theMumbai ITAT Bench IT Appeal No. 4649 (Mum.)of 2008 has held that:

We have heard the rival submissions and consideredthem carefully. After considering the submissionsand perusing the material on record. We find thatassessee deserve to succeed on the issue involved.In the case of Srishti Securities (P.) Ltd. (supra) theHon’ble Bombay High Court has held that theassessing officer disallowed the entire interest u/s.36(1)(iii) on the ground that primary object ofacquiring share was not to earn dividend but toacquire controlling interest in the company. In this

case, the Commissioner bifurcated the interest onprorate basis between investment and stock-in-trade. He held that to the extent the borrowed fundswere used for acquiring the shares by way of stock-in-trade, the assessee was entitled to deduction ofinterest and on that basis allowed the interest at Rs.96,043/-. The balance interest was considered asneither allowable u/s. 57(ii) nor u/s. 37 of the Act.The Tribunal held that the interest expenditure wasallowable u/s. 36(1) (iii) and therefore, directed todelete the disallowance to the extent sustained byCIT(A). On an appeal by department, the Hon’bleBombay High Court while dismissing the appealheld that object of the loan was irrelevant and theinterest which was disallowed to the extentinvestment would have to be allowed. Whileholding so, the Hon’ble Bombay High Court hasconsidered another decision of Bombay High Courtin the case of CIT Vs. Lokhandwala ConstructionInds. Ltd. (2003) 260 ITR 579/131 Taxman 810(Bom.) and the decision of India Cements Ltd. Vs.CIT (1966) 60 ITR 52 (SC). Learned D.R. hasstated that these decisions are not applicable on thefacts of the present case. In our view, the decisionsare very much applicable as the loan was taken foracquiring the controlling interest in the company.In the present case also, loan was taken for acquiringshares of the company and after acquiring sharesof the company. Assessee got controlling interestof the company. No doubt in earlier decision theHon’ble Bombay High Court has held that interestis not allowable if the loan is taken for acquiringcontrol interest. When two possible views are there,then the view beneficial to the assessee has to beconsidered as held by the Hon’ble Supreme Courtin the case of CIT Vs. Vegetable Products Ltd.(1973) 88 ITR 192 (SC). We further noted that incase of Vodafone International Holdings B.V.(Supra) the Hon’ble Supreme Court has observedat page 13, Para (v) of its order that controllinginterest forms an inalienable part of the share itselfand cannot be traded separately unless otherwiseprovided by the statue. Control is an interest arisingfrom holding a particular number of shares andcannot be separately acquired or transferred.Controlling interest is not an identifiable or districtcapital asset independent of holding of shares. It is


inherently a contractual right and not a property rightand cannot be considered a capital asset unless thestatue stipulates otherwise. Acquisition of sharesmay carry the acquisition of controlling interest,which is purely a commercial concept and tax islevied on the transaction, not on its effect.Controlling interest, which stood transferred toVodafone from HTL accompanied the CGP shareand cannot be dissected so as to be treated as transferof controlling interest of Mauritian entities and thenthat of Indian entities and ultimately that of HEL.Thereafter, the Hon’ble Supreme Court has heldthat capital gain chargeable u/s. 45 and theircomputation is to be in accordance with theprovisions that follow section 45 and there is nonotion of indirect transfer in section 45. Meaningthereby, the Hon’ble Supreme Court has held thatcontrolling interest cannot be that any incomeoffered explained is allowable or not allowable ifthey are not provided specifically on the statue. Theratio of this decision can be easily imported on thefacts of the present case as acquiring of controllinginterest in the company does not bear any incomeor expenditure is to be assessed or not to be allowed.The interest is paid on borrowed funds for acquiringthe shares of a company and the dividend incomeis taxable during the year under consideration.Therefore, in our considered view, the interestincome is allowable as deduction u/s. 57(iii) or u/s.36(1) (iii) of the Act. We, Order accordingly.

Summation:

In the case of Srishti Securities Pvt. Ltd., theBombay High Court, relying on the decision ofLokhandwala Construction Inds Ltd and thedecision of India Cements Ltd, held that the objectof the loan was irrelevant and the interest whichwas disallowed to the extent of investment wouldto be allowed.

The decisions relied in the case of Srishti SecuritiesPvt. Ltd. were applicable to the facts of the presentissue since in those cases also the loan was takenfor acquiring the controlling interest in the company.In the present issue also, the loan was taken foracquiring shares of the company and after acquiring

shares of the company, the assessee had gotcontrolling interest of the company.

In the decision of the Amitaben R. Shah theBombay High Court held that interest was notallowable if the loan was taken for acquiringcontrolling interest. However, when two viewswere possible then the view beneficial to thetaxpayer had to be considered as held by theSupreme Court in the case of Vegetable ProductsLtd.

In the case of Vodafone International Holdings B.V.the Supreme Court has observed that:

Controlling interest forms an inalienable part of theshare itself and cannot be traded separately unlessotherwise provided by the statue.

Control is an interest arising from holding aparticular number of shares and cannot beseparately acquired or transferred.

Controlling interest was not an identifiable ordistinct capital asset independent of holdings ofshares.

It was inherently a contractual right and not aproperty right and cannot be considered a capitalasset unless the statue stipulates otherwise.

Acquisition of shares may carry the acquisition ofcontrolling interest, which is purely a commercialconcept and tax is levied on the transaction, not onits effect.

Controlling interest which stood transferred toVodafone from HTI (BVI) Holdings Ltd.accompanied the CGP (Cayman Islands Company)share and cannot be dissected so as to be treated astransfer of controlling interest of Mauritian entitiesand then that of Indian entities and ultimately thatof Hutchison Essar Ltd. (the Indian TelecomCompany).

Therefore, the Supreme Court held that capital gainchargeable u/s. 45 and their computation is to be inaccordance with the provisions that follow section45 and there is no notion of indirect transfer insection 45.

Controversies

contd. to page 535


Some recent decisions u/s 206C of the Act.

CIT v. Priya Blue Industries (P.) Ltd. [2016] 65taxmann.com 206 (Gujarat)

xxx…

5. From the facts as narrated hereinabove, it isapparent that the respondent assessee hadcollected and paid tax at source (TCS) on theseven items as enumerated in the orders passedby the Commissioner (Appeals) as well as theTribunal and had not collected tax at source onthe following four items :-

1. Old and used plates

2. Non-excisable (exempted) like furniture,wood, etc.

3. Trading of scrap (melting)

4. High seas sale.

6. The Tribunal, after considering the definition ofscrap under clause (b) to section 206C of theAct, has noted that the assessee is engaged inship breaking activity and the items in questionare finished products obtained from the activityand constitute sizeable chunk of production doneby ship breakers. Though such products maybe commercially known as “scrap” they are not“waste and scrap”, as such items are usable assuch, and, therefore, do not fall within thedefinition of scrap as envisaged in theExplanation to section 206C(1) of the Act.

7. Section 206C of the Act bears the heading,“Profits and gains from the business of tradingin alcoholic liquor, forest produce, scrap etc.”and provides that every person, being a sellershall, at the time of debiting of the amountpayable by the buyer to the account of the buyeror at the time of receipt of such amount from thesaid buyer in cash or by the issue of a cheque ordraft or by any other mode, whichever is earlier,collect from the buyer of any goods of the nature

Advocate Tushar [email protected]

Judicial Analysis

specified in column (2) of the Table below, asum equal to the percentage specified in thecorresponding entry in column (3) of the saidTable, of such amount as income-tax. The natureof goods specified at serial No.(vi) is scrap, andthe percentage provided is 1%. The expressionof scrap is defined under clause (b) to theExplanation to section 206 of the Act, to meanwaste and scrap from manufacture or mechanicalworking of materials which is definitely notusable as such because of breakage, cutting up,wear and other reasons. On a plain reading ofthe said expression, it is evident that any materialwhich is usable as such would not fall withinthe ambit of the expression “scrap” as envisagedunder clause (b) of the Explanation to section206C of the Act.

8. The Tribunal, in the impugned order, hasrecorded that the items/products in questionobtained from the activity of ship breaking areusable as such and, therefore, do not fall withinthe definition of scrap. However, since theassessee had not collected tax at source on itemsother than items obtained out of themanufacturing activity in the course of shipbreaking, the Tribunal has remitted the matterto the Assessing Officer for the purposegranting relief to the assessee under theprovisions of section 206C (1) of the Act withregard to only sale of scrap arising out ofmanufacturing activity in the course of shipbreaking after providing due opportunity ofhearing to the assessee. Thus, the Tribunal afterrecording a finding of fact to the effect that theproducts obtained by the assessee in the courseof ship breaking activity are usable as such,and, therefore, do not fall within the definitionof scrap has remitted the matter to the AssessingOfficer to grant relief accordingly. Essentially,therefore, the impugned order of the Tribunal


is based upon a finding of fact which does notgive rise to any question of law.

9. Insofar as the course of action adopted by theTribunal in remitting the matter to the AssessingOfficer to decide in relation to which of theitems the assessee is entitled to relief under theprovisions of section 206C(1) of the Act isconcerned, no fault can be found in theapproach adopted by the Tribunal, inasmuchas, out of the four items of which tax was notcollected at source, the matter has merely beenreferred to the Assessing Officer for the purposeof examining as to what extent relief is requiredto be granted to the assessee under theprovisions of section 206C(1) of the Act havingregard to the findings of fact rendered by it.

10. In the opinion of this court, the impugned orderpassed by the Tribunal does not suffer fromany legal infirmity so as to give rise to anyquestion of law, much less, a substantialquestion of law warranting interference. Theappeal, therefore, fails and is, accordingly,dismissed.

xxx…

Dhasawala Traders v. ITO [2016] 74taxmann.com 20 (Ahmedabad - Trib.)xxx…

5. I have duly considered rival contentions andgone through the record carefully. Expression“scrap” has been defined in Explanation-battached to Section 206C. It reads as under:

‘(b)“scrap” as “waste and scrap from themanufacture or mechanical working ofmaterials which is definitely not usable assuch because of breakage, cutting up, wearand other reasons”.

Explanation (b) below Sec. 206C (1) has twodistinct limbs. Even if one of the limbs isapplicable, an assessee can be treated as if hedeals in scrap, not usable as such:

(i) scrap means waste;

(ii) scrap means scrap generated from themanufacture or mechanical working of

6. The Tribunal has considered this aspect in the

materials.’

case of Priya Blue Industries (P.) Ltd. (supra)who was engaged in the business of shipbreaking. The finding recorded by the Tribunalreads as under:—

‘As per assessee, assessee has collected andpaid TCS on following type of items of salesduring the year.

“1. Articles of Iron & Steel Wire Ropes

2. Waste & Scrap of Castiron

3. Waste & Scrap of Copper

4. Waste & Scrap of Iron & Steel

5. Waste & Scrap of Stainless Steel

6. Waste & Scrap of Nicket

7. Waste & Scrap of GM, Gum, COP,GER.ALU.PRO”

Assessee has not collected TCS on followingtype of items sold during the year:

"1. Old & used plates

2. Non-excisable (exempted) like furniture,wood, etc.

3. Trading of scrap (melting)

4. High seas sale"

We find that ITAT ‘B’ Bench, Ahmedabad inITA Nos. 1213 and 1214/Ahd/2010 dated15.02.2011 in case of Navine FluorineInternational Ltd. v. ACIT, TDS Circle Surat,for A Y 2009-10 & 2010-11, inter alia heldthat term “waste and scrap” are one item. The“waste and Scrap” must be from manufactureor mechanical working of material which isdefinitely not usable as such because ofbreakage, cutting up, ware and to other reasons.It would mean that these waste and scrap beingone item should arise from manufacture ormechanical working of material. The wordswaste and scrap should have nexus withmanufacturing or mechanical working ofmaterials. Therefore, the word used is “whichis” definitely not usable. The word “is” as usedin this definition of the scrap meant for singularitem i.e. “waste and scrap”. As stated above,assessee is engaged in ship breaking activity

Judicial Analysis


and as given to understand these items/productsin question are finished products obtained fromthe activity. They constitute sizable chunk ofproduction done by ship breakers. Though suchproducts may be commercially known as“scrap” they are definitely not “waste andscrap”. The items in question are “usable assuch” and therefore does not fall within thedefinition of scrap as given in of section206C(1). Having said so, we restore the issueto Assessing Officer with direction to grantrelief to assessee under the provision of 206C(1)of Act, with regards to only sale of scrap arisingout of manufacturing activity in course of shipbreaking after providing due opportunity ofhearing to assessee.’

7. The finding of the tribunal has been upheld bythe Hon’ble High Court and the Hon’ble HighCourt has made the following discussion onthe issue:

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8. A perusal of the paragraph-6 of the abovejudgment, would indicate that certain itemsgenerated out of ship breaking activity mightbe known commercially as “scrap” but theyare not waste and scrap. These items are re-usable as such, and therefore, would not fallwithin the definition of “scrap” as envisaged inthe Explanation to section 206C(1). Theassessee has also contended that it was engagedin the sale of MS pipe, iron which wereobtained from ship breaking industries. Theassessee himself has not generated any scrapin manufacturing activity, as contemplated inthe Explanation. He was a trader. Therefore,the assessee has not sold scrap as such. He hassold the products resulted from ship breakingactivity, which are re-usable. Thus, the assesseewas not supposed to collect tax under section206C of the Act. The ld. AO has erred in raisingthe demand. I allow all appeals and deleteadditions.

DCIT vs Gujarat Ambuja Exports Ltd. (ITA

xxx…

Nos. 1542 to 1545 /Ahd / 2013 & CO Nos.183to186/Ahd/2013)

xxx..

5. After going through the rival submissions andperusing the material on record, the remandreport and the case laws as relied upon by theassessee, we find that the issue before us foradjudication is whether the DOC, cotton wasteand maize husk is to be treated as ‘scrap’ or‘waste’ within the meaning of definitionprovided in Section 206C of the IT Act. Section206C reads as under:-

xxx…

5.1 With respect to ‘scrap’ as in section 206C, theHon’ble ITAT, Ahmedabad happens to clarifythe definition of scrap in the case of NavinFluorine International Ltd. Vs. ACIT, 14 ITR481 (Ahmedabad). The main portion of thisjudgement is reproduced herein as under:

xxx..

5.2 According to this judgement, the ITAT-Ahmedabad has held that waste and scrap areone item and it is necessary to read waste andscrap together. It is further pointed by theTribunal that waste and scrap is a singular item,same arise out of the manufacturing/mechanicalworking on the material and same is not usableas such. It was also pointed out by the Tribunalthat fundamentally scrap and waste is small orlesser quantity of material which is left after thegreater part is used in manufacturing process.According to American dictionary, DOC isdefined as “the solid residue that is left aftercertain oily seeds, such as cotton seeds andlinseeds have been pressed of their oil. It is groundand used as cattle feed or fertilizer”. Further, inan order by the Government of India namely“The solvent extracted oil, De-oiled Meal andedible Flour (Control) order of 1967' defines De-oiled Meal (another nomenclature of DOC) as “De-oiled Meal means the residue material leftover when oil is extracted by a solvent front anyoil bearing material. The plain reading of the

Judicial Analysis


definition above indicates that it is a residuematerial having enormous economic value dueto presence of proteins even upto an extent of46%. The extent of DOC from themanufacturing process is to the tune of 80-82%by weight, meaning thereby, for 100kg of rawmaterial, about 80 kg of DOC is generated andrest is oil. Most of the sale of DOC is towardsexport sale and only a very small portionconstitutes a local sale which is not in dispute. Aplain reading of definition of scrap in light ofthe judgement in the case of NavinFlourineInternational Ltd (supra) would suggest thatscrap would include only such waste and scrapwhich arises from manufacturing or mechanicalworking of materials. Further, such scrap shouldnot be definitely usable as such. Accordingly, itwould not include in waste or scrap which eitherdoes not arise or manufacturing or mechanicalworking of materials which is usable as such.As a corollary, the by-products generated frommanufacturing process are not covered in abovedefinition since same could be as such by otherconsumers. To elaborate, perusal ofmanufacturing process of DOC amply testifiesthat the entire manufacturing process is designedto obtain two main products which are usableas such, namely, oil and DOC. This DOC whichis high in protein content is used as a fertilizer orchicken feed or cattle feed. This DOC also ispass through various other manufacturing stagesto suit the customers as is required by them. Theenormous economical value of DOC is testifiedby the fact that more than 80% is generated andout of such generation, around 90% is exportedto different countries. All the aforesaid factsindicate that DOC is a by-product and it certainlycannot be categorized as scrap and waste and ithas its own market value. Generally, the scrap iseither thrown out or sold at cheaper rate becauseit cannot be used as raw material formanufactured or different items. In the case of aby-product, it has its own market value and canbe used as such. In view of above, we find thatthe CIT (A) was justified in holding that theAssessing Officer has erred in categorizing

DOC as scrap within the meaning of Explanationto Section 206C of the Income-tax Act. This viewis also fortified by the decision in M/s. Priya BlueIndustries Pvt Ltd (supra).

xxx…

5.3.1 Considering all these facts above, we find thatthat raw cotton is only a part of raw materialwhich is of lower quality (lower count cotton)from which the thin yarn cannot bemanufactured such thick quality cotton wasseparated at the initial warehousing stage andsold off to other yarn manufacturers includingthat for export. So, the CIT(A) was justified inholding that such raw cotton does not arise frommanufacturing or mechanical working as it ismerely a segregation of raw material as waspointed out by the assessee. Therefore, thesereasoned finding of the CIT(A) need nointerference from our side, which is confirmed.

5.4 Regarding Maize Husk (Fiber), the stand of theassessee has been that it is a by-product and issold off commercially. The manufacturingprocess suggests that the maize seeds areprocessed and various products like maizestarch, blulan, gems, fiber (husk) and maize Oilare produced. From maize starch, various valueadded products like liquid glucose, dextrose,maltos, sorbitol, etc are produced. Even maizehusk is a liquid or in a dry form after dueprocessing as per the requirement of thecustomers. The percentages of husk as a by-product is close to 10% and it is mainly used inpoultry farm, animal food and pharmaindustries. Since maize husk fiber is itselfsubjected to various manufacturing stages andas enormous economic value, it is one productmanufactured and cannot be considered as awaste or scrap within the manufacturingprocess. In view of the above, the CIT (A) wasjustified in holding that main husk is a by-product and the same cannot be considered asscrap and waste as provided in the Explanationto Section 206C of the Income-tax Act.

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Judicial Analysis


CA. Savan [email protected]

Import Data Processing and MonitoringSystem (IDPMS)

In order to enhance ease of doing business andfacilitate efficient data processing for payment ofimport transactions and effective monitoring thereof,Import Data Processing and Monitoring System(IDPMS) has been developed in consultation withthe Customs authorities and other stakeholders. Thedetails of IDPMS were advised to the ADCategory-I banks vide above mentioned A.P. (DIRSeries) Circular No.65 dated April 28, 2016.IDPMS goes live with effect from October 10, 2016and banks are directed to use IDPMS for reportingand monitoring of the import transactions.

The User Acceptance Test (UAT) of IDPMS waslaunched on August 19, 2016 and banks wererequested to login and familiarise themselves. ADbanks were also advised to be ready with datarelated to all the outstanding import remittances asper the message “outward remittances againstImport” to facilitate uploading of the same inIDPMS.

A.P. (DIR Series) Circular No. 5, dated October06, 2016

For Full Text refer to https://www.rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=10633

Review of sectoral caps andsimplification of Foreign DirectInvestment (FDI) Policy

The Central Government had reviewed the extantFDI Policy on various sectors and has madeamendments in the Consolidated FDI PolicyCircular 2015 vide Press Note No. 6, 7, 8, 11 and12(all of 2015 Series).

Excerpts of the salient features are as under:

a. “Sectoral cap”, i.e., the maximum amountwhich can be invested by foreign investors in

an entity will include all types of foreigninvestments, direct and indirect, regardless ofwhether the said investments have been madeunder Schedules 1, 2, 2(A), 3, 6, 8, 9 and 10 ofFEMA (Transfer or Issue of Security byPersons Resident Outside India) Regulations,2000. Foreign Currency Convertible Bonds(FCCBs) and Depository Receipts (DRs)having underlying of instruments which canbe issued under Schedule 5, being in the natureof debt, shall not be treated as foreigninvestment under such composite limit/cap.However, any equity holding by a personresident outside India resulting from conversionof any debt instrument under any arrangementshall be reckoned as foreign investment underthe composite limit/cap.

b. A company shall be considered as owned byresident Indian citizens if more than 50% ofthe capital in it is beneficially owned by residentIndian citizens and/or Indian companies, whichare ultimately owned and controlled by residentIndian citizens.

c. ‘Control’ shall include the right to appoint amajority of the directors or to control themanagement or policy decisions including byvirtue of their shareholding or managementrights or shareholders agreement or votingagreement.

d. Foreign investment in LLP is permitted underthe automatic route if the LLP is engaged insector where 100% FDI is allowed and thereare no attendant FDI linked performanceconditionalities to the sector.


For Full Text refer tohttps://rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=10648

FEMA Updates

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Investment by a Foreign Venture CapitalInvestor (FVCI) registered under SEBI(FVCI) Regulations, 2000

In order to further liberalise and rationalise theinvestment regime for FVCIs and to give a fillip toforeign investment in the startups, the extantregulatory provisions have been reviewed. AnyFVCI which has obtained registration with SEBIwill not require any approval from RBI and caninvest in:

a) Equity or equity linked instrument or debtinstrument issued by an Indian company whoseshares are not listed on a recognised stockexchange at the time of issue of the saidsecurities/instruments and engaged in any thesectors prescribed in the circular:

b) Equity or equity linked instrument or debtinstrument issued by an Indian ‘startup’.


For Full Text refer to https://rbi.org.in/Scripts/BS_CircularIndexDisplay.aspx?Id=10649

Foreign investment in Other FinancialServices

At present, paragraph F.8 of Annex B to Schedule1 of the Principal Regulations permits foreigninvestment up to 100%, under the automatic route,in Non-Banking Finance Companies (NBFCs)engaged in the 18 activities listed therein. Suchinvestment is subject to the conditions, includingminimum capitalisation norms.

It has been decided to allow foreign investment upto 100% under the automatic route in ‘OtherFinancial Services’. Other Financial Services willinclude activities which are regulated by anyfinancial sector regulator viz. Reserve Bank ofIndia, Securities and Exchange Board of India,Insurance Regulatory and Development Authority,Pension Fund Regulatory and DevelopmentAuthority, National Housing Bank or any otherfinancial sector regulator as may be notified by theGovernment of India in this regard. Such foreign

investment shall be subject to conditionalities,including minimum capitalisation norms, asspecified by the concerned Regulator/ GovernmentAgency.



External Commercial Borrowings(ECB) – Extension and conversion

It has been decided to simplify the process ofdealing with matured but unpaid ECB.

Under the extant ECB guidelines, designated ADCategory-I banks can approve requests fromborrowers for changes in repayment schedule duringthe tenure of the ECB, i.e., prior to maturityprovided average maturity and all-in-cost are inconformity with applicable ceilings/ norms. Tosimplify the procedure relating to ECB, it has beendecided to delegate the powers to designated ADCategory-I banks to approve requests fromborrowers for extension of matured but unpaid ECB,subject to the following conditions:

i. No additional cost is incurred;

ii. Lender’s consent is available;

iii. Reporting requirements are fulfilled.

A.P. (DIR Series) Circular No. 10, datedOctober 20, 2016


Foreign Exchange Management(Manner of receipt and payment)Regulations, 2016

The synopsis of the new Regulations notified is asunder:

Manner of receipt in foreign Exchange:

(1) AD bank may receive foreign exchange byway of remittance or by way of reimbursementfrom his branch or correspondent outside India

FEMA Updates

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against payment for exports from India oragainst any other payment in the mannerprescribed in the circular for (A) Members ofAsian Clearing Union (ACU); and for (B) Allcountries other than those mentioned in (A)above:-

A.P. (DIR Series) Circular No. 11 [(1)/14(R)],dated October 20, 2016


External Commercial Borrowings(ECB) by Startups

Parameters for considering an entity as a Startuphave since been published in the Official Gazetteon February 18, 2016 by the Government of India.It is therefore decided to allow Startups to raise ECBas per the framework prescribed in the circular.

A.P. (DIR Series) Circular No. 13, datedOctober 27, 2016


External Commercial Borrowings(ECB) – Clarifications on hedging

2. With a view to provide clarity on the on thedirectionswith provisions of hedging in theECB framework, and bring uniformity inhedging practices in the market so as toeffectively address currency risk at a systemiclevel, the clarifications are issued in regard toconverage, tenor and rollover, and naturalhedge

A.P. (DIR Series) Circular No. 15, datedNovember 07, 2016

For Full Text refer to https://www.rbi.org.in/Scripts/

Withdrawal of the legal tender character

BS_CircularIndexDisplay.aspx?Id=10682

of the existing and any older seriesbanknotes in the denominations of ¹ 500and ¹ 1000

1. Attention of Authorised Persons is invited tothe Government of India Notification publishedin the Gazette of India vide S.O.3408(E) datedNovember 08, 2016, according to which thelegal tender character of the existing and anyolder series banknotes in the denominations of¹ 500 and ¹ 1000 stands withdrawn with effectfrom the midnight of November 8, 2016 subjectto acceptance as legal tender upto November11, 2016 for transactions specified in thecircular.



Issue of Pre-Paid Instruments to foreigntourists

Upon withdrawal of the legal tender character ofthe existing and any older series banknotes in thedenominations of ¹ 500 and ¹ 1000, in order toavoid any inconvenience to foreign tourists,Authorized Persons may issue Pre-paid instrumentsto them in terms of the instructions issued byDepartment of Payments and Settlement System,Reserve Bank of India, in exchange of foreignexchange tendered.



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FEMA Updates

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CA. Punit R. [email protected]

Service Tax Decoded

Online Information and Database Access orstRetrieval Services Amendments w.e.f. 1

December, 2016thUp to 30 November, 2016, services of Online

Information and Database Access or RetrievalServices (OIDAR) are covered under Rule 9(b) ofthe Place of Provision of Services Rules, 2012 andhence a Place of Provision of OIDAR service islocation of the service provider. Hence, if serviceproviders are located outside India, Place ofProvision will be outside India and hence suchservices are not subject to service tax and hence notax is payable on such services. Similarly, if OIDARservice provider is located in taxable territory, suchservices are subject to tax even if it is provided tothe person located outside India and such serviceprovider are required to pay service tax thereon. Itis so irrespective of the fact that they are receivingtheir consideration in foreign exchange.

stHowever, w.e.f. 1 December, 2016 certain changesare made in respect of the OIDAR services anddiscussed in this article.

1. Definition of the OIDAR was provided asproviding data or information, retrievable orotherwise, to any person, in electronic formthrough a computer network in Rule 2(l) ofthe Place of Provisions of Services Rules, 2012.

stHowever, w.e.f. 1 December, 2016 scope ofdefinition of made widens and it is defined atRule 2(1)(ccd) of the Service Tax Rules, 1994as follows.

‘(ccd) “online information and database accessor retrieval services” means services whosedelivery is mediated by information technologyover the internet or an electronic network andthe nature of which renders their supplyessentially automated and involving minimalhuman intervention, and impossible to ensure

in the absence of information technology andincludes electronic services such as,-

(i) advertising on the internet;

(ii) providing cloud services;

(iii) provision of e-books, movie, music,software and other intangibles viatelecommunication networks or internet;

(iv) providing data or information, retrievableor otherwise, to any person, in electronicform through a computer network;

(v) online supplies of digital content (movies,television shows, music, etc.);

(vi) digital data storage; and

(vii)online gaming;’

2. From the above definition it can be seen thatthe definition is very wide as compare to earlierdefinition. Above definition is in two parts. Firstpart explains the OIDAR and second partspecifically includes various services likeInternet Advertising, cloud services, onlinegaming etc. even if it can’t be covered in secondpart. From the first part it is clear that serviceswhose delivery are mediated by informationtechnology over the internet or an electronicnetwork and the nature of which renders theirsupply essentially automated and involvingminimal human intervention, and impossibleto ensure in the absence of informationtechnology are OIDAR services. Thus,following all three conditions are required tobe satisfied for any services if it is to beclassified as OIDAR services.

I. Delivery is mediated by the informationtechnology, over the internet or anelectronic network.


II. Nature of supply renders their supplyessentially automated and involvingminimal human intervention.

III. It is impossible to ensure rendition of suchservice in absence of informationtechnology.

3. Entry No. 13 to Circular No. 202/12/2016-Service Tax dated 09/11/2016 list outsfollowing services which can’t be consideredas OIDAR services.

a. Supplies of goods, where the order andprocessing is done electronically

b. Supplies of physical books, newsletters,newspapers or journals

c. Services of lawyers and financialconsultants who advise clients throughemail

d. Booking services or tickets toentertainment events, hotelaccommodation or car hire

e. Educational or professional courses, wherethe content is delivered by a teacher overthe internet or an electronic network (inother words, using a remote link)

f. Offline physical repair services ofcomputer equipment

g. Advertising services in newspapers, onposters and on television.

4. Place of Provision of service in case of OIDARservice is shifted from the location of the serviceprovider to the location of the service recipient.Rule 9(b) is omitted from the Place of Provisionof Services Rules, 2012 and thus, OIDARservices will be now covered under Rule 3 ofthe said rules and hence Place of Provision willbe location of the recipient of the OIDARservices. Further, definition of OIDAR serviceis also replaced with new definition, providedin Rule 2(1)(ccd) of the Service Tax Rules,1994 as discussed in earlier paragraph.

5. Effect of the above amendment is that now if,provider of OIDAR services is located in

taxable territory and services are provided toperson located outside taxable territory, suchservices will not be subject to service tax w.e.f.01/12/2016. It will be so irrespective of the factthat whether consideration is received inconvertible foreign exchange or not. Further, ifservices are provided by the person located inthe non-taxable territory but received by theperson located in taxable territory, such serviceswill be subject to service tax.

6. Now, as above services are made taxable, butservice provider is located outside taxableterritory, liability to pay service tax is fastenedas follows.

a. If services is provided to Non-AssesseeOnline Recipient, service provider himselfis liable to pay service tax (i.e. B2Ctransactions under Normal Charge); and

b. If service is provided to any other person,person receiving such service is liable topay service tax (i.e. B2B transactions underReverse Charge).

7. Rule 2(1)(ccba) of Service Tax Rules, 1994defines Non-Assessee Online Recipient asGovernment, a local authority, a governmentalauthority or an individual receiving onlineinformation and database access or retrievalservices in relation to any purpose other thancommerce, industry or any other business orprofession, located in taxable territory.

8. In the case of B2C transactions, serviceprovider located outside taxable territory isrequired to pay service tax. As service provideris located outside taxable territory but he is liableto pay service tax, it has been provided that;

a. If any person located in taxable territory isrepresenting such service provider forany purpose in the taxable territory, thatrepresentative shall be the person liable forpaying service tax [Third Proviso to Rule2(1)(d)(ii) of the Service Tax Rules, 1994];

b. If service provider doesn’t have anyrepresentative or physical presence in

Service Tax Decoded


the taxable territory, he may appoint anyperson in taxable territory for the purposeof paying service tax and such person shallbe liable for paying service tax [FourthProviso to Rule 2(1)(d)(ii) of the ServiceTax Rules, 1994];

c. If service is provided through Intermediary,such intermediary will be the personliable to pay service tax and not theservice provider located in non-taxableterritory. However, intermediary will notbe liable to pay service tax if he satisfiesall of the following conditions.

i. The invoice or customer’s bill or receiptissued or made available by suchintermediary taking part in the supplyclearly identifies the service inquestion, its supplier in non-taxableterritory and the service tax registrationnumber of the supplier in taxableterritory;

ii. The intermediary involved in thesupply does not authorise the chargeto the customer or take part in its chargei.e. intermediary neither collects orprocesses payment in any mannernor is responsible for the paymentbetween the non-assessee onlinerecipient and the supplier of suchservices;

iii. The intermediary involved in thesupply does not authorise delivery;

iv. The general terms and conditions ofthe supply are not set by theintermediary involved in the supplybut by the service provider.

9. In the case of B2C transactions, person liableto pay tax, i.e. service provider located in non-taxable territory, its representative in taxableterritory or its agent appointed for the paymentof service tax, as the case may be has to applyfor the registration in the Form ST- 1A and willbe granted registration in Form ST-2A. They

are also required to file half yearly return in theForm ST-3C specifically prescribed for them.

10. Although such service provider or hisrepresentative or his agent is made liable toobtain registration, pay service tax, file returnsand comply with provisions of the Finance Act,1994, it will be difficult for the service taxadministration to handle them as they arelocated outside the taxable territory and it willbe a question how service tax department isgoing to enforce service providers, particularlyunorganised service providers, located in othercountries where law of land will prevail andnot the Indian law.

11. In the case of B2B transactions, liability topay service tax is on the recipient of the servicei.e. there is no change in the case of B2Btransactions which were subject to ReverseCharge Mechanism (RCM) before amendmentand will be subject to RCM even afteramendment.

12. However, it may be noted that as Place ofProvision of supply in the case of OIDARservices is changed from the location of thesupplier to the location of the recipient, recipientof the OIDAR services were not liable to payservice tax as such services were not subject toservice tax at all and applying RCM was notarising in such situation. However, w.e.f. 01/12/2016, such business recipients are requiredto pay service tax on receipt of OIDARservices.

13. Similarly, Indian service providers, providingOIDAR services were liable to pay service taxon services provided to person located innon-taxable territory upto 30/11/2016 andw.e.f. 01/12/2016 no tax is payable on suchservices. Further, subject to certain conditionsthey are also eligible for the refund of theservice tax paid on input services they haveused for providing output services as theiroutput services may be considered as export ofservices.

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Service Tax Decoded


CA. Ashwin H. [email protected]

Coastal Gujarat Power Ltd. vs. CST,Mumbai - I CESTAT, Mumbai

Facts:-

The appellant in the present case borrowed fundsfor their ultra mega power project under the ECBscheme from ADB and IMF. Department raiseddemand under banking and Financial Service underSection 66A of the Finance Act, 1994.

Held:-

The Hon’ble CESTAT held that the immunitiesgranted under ADB/IMF will prevail over the taxingprovisions made under Section 66 of the FinanceAct, 1994. According to CESTAT it was guidedby two important considerations, both of whichflow from the mandate to respect and honourinternational commitment more particularly, whenthey have force of law to arrive at this conclusion.According to the Tribunal, the immunity grantedunder the respective statute is sufficiently broad tocover all direct and indirect taxes and in that contextthe restriction in the proviso has to be interpretedliterally and not liberally in favour of revenue. TheHon’ble CESTAT also held that once the immunityis granted to service provider the tax cannot beindirectly collected from the recipient of service.Accordingly, the appeals were allowed.

Godfrey Philips India Ltd. vs. CCE,Mumbai-I CESTAT, Mumbai

Facts:

The appellant were undertaking the followingactivities:-

(i) Manufacture of dutiable goods

(ii) Manufacture of goods exempt underNotification No.64/95-Central Excise; and

(iii) Trading of goods.

Service Tax -Recent Judgements

The appellant was availing credit on various inputservice including services common to all the aboveactivities. The appellant opted for reversal of cenvatcredit under Rule 6(3)(i) of the Cenvat Credit Rules,i.e. 6% of the value of exempted goods so far asactivity (ii) is concerned. The said option wasexercised post 1-4-2011. The appellant has notmade any reversal with respect to activity (iii) abovei.e. trading of goods neither pre 2011 nor post 2011.

Following objection were raised by the department:- (i) The appellant has already opted for Rule 6(3)(i) of the Cenvat Credit Rules, 2004 with respectto exempted goods hence the same options is to beexercised for the purpose of reversal for trading ofthe goods also. (This issue was only pertaining toperiod post 1-4-2011) (ii) For the period prior to 1-4-2011, reversal of CENVAT credit on trading ofgoods will be made on proportionate basis and forsuch reversal, the value of exempt services will bethe total turnover of the trading goods and not themargin.

Held:

The Hon’ble Tribunal held that (i) The provisionsof Rule 6(3) provides for opting of only “any oneof the options”. Having opted for option under6(3)(i) i.e. reversal under specified % of exemptedgoods, the appellant cannot apply proportionateformula for trading of goods. (ii) The formulaprescribed after 1.4.2011 is also not correct as innumerator it considers margin in case of trading ofgoods whereas in denominator it takes total turnoverin case of manufacture of goods (iii) In any case,the appellant is suggesting a formula which willapply only on common input services whereas theformula provided after 1.4.2011 provides for takingtotal cenvat credit. Hence, the formula providedafter 1.4.2011, cannot be applied for the period priorto 1.4.2011. (iv) In absence of any formula,reasonable basis has to be arrived at which in the

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present case can be the value of total turnover oftrading of goods considering the nature of servicesinvolved in the present case. (v) Rule 6(5) providedthat entire credit will be allowed even if servicesare used in taxable as well as the exempted services.However, trading of goods is not an exempt servicepre 1.4.2011 and reversal has to be made underRule 3(i) of CCR, 2004, therefore entire credit ofservice specified in Rule 6(5) of CCR, 2004 is notallowable.

HDFC Standard Life Insurance Co. Ltd.vs. CCE, Mumbai - II CESTAT,Mumbai

Facts:-

The appellant were engaged in providing LifeInsurance Services. Rule 2(1)(d)(iii) of Service TaxRules, 1994 specifies that in relation to insuranceauxiliary service provided by insurance agent, theservice tax is payable by life insurance company.In pursuance to this rule, the appellant paid servicetax on the commission paid to insurance agents.However, the appellant also recovered a portion ofthe service tax from the commission payable to theInsurance Agents.

Held:-

The Hon’ble CESTAT held that provisions ofSection 73A(2) will not apply in the present caseas it will apply only in cases where tax is not payableand it is collected from any person. (ii) Provisionsof Section 73A(1) will also not apply in the presentcase as the appellant merely recovered a portion ofthe tax paid by them to the Government and notanything over and above the tax so paid. (iii) Thereis no explicit provision in the Finance Act, whichbars that tax paid to the government cannot berecovered from any other person. Accordingly, theappeals were allowed.

Ebiz.Com Pvt. Ltd. vs Union Of India& Others. (2016) HC Delhi, W.P.(C) No.756.

Facts:-

Service tax collected but not deposited. Departmentconcluded that from the years 2011-12 till 2015-16

(till 6-1-2016) the petitioner had wrongly availedof exemption (under Notification No. 26/2012-S.T., dated 20-6-2012) from payment of service taxon some of the services provided by claiming to bea “tour operator” and had avoided payment ofservice tax. The DGCEI stated in the remandapplication that assessee had not remitted servicetax collected from the customers and had therebycommitted an offence punishable under section89(1)(ii) of the Finance Act, 1994.Assessee prayedthat no coercive steps be taken against it.

Held:-

It was not clear from the notes prepared by DGCEIthat prior to going in for the extreme measure ofarresting MD of assessee, the DGCEI examinedthe entire previous records of assessee and inparticular, the assessments in relation to the years2011-12 onwards. In particular, it was not clearwhether the DGCEI was conscious of the pendingproceedings and show cause notices issued by theCST under section 73(1) of the Finance Act, 1994and the proceedings consequent thereto. This aspectwas significant since the invocation of the powersof arrest without warrant under section 90(1) readwith section 89(1)(ii) of the Finance Act, 1994 pre-supposed the arrival of a satisfaction regarding theassessee having collected service tax but failing topay to the Department as envisaged in section89(1)(d) thereof. In the circumstances, the Court issatisfied that the assessee had made out a primafacie case and accordingly an interim direction wasissued restraining the DGCEI from taking anyfurther coercive action against assessee or any ofits officers or employees till the next date of hearing.

Magarpatta Township Development &Construction co. Ltd. Vs. CCE,(CESTAT -2016 Mumbai)

Facts:-

The issue involved in this case is regarding theService Tax liability under the TechnicalConsultancy Services. Appellant herein hadengaged services of foreign architect for designingand planning of various commercial building andpaid an amount to such foreign architect as

Service Tax - Recent Judgements

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consultancy charges. Revenue is of the view thatas per provision of Section 66(A) of the FinanceAct, 1994, appellant is required to discharge theService Tax liability under Reverse ChargeMechanism on the amount paid. Both the lowerauthorities did not agree with the contention raisedby the appellant and held that the appellant havingdischarged the Income Tax liability on the amountso paid, Service Tax liability arises on the IncomeTax amount deducted as TDS and paid to

Held:-

The Mumbai tribunal held that on a plain reading

Government of India.

of the service tax law as applicable at the time beingin force, it appears that service tax liability shouldbe discharged on the amount billed by the serviceprovider. Accordingly, since the amount billed bythe foreign service provider in the present case wasnet of TDS and the TDS amount was borne by theservice recipient. Hence, such TDS amount wouldnot be liable to service tax under a Reverse ChargeMechanism.

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The ratio in case of Vodafone International HoldingsB. V. was applicable to facts of the present casesince acquiring of controlling interest in thecompany does not bear any income or expenditure,to be assessed or not to be allowed.

Since the interest was paid on borrowed funds foracquiring the shares of a company and the dividendincome was taxable during the year underconsideration, the interest was allowable asdeduction u/s. 57(iii) or u/s. 36(1) (iii) of the Act.

In the case of Pistabai Kothari, the Tribunal reliedon the decision of Supreme Court in the case ofVodafone where it was held that the controllinginterest forms an inalienable part of the share itselfand it cannot be traded separately unless otherwiseprovided by the statue. Accordingly, the Tribunaldid not accept the contention of the tax departmentthat the main purpose for making investment wasto acquire controlling interest in the company andnot to earn dividend. Consequently, the Tribunalheld that the interest paid on borrowed funds foracquiring controlling interest, of a company isallowable as deduction u/s. 57(iii) or u/s. 36(1)(iii)of the Act.

contd. from page 522 Controversies

In the case of Off Shore India Ltd., the CalcuttaTribunal held that the motive to acquire thecontrolling interest of a company by acquiring sharesof such company by the taxpayer was a whollyirrelevant consideration for judging allowability ofinterest payment on borrowings u/s. 57(iii) of theAct. Accordingly, the interest paid by the taxpayeron borrowings for purchasing shares was allowableas deduction even though no dividend was receivedon those shares during the year under consideration.

In the case of Model Manufacturing Co. (P) Ltd.the Calcutta High Court held that though ultimatemotive of the taxpayer might have been to acquirecontrolling interest, yet immediate purpose foracquisition of shares was to earn income fromdividends thereof and therefore, the taxpayer wasentitled to deduction u/s. 57 of the Act. Further, theMumbai Tribunal in the case of Ultramine &Pigments Ltd. held that interest on borrowings madefor acquiring shares in Malaysian company alongwith controlling interest is allowable u/s. 57(iii) ofthe Act.

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Service Tax - Recent Judgements


CA. Priyam R. [email protected]

Check-post- Detention and seizureSwiss Deziner Tiles V. State of Gujaratand others reported in 95 VST 328(Guj)

Background of the case:

The petitioner, engaged in the business of tradingin ceramic tiles sent the goods from Morbi toVadodara through a truck pursuant to a receipt ofan order from Vadodara. When the truck waspassing through Naroda Gujarat IndustrialDevelopment Corporation near Ahmedabad, it wasdetained by the VAT authorities and a memo wasissued to the driver of the truck on the ground thathe did not submit the required documents for thegoods in the truck. On a writ petition:

Held that , allowing the petition, that the order ofdetention and seizure of the truck and the goodshad been passed in exercise of powers under sub-section (4) of section 68 of the Gujarat Value AddedTax Act. It was an admitted position that the truckhad been detained at a place other than the check-post or barrier. Evidently therefore, the respondentwho passed the order of seizure and detention ofthe truck and goods was not an officer-in-chargeof a check-post or barrier as contemplated undersub-section (4) of section 68 of the Gujarat ValueAdded Tax Act. Under the circumstances, theimpugned action of the vat authorities in detainingand seizing the truck with the goods in questionwas clearly without any authority of law, andtherefore, could not be sustained.

Check-post-officer not entitled to go intonature of transactions.HCL Infosystems Ltd. V. State of Punjabreported in 95 VST 394(P & H)


The appellant-dealer entered into a contract asturnkey hardware and service provider with an

entity under the Department of School Education,Government of Punjab to provide computers todifferent schools, on lease, maintenance and transferbasis for a period of five years. The consignmentwas supplied through the trucks from Uttarakhandto Jalandhar. On the way at the check-post thegoods were declared but penalty of Rs. 38,77,337was levied on the dealer on the ground that thedocuments were not genuine and proper. The appealof the dealer was dismissed by the Deputy Exciseand Taxation Commissioner (Appeals)-cum-JointDirector (Investigation). In further appeal, theTribunal recorded that following issues, arose forconsideration: (1) whether the invoice issued by thecompany was as per rules of procedure, (2) whetherthe invoice issued by the company was a sale infavour of the schools or conferred a right to useonly and it does not amount to sale, (3) whether thetransfer of goods was an inter-State sale or stocktransfer by the dealer to the THSP not subject totaxability by the State, where the goods were to beinstalled, (4) whether there was an involvement oftax of Punjab State, (5) whether the constitution ofTHSP and the appellant was the same and whetherthe goods were sent as stock transfer under theorders of the head office. The Tribunal set asidethe orders passed by the authorities below andremitted the matter back to the Assistant Excise andTaxation Commissioner (Export), for fresh decisionafter answering the issues as noticed in the orderpassed by the Tribunal. On appeal:

Held that, allowing the appeals, that the issues wereregarding determination of nature of transactions.Proceedings under section 51 of the Act aresummary in nature. The officer at the check postcannot determine the nature of transaction, thatbeing the job of the regular assessing authority.Accordingly, the proceedings initiated for levypenalty under section 51 of the Act were to bequashed.

VAT - From the Courts

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Defective NoticeBhagwati Traders and another V. Stateof Gujarat and another reported in 95VST 321 (Guj )


The first petitioner is a sole proprietary firm carryingon business of trading in dry-fruits and other ediblegoods and other items. The second petitioner is acompany registered under the provisions of theCompanies Act, 1956 and is, inter alia, engaged inthe pan-India business of commercial transportationof goods, including edible goods, for variousparties. Pursuant to an order placed by M/s. SriBheron Traders based in Navi Mumbai,Maharashtra, the first petitioner availed of theservices of the second petitioner for transportationof 21,350 kilograms betel-nuts from Delhi to NaviMumbai, Maharashtra. Accordingly, the truckbearing registration No. HR-55-T-7187 wasloaded with the aforesaid goods at Delhi. It is thecase of the petitioner that the lorry receipt issuedclearly showed that the consignor was M/s.Bhagwati Traders, Delhi and the consignee was M/s. Sri Bheron Traders, Navi Mumbai, Maharashtraand it was a door delivery to the consignee’saddress. It is further the case of the petitioners thatfor reasons best known to him, Shri NysuddinAsuddin Mev, the driver of the said truck, took theroute via Changodar, Ahmedabad on the way fromDelhi to Navi Mumbai and hence, on March 22,2016, the truck entered the State of Gujarat atShamlaji check-post. It is the case of the petitionersthat the truck was not stopped at the entry check-post by the authorities and the driver also forgot toget the transit pass in form 405 (under rule 52 ofthe Gujarat Value Added Tax Rules, 2006). OnMarch 22, 2016, the truck was stopped atChangodar road by the authorities, who issued anotice at 2:45 p.m. on the same day, whereby thedriver was asked to produce the invoice, lorryreceipt and appropriate forms by 3.40 p.m. on thesame day. According to the petitioner, the driverwas able to produce the invoice and lorry receiptwhich clearly showed that the goods were only intransit in the State of Gujarat. However, the driver

was unable to produce Form 405 in respect of transitthrough the State of Gujarat, since he had forgottento get it issued at the entry check-post. The invoice,lorry receipt, registration certificate of the truck andthe driver’s licence were taken in custody by thesecond respondent. It is the case of the petitionersthat immediately thereafter, the second respondentpassed the detention order dated March 22, 2016under section 70A(2) of the Gujarat Value AddedTax Act, 2003 detaining the goods loaded in thetruck No. HR-55-T-7187, at 4 p.m. Beingaggrieved, On a writ petition:

Held that, allowing the petition, that the detentionorder contained several blanks. It stated that thevehicle was stopped under section 67(6) of the Act,whereas the Assistant Government Pleader, underinstructions, had stated that no action was takenunder sub-section (6) of section 67 of the Act, as asearch warrant was required to be obtained for thepurpose of carrying out search under sub-section(6) of section 67 of the Act. The detention orderalso stated that a notice was issued and served uponthe transporter: however, there was a blankthereafter. Evidently therefore, no notice was issuedto or served upon the transporter. In the entiredetention order, there was nothing whatsoever toindicate the nature of the documents which werenot produced by the driver. The detention order wasin a cyclostyled form and contained several blanksand nothing was stated as to the nature of non-compliance on the part of the petitioners. Moreover,the notice under section 70A of the Act came to beissued at 2.45 p.m. to the driver of the vehicle callingupon him to respond to it at 3.40 p.m. Evidentlytherefore, no reasonable opportunity of hearing hadbeen given to the petitioners prior to the passing ofthe detention order. Under the circumstances, thedetention order also suffered from the vice of breachof the principles of natural justice. Moreover, itsuffered from total lack of application of mind onthe part of the officer. Thus, the detention ordercould not be sustained.

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VAT - From the Courts

20


CA. Bihari B. [email protected].

GST and VAT Judgments and Updates

[I] Important Notifications/Circulars:

The Under Secretary of Gujarat Governmentthhas issued a Notification dated 28 Nov. 2016

under which it has been instructed that the InputTax Credit shall be reduced to Nil when NaturalGas resold in the course of Interstate Trade andCommerce. The gist of the Notification is asunder.

VAT - Judgementsand Updates

Now, therefore, in exercise of the powersconferred by sub-section (6) of section 11 ofthe Gujarat Value Added Tax Act, 2003 (Guj.1 of 2005), the Government of Gujarat herebyamends the Government Notification FinanceDepartment No. (GHN-14) VAT – 2010-S

TH11(6)(2) DATED THE 29 June, 2010 asfollows, namely –

In the schedule appended to the saidnotification after the entry at serial No. 5, thefollowing entry shall be added, namely –

Entry Description Non-entitlement of Restrictions and conditions if anyNo. of goods tax credit whether

whole or partial

6 Natural Gas Whole of Tax The input tax credit shall be reduced when sold/resoldin the course of inter-state trade and commerce orconsigned or dispatched for branch transfer or to agentoutside the State.

[II] Important Judgments:

[1] Hon. GVAT Tribunal in case of KGNIndustries Ltd.

Issue:

[i] In case of demand only against the penalty,the appeal can be admitted without thepayment of preliminary pre-deposit.

The case is regarding Stay of India andinteresting discussion is done by the Hon.Tribunal. The gists of the importantparagraphs are reproduced hereunder forthe benefit of the readers.

The Gujarat Sales Tax Act, 1969 wasenacted for the purpose of levy of tax onthe sale of purchase of certain goods inState of Gujarat. The VAT Act repealed thesaid Act with effect from 01.04.2006.

Section 65 of the Gujarat Sales Tax Act,1969 provided for appeal. Section 65(4)of the said Act provided that no appealagainst an order of assessment with orwithout penalty or against an order ofimposing penalty shall ordinarily beentertained unless such appeal isaccompanied by satisfactory proof ofpayment of tax with or without penalty orthe payment of the penalty in respect ofwhich an appeal has been preferred.Section 73 of the Vat Act provides forappeal. Section 73(4) of the Vat Actprovides that no appeal shall ordinarily beentertained unless such appeal isaccompanied by satisfactory proof ofpayment of the tax in respect of which anappeal has been preferred.


VAT - Judgements and Updates

On reading of these two provisions, itbecomes clear that ion the earlier Act forentertainment of an appeal satisfactoryproof of payment of tax with or withoutpenalty or the payment of penalty in respectof which appeal was preferred was aprecondition. Proviso to the sectionprovided for entertainment of appealwithout payment of tax with penalty (ifany) or of penalty whereas section 73(4)but the Vat Act provides for satisfactoryproof of payment of tax for entertainmentof appeal. Proviso to the section 73(4)provides that an appellate authority mayentertain an appeal against assessmentorder without payment of tax with penalty(if any). In the decision of Casio IndiaCompany Pvt. Ltd. (supra) the courtobserved that proviso should be normallyconstrued as nullifying the enactment oras taking away completely a rightconferred. In the decision of AmbajiPhysiotherapy College managed byAmbaji Education (supra) similarobservation is made. In the decision of M.J. Babu (supra) and S. R. and Company(supra) the court has observed that when asection mentions word ‘tax’ and ‘penalty’and word ‘interest’ is absent, deposit ofinterest cannot be made condition precedentfor the entertainment of appeal. In thepresent case it appears that the demandmade is largely of penalty. Therefore pre-deposit of penalty amount cannot be madea condition for entertainment of appeals assuch interpretation of proviso would nullifythe enactment of section 73(4) of Vat Actwhich provides for payment of tax only.

The assessment order indicates that Rs.63,34,918/- have been realized against thetotal demand of Rs. 2,57,12,208/- forassessment year 2008-09 and Rs, 9,57,831/- for assessment period 01.04.2009 to10.11.2009. It also appears that thedemand raised by Ld. Assessing Authorityis largely of penalty and the Ld. First

Appellate Authority imposed condition ofpre-deposit of 20% of that amount.Considering the amount recovered fromthe appellant against the demand raised, itis more than 10% of the total demand.Therefore, also appeals are required to beentertained without condition of pre-deposit.

It is also required to be considered that inthe earlier round of litigation the Tribunalhad admitted the Second Appeals withoutany condition of pre-deposit. There isnothing to deviate from the stand taken bythe Tribunal in earlier round of litigation.

In view of the above as the demand raisedby the department is largely towardspenalty and the appellant has madepayment of about 10% of total demand ofpenalty and also considering the fact thatin the earlier wound of litigation the SecondAppeals were admitted without conditionof pre-deposit. Recovery proceedings arerequired to be stayed without any conditionof pre-deposit.

The Learned Advocate for the appellantalso relied upon several judgments insupport of the condition that no penalty canbe levied under section 31(3) and 31(4) ofthe Vat Act but these judgments are notrelevant at this stage of admission ofappeals as the First Appellate Authority hasnot decided the first appeals on merit. Inview of the above discussion the secondappeals are admitted and recoveryproceedings are stayed till final disposal ofthese appeals without any condition of pre-deposit.

The registry is directed to place the matterfor regular hearing in due course.

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CA. Kush [email protected]

Mergers andAcquisition Corner

1. Samsung to acquire IITian-led JBL,Harman Kardon audio systems maker for

1$8 bn

South Korean electronics giant SamsungElectronics Co. Ltd said it would buy US auto-suppliers firm Harman International Industries,which owns brands such as JBL, HarmanKardon and AKG, for $8 billion in an all-cashdeal. Harman offers connected car solutions andcurrently more than 30 million vehicles areequipped with its car and audio systems,including embedded infotainment, telematics,connected safety and security. With thistransaction, Samsung will get a significantpresence in the large and rapidly growingmarket of connected technologies, particularlyautomotive electronics, which has been astrategic priority for Samsung. The chairmanand chief executive of Harman International isDinesh Paliwal, an Indian Institute ofTechnology Roorkee alumnus. Paliwal, whowas born in Agra in Uttar Pradesh, holds amaster’s in chemical engineering from IITRoorkee and an MBA from Miami Universityin the US.

“They have entered into a definitive agreementunder which Samsung will acquire Harman for$112.00 per share in cash, or a total equityvalue of approximately $8 billion,” Samsungsaid in an official blog dated November 14.Nearly 65% of Harman’s $7 billion of reportedsales during the 12 months ended 30 September2016 is automotive-related. Its order backlogfor this market as of 30 June 2016, was around$24 billion.”Harman complements Samsung interms of technologies, products and solutions,and joining forces is a natural extension of theautomotive strategy we have been pursuing for

some time,” said Oh-Hyun Kwon, vicechairman and chief executive officer ofSamsung Electronics. ”Harman’s track recordof rapid growth fueled by technologyleadership and an unmatched automotive orderpipeline reflects its commitment to innovationand customers,” Kwon said.The South Koreanbehemoth will gain access to Harman’s 8,000software designers and engineers who areunlocking the potential of the Internet of Things(IoT) market. ”Combining Samsung’s strengthsin leading-edge displays, connectivity andprocessing solutions with Harman’s technologyleadership and longstanding customerrelationships will enable original equipmentmanufacturers (OEMs) to provide newofferings for their customers,” Paliwal said inthe blog.

The buyout price represents a premium of 28%based on Harman’s closing stock price onNovember 11, 2016 and a 37% premium toHarman’s 30 calendar day volume weightedaverage price ended 11 November 2016.Samsung said the agreement has beenunanimously approved by the boards of bothcompanies. The transaction, which is subjectto approval by shareholders of Harman, isexpected to close in the middle of next calendaryear. Besides JBL, Harman Kardon and AKG,Harman’s leading brands and audio systemsinclude Mark Levinson, Lexicon, Infinity andRevel.

2. Siemens to Buy U.S. Software Maker2Mentor for $4.5 Billion

Siemens AG agreed to buy Mentor GraphicsCorp. for $4.5 billion in its biggest acquisitionsince 2014 as the German engineering


companyextends its industrial softwarecapability. Siemens will pay $37.25 a share incash for Wilsonville, Oregon-based Mentor, theindustrial giant said in a statement. That’s 21percent above the closing price on Friday.Elliott Management Corp., which owns 8.1percent of Mentor’s shares, backs the offer,Siemens said. The deal follows Siemens’s $970million January purchase of U.S. computer-program maker CD-adapco of the U.S. as ChiefExecutive Officer Joe Kaeser seeks to growthe digital business as part of a retreat fromconsumer-oriented products to focus onindustrial applications. Mentor isthe biggestacquisition announced by the Munich-basedcompany since it agreed to buy Dresser-RandGroup Inc. for $7.6 billion. For its part, Mentorwas under pressure to increase shareholdervalue from activist investor Elliott, whichdoubled its stake in September. “The footprintof Mentor Graphics will allow us to reach a lotmore customers,” Siemens software executiveChuck Grindstaff said on a conference call.“This offers a unique opportunity to designproducts in a more holistic way.” SavingsForecast.The asset is a perfectfit and will setthe pace in the industry, Siemens Chief FinancialOfficer Ralf Thomas said on the call, addingthat there will be some job cuts resulting fromthe combination. Cost savings of more than 100million euros ($108 million) per year areexpected by the fourth year of ownership,Thomas said. Mentor shares surged 19 percentto $36.47 in trading before U.S. exchangesopened. Siemens rose 0.9 percent to 109.15euros in Frankfurt, extending the year’s gain to21 percent.The agreed price isn’t overlyexpensive and will make Siemens morecompetitive in the industrial software business,German brokerage BaaderHelvea said in a noteto clients. The value of the transaction includesnet debt.

The purchase is expected to boost Siemens’searnings before interest and taxes by more than

100 million euros within four years of closingand will contribute to earnings per share withinthree years, the company said. Siemens’s digitalfactory unit, which will house Mentor after thedeal closes, contributed 10.2 billion euros toSiemens’ 79.6 billion euros of revenue in thefinancial year through September, according todata compiled by Bloomberg.

Mentor sells software and hardware used todesign electronics for the semiconductor,automotive and transportation industries. Thecompany reported a loss of $10 million in thesix months ended July 31, compared with profitof $21 million in the same period last year,according to regulatory filing. The companyforecast revenue of $1.22 billion for the 12months through January. Under Kaeser,Siemens has pushed deeper into softwareapplications that are crucial to run its industrialequipment. At the same time, Siemens issimplifying its sprawling portfolio, and thecompany announced last week that it wants tolist its health-care subsidiary, among the biggestmakers in the world of diagnostics and imagingequipment. Elliott, run by billionaire PaulSinger, said when it raised its stake it sawnumerous opportunities to boost Mentor’s“deeply undervalued” shares and had startedtalks with the company’s management andboard. The acquisition is a “great outcome” forMentor shareholders as the company willbenefit from Siemens’s increased scale andgreater resources, portfolio manager Jesse Cohnsaid in e-mailed comments. The agreementcomes almost six years after activist investorCarl Icahn unsuccessfully pushed for a sale ofMentor. He bid $17 a share in February 2011for Mentor in an attempt to lure other suitorsfor the software maker. Icahn, who wasMentor’s largest shareholder at the time of hisbid, sold a chunk of his holding back to thecompany at $18.12 a share in February of thisyear, and he sold his remaining stock in May.

Mergers and Acquisition Corner


3. ZEE announces acquisition of Anil Ambani’s3TV, radio business

After months of speculations and on-again-off-again talks, Anil Ambani owned RelianceCapital and Subhash Chandra owned ZeeGroup have finally announced the deal whereinthe latter will take over the radio and televisionbusiness housed under Reliance BroadcastNetworks Ltd (RBNL).

In a statement, Reliance Capital, the investmentarm of Anil Ambani led Reliance Group,announced “value unlocking” in the radio andTV businesses that will reduce the company’sdebt by approx. Rs 1,900 crore ($283 million)upon final completion of stake sale transactions.“This transaction is part of our strategy toreduce exposure in noncore business of mediaand entertainment and work towards furtherreducing our debt under Reliance Capital,” saidSam Ghosh, Group CEO of Reliance Capital.As per the deal, Zee Media Corporation, whichhouses the news channels of the group, willacquire 49% stake in BIG FM, which operates45 operational licenses (issued under Phase IIand migrated to Phase III) and 14 new licenses(issued under Phase III).RBNL will transfer thelicenses into two SPVs along with the assetsand liabilities. Zee Media will acquire 49% stakein each of these two SPVs and both thecompanies will have option to acquire/sell theremaining 51% after the lock-in provisions onthe permission holder of these licensesexpire.As per MIB regulations, at least 51%shareholding needs to be held by the permissionholder for a minimum period of 3 years fromthe date the channels wereoperationalized.Thelock-inperiod for the 45 operational licensesshall expire on 31st March 2018, whilst thelock-in period for the 14 licenses shall expireafter the expiry of 3 years from the day all 14licenses shall have become operational, whichis expected to be around March 2020. Thislock-in period was one of the hurdles between

the two parties. “We are pleased to announcethis partnership which shall not only becomplementary to our current business butaccelerate its growth too,” said Rajiv Singh,COO, Zee Media Corporation. “Thistransaction shall bring about the desiredbusiness diversity and will help in achievingthe sound financial objectives at an acceleratedpace.”

The deal also include Zee EntertainmentEnterprises Ltd (ZEEL), which houses thenational and regional entertainment channel ofthe Zee group, acquiring 100% stake inReliance’s general entertainment TV businessReliance Big Broadcasting Private Limited, BigMagic Limited &Azalia Broadcast PrivateLimited. RBNL’s TV business includeoperational channels BIG Magic (Hindi) andBIG Ganga (Bhojpuri) and four TV licenses.

“This acquisition further adds to our expandinguniverse of general entertainment channels. BigMagic gives us access to comedy genreenhancing our customer offerings. Big Gangasyncs with our strategy of expanding into theregional markets which offers attractive growthpotential,” added Punit Goenka, MD, ZEEL.

1. http://www.vccircle.com/news/consumer/2016/11/14/samsung-buy-iit-alumnus-led-connected-car-systems-firm-harman

2. https://www.bloomberg.com/news/articles/2016-11-14/siemens-to-buy-mentor-graphics-of-the-u-s-for-4-5-billion

3. http://economictimes.indiatimes.com/industry/media/entertainment/media/zee-announces-acquisition-of-anil-ambanis-tv-radio-business/articleshow/55582020.cms

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Mergers and Acquisition Corner


CA. Naveen [email protected]

Corporate Law Update

MCA Updates:

1. Notification regarding Sections underInsolvency and Bankruptcy code, 2016:

The Ministry of Corporate Affairs has notifiedthe following sections of the Insolvency andBankruptcy Code, 2016 with effect fromNovember 01, 2016.(1) section 3 –

(i) clause (2) to clause (4);(ii) clause (6) to clause (21);(iii) clause (23) to clause (25);(iv) clause (27);(v) clause (29) to clause (36);

(2) section 196;

(3) section 197;(4) section 223;(5) sub-section (2) of section 239-

(i) clause (ze) to (zh);(ii) clause (zl) to (zm);

(6) sub-section (2) of section 240-(i) clause (a) to (zm);(ii) clause (zu) to (zzzc);

(7) section 244;(8) section 246 to section 248 [both inclusive];(9) section 250; and(10) section 252

[F. No. 30/7/2016-Insolvency Section datedst01 November, 2016]

2. Companies (Registration Offices and Fees) Second Amendment Rules, 2016:Following changes have been effected under the Companies (Registration Offices and Fees) SecondAmendment Rules, 2016:Clause Companies (Registration Offices Companies (Registration Offices and Fees) Change

and Fees) Rules, 2014 Second Amendment Rules, 2016 EffectedRule “(iv) AOC-4 certification by the “(iv) AOC-4 certification by the Chartered Substituted.8(12) Chartered Accountant in Accountant or the Company Secretary(b) (iv) whole-time practice.” or as the case may be by the Cost

Accountant, in whole-time practice.”Anne- For Other OPCs For Application Other OPCs Substi-xure Application Made than and Made than and tuted.(II)(iv) OPCs small OPCs small

and Comp- and Comp-small anies small aniesCompanies Companies

(vi) For allotment of 500 — (vi) For allotment of 500 500Director Identification Director IdentificationNumber (DIN) under Number (DIN) undersection 153 of the Act section 153 of the ActFor every application Fees (viii) For surrender of 1000 1000made to Regional applicable Director IdentificationDirector (including on the basis Number under ruleappeal) or Registrar of of 11(f) of the CompaniesCompanies (except authorized (Appointment andspecifically stated share Qualification ofelsewhere), Table of capital. Directors) Rules, 2014fees As above shall beapplicable.

th[F. No. 01/16/2013 CL-V (Pt-I) dated 07 November, 2016]



3. Notification regarding Sections underInsolvency and Bankruptcy code, 2016:

The Ministry of Corporate Affairs has notifiedthe following sections of the Insolvency andBankruptcy Code, 2016 with effect fromNovember 15, 2016.

(1) Section 199 to section 207 [bothinclusive];

(2) Sub-section (1) of section 208-

(i) Clause (c);

(ii) Clause (e);

(3) Sub-section (2) of section 208;

(4) Section 217 to section 220 [bothinclusive];

(5) Section 251;

(6) Section 253;

(7) Section 254; and

(8) Section 255.

[F. No. 30/7/2016-Insolvency Section datedth15 November, 2016]

4. Amendment in Schedule II of theCompanies Act, 2013:

The MCA vide Notification G.S.R. (E) dated17.11.2016 has made the followingamendment in the Schedule II ofthe Companies Act, 2013:

1. In the Companies Act, 2013, in ScheduleII, under Part ‘A’, in para 3, in subparagraph (ii), for the brackets, letters andwords starting with “(ii) Forintangible” and ending with the words“force shall apply”, the following brackets,letters and words shall be substituted,namely:-

“(ii) For intangible assets, the relevantIndian Accounting Standards (Ind AS)shall apply. Where a company is notrequired to comply with the IndianAccounting Standards (Ind AS), it shallcomply with relevant Accounting

Standards under Companies(Accounting Standards) Rules, 2006.”

2. This notification shall be applicable foraccounting period commencing on or after

st01 April, 2016.th[F. No. 17/60/2012 CL-V dated 17

November, 2016]

5. Insolvency and Bankruptcy Board of India(Model Bye-Laws and Governing Board ofInsolvency Professional Agencies)Regulations, 2016:

The Insolvency and Bankruptcy Board of Indiahas notified the Regulations relating to Byelaws, Governing Board and model bye-lawsof an insolvency professional agency etc.

For detailed text, please refer the following link:

http: / /www.mca.gov. in/Minis try/pdf/Notification_21112016.pdf

st[[ADVT.-III/4/Exty./308] dated 21November, 2016]

6. Insolvency and Bankruptcy Board of India(Insolvency Professional Agencies)Regulations, 2016:

The Insolvency and Bankruptcy Board of Indiahas notified the Regulations to provide aframework for regulation of insolvencyprofessional agencies, their registration,surrender or cancellation, in principal approval,memorandum of association, articles ofassociation and bye-laws etc.

For detailed text, please refer the following link:

h t t p : / / w w w . i b b i . g o v . i n / L a w /IPA%20REGULATIONS_professional_agencies.pdf

st[[ADVT.-III/4/Exty./309] dated 21November, 2016]

SEBI Updates:

1. Enhanced Standards for Credit RatingAgencies (CRAs):

With the view to bring about greatertransparency in the policies of the CRAs,


enhance the standards followed by the industryand, thereby, facilitate ease of understandingof the ratings by the investors, the SEBI hasissued the guidelines for CRAs.

These guidelines cover the following broadareas:

I. Formulation of Rating Criteria and ratingprocesses and public disclosure of thesame.

II. Accountability of Rating Analysts

III. Standardisation of Press Release for ratingactions.

IV. Functioning and evaluation of RatingCommittees/Sub-Committees.

V. Disclosure of ratings in case of non-acceptance by an issuer

VI. Disclosure in case of delay in periodicreview of ratings.

VII. Policy in respect of non-co-operation bythe issuer.

VIII.Strengthening and enhancing therelevance of Internal Audit of CRAs, viz.appointment and rotation of auditors andscope of the audit.

The CRAs shall effectively implement theseguidelines within 60 days from the date of issueof this circular.

[Circular SEBI/HO/MIRSD/MIRSD4/CIR/P/2016/119 dated November 1, 2016]

2. Uploading of the existing clients’ KYCdetails with Central KYC Records Registry(CKYCR) System by the registeredintermediaries:

Government of India, vide its letter datedOctober 04, 2016, has directed as follows withregard to KYC details of existing and newindividual clients:

a. Registered intermediaries have to updatetheir IT systems as well as register all newaccounts of individuals in accordance with

the CKYCR template, mandatorily byOctober 31, 2016.

b. Mutual funds and Intermediaries other thanmutual funds may follow the followingtime lines in respect of uploading KYC dataof the existing individual clients withCKYCR.

i. Mutual funds may ensure 30%completion of uploading of existingKYC data by November 30, 2016,another 30% of KYC data by January31, 2017 and the rest 40% data byMarch 31, 2017.

ii. Intermediaries other than mutual fundsmay ensure 50% completion ofuploading of existing KYC data byNovember 30, 2016 and the remaining50% of KYC data by December 31,2016.

[Circular CIR/MIRSD/120 /2016 datedNovember 10, 2016]

3. Review of requirement for copy of PANCard to open accounts of FPIs (ForeignPortfolio Investors):

It has been decided that the intermediaries canverify the PAN of FPIs online from websiteauthorized by Income Tax department at thetime of account-opening for FPIs. However,FPIs need to provide the copy of PAN cardwithin 60 days of account-opening or beforeremitting funds out of India, whichever isearlier to their intermediaries.

[Circular CIR/IMD/FPIC/123/2016 datedNovember 17, 2016]

4. Guidelines for functioning of StockExchanges and Clearing Corporations inInternational Financial Services Centre(IFSC):

Broad framework for functioning of stockexchanges and clearing corporations in IFSCin Gujarat International Finance Tec-City(GIFT) is as under:


contd. to page 553


Allied Laws Corner

Adv. Ankit [email protected]

to pay the sum due or for any loss ordamage incurred by him as a result of suchnon-payment and for such other orders asthe Tribunal may deem fit.

5. Sub-section (5) also provides that thedeposit repayment reserve account ascreated in pursuant to the provisions ofS.73(2)(c) of the Act shall not be used bythe company for any purpose other thanrepayment of deposits.

B. Facts in the case of Bimla Kothari and othersvs. Unitech Ltd. :

1. Applications, numbering more than 300were filed from various Depositorsamongst Bimla Kothari under section 73(4)of the Companies Act, 2013. Fixeddeposits invited from the public were dulymatured, but the Company raised its handsand expressed its inability to repay thematured proceeds.

2. The investors, many of whom were eitherSenior Citizens or were facing acutefinancial crisis, approached the NCLT forredressal of their grievances with the fondhope of retrieving their investments. Thedepositors alleged that the respondentshave siphoned off the money and havediverted investments into theirsubsidiaries and JVs with the intentionof depriving the depositors of theirrightful claims. The agitated depositorswere aggrieved that while their lives’savings entrusted to the Respondents werenot being repaid, the Directors and thefamily members continue to live opulentlyand in the lap of luxury.

Provisions of the Public Deposits as providedin S.73 of the Companies Act, 2013 areapplicable to the public deposits acceptedbefore 01-04-2013.

Recently, the National Law Company Tribunal,New Delhi Bench in the case of Bimla Kotharivs. Unitech Ltd. reported in 75 taxmann.com 151held that Legislature does not differentiate betweenthe depositors prior to or after the date on whichS.73 of the Act was notified, and therefore, petitionfiled by depositors for recovery of their depositsmade prior to 1-4-2014 under section 73 on failureof respondent company to repay their depositswould be maintainable and was to be allowed.

A. Provisions of S.73 of the Companies Act,2013:

1. Sub-section (1) to S.73 of the Act providesthat on and after the commencement of the2013 Act, no company shall invite, acceptor renew deposits from the public exceptin a manner provided in the Chapter V forAcceptance of Deposits by the Companies.

2. Sub-section (2) to S.73 of the Act stipulatescertain conditions for inviting publicdeposits.

3. Sub-section (3) to S.73 of the Act providesthat every deposit as accepted by theCompany shall be repaid with interest inaccordance with the terms and conditionsof the agreement referred to in sub-section(2) of S.73 of the Act.

4. Sub-section (4) to S.73 of the Act providesthat where a company fails to repay thedeposit or part thereof or any interestthereon, the depositors may apply to theTribunal for an order directing the company


3. The depositors approached to the NCLTapproached the NCLT for inviting an orderdirecting the Company to pay the sum duealongwith interest of such non-payment ofthe matured amount of deposits.

C. Arguments from both the side :

1. The Respondent’s vehement opposition tothe prayer was the maintainability of thepetitions u/s 73(4) of the Act. The mainthrust of the arguments of Mr. Sindhwani,Ld. Senior Counsel appearing for thecompany is that the doors of the NCLTare closed for any depositor having madethe deposits prior to notification of theCompanies Act, 2013 coming into effecti.e., prior to 1st April, 2014. Reliance ismade on the provisions of section 73 whichread as under:

“73(1) On and after of commencement ofthis Act, no company shall invite,accept or renew deposits under thisAct from public except in themanner provided under thisChapter:”

2. As per the arguments advanced by the ld.Sr. Counsel provisions of section 73(1) ofthe Companies Act, 2013 make itabundantly clear that the term “deposits”means “deposits” taken under theCompanies Act, 2013 i.e. on and after thecommencement of the Companies Act,2013. Since the deposits taken by therespondent company were taken as per theprovision of the Companies Act, 1956 andit has not invited, accepted or renewed anydeposits on or after 01.04.2014 (i.e. dateon which Section 73 of the CompaniesAct, 2013 was notified), the deposits inquestion in the present applications cannotcome under the preview of the “Deposits”as mentioned in Section 73(1) of theCompanies Act, 2013.

Allied Laws Corner

3. It is further argued on behalf of therespondents that the term “depositors” hasbeen defined under the Companies(Acceptance of Deposits) Rules, 2014under Section (2)(1)(d), as per which“depositors” means,—

(i) any member of the company who hasmade a deposit with the company inaccordance with the provisions of thesub-section (2) of Section 73 of theAct, or

(ii) any person who has made a depositwith the public company in accordancewith the provision of section 76 of theAct.

4. According to the respondents, the term“Act” has also been defined under Section2(a) as per which “Act” means CompaniesAct, 2013 (18 of 2013). So clearly theDepositors u/s 73(4) are only ones whohave made deposits under the CompaniesAct, 2013.

5. Interpreting the above, Ld. Senior Counselstates that there is no remedy available to adepositor whose deposits were acceptedunder the old Act for raising theirgrievances before the NCLT. As per thearguments advanced, the Act only providesrelief to the Respondent Company to seekenhancement of time for repayment u/s 74,which remedy had been invoked by themthough dismissed. Ld. Senior Counseltherefore submits that these applications arenot maintainable and the only legalrecourse left to the depositors is to knockat the doors of the Civil Courts for a decreein their favour. It is further submitted onbehalf of the respondent that withoutprejudice to their arguments advancedabove, the financial health of the companyis critical as the Real Estate Industry hasseen a downslide. On the depositors’ pleathat the Company’s assets be sold to


Allied Laws Corner

liquidate their dues, it is stated that and alltheir assets are already mortgaged andencumbered. The company, whichprimarily deals in development of RealEstates, has been in doldrums. It is alsostated that though enhancement of time hadbeen prayed for to liquidate the liabilitytowards the depositors, the same had beenrejected. Ld. Counsel also submits that alldepositors were being paid regularly till thecompany faced the downslide and whilethe going was good there were nogrievances and the depositors willingoffered money as deposits to get the benefitof a higher rate of interest.

6. However, the ld. Counsel appearing for thepetitioners submitted that the new act of2013 does not supersede the old Act of1956, but is in supersession and hencegrants more tooth and power to the old Act.

D. Findings of the National Company LawTribunal :

1. After hearing the legal arguments of theboth the Counsels and hearing thesubmissions made by the various aggrievedinvestors, Hon’ble Member unable toappreciate the arguments advanced by theLd. Senior Counsel for the respondents.Simply put he has tried to complicate andconfound the issue by a web of legalcomplexities. His arguments, howeverconvincing, have not been sufficient toderail the issue. His suggestions that thepetitioners’ only recourse lies with CivilCourts as they do not come within thedefinition of “depositors” as per the Act of2013, or that this forum not being a Courtvested with any inherent rights, should notentertain the petitions are unacceptable.

2. This Bench is of the opinion that thisForum, which may have the trappings of aCourt, is vested with adjudicatory rightsfor exercising all equitable jurisdictions. It

is not the intention of the legislature todifferentiate between depositors prior toor after 1.04.2014. The remedies cannotbe any different; neither can they becategorised or compartmentalised intotwo separate groups. Rule 19 of theCompanies (Acceptance of Deposits)Rules, 2014 clarifies the applicability ofthe provisions of Sections 73 & 74 todeposits accepted from public byeligible companies, prior to or aftercoming into force of the 2013 Act.

3. The Hon’ble Member was in agreementwith Mr. Sachdeva, Ld. Counsel for thepetitioners that the term every depositwould mean and include all previousdeposit accepted by the company.

4. The Hon’ble Member therefore did not findany merit in the respondent’s applicationfor dismissal of the petitions on the groundsof maintainability. It is viewed as anexercise to procrastinate and derail theproceedings with a fond hope ofsucceeding. The Hon’ble Memberhowever agreed with Mr. Sindhwani thatno case of cheating under section 420 IPCis made out, which is the sentiment of theagitated depositors, as the intention to cheatwas non-existent at the time of acceptanceof the deposits, a fact borne out from theregular interest previously enjoyed by thepetitioners.

5. The Hon’ble Member therefore dismissedthe respondent’s application is with costsof Rs. 25,000/-, and allowed the petitionsu/s 73(4) o f the Act. The Hon’ble Benchfurther held that each depositor would beentitled to recover their dues in executionproceeding together with costs and interestwhich they were entitled to on theirdeposits till recovery thereof.

❉ ❉ ❉


CA. Pamil H. [email protected]

From Published Accounts

AS-29 Provisions, Contigent Liabilities andContingent Assets - Annual Report 2015-16

Notes to Balance Sheet and Statement of Profitand loss

Tata Steel Limited

A Contingent Liabilities

(a) Claims not acknowledged by the Company

(Rs. Crore)st stAs at 31 As at 31

March, March,2016 2015

(i) Excise and Service Tax 470.14 451.32

(ii) Customs 13.72 13.72

(iii) Sales Tax and VAT 567.88 432.33

(iv) State Levies 391.40 264.97

(v) Suppliers and 86.83 82.07Services Contract

(vi) Labour Related 54.30 51.71

(vii)Income Tax 354.57 301.11

(viii) Royalty 14.01 14.01

(b) Claim by a party arising out of conversionarrangement Rs. 195.82 crore (31.03.2015:Rs.195.82 crore). The Company has notacknowledged this claim and has instead fileda claim of Rs. 139.65 crore (31.03.2015: Rs.139.65 crore) on the party. The matter ispending before the Calcutta High Court.

(c) The State Government of Odisha introduced“Orissa Rural Infrastructure and SocioEconomic Development Act, 2004” with effectfrom February 2005 levying tax on mineralbearing land computed on the basis of value ofminerals produced from the mineral bearingland. The Company had filed a Writ Petition

in the High Court of Orissa challenging thevalidity of the Act. Orissa High Court held inNovember 2005 that state does not haveauthority to levy tax on minerals. The StateGovernment of Odisha moved to the SupremeCourt against the Order of Orissa High courtand the case is pending with Supreme Court.

stThe potential liability, as of 31 March, 2016would be approximately Rs. 5,501.98 crore(31.03.2015: Rs. 4,805.18 crore).

(d) Interest expenditure on loans taken foracquisition of a subsidiary has been disallowedin assessments with tax demand raised for Rs.958.06 crore (31.03.2015: Rs. 715.01 crore).Company has deposited Rs. 415.00 crore(31.03.2015: Rs. 340.00 crore) as part paymentas a precondition to obtain stay of demand. TheCompany expects to sustain its position onultimate resolution of the appeals.

(e) For the purpose of payment of royalty, thereare two salient provisions viz: Section 9 inMines and Minerals (Development andRegulation) Act (MMDR) 1957 related to theincidence of royalty and Rules 64B and 64Cof Mineral Concession Rules (MC Rules),1960. The Company has been paying royaltyon coal extracted from its quarries pursuant to

rdthe judgment and order dated 23 July, 2002passed by the Jharkhand High Court. However,the State Government demanded royalty at ratesapplicable to processed coal. Though theCompany contested the above demand, itstarted paying, under protest, royalty onproceed coal from November 2008. Thedemand of the state mining authority wasconfirmed by the High Court vide its Judgment

thdated 12 March, 2014. The Court concludedthat the State cannot claim Interest till theHon’ble Supreme Court decides the pending


Special Leave Petition (SLP) filed by State andCompany in the year 2004.

In the appeals filed by Tata Steel in respect ofthe issues related to Coal royalty, the Hon’bleSupreme Court has pronounced the judgment

thon 17 March, 2015 in Which it has interpretedSection 9 and approved the law that removalof coal from the seam in the mine and extractingit through the pithead to the surface satisfiesthe requirement of Section 9 (charging section)of the MMDR Act in order to give rise to aliability for royalty. In regard to theinterpretation of Rules 64B and 64C of MCRules, the Supreme Court has clarified that theconstitutional validity or the vires of the Ruleshas not been adjudicated upon. Therefore it isopen to Tata Steel either to revive the appealslimited to this question or to separatelychallenge the constitutionality and vires of theseRules. Accordingly, Tata steel has filed writpetitions challenging the constitutionality andvires of Rules 64B and 64C of MC Rules on19th May, 2015 at Hon’ble High court ofJharkhand. Vide it’s judgment dated26.06.2015, High court has held that, the writpetitions are maintainable. It is also petitions tomaintainable. It is also pertinent to mention thatthe Union of India in its counter-affidavit hasstated that the provisions of Rules 64B and 64Cmay not be applicable to the mineral coal.

All demands are solely based on application ofRules 64B and 64C. In view of (I) the clearinterpretation of charging Section 9 bySupreme Court by three judges Benchfollowing two earlier three judge bench orders(ii) the affidavit of Union of India and (iii) theliberty given by Supreme Court, the Companyis of the opinion that any related present/probable demands are not payable. Out of theprinciple demand of Rs. 190.25 crore, anamount of Rs. 163.80 crore has been paid tillFY 15 and balance has been provided for.Interest amount of Rs. 324.06 crore(31.03.2015: Rs. 318.45 crore) has been

(f) The Company pays royalty on ore on the basis

considered as contingent Liability.

of quantity removed from the leased area at therates based on notification by the Ministry ofmines, Government of India and the pricepublished by India bureau of Mines (IBM) ona monthly basis.

A demand of Rs. 411.08 crore has been raisedby Deputy Director of mines, joda, claimingroyalty at sized ore rates on dispatches of orefines. The Company has filed a revision petition

thon 14 November, 2013 before the minesTribunal, Government of India, Ministry ofMines, New Delhi, Challenging the legalityand validity of the demand raised and also togrant refund of royalty excess paid by thecompany. Mines tribunal vide is order dated

th13 November, 2014 has stayed the demandof royalty on iron ore for joda east of Rs. 314.28

stcrore up to the period ending 31 March, 2014.For the demand of Rs. 96.80 crore for April,2014 to September, 2014, a separate revisionapplication was filed before Mines Tribunal.

thThe matter was heard by Mines tribunal on 14July, 2015 end stay was granted on the totaldemand with directive to Government ofOdisha not to take any coercive action forrealization of this demanded amountAccordingly, the demand of Rs. 411.08 crore(31.03.2015: Rs. 411.08 crore) has beenconsidered as a contingent liability.

(g) In 2008-09, NTT DoCoMo Inc (Docomo)entered in to an Agreement with TataTeleservices ltd. (TTSL) and Tata Sons Ltd. toacquire 20% of the equity share capital underthe primary issue and 6% under the secondarysales from Tata Sons Ltd. In terms of theagreements Docomo, Tata Sons Limited, interalia, agreed to provide various indemnities anda Sale Option entitling Docomo to sell its entireshareholding in 2014 at a minimum pre-determined price of Rs. 58.045 per share ifcertain performance parameters were not metby TTSL. The minimum pre-determine pricerepresented 50% of the acquisition price of2008-09. The agreements are governed byIndian Law.



The Company in 2008-09 had accepted an offermade voluntarily by Tata Sons Limited to allshareholders of TTSL to participate pro-rata inthe secondary sale to Docomo together withbearing liabilities, if any, including the SalesOption in proportion of the number of sharessold by the Company to the aggregateSecondary Sale to Docomo . Accordingly, anInter se Agreement was executed by theCompany with Tata Sons and other SellingShareholders. The Company sold 52, 46,590shares of TTSL to Docomo at Rs 116.09 pershare resulting in a profit of Rs. 49.77 crore.The Company is obliged to acquire 2,58,83,846shares of TTSL in the above proportion in theevent the Sale Option is exercised by Docomo.

Docomo has exercised the Sale Option in July2014 and has called upon Tata Sons Limitedto acquire its entire shareholding in TTSL atthe pre-determined price of Rs. 58.045 pershare. Tata Sons Limited has in turn informedthe Company that they may be called upon toacquire 2,58,83,846 shares, in terms of itsoriginal offer to the Company and the inter-seagreement to participate in the Secondary Sale.

Tata Sons have also informed the Companythat the Reserve bank of India have notpermitted acquisition of the shares at the pre-determined price and have advised that theacquisition can only be made at fair MarketValue (FMV) prevailing at the time of theacquisition. Docomo reiterated its position thatthe shares be acquired at minimum pre-determined price of 50% of the acquisition pricein 2008-09.

Docomo had initiated Arbitration in the matterbefore the LCIA, London. The evidentiary

thhearing was completed on 6 May, 2016. Thearbitral award is awaited.

The Liability, if any, to the extent of thedifference between the amount sought byDocomo and the fair Market value is dependentupon the outcome of the Arbitration and

(h) Bills discounted Rs. 360.28 crore

prevailing FEMA Regulations.

(31.03.2015L: Rs. 260.83 crore).

(B) Commitments

(Rs. Crore)st stAs at 31 As at 31

March, March,2016 2015

(a) Capital Commitments

Estimated amount of 5,416.16 6,466.63contract remaining to beexecuted on Capitalaccount and notprovided for

(b) Other Commitments 23,751.00 23,557.00

(i) Export obligation againstimport of capital goodsunder EPCG Scheme

(ii) Uncalled liability on 0.01 0.01partly paid shares anddebenture

33. The Company has given undertakings to: (a)IDBI not to dispose of its investment inWellman Incandescent India Ltd., (b) IBBI andICICI Bank Limited (formerly ICICI) not todispose of its investment in standard ChromeLtd.,(c) Mizuho Corporate Bank Limited andJapan Bank for international Co-operation, notto dispose of its Investments in Tata NYKShipping Pte Limited (to retain Minimal stakerequired to be able to provide a corporateguarantee towards long-term debt), (d) ICICIBank Limited to directly or indirectly continueto hold at least 51% shareholding inJamshedpur Continuous Annealing &Processing Company Private Limited, (e)Sumitomo Mitsui Banking Corporation not todispose of the management control in TataMetaliks DI Pipes Limited (Formerly knownas Tata Metaliks Kubota Pipes Limited) heldthrough Tata Metaliks Ltd. so long as the duesto Sumitomo Mitsui Banking Corporation issubsisting.



The Company has furnished a security bondin respect of its immovable property to theextent of Rs. 20 crore in favour of the Registrarof the Delhi High Court and has given anundertaking not to sell or otherwise dispose ofthe said property.

The Promoters of Tata BlueScope Steel Limited(TBSL) (i.e. BlueScope steel Asia Holding PtyLimited, Australia and Tata Steel Limited) havegiven an undertaking to IDBI TrusteeshipService Ltd. Debenture Trustees, and StateBank of India not to reduce collectiveshareholding in TBSL, below 51% withoutPrior consent of the Lender. Further, theCompany has given an undertaking to stateBank of India to intimate them before dilutingits shareholding in TBSL below 50%.

The Company, as a promoter, has pledged4,41,55,800 equity shares of Industries EnergyLimited with Infrastructure DevelopmentFinance Corp[oration limited.

The Company has agreed, if requested by TataSteel UK Holdings Limited (TSUKH) (anindirect wholly owned subsidiary), procure aninjection of funds to reduce the outstanding netdebt in TSUKH and its subsidiaries, to amutually accepted level.

The Company along with TS Alloys Limited(Promoters) has given an undertaking to PowerFinance Corporation Limited (PFC) and RuralElectrification Corporation Limited (REC)(Lenders) not to dispose off/transfer their equityholding of 26% of total equity inBhubaneshwar Power Private Limited (BBPL)without prior written approval of lenders. SuchShareholding of Promoters may be transferredto the Company or its affiliates subject tocompliance of applicable laws. The Companyalong with TS Alloys Limited has pledged 60%of their equity contribution in BPPL to PFCand REC.

The Company has given guaranteesaggregating Rs. 11,741.71 Crore (31.03.2015:

(a) In Favour of Timken India Limited for Rs.80.00 crore (31.03.2015: Rs. 1.07 crore)

Rs. 13,761.45 crore).

against renewal of lease of land pendingwith State Government and further Rs.1.70 crore (31.03.2015: Rs. 1.07 crore) onbehalf of Timken India Limited toCommissioner of Customs in respect ofgoods imported.

(b) In favour of corporate Bank Ltd., Japanfor Rs. 65.04 crore (31.03.2015: Rs. 78.89crore) against the loan granted to Tata NYKShipping Pvt. Ltd.

(c) In favour of the President of India for Rs.177.18 crore (31.03.2015: Rs. 177.18crore) against performance of exportobligation under the various bondsexecuted to Balance Sheet and Statementof Profit and Loss by JamshedpurContinuous Annealing & ProcessingCompany Private limited.

(d) In favour of the note holder against dueand Punctual repayment of the 100%

stamounts outstanding a on 31 March,2016 towards issued Guaranteed Notes byABJA Investment Co. Pvt. Ltd. for Rs.9,937.88 crore (31.03.2015: Rs.11,718.75 crore) and Rs. 1,480.39 crore(31.032015: Rs. 1,705.41 crore). Theguarantee is capped at amount equal to125% of the outstanding principal amountof the Notes as detailed in “Terms andCondition” of the offering Memorandum.

(e) In favour President of India for Rs. 0.15crore (31.03.2015 Rs. 0.15 crore) as bankguarantee against advance License.

34. Odisha legislative assembly issued anthamendment to India Stamp Act on 9 May,

2013 and inserted a new provision (Section 3a)in respect of Stamp duty payble on grant/renewal of mining leases. As per the amendedprovision. Stamp duty is levied equal to 15%of the average royalty that would accrue out ofthe highest annual extraction of minerals underthe approved mining plan multiplied by the



period of such mining lease. The Company hadfiled a writ petition challenging the

thconstitutionality of the Act on 5 July, 2013.TheHon’ble High Court, Cuttack passed an order

thon 9 July, 2013 granting interim stay on theoperation of the Amendment Act, 2013.As aresult of stay , as on date, The act is notenforceable and any demand received by theCompany received demand notices for thevarious mines at Odisha totaling to Rs. 5,579crore. On the basis of external legal opinion,the company has concluded that it is remotethat the claim sustain on ultimate resolution ofthe legal case by the courts.

In April, 2015 the Company has received anintimation from Government of Odisha,

- Market Structure: a single marketstructure;

- Trading Hours and Settlement: based oncost-benefit analysis, but not exceeding 23hours and 30 minutes in a day andsettlement shall be done at least twice a day;

- Product Category: All categories ofexchange-traded products as available fortrading in stock exchanges in FATF/IOSCO compliant jurisdictions and non-agri commodity derivatives;

- Margining framework: compliant withCPMI IOSCO PFMIs at all times;

- Eligible collateral: permitted to acceptcash and cash equivalents (which shallinclude major foreign currencies as maybe decided by the clearing corporation fromtime to time and term deposit receiptsissued by bank branches located in IFSC),

granting extension of validity period for leasesunder the MMDR Amendment Act, 2015 up

stto 31 March, 2030 in respect of eight minesstand up to 31 March, 2020 for two mines

subject to execution of supplementary leasedeed within 3 Months from the date of theinformation liability has been provided in the

stbooks of accounts as on 31 March, 2016 asPer the existing provision of the stamps Act1899 and the Company has since paid the stampduty and registration charges totaling Rs.353.08 crore for supplementary deed executionon respect of eight mines out of the abovemines.

❉ ❉ ❉

Indian securities held with foreigndepositories, foreign securities includingunits of liquid mutual funds and gold, aseligible collateral for trades in all productcategories;

- Fund to guarantee settlement of trades:maintain a Fund to guarantee the settlementof trades executed in the stock exchangesin IFSC;

- Dispute Resolution Mechanism: disputeresolution mechanisms offered byInternational Arbitration Centre in IFSC toresolve securities market-related disputes;

[Circular SEBI/HO/MRD/DSA/CIR/P/2016/125 dated November 28, 2016]

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contd. from page 545 Corporate Law Update



From the Government

CA. Kunal A. [email protected]

Income Tax1) Circular regarding admissibility of an

expenditure incurred by a firm on keymaninsurance premium in case of a partner.CBDT vide this circular clarifies that thepremium paid on the Keyman Insurance Policyis allowable as Business Expenditure.However, In case of a Partnership Firm, thegeneral approach of the Assessing Officer wasto treat the expenditure as not incurred for thepurpose of business and disallow the same.Moreover, High courts have upheld theadmissibility of the expenditure incurred by thefirm in the case of the partners. Courts haveheld that a Keyman Insurance Policy is notconfined to a policy taken for an employee butalso extends to insurance policy taken withrespect to the life of another person who isconnected in any manner whatsoever with thebusiness of the subscriber.Thus, the premium on the Keyman InsurancePolicy of partner of the firm is wholly andexclusively for the purpose of business and isallowable as business expenditure.(For full text refer Circular No. 38/2016,dated 22/11/2016)

2) Notification regarding amendment inIncome tax Rules, 2016CBDT hereby amends rule 8AA, by insertingthe following sub-rule after sub-rule (2):-“(3) In the case of a capital asset, declared underthe Income Declaration Scheme, 2016,-(i) being an immovable property, the period

for which such property is held shall bereckoned from the date on which suchproperty is acquired if the date ofacquisition is evidenced by a deedregistered with any authority of a StateGovernment; and

(ii) in any other case, the period for which suchasset is held shall be reckoned from the1st day of June, 2016".

(For full text refer Notification No. 108/2016,

Service Tax

dated 29/11/2016)

1) Changes in Notification regarding – Onlineinformation and database access or retrievalservicesCBEC hereby amend earlier notification 20/2014, dated 16/09/2014 by inserting anadditional proviso, namely:-“Provided further that in case of onlineinformation and database access or retrievalservices provided or agreed to be provided bya person located in non-taxable territory andreceived by a non-assesse online recipient, noofficer specified in column (2) of the Table 3and no officer subordinate to him, other thanthe officer specified in column (2) against S.No(23) of the said Table and all the officerssubordinate to him, shall have the powers underChapter-V of the Finance Act, 1994 (32 of1994) and the rules made thereunder.Explanation. - For the purposes of thisnotification,-(a) “online information and database access

or retrieval services” has the same meaningas assigned to it in clause (ccd) of sub-rule(1) of rule 2 of the Service Tax Rules, 1994;

(b) “non-assessee online recipient” has thesame meaning as assigned to it in clause(ccba) of sub-rule (1) of rule 2 of theService Tax Rules, 1994.”

(For full text refer Notification No. 50/2016,dated 21/11/2016)

2) Notification regarding amendment in Placeof Provision of Services Rules,2012.CBEC hereby makes the following rules tofurther amend the Place of Provision ofServices Rules, 2012:-In the Place of Provision of Services Rules,2012, in rule 2, in clause (q), after the words“include broadcasting”, the words “and onlineinformation and database access or retrieval”shall be inserted.(Notification No. 51/2016, dated 30/11/2016)

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1 Forthcoming Programmes

Date/Day Time Topic Speaker Venue

15/12/2016 03.15 p.m. Celebration of CA Association By Ririi Trivedi Association’sThursday to Foundation day...15th (Personal Office

04.15 p.m. December 2016 TransformationTalk on mind and sound Therapist) &

based Wellness (Transforming Gunjan TrivediIndividuals & Teams) ( Life Coach,

4.15 pm Holistic approaches to wellness Sound Healer)onwards using body mind and emotions

1. Free Health Check Up by Dr. Naitik ShahHomeopath Cures. (Free) (Health & Wellness)2. Free Eye Check Up by Dr. Tejal Dalal

Tej Eye Center. (M.S. OPHTHAL)3. Free Dental Check Up by Dr. Sachin Dalal

Shashwat Dental Clinic.4. Health Check Up by Green Dr. Dilip D. Shah

Cross Pathology and (MBBS)Molecular Lab.

28/01/2017 8.30 a.m. Cricket Match - Sardar Patel Stadium,Saturday 6:00 p.m. C. A. Association v/s Navrangpura,

Income Tax Bar Association

Association News

CA. Dilip U. JodhaniHon. Secretary

Ahmedabad

CA. Riken J. PatelHon. Secretary

Glimpses of Past Events

Cricket Match Series on GST


Across1. Under GST, works contract is treated as supply

of _____________.2. Madras High Court in case of Megatrends IC

has held that there is no law which says a firmcannot be a ____________ in another firm.

3. Dealers opting for composite scheme underGST shall have to furnish return every

Down4. The taxable event in GST is _________ of

_________.

Goods or Services.5. CA Associaiton organized Diwali Get Together

at this Venue – Hotel _________6. False happiness is like _______ in the beginning

ACAJ Crossword Contest # 31

but poison in the end.

Notes:

1. The Crossword puzzle is based on previousissue of ACA Journal.

2. Two lucky winners on the basis of a draw willbe awarded prizes.

3. The contest is open only for the members ofChartered Accountants Association and nomember is allowed to submit more than oneentry.

4. Members may submit their reply eitherphysically at the office of the Association orby email at [email protected] on orbefore 22/12/2016.

5. The decision of Journal Committee shall be final

ACAJ Crossword Contest # 30 - Solution

and binding.

Across1. Corporations2. ICDS 3. Service

Down4. Creditor 5. Provisional

Winners of ACAJ Crossword Contest # 30

1.

6. Principles

❉ ❉ ❉

CA. Arun Kothari

2. CA. Dharmendra Bharwad

1 / 4 5

2 6

3

Documents

November, 2016 - Chartered Accountants Association