ICAI defers applicability of Auditing Standard SA 700 (Revised), 705, 706 to 1st April, 2012

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IMPORTANT ANNOUNCEMENT

Important Announcement on revised Effective Date/ Applicability of three Standards on Auditing, namely –

- SA 700 (Revised), “Forming an Opinion and Reporting on Financial Statements”;

- SA 705, “Modifications to the Opinion in the Independent Auditor’s Report”;

- SA 706, “Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s Report”

During the last few weeks, the President and Vice-President, during their interaction with members especially statutory central and branch auditors of banks, business community and Council Members, have been urged that concerted efforts be made by the Institute by way of regular CPE and other programmes to familiarise the practicing members with the requirements of the following three Standards on Auditing namely:

- SA 700 (Revised), “Forming an Opinion and Reporting on Financial Statements”;

- SA 705, “Modifications to the Opinion in the Independent Auditor’s Report”;

- SA 706, “Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s Report”

which were issued in 2010 to be effective/applicable for audits of financial statements for the periods beginning on or after 1.4.2011 and only after ensuring adequate education, publicity and familiarization, the said standards, be made mandatory.

The above concerns were shared by the President and Vice-President among other Council colleagues and thereafter based on the view emerged, the President directed the office to circulate a proposal, under Regulation 165, among Council Members for taking a decision on postponement by one year of the applicability of aforementioned Standards on Auditing.

Accordingly, a proposal for postponement by one year of the effective date/applicability of the above mentioned three Standards on Auditing was circulated among Council Members for taking a decision in the matter, in accordance with the applicable provisions of Regulation 165 of the Chartered Accountants Regulations 1988. The decision so taken by the Council is as follows :

“The Council, in partial modification of the decision taken by it at its 291st meeting held in December, 2009, decided that the effective date/applicability of the following Standards on Auditing –

a) SA 700 (Revised), “Forming an Opinion and Reporting on Financial Statements”;

b) SA 705, “Modifications to the Opinion in the Independent Auditor’s Report”;

c) SA 706, “Emphasis of Matter Paragraphs and Other Matter Paragraphs in the Independent Auditor’s Report”

be postponed by one year and consequently the said Standards shall now be effective/applicable for audits of financial statements for periods beginning on or after 1st April, 2012 (instead of audits of financial statements for periods beginning on or after 1st April, 2011 as was earlier decided and referred to above).

The suggestion of some members on issue of suitable clarification in respect of those members who have since issued the audit reports in consonance with the said Standards i.e. under new format, shall be brought before the Council at its next meeting for addressing the same appropriately.”

This is for information and compliance of all concerned.

Usance interest paid under letter of credit liable for TDS

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INCOME TAX APPELLATE TRIBUNAL, MUMBAI

I.T.A. No.7434/Mum/2007 (A.Y. 2005-06)

M/s. Sunoco Industries Pvt. Ltd., [Presently M/s. Gandhar Oil Refinery (India) Ltd.],

Vs.

Dy.Commr. of Income-tax

Briefly stated facts of the case are that the assessee paid a sum of Rs.9,54,684/- to a foreign bank without deduction of tax at source. In the audit report, it was mentioned that it was a usance interest paid under the letter of credit and hence not liable for any deduction of tax at source. In support of its case, the assessee relied on the order passed by the Tribunal in the case of Vijay Ship Breaking Corporation vs. DCIT (2002) 76 TTJ 169 (Rajkot) by contending that the interest paid to bank related to the purchases and hence should be considered as part of purchase price. Not convinced with the assessee’s submission, the AO came to hold that the assessee was required to deduct tax at source on such interest and having not done so, the amount was disallowable u/s.40(a)(i). The ld. CIT(A) upheld the action of the AO on this point.

Mumbai Bench of the Tribunal in Uniflex Cables Ltd. vs. DCIT has decided identical issue in ITA No.7019/Mum/2006. Vide order dated 28-03-2012, the Tribunal has held that such amount is in the nature of interest u/s.2(28A) and thus under the provisions of the Act there is a requirement to deduct tax at source. Having not deducted tax at source, the provisions of section 40(a)(i) have been held to be rightly invoked.

Sending Annual Reports of Companies through E-Mail- Green Initiative

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As you are already aware, as a part of green initiative, the Ministry of Corporate Affairs vide its circular number 18/2011 dated 29.04.11 had clarified that a company would be in compliance of section 219(1) of the Companies Act, 1956 in case a copy of balance sheet etc. is sent by electronic mail to members of the Companies.

This is subject to the condition that:

- the company advances opportunity to the members to register their e-mail addresses with the company or with the concerned depository;

- the website of the company displays full text of these documents;

- company issues advertisement in the prominent newspapers that copies of aforesaid documents are available at the website and for inspection at the registered office during office hours;

- in cases, where any member has not registered his e-mail address for receiving the balance sheet etc., the balance sheet etc. will be sent by other modes of services as provided under section 53 of the Companies Act, 1956;

- in case any member insists for physical copies of above document, the same should be sent to him physically by post free of cost.

As time again arrives for sending reports to Shareholders, we request you to disseminate this information to the maximum number of people so that shareholders are encouraged to register their e-mail IDs with the respective companies for the purpose of getting the annual report in electronic mode and make green initiative a success.

Revised Formats for Disclosure of Financial Results of Listed Companies

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CIR/CFD/DIL/4/2012 April 16, 2012

To

All Stock Exchanges

Dear Sir/Madam,

Sub: Amendments to the Equity Listing Agreement – Formats for Disclosure of Financial Results

1. Ministry of Corporate Affairs vide Notification dated February 28, 2011 has revised the format for disclosure of Balance Sheet under Schedule VI of the Companies Act, 1956.

2. Pursuant to the same, it has been decided to carry out consequential amendments to Clause 41 of the Listing Agreement regarding interim disclosure of financial results by listed entities to the stock exchanges, which has been drawn from the format under Schedule VI of the Companies Act, 1956. Accordingly, the format for the said disclosure has been given in Annexure.

3. The above shall be applicable for financial year ended on March 31, 2012 for all filings made after the date of this circular.

4. The above listing conditions are specified in exercise of the powers conferred under Section 11 read with Section 1 1A of the Securities and Exchange Board of India Act, 1992. The said listing conditions should form part of the existing Listing Agreement of the stock exchange.

5. All stock exchanges are advised to ensure compliance with this circular and carry out the amendments in their Listing Agreement as per the Annexure to this circular.

6. This circular is available on SEBI website at www.sebi.gov.in under the categories “Legal Framework” and “Issues and Listing”.

Service Tax on services by an employee to the employer

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. Are all services provided by an employer to the employee outside the ambit of services?
No. Only services that are provided by the employee to the employer in the course of employment are outside the ambit of services. Services provided outside ambit of employment for a consideration would be a service. For example, if an employee provides his services on contract basis to an associate company of the employer, then this would be treated as provision of service. Likewise a person engaged by the employer in private capacity and beyond the demands of employment will be taxable.
2. Would services provided on contract basis by a person to another be treated as services in the course of employment?
No. Services provided on contract basis i.e. principal-to-principal basis are not services provided in the course of employment.
3. What is the status of services provided by casual workers or contract labour?

If…….	Then……
Services provided by casual worker to employer who gives wages on daily basis to the worker	These are services provided by the worker in the course of employment
Casual workers are employed by a contractor, like a building contractor or a security services agency, who deploys them for execution of a contract or for provision of security services to a client	Services provided by the workers to the contractor are services in the course of employment and hence not taxable. However, services provided by the contractor to his client by deploying such workers would not be a service provided by the workers to the client in the course of employment. The consideration received by the contractor would therefore be taxable if other conditions of taxability are present.

4. Exclusions from the definition of ‘service’
♦ Explanation 1 clarifies that ‘service’ does not cover functions or duties performed by Members of Parliament, State Legislatures, Panchayat, Municipalities or any other local authority, any person who holds any post in pursuance of the provisions of the Constitution or any person as a Chairperson or a Member or a Director in a body established by the Central or State Governments or local authority and who is not deemed as an employee.
♦ Explanation 2 creates two exceptions, .by way of a deeming provision, to the general rule that only services provided by a person to another are taxable. As per these deeming provisions establishment of a person located in taxable territory and establishment of such person located in non-taxable territory are deemed to be establishments of distinct persons. Further an unincorporated association or body of persons and members thereof are also deemed as separate persons.

♦ Explanation 3 explains that a branch or an agency of a person through which the person carries out business is also an establishment of such person

Are Government and local authorities liable to pay service tax?

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Yes. However, most of the services provided by the Government or local authorities are in the negative list.

Rationale behind taxing certain activities of the Government or local authorities

Only those activities of Government or local authorities are taxed where they compete with private entities. The rationale is as follows-

♦ to provide a level playing field to private entities in these areas as exemption to Government in such activities would lead to competitive inequities; and

♦ to avoid break in Cenvat chain as the support services provided by Government are normally in the nature of intermediary services.

Would taxable services provided by Government or local authorities still be taxable if they are covered under any other head of the negative list or are otherwise exempted?

No. For example, transport services provided by Government to passengers by way of a stage carriage would not be taxable as transport of passengers by stage carriage has separately been specified in the negative list of services. The specified services provided by the Government or local authorities are taxable only to the extent they are not covered elsewhere i.e. either in the negative list or in the exemptions.

Uploading of the existing clients’ KYC details in the KYC Registration Agency (KRA) system by the intermediaries

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CIRCULAR No. MIRSD/ Cir-5 /2012 April 13, 2012

Please refer to SEBI circular no. CIR/MIRSD/16/2011 dated August 22, 2011, MIRSD/SE/Cir-21/201 1 dated October 5, 2011, MIRSD/Cir-23/201 1 dated December 2, 2011 and MIRSD/Cir- 26 /2011 dated December 23, 2011 on KYC related issues.

1. SEBI simplified the account opening process for investors and made it uniform across intermediaries in the securities markets vide aforementioned circulars. Further, to avoid duplication of KYC process with every intermediary, KRA system was developed for centralization of the KYC records in the securities markets. The system was made applicable for new clients who opened accounts with the intermediaries from January 1, 2012.

2. Now, for convenience of the clients registered prior to January 1, 2012 (hereinafter referred to as ‘existing clients’) and to expand the centralized database of the KYC records of the entire securities market, it is decided to upload the KYC details of the existing clients of the intermediaries in the current KRA system, in a phased manner.

3. The following guidelines for uploading the KYC data of the existing clients are being issued in consultation with the major Stock Exchanges, Depositories, KRAs, AMFI Brokers’ Associations and market participants:

a. For existing clients who trade / invest / deal with the intermediary anytime during the time period specified in the table given below starting from April 16, 2012, the intermediaries shall forthwith upload their KYC details in the KRA system. They shall also send original KYC documents to the KRA on continuous basis and complete the process within the prescribed time limits.

Considering the representations made by the intermediaries, they may send print outs of scanned documents to the KRAs instead of original documents in accordance with the schedule, certifying that they have retained the originals.

However, they must complete the process of sending the original documents to the KRA by March 31, 2013.

The KRAs shall update their systems and send letters to the clients for the receipt of the initial / updated KYC documents from intermediary in accordance with the time schedule.

The intermediaries shall maintain electronic records of the KYCs of their clients and keeping physical records would not be necessary.

Schedule for implementation (For the year 201 2-1 3):

Existing clients of intermediary who trade/ invest/ deal with it during the below mentioned time period	Timeline for intermediary to upload existing client’s KYC data on KRA system & send KYC documents to KRA	Timeline for KRA to update the record in their system & send acknowledgement to the existing client
April 16, 2012 – June 15, 2012	August 31, 2012	September 30, 2012
June 16, 2012 – August 31, 2012	October 31, 2012	November 30, 2012
September 1, 2012 – October 31, 2012	November 30, 2012	December 31, 2012
November 1, 2012 – December 31, 2012	January 31, 2013	February 28, 2013
January 1, 2013 – February 28, 2013	March 15, 2013	March 31, 2013

The KYC data of the existing clients, who trade / invest or deal after the above mentioned schedule, shall be uploaded on a continuous basis.

b. While uploading the existing clients’ KYC details in the KRA system, the intermediary shall indicate the date of account opening / activation / updation of information. Necessary provisions shall be made by the KRAs in their systems. In case the KRA system indicates that the client’s KYC data already exists, the other intermediary shall upload the modifications, if any, after the aforesaid date so that the latest information about the client is available on the KRA system.

c. The intermediary shall highlight the KYC details about the existing client which is missing / not available, as per the KYC requirements specified vide circular dated October 5, 2011, only if it was not mandated earlier, when the client’s account was opened. KRAs shall make necessary provisions in their systems to categorize the KYC of such clients under the category of existing clients and highlight the information which is missing / not available.

d. When the existing client approaches another intermediary, it shall be the responsibility of that intermediary which downloads the data of that client from the KRA system, to update the missing information, do IPV as per requirements (if not done already) and send the relevant supporting documents, if any, to the KRA. Thereafter, the KRA system shall indicate the records as updated.

4. It is clarified that timelines mentioned in the schedule are the minimum requirements and the KYC data of the remaining existing clients can also be uploaded on the KRA system.

5. The Stock Exchanges and Depositories are directed to:

a. bring the provisions of this circular to the notice of the Stock Brokers and DPs, as the case may be, and also disseminate the same on their websites;

b. make amendments to the relevant bye-laws, rules and regulations for the implementation of the above decision in co-ordination with one another, as considered necessary;

c. monitor the compliance of this circular through half-yearly internal audits and inspections; and

d. communicate to SEBI, the status of the implementation of the provisions of this circular.

6. in case of mutual funds, compliance of this circular shall be monitored by the Boards of Asset Management Companies and the Trustees and in case of other intermediaries by their the Board of Directors.

7. This circular is issued in exercise of powers conferred under Section 11(1) of the Securities and Exchange Board of India Act, 1992 and Regulation 17 of the SEBI (KYC (Know Your Client) Registration Agency) Regulations, 2011 to protect the interests of investors in securities and to promote the development of and to regulate the securities markets.