No waiver of Interest if delay in return filing was not because of impounding of documents

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HIGH COURT OF KERALA

Shebin Jewellery

v.

Chief Commissioner of Income-tax, Cochin*

W.P. (C) NO. 5799 OF 2008(M)

DECEMBER 3, 2012

 

It is a fact that the documents were given to the petitioner only after more than two years. But the reasons stated by the Chief Commissioner would unequivocally indicate that initially the request was made to release the books of account and documents; then the returns were prepared even without the originals.The assessee had requested for copies of the books and documents only by 23/03/2004 which was later supplied after the alleged delay. But it is indicated that from the returns it was found that unaccounted transactions have been included, the same could have been done without verification of the records. In other words, though the assessee was requesting for the records it did not make any difference as the returns were not in terms with the documents produced and there were unaccounted transactions. This finding of fact by Chief Commissioner has resulted in not exercising the jurisdiction to waive interest completely. However, a small concession has been granted on account of the fact that there had been some delay on the part of the department in providing the copies of the documents. Therefore, this is a case where the assessee was only trying to point out the non-availability of records as a reason for not filing the returns in time. Returns were considered and Exts. P12 and P13 assessment orders were passed intimating the unaccounted transactions also.

That being the situation, I do not think that there will be any justification for this Court to extend the scope of judicial review to Ext.P15 order. I do not find any illegality or arbitrariness in the said decision nor can it be stated to be unreasonable. This Court cannot sit in appeal against the said finding of fact by the Chief Commissioner.

Assessment cannot be reopened for excess credit of TDS

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HIGH COURT OF DELHI

Asia Satellite Telecommunications Co. Ltd.

v.

Assistant Director of Income-tax, International Taxation

W.P.(C) NO. 8852 OF 2011

AUGUST 23, 2012

 

Turning now to the validity of the reasons recorded, that credit for TDS of Rs. 2,11,16,426/- was wrongly allowed to the petitioner, counsel for the petitioner is right in his submission that Section 147 of the Act can be invoked only “if the Assessing Officer has reason to believe that any income chargeable to tax has escaped assessment for any assessment year” and that there is no authority given by the section enabling the Assessing Officer to reopen the assessment on the ground that credit for TDS was wrongly allowed in the original assessment. In the reasons recorded, reference has been made to Explanation 2 to Section 147. We are not reproducing the said Explanation as the same has been reproduced in the reasons recorded, which have been quoted earlier. In our opinion, none of the three clauses of the Explanation applies to the present case. Clause (a) speaks of no return having been filed; that is not the case here. Clause (b) speaks of a return having been filed without an assessment being made and the assessee had understated the income or has claimed excessive loss, deduction, allowance or relief in the return. This also is not the case here. Clause (c) has several sub-clauses and none of the situations applies to the petitioner’s case. Reference is then made to Section 155(14) of the Act in the reasons recorded. A careful reading thereof shows that it is intended for the benefit of the assessee who had omitted to file the TDS certificate along with the return of income but subsequently produces the same before the Assessing Officer within two years from the end of the assessment year in which the income relevant to the TDS is assessable, in which case the Assessing Officer can amend the assessment order and grant the relief, invoking the powers under Section 154 of the Act. The proviso to Section 155(14), however, places a condition, namely that the credit for TDS can be given by the Assessing only if the corresponding income is disclosed by the assessee in the return of income. What perhaps the respondent in the present case had in mind – we are only surmising – is that the assessee has not disclosed the income corresponding to the TDS of Rs. 2,11,16,426/-; and when credit was given for the same by the order passed on 26.06.2006 under Section 154 of the Act, the petitioner was allowed “excessive relief” within the meaning of clause (b) of Explanation 2 to Section 147 of the Act. We are just assuming that this was in the mind of the Assessing Officer though in the reasons recorded it has not been so articulated. Even assuming this was the basis for issuing the notice, it cannot be validated for several reasons. The first assumption we have to make is that the petitioner claimed the relief in the return of income. Factually this is not so in the present case. No claim for the TDS of Rs. 2,11,16,426/- was made by the petitioner “in the return” nor was any credit given in the demand notice for any TDS. This is clear from the income tax computation form dated 26.03.2006 placed at pages 68 – 69 of the writ petition. The petitioner had filed the TDS certificates with the respondent on 18.05.2005 which is obviously in the course of the original assessment proceedings. Despite this, and despite rejecting the assessee’s claim that its income was not taxable in India and thereby bringing to tax the sum of Rs. 64,99,26,627/- in the assessment order passed on 27.03.2006, the respondent did not allow credit for the TDS of Rs. 2,11,16,426/-. It was because of this – not giving credit for TDS despite assessing the income – that the petitioner was compelled to move an application for rectification of the assessment under Section 154 of the Act on 12.05.2006. The claim was accepted by the Assessing Officer and an order under Section 154 of the Act was passed on 26.06.2006 wherein credit for the TDS was allowed (income tax computation form placed at pages 83-84 of Annexure-G to the writ petition). The petitioner thus claimed the relief for TDS not in the return of income but by means of a separate application under Section 154 after the passing of the assessment order. Obviously it was the stand of the petitioner that if the income is in fact assessed, though according to it the same is not assessable, the corresponding credit has to be given for the related TDS. This is the purport and object of Section 155(14) of the Act. The order passed by the respondent on 27.06.2006 is traceable to Section 155(14) read with Section 154 of the Act and by claiming credit for TDS the petitioner cannot be said to have furnished untrue or incorrect particulars of its income; nor can it be said that by allowing credit for the TDS the Assessing Officer has given excessive relief. The other assumption which we have to make is that the relief was allowed to the petitioner in the original assessment order, which would be an erroneous assumption since no credit for TDS was allowed in the original assessment order dated 27.03.2006. The credit given for TDS in an order passed under Section 155(14) read with Section 154 cannot be construed as a relief given in the original assessment order. Section 155 of the Act provides for various situations under which an order can be amended because of developments taking place subsequent to the date on which the order was originally passed. It was this power of amendment which was invoked by the petitioner; thereby the petitioner was not claiming any relief in the return. Lastly, if we were to uphold the reasoning of the respondent we have to make a further assumption that claiming credit for TDS amounts to claiming excessive loss, deduction, allowance or relief. The respondent has not demonstrated in the reasons recorded as to how such an assumption can be validly made. Explanation 2 to Section 147 of the Act cannot travel beyond the main provision. The main provision empowers the Assessing Officer to reopen the assessment if he has reason to believe that any income chargeable to tax has escaped assessment for any assessment year. Explanation 2 merely enumerates cases which are deemed to be cases where “income chargeable to tax has escaped assessment”. Therefore, the cases enumerated in the Explanation should also be cases where income chargeable to tax had escaped assessment. It cannot be so construed as to rope in cases where credit for TDS, which is a credit given against the tax payable and is not any allowance or deduction or loss or relief against the income chargeable to tax was erroneously given. There is, therefore, no merit in the reasons recorded by the respondent for reopening the assessment.

RBI reduces CRR by 25 basis point to 4 per cent

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RBI/2012-13/401
Ref: DBOD.No.Ret. BC.76/12.01.001/2012-13

January 29, 2013

All Scheduled Commercial Banks
& Local Area Banks
(Excluding Regional Rural Banks)
Dear Sir,
Maintenance of Cash Reserve Ratio (CRR)

Please refer to our Circular DBOD.No.Ret.BC.52/12.01.001/2012-13 dated October 30, 2012 on the captioned subject.

2. As set out in the Reserve Bank’s Press Release 2012-2013/1267 dated January 29, 2013, it has been decided to reduce the Cash Reserve Ratio (CRR) of Scheduled Commercial Banks by 25 basis points from 4.25 per cent to 4.00 per cent of their Net Demand and Time Liabilities (NDTL) with effect from the fortnight beginning February 09, 2013. The Local Area Banks shall also maintain CRR at 3.00 per cent of its net demand and time liabilities upto February 08, 2013 and 4.00 per cent of its net demand and time liabilities from the fortnight beginning from February 09, 2013.

RBI reduces Repo & Reverse Repo rate by 25 basis points

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RBI/2012-2013/398
FMD.MOAG. No.74/01.01.001/2012-13

January 29, 2013

All Scheduled Commercial Banks (excluding RRBs) and Primary Dealers
Dear Sir,

Liquidity Adjustment Facility – Repo and Reverse Repo
and Marginal Standing Facility Rates

As announced today by the Governor in the Third Quarter Review of the Monetary Policy 2012-13, it has been decided to reduce the Repo rate under the Liquidity Adjustment Facility (LAF) by 25 basis points from 8.00 per cent to 7.75 per cent with immediate effect.

2. Consequent to the change in the Repo rate, the Reverse Repo rate under the LAF and the Marginal Standing Facility (MSF) rate will stand automatically adjusted to 6.75 per cent and 8.75 per cent respectively with immediate effect.

Cenvat credit admissible on Dismantling service of existing structure for renovation

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CESTAT, NEW DELHI BENCH

Commissioner of Central Excise

v.

Jindal Pipes Ltd.

FINAL ORDER NO. 1491 OF 2012 – SM (BR)

APPEAL NO. E/3338 OF 2010-SM

NOVEMBER 5, 2012

 

In view of the definition of input service given under rule 2(l) of the Cenvat Credit Rules, 2004 and the term renovate defined in the above quoted-references, I am of the view that the findings of the adjudicating authority are not sustainable because renovation is done by dismantling the existing structure either in part or full. Hence, the Cenvat credit is admissible to the appellant of the service tax paid by them on the service of ‘dismantling’ as the same is duly covered under the definition of input service.

Cenvat credit is admissible on the basis of invoices issued by consignment agent

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CESTAT, NEW DELHI BENCH

Mittal Pigments (P.) Ltd.

v.

Commissioner of Central Excise

FINAL ORDER NO. 1401 OF 2012 – SM (BR)

Excise Appeal No. 1568 of 2010-SM

September 21, 2012

 

In the case of Kushboo Plastics (P.) Ltd. v. CCE 2002 (149) ELT 694 (Tri.-Delhi), it was held that credit is admissible on the basis of invoices issued by the consignment agent who are registered as a dealer. Clarification issued by the Jaipur Commissionerate, which was based on the Chief Commissioner’s letter dated 26.5.2000 was taken into consideration. Similarly in the case of Pragati Steels (P.) Ltd. v. CCE 2006 (205) ELT 662 (Tri.-Delhi), the disputed issue was resolved in favour of the assessee. Tribunal’s decision in the case of Rajasthan Synthetic Industries Ltd. v. CCE 2003 (162) ELT 240 (Tri.-Delhi) is also to the same effect.

 

Reopening based on Directors complain with CLB of illegal fund siphoning justified

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HIGH COURT OF DELHI

Date of Decision: 10th January, 2013

W.P.(C) 7023/2010, W.P.(C) 8825/2011, W.P.(C) 7206/2012

Rambagh Palace Hotels Private Limited

Versus

Deputy Commissioner of Income Tax

W.P.(C) 7513/2010

Maharaj Jai SinghVersus Income Tax Officer

W.P.(C) 7516/2010

Maharaj Prithviraj SinghVersus Income Tax Officer

 

Whether a complaint filed by one of the directors before the Common Law Board alleging irregularities such as illegal siphoning off of the company’s funds by two other directors constitutes tangible material, on the basis of which reopening U/s 147 is possible?

If the complaint can constitute tangible material for reopening the assessments of the hotel, it can equally constitute tangible material giving rise to the belief that the amounts allegedly siphoned off by the present petitioners from the hotel had escaped assessment in their hands. It must be remembered that we are not at this stage concerned with the merits of the matter. We are at this stage concerned only with the question whether a prima facie belief regarding escapement of income can be entertained by the respondent on the basis of the complaint filed by the Company Law Board by Raj Kumar Devraj, one of the directors of the hotel. Our answer is in the affirmative. Accordingly, we uphold jurisdiction of the respondent to reopen the assessments of the petitioners.

Gold – Customs Duty Enhanced

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Notification No. 1/2013-Customs – Dated- 21^st January, 2013

G.S.R. (E). – In exercise of the powers conferred by sub-section (1) of section 25 of the Customs Act, 1962 (52 of 1962), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby makes the following further amendments in the notification of the Government of India in the Ministry of Finance (Department of Revenue), No. 12/2012-Customs, dated the 17^th March, 2012, published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i) vide number G.S.R. 185(E) dated the 17^th March, 2012, namely: -

In the said notification, in the Table,-

(i) against S. No. 116, for the entry in column (5), the entry “4%” shall be substituted;

(ii) against S. No. 318, for the entry in column (5), the entry “4%” shall be substituted;

(iii) in S. No. 321, against item (i), for the entry in column (4), the entry “6%” shall be substituted;

(iv) against S. No. 323, for the entry in column (4), the entry “6%” shall be substituted;

(v) against S. No. 328, for the entry in column (4), the entry “6%” shall be substituted;

Gold – Excise Duty Enhanced

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Notification No.1/2013-Central Excise, Dated - 21^st January, 2013

G.S.R. (E). – In exercise of the powers conferred by sub-section (1) of section 5A of the Central Excise Act, 1944 (1 of 1944), the Central Government, on being satisfied that it is necessary in the public interest so to do, hereby makes the following further amendments in the notification of the Government of India in the Ministry of Finance (Department of Revenue), No. 12/2012-Central Excise, dated the 17^th March, 2012 which was published in the Gazette of India, Extraordinary, Part II, Section 3, Sub-section (i) vide number G.S.R. 163(E) dated the 17^th March, 2012, namely: -

In the said notification, in the Table,-

(i) for S. No. 189 and the entries relating thereto, the following shall be substituted-

“189

71

Gold bars, other than tola bars, bearing manufacturer’s engraved serial number and weight expressed in metric units manufactured in a factory starting from the stage of-(i) (a) Gold ore or concentrate; (b) Gold dore bar; or (ii) Silver dore bar Explanation.-For the purposes of this entry, ‘gold dore bar’ shall mean dore bars having gold content not exceeding 95% and ‘silver dore bar’ shall mean dore bars having silver content not exceeding 95% accompanied by an assay certificate issued by the mining company, giving details of composition

5% 3%

- -”

(ii) in S. No. 191, against item (i), for the entry in column (4), the entry “5%” shall be substituted.

SEBI Guidelines on Identification of Beneficial Ownership

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CIRCULAR NO. MIRSD/2/2013, DATED 24-1-2013

1. SEBI Master Circular No. ISD/AML/3/2010 dated December 31, 2010 has mandated all registered intermediaries to obtain, as part of their Client Due Diligence policy, sufficient information from their clients in order to identify and verify the identity of persons who beneficially own or control the securities account. The beneficial owner has been defined in the circular as the natural person or persons who ultimately own, control or influence a client and/or persons on whose behalf a transaction is being conducted, and includes a person who exercises ultimate effective control over a legal person or arrangement.

2. SEBI has also prescribed uniform Know Your Client (KYC) requirements for the securities markets vide circular nos. MIRSD/16/2011 dated August 22, 2011 and MIRSD/SE/Cir-21/2011 dated October 5, 2011. The SEBI KYC Registration Agency (KRA) Regulations, 2011 have been notified and guidelines have been issued under these regulations from time to time.

3. Further, the Prevention of Money Laundering Rules, 2005 also require that every banking company, financial institution and intermediary, as the case may be, shall identify the beneficial owner and take all reasonable steps to verify his identity. The Government of India in consultation with the regulators has now specified a uniform approach to be followed towards determination of beneficial ownership. Accordingly, the intermediaries shall comply with the following guidelines.

A. For clients other than individuals or trusts:

4. Where the client is a person other than an individual or trust, viz., company, partnership or unincorporated association/body of individuals, the intermediary shall identify the beneficial owners of the client and take reasonable measures to verify the identity of such persons, through the following information:

a. The identity of the natural person, who, whether acting alone or together, or through one or more juridical person, exercises control through ownership or who ultimately has a controlling ownership interest.

Explanation: Controlling ownership interest means ownership of/entitlement to:

i. more than 25% of shares or capital or profits of the juridical person, where the juridical person is a company;

ii. more than 15% of the capital or profits of the juridical person, where the juridical person is a partnership; or

iii. more than 15% of the property or capital or profits of the juridical person, where the juridical person is an unincorporated association or body of individuals.

b. In cases where there exists doubt under clause 4(a) above as to whether the person with the controlling ownership interest is the beneficial owner or where no natural person exerts control through ownership interests, the identity of the natural person exercising control over the juridical person through other means.

Explanation: Control through other means can be exercised through voting rights, agreement, arrangements or in any other manner.

c. Where no natural person is identified under clauses 4(a) or 4(b) above, the identity of the relevant natural person who holds the position of senior managing official.

B. For client which is a trust:

5. Where the client is a trust, the intermediary shall identify the beneficial owners of the client and take reasonable measures to verify the identity of such persons, through the identity of the settler of the trust, the trustee, the protector, the beneficiaries with 15% or more interest in the trust and any other natural person exercising ultimate effective control over the trust through a chain of control or ownership.

C. Exemption in case of listed companies:

6. Where the client or the owner of the controlling interest is a company listed on a stock exchange, or is a majority-owned subsidiary of such a company, it is not necessary to identify and verify the identity of any shareholder or beneficial owner of such companies.

D. Applicability for foreign investors:

7. Intermediaries dealing with foreign investors’ viz., Foreign Institutional Investors, Sub Accounts and Qualified Foreign Investors, may be guided by the clarifications issued vide SEBI circular MIRSD/11/2012 dated September 5, 2012, for the purpose of identification of beneficial ownership of the client.

E. Implementation:

8. The provisions of this circular shall come into force with immediate effect. Intermediaries are directed to review their Know Your Client (KYC) and Anti-Money Laundering (AML) policies accordingly.

9. The Stock Exchanges and Depositories are directed to:

a. bring the provisions of this circular to the notice of the Stock Brokers and Depository Participants, 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.

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

11. This circular is issued in exercise of powers conferred under section 11(1) of the Securities and Exchange Board of India Act, 1992 to protect the interests of investors in securities and to promote the development of, and to regulate the securities markets.

How to Download / Install TRACES PDF Generation Utility & Procedure to convert text file into PDF

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Deductor can download TDS Certificate (Form 16 (Part A) and Form 16A) from TRACES. The file will be provided in text format and will contain certificate details for all requested PANs. Text file is password protected and password will be ‘’.
Deductor will have to convert the text file into PDF using TRACES PDF Generation Utility. This utility will convert the text file into individual PDFs for each PAN. The same utility can be used to convert text file for Form 16 / 16A.
Procedure to install utility

• Download the PDF Generation Utility by logging in to TRACES. Click on ‘Requested Downloads’ under ‘Downloads’ menu then click on ‘TRACES PDF Generation Utility’ link
• Unzip and save the utility on your desktop
• Double-click on the utility (exe) and click on ‘Run’
• Utility will be installed on your desktop
• Click here for installation procedure

Procedure to convert text file into PDF

• Open the utility from your desktop and select the text file
• Select the digital signature to digitally sign the Form 16 / 16A
• Generate PDFs
• If PDF is not digitally signed, deductor should manually sign the printed Form 16 / 16A before sending it to Tax Payers

Notes:

• TRACES PDF Generation Utility should be used to convert text file for Form 16 / 16A into individual PDFs
• Download the utility and install it on your desktop
• Pass the text file through the utility to generate PDFs for individual PANs
• You can opt for manual / digital signature for the PDFs
• File name for Form 16 / 16A text file will be as mentioned below. TAN will be masked
  • Form 16 – _Form16_, e.g., ABCxxxxx5E_Form16_2012-13.zip
  • Form 16A – _Form16A__, e.g., ABCxxxxx5E_Form16A_2012-13_Q2.zip
• Password for Form 16 / 16A text file is TAN of deductor. Enter password to open file
• File name for individual PDF files will be as mentioned below. PAN will be masked
  • Form 16 – Form16__, e.g., Form16_2012-13_ABCxxxxx4F
  • Form 16A – Form16A___, e.g., Form16A_2012-13_Q2_ABCxxxxx4F
• There is no password for individual PDF files

Service tax not payable on Electricity charges as it is not part of ‘renting of immovable property’ service

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CESTAT, MUMBAI BENCH

Econ Hinjewadi Infrastructure (P.) Ltd.

v.

Commissioner of Central Excise, Pune-III

ORDER NO. S/1210/2012/CSTB/C-I

APPLICATION NO. ST/Stay/1521 of 2012

APPEAL NO. ST/469 of 2012

SEPTEMBER 25, 2012

 

The applicant has contended before the adjudicating authority that supply of electricity is supply of ‘goods’ and the same is exempted as per Notification no. 12/2003-ST wherein it has been clarified that supply of goods shall not form part of taxable service.

The contention of the applicant that electricity is ‘goods’ and the same shall not form part of taxable service is clarified by the Notification no. 12/2003. Therefore, we find that the applicant has made out a prima facie case for 100% waiver of the service tax confirmed and penalty imposed.

TDS is applicable U/s. 194C on Warehousing charges paid to clearing and forwarding agents & Not U/s. 194I

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HIGH COURT OF DELHI

Commissioner of Income-tax

v.

Hindustan Lever Ltd.

IT Appeal No. 516 of 2012

December 12, 2012

 

CIT(Appeals) and the ITAT had the benefit of examining the entire documentary evidence which consisted of the various lease deeds and the c & f agents agreements. The conclusions drawn by these authorities on the basis of such scrutiny are concurrent. Even otherwise, if the revenue was of the opinion that any consideration paid to the c & f agent comprised of some elements such as rent, such a conclusion ought to have been supported by facts. What is discernable from the materials on record is that the assessee had rented premises from their landlords. Payments of rent were made after deducting the tax in terms of Section 194-I. What the assessee paid to the c & f agents as warehousing charges was the consideration in terms of the agreement which was tax deductible under Section 194C at 2.2.%. In this factual background it was for the revenue to have established how Section 194-I could be attracted to the amounts or charges paid to the c & f agents in terms of the agreements.

Only standard text books sold eligible were for ST exemption, not study materials provided as a part of service

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CESTAT, NEW DELHI BENCH

Soni Classes

v.

Commissioner of Central Excise, Jaipur-I

FINAL ORDER NO. ST/A/597/2012-CUS

APPEAL NO. ST/670 OF 2011

SEPTEMBER 20, 2012

 

Notification No. 12/2003-ST dated 20-6-2003 excludes the value of the goods and materials sold by the service provider to the recipient of service, from the value of the taxable services. The said exclusion is subject to the condition that there is documentary proof specifically indicating the value of the said goods and materials. Board’s Circular No. 59/8/2003-ST dated 20-6-2003 clarifies that the exemption to that extent would be available only in cases where the sale of such goods is evidenced and the sale value is quantified and shown separately in the invoices. It is also clarified that in case of commercial training and coaching institute, the exclusion shall apply only to the sale value of standard text books, which are priced and any study material or written text provided by such institute as a part of the service which does not satisfy the above criteria will be subjected to service tax.

Providing study materials, test papers etc. is a part of coaching services and is required to be included in the value. It is only the extra text books or extra material which is admittedly being sold to the students and is also available for sale to outsiders and students or procured from the outside and sold to the candidates, which will not form part of the taxable coaching services.

SEBI initializes to create infrastructure for debt segments on stock exchange

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Guidelines for providing dedicated Debt Segment on Stock Exchanges

Circular no. MRD/DP/03/2013, DATED 24-1-2013

1. The market for debt securities differs from equity markets in several ways such as risk, returns, liquidity, type of participants and method of trading. While publicly issued debt securities are listed, traded and settled in a manner similar to equity, privately placed debt is usually traded between institutional investors on ‘Over the Counter’ (OTC) basis. Such OTC transactions are mandatorily reported on reporting platforms at FIMMDA, BSE and NSE. The settlement for such transactions is different from that in equity markets or publicly issued debt securities.

2. Whereas the equity markets in India offer trading infrastructure comparable to the best available globally, the debt markets lack such infrastructure. In order to cater to the unique characteristics of debt markets, it has been decided to provide dedicated a debt segment on the stock exchanges.

3. The debt segment shall offer separate trading, clearing, settlement, reporting facilities and membership to deal in :

(i) “debt securities” as defined in Securities and Exchange Board of India (Issue and Listing of Debt Securities) Regulations, 2008;

(ii) Government Securities, Treasury Bills, State Government loans, SLR and Non-SLR Bonds issued by Financial Institutions, municipal bonds, single bond repos, basket repos and CBLO kind of products subject to RBI approval, where required;

(iii) Securitized debt instruments as defined in SEBI (Public Offer and Listing of Securitised Debt Instruments)Regulations, 2008;

(iv) any other debt instruments as may be specified from time to time by the competent authority.

4. An existing stock exchange or new stock exchange desirous of setting up debt segment may make an application to SEBI, providing operational, regulatory and any other necessary details.

5. The broad framework/features for debt segment shall be as under-

(A) Listing: This segment shall list all the securities and debt instruments mentioned at para 3 above.

(B) Trading :

(i) The debt segment shall offer electronic, screen based trading providing for order matching, request for quote, negotiated trades etc.

(ii) The trading facility may be provided using exchange network including using access methods such as internet trading, mobile trading or any other methods specified by SEBI.

(iii) The debt segment shall provide separate platforms for the markets described below -

a. Retail market – which shall be a market for listing of and trading in publicly-issued debt instruments and where participation by registered trading members can be on their own account or for execution of orders placed their clients.

b. Institutional market – which shall be a market for non-publicly-issued debt instruments with a market lot size of minimum Rs 1 crore.

(iv) In addition to institutional investors, Direct Market Access (DMA) facility shall be extended to other investors to participate in Institutional market of debt segment. In this regard, the provisions as stipulated in SEBI circular MRD/DoP/SE/Cir- 7/2008, dated April 03, 2008, MRD/DoP/SE/Cir- 03/2009, dated February 20, 2009 and MRD/DP/20/2012 August 02, 2012 and modifications thereto shall be applicable.

(C) Trading Rules:

(i) The trading hours shall be from 9:00 hours to 17:00 hours to be in alignment with trading hours of government securities as issued by RBI.

(ii) The day count convention of Actual/Actual shall be followed for calculating interest rates.

(iii) The stock exchange shall facilitate availability of price quotes on clean price, dirty price and yield.

(iv) There shall be no shut period during which trades/transfers are restricted for payment of interest or part redemptions. For other corporate actions such as redemptions/put-call options, issuers may choose to specify a shut period.

(v) The record date shall be fixed not more than 15 days prior to date of corporate action which shall be displayed on trading terminal by stock exchanges.

(vi) In case of negotiated trades by members of the debt segment, the trades shall be reported to stock exchange within 30 minutes of the trade.

(D) Clearing and Settlement:

(i) All trades shall be cleared and settled through a clearing corporation. For this purpose, all trading members shall be self clearing members or may clear through a clearing member.

(ii) The settlement shall depend on the market type, as given below:

(a) For institutional market: All trades shall be settled on T+1 rolling settlement on DVP-I basis using RBI RTGS account. Stock exchanges/clearing corporation may opt to provide clearing and settlement on DVP-II or DVP-III basis for this market in future and shall put in place appropriate risk management framework for the same.

(b) For retail market: The trades shall be settled on T+2 rolling settlement on DVP-III basis with settlement guarantee.

(E) Risk management framework:

(i) For retail market, a uniform margin rate of 10% shall be applicable on debt instruments with rating of AA or above (or with similar rating nomenclature) by recognised credit rating agencies and 25% for all other debt instruments. Further, in case of shortages, there shall be compulsory close-out with a mark up of 5% in case of debt instruments which are assigned a credit rating of AA and above and 10% in case of other debt instruments.

(ii) For institutional market, as and when settlement is done on DVP-II or DVP-III basis, appropriate margins may be prescribed after approval by SEBI.

(iii) The clearing corporation shall specify appropriate risk management framework for each market, wherein it shall, inter-alia, provide for computation and collection of margins, capital adequacy norms and collateral requirements for the clearing members, settlement guarantee fund as applicable. This shall be approved by SEBI.

(F) Trade repository: With an objective to have centralised repository for trades in debt instruments, the stock exchanges shall report trade information to a common trade repository as may be specified by SEBI.

(G) Membership:

(i) Any entity desirous of becoming trading member, self clearing member and/or clearing member of debt segment shall seek registration under SEBI (Stock Broker and Sub-Broker) Regulations, 1992.

(ii) Institutions such as scheduled commercial banks, primary dealers, pension funds, provident funds, insurance companies, mutual funds and any other investors as may be specified by sectoral regulators from time to time, can trade on the debt segment either as clients of registered trading members or directly as trading member on proprietary basis only (i.e own-account trades only). Such institutions desirous of trading on own account only shall be given trading membership under SEBI (Stock Broker and Sub-Broker) Regulations, 1992 as proprietary trading member.

(iii) For an interim period of six months from the date of this circular or till the application for registration as per amended SEBI (Stock Broker and Sub-Broker) Regulations,1992 is refused by the Board or till cessation of membership, whichever is earlier, the transitional provisions shall be -

a. Institutional market of debt segment: Any existing registered trading member and/or clearing member/self clearing member in derivative segment or currency derivatives segment desirous of trading or clearing trades in debt segment shall be permitted to trade or clear trades.

b. Retail market of debt segment: Any existing registered stock broker/trading member and/or clearing member/self clearing desirous of trading or clearing trades in debt segment shall be permitted to trade or clear trades.

(iv) The trading member, proprietary trading member, clearing member and self clearing member of debt segment shall have net worth and deposit as prescribed in SEBI (Stock Broker and Sub-broker) Regulations, 1992.

(v) The Base Minimum Capital for stock broker/trading member shall be in line with SEBI circular dated December 19, 2012.

(vi) The stock exchanges and clearing corporation may specify additional membership criteria for trading member/proprietary trading member and clearing member/self clearing member respectively.

(H) Market Making: With the view to infuse liquidity in the market, market makers shall be permitted in the debt segment. Market making may be provided by merchant bankers, issuers through brokers or any other entity as may be specified. The rules for market making shall be specified by the stock exchanges with approval of SEBI.

6. The stock exchanges and clearing corporations desirous of introducing debt segment are advised to -

(i) Incorporate/frame separate Bye Laws, Rules and Regulations on debt segment in consonance with aforesaid guidelines

(ii) Make necessary amendment to their existing byelaws, rules and/or regulations , if required

(iii) Send duly completed application for introducing debt segment to SEBI, along with necessary byelaws and rules.

7. This circular is being issued in exercise of powers conferred under section 11 (1) of the Securities and Exchange Board of India Act, 1992 to protect the interests of investors in securities and to promote the development of, and to regulate the securities market.

S. 194A CBDT notifies ‘National Skill Development Fund’

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SECTION 194A OF THE INCOME-TAX ACT, 1961 – DEDUCTION OF TAX AT SOURCE – INTEREST OTHER THAN INTEREST ON SECURITIES – NOTIFIED INSTITUTION

NOTIFICATION NO. 4/2013 [F.NO.275/28/2012-IT(B)], DATED 24-1-2013

In exercise of the powers conferred by sub-clause (f) of clause (iii) of sub-section (3) of section 194A of the Income-tax Act, 1961 the Central Government hereby notifies the National Skill Development Fund (PAN AABTN5824G) for the purpose of sub-clause (f) clause (iii) of sub-section (3) of said section.

SCN issued after death of proprietor is bad in law

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CESTAT, NEW DELHI BENCH

Commissioner of Central Excise, Chandigarh

v.

Shree Ambica Steel Industries

FINAL ORDER NO. A/1168/2012-EX (BR)

APPEAL NO. E/1501 OF 2012

SEPTEMBER 13, 2012

 

Undisputedly, late Smt. Bimla Rani was the proprietor of the respondent firm M/s Shree Ambica Steel Industries. She died on 17.9.2006 and after her death the legal heir applied for cancellation of Excise registration in the name of the firm and the registration was admittedly cancelled by the Department in October, 2006. It is well settled that a sole proprietorship concerned has no legal entity independent of its proprietor. Thus it is obvious that the death of late Smt. Bimla Rani of the respondent company ceased to exist. That being the case, the relevant show cause notice dated 2.4.2009 issued to M/s Shree Ambica Steel Industries, Mandi Gobindgarh is bad in law as it was issued against any non-existent firm. This circumstance in itself is sufficient to dismiss the appeal filed by the Department.

S.194H TDS not deductible on charges for of utilization of credit card facilities

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IN THE ITAT BANGALORE BENCH ‘A’

Tata Teleservices Ltd.

v.

Deputy Commissioner of Income-tax (TDS)

IT APPEAL NOS. 308 TO 310 & 393 TO 396 (BANG.)

OF 2011, 1014 TO 1021 & 1285 TO 1290 (BANG.) OF 2012

[ASSESSMENT YEARS 2005-06 TO 2008-09]

NOVEMBER 27, 2012

 

Commission paid to the credit card companies cannot be considered as falling within the purview of S.194H. Even though the definition of the term “commission or brokerage” used in the said section is an inclusive definition, it is clear that the liability to make TDS under the said section arises only when a person acts behalf of another person. In the case of commission retained by the credit card companies however, it cannot be said that the bank acts on behalf of the merchant establishment or that even the merchant establishment conducts the transaction for the bank. The sale made on the basis of a credit card is clearly a transaction of the merchants establishment only and the credit card company only facilitates the electronic payment, for a certain charge. The commission retained by the credit card company is therefore in the nature of normal bank charges and not in the nature of commission/brokerage for acting on behalf of the merchant establishment.

Payments to banks on account of utilization of credit card facilities would be in the nature of bank charge and not in the nature of commission within the meaning of sec. 194H.

Sec 50C Not Apply to Transfer of FSI & TDR

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INCOME TAX APPELLATE TRIBUNAL, MUMBAI

ITA No.5803/Mum/2009 – (Assessment year: 2006-07)

Income-tax Officer

Vs

Shri Prem Rattan Gupta

Date of Pronouncement: 28.03.2012

 

Assessee has given the right of the additional FSI/TDR which the assessee was otherwise entitled to get from the local body / Government for the acquisition of the land if the assessee has not taken any consideration. So far as issue of the TDR is concerned, the value of the TDR cannot be the subject matter of sec. 50C and admittedly, the assessee gets additional FSI / TDR only after the acquisition of the land. As per the Land Acquisition Act once the notification is issued then assessee loses the title of the land or property. Ultimately, what has to be considered is the net area available with assessee for transferring to the Developer.

The Ld. D.R. relied on the decision of the Hon’ble High Court of Bombay in the case of Chedda Housing Development vs. Babijan Shekh Farid – 2007 (3) ML 402 (Bom) in which their Lordships have interpreted the definition of ‘immovable property’ under General Clauses Act, 1897. In our humble opinion, the term ‘immovable property’ has a very wide meaning then the words ‘land and building’. Sec.50C refers to land and building and not to immovable property as whole. Hence, the reliance placed by the Ld. D.R. on the decision of the Hon’ble jurisdictional High Court in case of Chedda Housing Corporation (supra) is not helpful to the revenue.

Landmark ITAT Special Bench Verdict On Transfer Pricing Of advertisement, marketing & sales promotion expenses

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L.G.Electronics India Pvt. Ltd vs. ACIT (ITAT Delhi Special Bench)

 

The ‘Bright Line test’ can be applied to disallow the excessive advertisement, marketing and sales promotion (AMP) expenses incurred by the assessee for the benefit of the brand owner

Transfer pricing adjustment in relation to advertisement, marketing and sales promotion expenses incurred by the assessee for creating or improving the marketing intangible for and on behalf of the foreign Associated Enterprises is permissible.

Earning a mark-up from the Associated Enterprises in respect of AMP expenses incurred for and on behalf of the AE is allowable. However, the matter is restored to the file of TPO for de novo adjudication in the light of certain guidelines outlined by Tribunal in its order.

Loss set off U/s. 70 & 71 not permissible against income disclosed during survey

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IN THE ITAT CHANDIGARH BENCH ‘A’

Liberty Plywood (P.) Ltd.

v.

Assistant Commissioner of Income-tax

IT APPEAL NO. 727 (CHD.) OF 2012

[ASSESSMENT YEAR 2005-06]

DECEMBER 17, 2012

 

Hon’ble Punjab & Haryana High Court in case of Kim Pharma (P.) Ltd. (supra) held that surrendered income during the survey has to be assessed separately as deemed income and set off of losses u/s 70 & 71 was not possible against such income.

Adjustment of TDS refund against Outstanding demand only after intimation

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CBDT has vide Notification No. 3/2013, dated 15-1-2013 introduced ‘Centralised Processing of Statements of Tax Deducted at Source Scheme, 2013′ for centralised processing of statements of tax deducted at source. Vide clause 7 of the notification CBDT has specified that an adjustment of refunds against outstanding tax demand can be done u/s 245 of the Act only after issuing prior intimation to the taxpayer.

Extract of above Circular is as Follows :-

“Adjustment against outstanding tax demand

7. Where a refund arises from the processing of a statement under this scheme, the provisions of section 245 of the Act shall, so far as may be, apply. “

Extract of Section 245 of the Income Tax Act is as follows :-

“Set off of refunds against tax remaining payable.

245. Where under any of the provisions of this Act, a refund is found to be due to any person, the [Assessing] Officer,[Deputy Commissioner (Appeals)] [, Commissioner (Appeals)] or [Chief Commissioner or Commissioner], as the case may be, may, in lieu of payment of the refund, set off the amount to be refunded or any part of that amount, against the sum, if any, remaining payable under this Act by the person to whom the refund is due, after giving an intimation in writing to such person of the action proposed to be taken under this section.”

Launch New Drug in 6 Months or Face Cancellation of License – DCGI

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Drugs Controller General of India (DCGI) has recently issued DCGI Circular F. No. 12-01/12- DC Pt- 127 dated January 10, 2013 by which all manufacturers of ‘new drug’ are required to launch the new drug within six months from the date of the grant of the permission by the DCGI, failing which the permission received from the DCGI will be cancelled. Manufacturing of new drug after cancellation of permission would constitute violation of the Drugs and Cosmetics Act, 1940, and those who deal with new drug produced after cancellation of such permission would be liable to be punished under S. 27 (d) r/ w S. 18 of the Drugs and Cosmetics Act, 1940. the Act.

Client Referral income earned from banks & insurance co. is ‘Business Auxiliary Services’

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CESTAT, CHENNAI BENCH

TVS Motor Co. Ltd.

v.

Commissioner of Central Excise

Final Order No. 65 Of 2012

Appeal No. St/476/2009

Date of Pronouncement – June 13, 2012

 

Assessee was promoter and marketer of services of banks as well as insurance company, and was auxiliary in the chain of economic activity carried on by them. Assessee had accordingly provided “Business Auxiliary Service” to the banks as well as insurance company. Section 65(105)(zzb) read with section 65(19) of the Act warrants taxation of the consideration received by the assessee from banks and insurance company as business auxiliary service provider and the service so provided becomes input service for banks to provide the output service of banking and financial service as well as insurance service by insurance company. Thus, the business auxiliary service provided by the assessee was liable to be taxed

Clarification on Payment of Service Tax on rent payable by Central/State Government Departments

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Trade Notice No. 47/ST/2012, dated 31-10-2012

It is to bring to the notice of all trade associations and stake holders that Clarification has been sought whether Service Tax is payable on rent paid by them to various building owners who has given the buildings on rent to Govt. Departments for office purpose.

2. In this connection it is clarified that w.e.f. 1-7-2012, Service Tax is payable by landlords/property owners on rent received by them for buildings given on rent to such organizations like State Govt./Central Govt. Offices, even though the said organizations are non-commercial organizations. This clarification is based on legal provisions that Section 66D of the Finance Act, 1994 (Negative List) as well as Notification 25/2012-Service Tax, dated 20-6-2012, do not provide any exemption for such activities. Hence Service Tax is payable on rent paid by Central Govt./State Govt./Local Authorities for office buildings taken by them on rent.

3. All the trade associations are requested to give wide publicity to the contents of this Trade Notice amongst their member & constitutes.

Service tax on interest for delayed payment payment of credit card dues

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CESTAT, BANGALORE BENCH

Canara Bank

v.

Commissioner of Central Excise and Customs (LTU)

Stay Order Nos. 975/2012

Stay Application No. 1927/2011

Service Tax Appeal No. 3083/2011

Date of pronouncement – May 30, 2012

 

The bank’s customers holding credit cards purchase goods from shops and the bank pays to the shop keeper on their behalf. Till the customers pay up the money to the bank, they are debtors and they stand in the shoes of borrowers. If that be the case, the amount transacted is a “loan” and interest must accrue to the bank in the event of delay in repayment thereof. In this scenario, the legal provisions cited by the learned counsel become relevant. During the period of dispute, “interest on loans” was in the excluded category and was not to be included in the gross value charged by the bank for rendering ‘credit card services’.

For Reassessment Issue of notice U/s. 148 is mandatory

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[1959] 35 ITR 388 (SC)

SUPREME COURT OF INDIA

Y. Narayana Chetty

v.

Income-tax Officer

VENKATARAMA AIYAR, GAJENDRAGADKAR AND SARKAR JJ.

C.A. NOS. 317 TO 320 OF 1957

OCTOBER 15, 1958

 

 

The notice prescribed by section 148 cannot be regarded as a mere procedural requirement. It is only if the said notice is served on the assessee that the ITO would be justified in taking proceedings against the assessee. If no notice is issued or if the notice issued is shown to be invalid, then the proceedings taken by the ITO would be illegal and void – Y. Narayana Chetty v. ITO [1959] 35 ITR 388 (SC); CIT v. Thayaballi Mulla Jeevaji Kapasi [1967] 66 ITR 147 (SC); CIT v. Kurban Hussain Ibrahimji Mithiborwala [1971] 82 ITR 821 (SC).

AP High Court grant interim stay against CBEC’s Circular on recovery of confirmed demand during pendency of stay application

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The Central Board of Excise and Customs (CBEC) has issued its first Central Excise Circular No. 967/01/2013 – CX, dated January 01, 2013 on eve of New Year 2013, for recovery of confirmed demands during pendency of Stay applications. The Circular has rescinded seven previous circulars on the subject matter. The said Circular has brought about a significant shift in the timing of recovery of confirmed demands, where the stay applications are not disposed off by the appellate authorities, within a period of 30 days of filing thereof.

As per this Circular, if a stay application is filed before the Commissioner (Appeals) and CESTAT and if there is no stay within 30 days, recovery action has to be initiated. In case of stay applications before the High Courts and Supreme Court, even this 30 days’ time is not available. Recovery has to be initiated immediately after the orders if there is no stay.

The stated Circular issued by the Board lacks foresight, proper understanding of the real situation – draconian Circular

Big Relief is coming from the Andhra Pradesh High Court giving a major reprieve against the recent circular issued by CBEC in the case of Ultratech Cement Ltd. Vs. Union Of India {WPMP.NO:873 of 2013 dt. 9-1-2013}. The Court has passed a brief one-page order granting interim stay of recovery till the appellate authority disposes of the stay application.

Ultratech Cement had approached the AP High Court for a stay of the stated CBEC circular. “The court has held that no coercive action should be taken by the indirect tax authorities till the time the stay petition is disposed of by the appellate authorities.”

Incidentally, it will not be out of context to highlight another judgement delivered by AP High Court in the case of M/S. SIVA SAI CONSTRUCTIONS, HYDERABAD Vs. GOVERNMENT OF INDIA, REP BY ITS (2013-TIOL-09-HC-AP-ST), wherein the Court directed the Revenue not to initiate or pursue any coercive steps against the petitioner (or others who owe dues to the petitioner) under Section 87 of the Finance Act, 1994 or any other appropriate provision, till disposal of the petitioner’s applications for condonation of delay and for grant of interim relief in the appeal preferred by the petitioner to the Tribunal on 26-9-2012.

Income earned by trust from business activities eligible for exemption if primary objects were charitable

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HIGH COURT OF MADRAS

Commissioner of Income-tax, Madurai

v.

Janakiammal Ayyanadar Charitable Trust

Tax Case (Appeal) Nos. 1566 & 1567 of 2005

Date of Pronouncement – September 18, 2012

 

Even though the Tribunal had not given any finding as regards the primary purpose, yet a reading of the order of the Assessing Officer shows that he had considered the clauses in the trust deed to arrive at the finding that the primary objects of the trust are charitable in nature and that the property given was impressed with the character of trust property. Having held so the Assessing Officer nevertheless pointed out that there was no evidence to hold that the business of manufacture and sale of paper caps carried on by the trust was in the course of the actual carrying on of the primary objects. Hence, the trust was not entitled to claim exemption under section 11. With the finding of fact arrived at by the Assessing Officer that the primary objects of the trust were charitable in nature, in the face of sections 2(15) and 11(4A) read with section 13(1)(bb) the assessee was eligible for exemption.

CLB Chairman cannot transfer a case from one Regional Bench to another

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HIGH COURT OF BOMBAY

Arunachalam Muthu

v.

Nafan BV

S.J. KATHAWALLA, J.

CO. APPEAL (LODGING) NO. 28 OF 2012

CLB CO. APPLICATION NO. 275 OF 2012

CLB CO. PETITION NO. 62 OF 2009

NOVEMBER 30, 2012

 

A reading of Regulation 3 of the CLB Regulations makes it clear beyond any doubt that the Chairman of the CLB is empowered by the Board to constitute the Benches of the Board as per the composition of Benches prescribed under Section 10E (4B) of the Act. Regulation 3 (3) of the CLB Regulations empowers the Chairman to specify the Member of the Bench before whom every matter requiring decision by the Board shall be placed for orders and in the absence of such Member so specified every such matter shall be placed before any other member of the Bench who is present. Thus Regulation 3 (3) of the CLB Regulations delegates the power of intra Bench allocation of matters to the Chairman i.e. transfer of a matter from one Member of a Bench to another Member of a Bench but not inter Bench transfer i.e. from one Member of the Bench to a Member of another Bench. Regulation 4 empowers the Chairman to provide that matters falling under Sections 247, 250, 269 and 388B of the Act and under Section 2A of the Monopolies and Restrictive Trade Practice Act, 1969 shall be dealt with by the Principal Bench consisting of one or more Members. Therefore matters arising out of the Sections set out in Regulation 4 may be dealt with only by the Principal Bench consisting of one or more members of the CLB which shall be at New Delhi as provided in Regulation 4 (2) of the CLB Regulations. Regulation 4 (3) of the CLB Regulations provides that matters falling under all other sections of the Act [i.e. matters falling under Sections other than those set out in Regulation 4 (1) ], shall be dealt with by Regional benches, namely, New Delhi Bench, Chennai Bench, Kolkata Bench and Mumbai Bench, consisting of one or more Members. Since Regulation 4 came to be substituted by the CLB Amendment Regulations vide GSR 185 (E) dated 17th March, 2008 w.e.f. 1st April, 2008, it was provided in proviso (1) to Regulation 4 (3) that the matters pending before the Principal Bench and Additional Principal Bench as on 1st day of April 2008 shall continue to be disposed of by the Principal Bench and Additional Principal Bench respectively. In other words, the matters not falling under the Sections set out in Regulation 4 (1) and which were required to be dealt with by the Regional Benches under Regulation 4 (3) were allowed by the first proviso to Regulation 4 (3) to be continued and disposed of by the Principal Bench and Additional Principal Bench, in the event of such matters being pending before the Principal Bench as on 1st April, 2008. By proviso (2) to Regulation 4 (3), it was provided that notwithstanding anything contained in Regulation (7), the Chairman could transfer any matter pending before the Regional benches to the Principal Bench either at the joint request of all the parties or for other reasons to be recorded in writing. Regulation 7 (1) of the CLB Regulations provides as follows:

7. Jurisdiction of the Bench – (1) All proceedings, other than the proceedings before the Principal bench under Regulation 4, shall be instituted before the Bench within whose jurisdiction the registered office of the Company is situated”

In view of this Regulation, none of the proceedings other than the proceedings under Regulation 4 (1) and Regulation 4 (3) of the CLB Regulations could have been dealt with by the Principal Bench. All other proceedings are required to be instituted before and consequently to be heard by the respective Benches within whose jurisdiction the registered offices of Companies are situated. To this rule, the only exception is carved out in the second proviso to Regulation 4 (3), which contains the non obstante clause i.e. “Notwithstanding anything contained in Regulation 7″. This exception empowers the Chairman to transfer any matter from the Regional Benches to the Principal Bench. Thus the power delegated to the Chairman is the power to transfer matters before the Regional Benches only to the Principal Bench since any other transfer inter se between Regional Benches would otherwise violate the mandate of Regulation 7 (1), and this is not the power that the Company Law Board has delegated to the Chairman.

AAR cannot be approached for a ruling only on a part of a transaction

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AUTHORITY FOR ADVANCE RULINGS (INCOME-TAX)

ZD, In re

P.K. Balasubramanyan, Chairman, J.

A.A.R. No. 1098 of 2011

June 8, 2012

 

A ruling pronounced by this Authority is binding on the applicant, in respect of the transaction in relation to which the ruling has been sought and on the Commissioner and the income-tax authorities subordinate to him. The ruling is in respect of the applicant and the transaction involved. This shows that this Authority is expected to give a ruling in respect of the transaction ; on the chargeability to tax either under the Act or the DTAC in appropriate cases, so that there will be a binding adjudication on the chargeability to tax under the Act. That, this is the purpose of creating this Authority, is also clear from the object sought to be achieved by the introduction of Chapter XIX-B in the Act, by the Finance Act of 1993. In my view, seeking of a ruling only on a part of a transaction or on a truncated transaction, cannot be said to be proper and in any event is not a practice that ought to be encouraged. The applicant is bound to come forward and seek a ruling on all the relevant aspects of the chargeability to tax, of a transaction and not rest content with raising questions on aspects of the transaction which may suit it.

SEBI cautions against fraudulent calls made in its name

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PR No. 12/2013

Public Notice regarding fraudulent calls made in the name of Regulators

It is observed from some recent newspaper reports that fraudulent telephone calls are being made to individuals/investors in the name of the regulatory officials giving advice on financial products. In this regard, the attention of the public is drawn to the fact that SEBI neither offers any investment advice or recommend any investment products/schemes nor seeks any personal information of investors for this purpose. If any prospective investor is contacted by any person purporting to be a SEBI official and offering such investment advice or seeking such information, individuals may not entertain such calls and deny him/her such access and verify the details of such purported official from SEBI website.

In Speculation trading there is no ‘sale’ or ‘turnover’ effected within the meaning of S. 44AB

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IN THE ITAT PUNE BENCH ‘B’

Banwari Sitaram Pasari HUF

v.

Assistant Commissioner of Income-tax

IT Appeal No. 1489 (PUNE) of 2011

[Assessment year 2006-07]

November 22, 2012

 

It is noted that the assessee is engaged in the business of on-line trading of commodities and in this speculation activity, there is no physical delivery of commodities given or taken. Whether there was any element of ‘turnover’ in such activity is the bone of contention between the assessee and the revenue. In somewhat similar situation, co-ordinate Bench of Mumbai Tribunal in the case of Growmore Exports Ltd. v. Asstt CIT [2001] 78 ITD 95 has dealt with requirement to get the accounts audited under section 44AB. In this case the assessee was engaged in the speculation transaction of sale and purchase of units without taking delivery and the account was settled by crediting the difference. The Tribunal after considering section 18 of the Sale of Goods Act, 1930 observed that no property in the said units passed on to the assessee inasmuch as the assessee never acquired the property in the units as the units contracted to be bought were future unascertained goods. Similarly, it could not pass on the property to the party to whom the units were contracted and therefore, there was no ‘sale’ or ‘turnover’ effected by the assessee in the legal sense for the purposes of getting the accounts audited under section 44AB.

In the instant case also, the transaction of buying and selling of commodities is a speculative activity where no physical delivery is taken or given and in this view of the matter. It is held that there was no turnover constituted in the amount of Rs. 1,86,66,488 for the purposes of considering the liability of assessee to get the accounts audited under section 44AB and, hence, there was no requirement to get the accounts audited under section 44AB. Thus, the penalty under section 271B imposed by the Assessing Officer is hereby directed to be deleted.

MCA Starts disabling DIN of Directors

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MCA STARTED DISABLING THE DIN OF DIRECTORS WHO HAVE NOT FURNISHED THEIR PAN

MCA vide General Circular No. 4/2012, In continuation of General Circular Nos. 32/2011 dated 31.05.2011, 66/2011 dated 04.10.2011 and 70/2011 dated 15/12/2011 had extended the time limit of filing DIN-4 by DIN holders for furnishing PAN and to update PAN details upto 30.04.2012. And it was directed in that circular that “it is to be noted that if the same is not done, the Ministry may disable DIN and impose heavy penalty on person who fail to ensure the same.”

Now, DIN Cell has started de-activating the DIN of the Directors, who have not filed their DIN 4 by the last due date, in respect of non-updation of their PAN against their DIN and has started sending the letters to the Directors at their corresponding address intimating the de-activation of their DIN. In such cases, the company will not be able to file their Annual Returns or any other form with Registrar of Company.

HOW TO KNOW THAT DIN IS DISABLES, IF LETTER IS NOT RECEIVED

The Directors can check the status of their disable DIN on MCA Portal by clicking on “View Signatory Details.” The status of their de-activated DIN will be shown over the MCA portal as follows;

1. In view signatory details, there will be mark “##” after their DIN No.
2. The explanation in respect of “##” HAS BEEN SHOWN OVER THE PORTAL UNDER “##” mark is “DIN has been disables. View letter sent upon Disabling DIN”
3. Then enter the DIN No. in “DIN Approval Status” under the tab Director Identification No. on home page of MCA.
4. The status will be shown as follows:

DIN: Disabled and a link is given as “View letter sent upon disabling DIN”

5. After clicking over the link “View letter sent upon disabling DIN”, following format of letter will be displayed


HOW TO RE-ACTIVATE THE DIN
The directors can re-activate their DIN by filing DIN 4 with MCA along with the self attested PAN Card copy and the Affidavit on a stamp paper of Rs. 10 of the concerned state.
WHAT PROBLEMS MAY ARISE IF DIN 4 IS NOT FILED
The company will not be able to file any E Form with ROC and even will not be able to do annual filing if the DIN of any of director is disabled. Even the MCA may impose the heavy penalties, as per the General Circular No. 4/2012, over the Directors who will not update their PAN with MCA.

‘Courier service’ is input service, if ownership of goods remains with sender till delivery

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CESTAT, MUMBAI BENCH

Grindwell Norton Ltd.

v.

Commissioner of Central Excise, Raigad

Order Nos. A/127/2012/SMB/C-IV & S/204/2012/SMB/C-IV

Application No. E/S/986 of 2012

Appeal No. E/702 of 2012

May 25, 2012

 

Courier service’ is input service, if ownership of goods sent remains with sender till delivery to customer & courier charges form part of goods sent

 

The only ground for objection of Cenvat credit is the appellant did not produce the documentary evidence to show that the ownership remained with him till the goods were delivered at the premises of the customer and the courier charges were part of the price charged for the goods. Inasmuch as the appellant has all the necessary documents and want an opportunity to produce the same before the assessing authority, I remand the matter back to the original adjudicating authority to consider the documents to be submitted by the appellant in this regard and thereafter, pass an order as to the eligibility or otherwise of the Cenvat credit. Needless to say the appellant should be given a reasonable opportunity for producing all relevant documents and be heard the matter before final decision is taken. Thus, the appeal is allowed by way of remand. Stay application is also disposed of accordingly.  

Income tax Appeal by department not maintainable if tax effect is lower than prescribed by CBDT

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HIGH COURT OF ALLAHABAD

Commissioner of Income-tax

v.

Sanjay Kumar Agrawal

IT APPEAL NO. 345 OF 2009

DECEMBER 14, 2012

 

No appeal is required to be filed when tax effect is less than Rs. 2 lakhs. The conditions mentioned in Clause-3 of the Circular dated 27.3.2000, are not attracted in this appeal. The circular has been issued by the Central Board of Direct Taxes and is binding upon the Department.

Highlights of the Companies Bill, 2011 passed in Lok Sabha on 18.12.12

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Highlights of the Companies Bill, 2011

(as passed in Lok Sabha on 18.12.12)

Ø The Bill has 470 clauses as against 658 Sections in the existing Companies Act, 1956.

Ø The entire bill has been divided into 29 chapters.

Ø Many new chapters have been introduced, viz., Registered Valuers (ch.17); Government companies (ch. 23); Companies to furnish information or statistics (ch. 25); Nidhis (ch. 26); National Company Law Tribunal & Appellate Tribunal (ch. 27); Special Courts (ch. 28).

Ø The Bill is forward looking in its approach which empowers the Central Government to make rules, etc. through delegated legislation (clause 469 and others).

Ø The Companies Bill is the result of detailed consultative process adopted by the Government.

The salient and unique features of the Bill are as under:

1. DEFINITIONS

Ø New definitions are introduced in the Bill, some of which are accounting standards, auditing standards, associate company, CEO, CFO, control, deposit, employee stock option, financial statement, global depository receipt, Indian depository receipt, independent director, interested director, key managerial personnel, promoter, one person company, small company, turnover, voting right etc..

Ø Definition of private company changed – the limit on maximum number of members increased from 50 to 200.

Ø Private company which is a subsidiary of a public company shall be deemed to be a public company. Confusion whether such a company can retain the provisions in the articles of private company though now a public company removed.

Ø Associate Company – A company is considered to be an associate company of the other, if the other company has significant influence over such company (not being a subsidiary) or is a joint venture company. Significant influence means control of at least 20 per cent. of total share capital of a company or of business decisions under an agreement.

Ø Dormant Company – Where a company is formed and registered under this Act for a future project or to hold an asset or intellectual property and has no significant accounting transaction, such a company or an inactive company may make an application to the Registrar for obtaining the status of a dormant company.

Ø “expert” includes an engineer, a valuer, a chartered accountant, a company secretary, a cost accountant and any other person who has the power or authority to issue a certificate in pursuance of any law for the time being in force.

Ø “foreign company” means any company or body corporate incorporated outside India which,—

(a) has a place of business in India whether by itself or through an agent, physically or through electronic mode; and

(b) conducts any business activity in India in any other manner.

Ø “Key Managerial Personnel (KMP), in relation to a company, means—

(i) the Chief Executive Officer or the Managing Director or the Manager,

(ii) the Company Secretary;

(iii) the whole-time director;

(iv) the Chief Financial Officer; and

(v) such other officer as may be prescribed

Ø “officer who is in default”, means any of the following officers of a company, namely:—

(i) whole-time director;

(ii) key managerial personnel;

(iii) where there is no key managerial personnel, such director or directors as specified by the Board in this behalf and who has or have given his or their consent in writing to the Board to such specification, or all the directors, if no director is so specified;

(iv) any person who, under the immediate authority of the Board or any key managerial personnel, is charged with any responsibility including maintenance, filing or distribution of accounts or records, authorises, actively participates in, knowingly permits, or knowingly fails to take active steps to prevent, any default;

(v) any person in accordance with whose advice, directions or instructions the Board of Directors of the company is accustomed to act, other than a person who gives advice to the Board in a professional capacity;

(vi) every director, in respect of a contravention of any of the provisions of this Act, who is aware of such contravention by virtue of the receipt by him of any proceedings of the Board or participation in such proceedings without objecting to the same, or where such contravention had taken place with his consent or connivance;

(vii) in respect of the issue or transfer of any shares of a company, the share transfer agents, registrars and merchant bankers to the issue or transfer.

Ø Bill defines the term ‘promoter’ to mean a person -

(a) who has been named as such in a prospectus or is identified by the company in the annual return, or

(b) who has control over the affairs of the company, directly or indirectly whether as a shareholder, director or otherwise; or

(c) in accordance with whose advice, directions or instructions the Board of Directors is accustomed to act.

Provided that nothing in sub-clause (c) shall apply to a person who is acting merely in a professional capacity.

Ø Definition of subsidiary company in relation to any other company (that is holding company), changed to mean a company in which the holding company –

• Controls the composition of the Board of Directors; or
• Exercises or controls more than one half of the total share capital (instead of equity share capital as prescribed under the 1956 Act) either at its own or together with one or more of its subsidiary companies.

Provided that such class or classes of holding companies as may be prescribed shall not have layers of subsidiaries beyond such numbers as may be prescribed.

Ø Small company has been defined as a company other than a public company having a paid-up share capital of which does not exceed fifty lakh rupees or such higher amount as may be prescribed not exceeding Rs.5 crore or turnover of which does not exceed two crore rupees or such higher amount as may be prescribed not exceeding twenty crore rupees. [clause 2(85)].

Ø The number of persons in any association or partnership not to exceed such number of persons as may be prescribed (not exceeding one hundred). The restriction not to apply to an association or partnership, constituted by professionals who are governed by special Acts. (clause 464)

2. CLASSIFICATION & REGISTRATION

Ø Concept of One Person Company (OPC limited) introduced [Clause 2(62)].

Ø Concept of Small companies have been introduced which shall be subjected to a lesser stringent regulatory framework [Clause 2(85)].

Ø Provision for Conversion of Companies already registered has been introduced [Clause 18].

Ø Registration process has been made faster and compatible with e-governance.

Ø For the first time, articles may contain provisions for entrenchment [clause 5(3)].

Ø A declaration, in the prescribed form, required to be filed with the Registrar at the time of registration of a company that all the requirements of the Act in respect of registration and matters precedent or incidental thereto have been complied with, will be required to signed by both – a person named in the articles as a director, manager or secretary of the company as well as by an advocate, a chartered accountant, cost accountant or company secretary in practice, who is engaged in the formation of the company. (clause 7)

Ø Registered office

Ø A company shall, on and from the 15^th day of its incorporation and at all times thereafter have a registered office capable of receiving and acknowledging all communications and notices as may be addressed to it.

Ø Company is required to furnish to the Registrar verification of its registered office within 30 days of its incorporation in the prescribed manner.

Ø Where a company has changed its name(s) during the last two years, it shall paint or affix or print, along with its name, the former name or names so changed during the last two years.

Ø Notice of change, verified in the manner prescribed, shall be given to the Registrar, within 15 days of the change, who shall record the same.

Ø Commencement of business

Ø A company having a share capital shall not commence business or exercise any borrowing powers unless a declaration is filed with Registrar by a director verified in the manner as may be prescribed that:

every subscriber to the memorandum has paid the value of shares agreed to be taken by him;

Paid-up capital is not less than Rs. five lakh/ one lakh

Ø the company has filed with the Registrar the verification of its registered office.

3. PROSPECTUS AND ALLOTMENT OF SECURITIES

Ø This chapter is divided into two parts. Part I relates to ‘Public offer’ and Part II relates to ‘Private Placement’

Ø “Public offer” includes initial public offer or further public offer of securities to the public by a company, or an offer for sale of securities to the public by an existing shareholder, through issue of a prospectus.’

Ø The term ‘private placement’ has been defined to bring clarity. “Private placement” means any offer of securities or invitation to subscribe securities to a select group of persons by a company (other than by way of public offer) through issue of a private placement offer letter and which satisfies the conditions specified in this section.

Ø Detailed disclosures are provided in the Bill itself. It includes disclosures about sources of promoter’s contribution.

Ø In case of variation in the terms of contract referred to in the prospectus or objects for which the prospectus was issued, the dissenting shareholders shall be given exit opportunity by promoters or controlling shareholders.

Punishment for fraudulently inducing persons to invest money (clause 36)

Ø Any person who, either knowingly or recklessly makes any statement, promise or forecast which is false, deceptive or misleading, or deliberately conceals any material facts, to induce another person to enter into, or to offer to enter into any agreement for, or with a view to, obtaining credit facilities from any bank or financial institution shall be liable for punishment for fraud. This provision is proposed to help in curbing a major source of corporate delinquency.

4. SHARE CAPITAL AND DEBENTURES

Ø If a company with intent to defraud, issues a duplicate certificate of shares, the company shall be punishable with fine which shall not be less than 5 times the face value of the shares involved in the issue of the duplicate certificate but which may extend to 10 times the face value of such shares or rupees 10 crores whichever is higher. Stringent penalties have also been imposed for defaulting officers of the company. [clause 46(5)]

Ø Where any depository has transferred shares with an intention to defraud a person, it shall be liable under section 447 i.e. provisions for punishment for fraud.[clause56(7)]

Ø Security Premium Account may also be applied for the purchase of its own shares or other securities. [Clause 52(2)(e)]

Ø A company cannot issue share at a discount. [Clause(53)]

Ø A company limited by shares cannot issue any preference shares which are irredeemable. However, a company limited by shares may, if so authorised by its articles, can issue preference shares which are liable to be redeemed within a period not exceeding twenty years from the date of their issue.

Ø A company may issue preference shares for a period exceeding twenty years for infrastructural projects subject to redemption of such percentage of shares as may be prescribed on an annual basis at the option of such preference shareholders. [Clause 55].

Ø Every company shall deliver debenture certificate within six months of allotment. [Clause 56(4)(d)].

Ø Reduction of share capital to be made subject to confirmation by the Tribunal. The Tribunal on receiving an application for reduction of share capital, shall give notice to the Central Government, Registrar and to the SEBI and consider the representations received in this behalf. (Clause 66)

5. E-GOVERNANCE

E-Governance proposed for various company processes like maintenance and inspection of documents in electronic form, option of keeping of books of accounts in electronic form, financial statements to be placed on company’s website, holding of board meetings through video conferencing/other electronic mode; voting through electronic means.

6. BOARD AND GOVERNANCE

Ø Number of directors:

Ø Minimum : Public company -3 Private -2 , OPC-1.

Ø Maximum : limit increased to 15 from 12 .

More directors can be added by passing of special resolution without getting the approval of Central Government as earlier required.

Ø Woman director

At least one woman director on the Board of such class or classes of companies as may be prescribed.

Ø Resident Director

Every company shall have at least one director who has stayed in India for a total period of not less than one hundred and eighty-two days in the previous calendar year. [clause 149(2)].

Ø Appointment of Key Managerial Personnel [Clause 203(1)]

Every company belonging to such class or classes of companies as may be prescribed shall have the whole-time key managerial personnel.

Unless the articles of a company provide otherwise, an individual shall not be the chairperson of the company as well as the managing director or Chief Executive Officer of the company at the same time [Proviso to Clause 203(1)]

Ø Every Company Secretary being a KMP shall be appointed by a resolution of the Board which shall contain the terms and conditions of appointment including the remuneration. If any vacancy in the office of KMP is created, the same shall be filled up by the Board at a meeting of the Board within a period of six months from the date of such vacancy [Clause 203 (2) & (4)].

Ø If a company does not appoint a Key Managerial Personnel, the penalty proposed is :

- On company – one lakh rupees which may extend to five lakh rupees.

- On every director and KMP who is in default – 50,000 rupees and 1,000

rupees per day if contravention continues.

Ø Independent Directors

Ø Concept of independent directors has been introduced for the first time in Company Law: [clause 149(5)]

• All listed companies shall have at least one-third of the Board as independent directors.
• Such other class or classes of public companies as may be prescribed by the Central Government shall also be required to appoint independent directors.
• The independent director has been clearly defined in the Bill.
• Nominee director nominated by any financial institution, or in pursuance of any agreement, or appointed by any government to represent its shareholding shall not be deemed to be an independent director.
• An independent director shall not be entitled to any remuneration other than sitting fee, reimbursement of expenses for participation in the Board and other meetings and profit related commission as may be approved by the members.
• An Independent director shall not be entitled to any stock option.
• Only an independent director can be appointed as alternate director to an independent director. [clause 161(2)].

Person other than retiring director

Ø If a person other than retiring director stands for directorship but fails to get appointed, he or the member intending to propose him as a director, as the case may be, shall be refunded the sum deposited by him, if he gets more than twenty five per cent of total valid votes [clause 160(1)].

Resignation of director

Ø A director may resign from his office by giving notice in writing. The Board shall, on receipt of such notice, intimate the Registrar and also place such resignation in the subsequent general meeting of the company. [clause 168(1)]. The director shall also forward a copy of resignation alongwith detailed reasons for the resignation to the Registrar.

The notice shall become effective from the date on which the notice is received by the company or the date, if any, specified by the director in the notice, whichever is later. [clause 168(2)].

Ø If all the directors of a company resign from their office or vacate their office, the promoter or in his absence the Central Government shall appoint the required number of directors to hold office till the directors are appointed by the company in General Meeting [clause 168(3)].

Participation of directors through video-conferencing

Ø Participation of directors at Board Meetings has been permitted through video-conferencing or other electronic means, provided such participation is capable of recording and recognizing. Also, the recording and storing of the proceedings of such meetings should be carried out [clause 173(2)].

The Central Government may however, by notification, specify such matters which shall not be dealt with in the meeting through video-conferencing and such other electronic means as may be prescribed. [clause 173(2)]

Notice of Board Meeting

Ø At least seven days’ notice is required to be given for a Board meeting. The notice may be sent by electronic means to every director at his address registered with the company. [clause 173(3)].

A Board Meeting may be called at shorter notice subject to the condition that at least one independent director, if any, shall be present at the meeting. However, in the absence of any independent director from such a meeting, the decisions taken at such meeting shall be final only on ratification thereof by at least one independent director. [clause 173(3)].

Duties of directors (clause 166)

For the first time duties of directors have been defined in the Bill. A director of a company shall :

Ø act in accordance with the articles of the company.

Ø act in good faith in order to promote the objects of the company for the benefit of its members as a whole, and in the best interests of the company, its employees, the shareholders, the community and for the protection of environment.

Ø exercise his duties with due and reasonable care, skill and diligence and shall exercise independent judgment.

Ø not involve in a situation in which he may have a direct or indirect interest that conflicts, or possibly may conflict, with the interest of the company.

Ø not achieve or attempt to achieve any undue gain or advantage either to himself or to his relatives, partners, or associates and if such director is found guilty of making any undue gain, he shall be liable to pay an amount equal to that gain to the company.

Ø not assign his office and any assignment so made shall be void.

Penalty:

If a director of the company contravenes the provisions of this section such director shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.

Board Committees

Ø Besides the Audit Committee, the constitution of Nomination and Remuneration Committee has also been made mandatory in the case of listed companies and such other class or classes of companies as may be prescribed. [clause 178(1)].

Ø The Audit committee shall consist of a minimum of three directors with independent directors forming a majority and majority of members including its Chairperson shall be persons with ability to read and understand the financial statement. [clause 177(2)].

Ø The Nomination and Remuneration Committee shall formulate the criteria for determining qualifications, positive attributes and independence of a director and recommend to the Board a policy, relating to the remuneration for the directors, key managerial personnel and other employees [Clause 178(3)].

Ø The Nomination and Remuneration Committee shall consist of three or more non-executive director(s) out of which not less than one half shall be independent directors. [clause 178(1)].

Ø Where the combined membership of the shareholders, debenture holders, deposit holders and any other security holders is more than one thousand at any time during the financial year, the company shall constitute a Stakeholders Relationship Committee. [clause 178(5)].

Managerial Remuneration [clause 197]

Ø Provisions relating to limits on remuneration provided in the existing Act being included in the Bill. Maximum limit of 11% (of net profits) being retained.

Ø For companies with no profits or inadequate profits remuneration shall be payable in accordance with new Schedule of Remuneration (Schedule V) and in case a company is not able to comply with Schedule V, approval of Central Government would be necessary.

Certain Insurance Premium not to be treated as part of the remuneration

Ø The prem ium paid on any insurance taken by a company on behalf of its managing director, whole-time director, manager, Chief Executive Officer, Chief Financial Officer or Company Secretary for indemnifying any of them against any liability in respect of any negligence, default, misfeasance, breach of duty or breach of trust for which they may be guilty in relation to the company, shall not be treated as part of the remuneration payable to any such personnel. [Clause 197 (13)]

7. DISCLOSURES

Annual return [clause 92]

Ø Every company shall prepare a return (hereinafter referred to as the annual return) in the prescribed form containing the particulars as they stood on the close of the financial year regarding;

(i) its registered office, principal business activities, particulars of its holding, subsidiary and associate companies;

(ii) its shares, debentures and other securities and shareholding pattern;

(iii) its indebtedness;

(iv) its members and debenture-holders along with changes therein since the close of the previous financial year;;

(v) its promoters, directors, key managerial personnel along with changes therein since the close of the last financial year;

(vi) meetings of members or a class thereof, Board and its various committees along with attendance details;

(vii) remuneration of directors and key managerial personnel;

(viii) penalties imposed on the company, its directors or officers and details of compounding of offences;

(ix) matters related to certification of compliances, disclosures as may be prescribed;

(x) details in respect of shares held by foreign institutional investors; and

(xi) such other matters as may be prescribed.

The prescribed disclosures under the Annual Return shows significant transformation in non financial annual disclosures and reporting by companies as compared to the existing format.

Similar to the existing compliance certificate as stipulated under section 383A of Companies Act, 1956 certification of compliances has been prescribed under clause 92(1)(ix).

Ø Annual Return is required to be signed by :

(i) A director and the Company Secretary, or where there is no Company Secretary, by a Company Secretary in whole-time practice.

It means that now in respect of all the companies (except one person companies and small companies), whether private or public, listed or unlisted, the annual return has to be signed by either a company secretary in employment or by a company secretary in practice i.e. where no Company Secretary is appointed by the company, the Annual Return is compulsorily required to be signed by the Company Secretary in practice.

(ii)in addition to the above, the annual return, filed by a listed company or by a company having such paid-up capital and turnover as may be prescribed, shall be certified by a company secretary in practice that the annual return discloses the facts correctly and adequately and that the Company has complied with all the provisions of the Act.

It means, in case of a listed company and other prescribed companies, even if the Annual Return is signed by the Company Secretary in employment, it is further required to be certified by the Company Secretary in Whole time practice.

(iii) In relation to a One Person Company and Small Company, the annual return is required to be signed by the Company Secretary, or where there is no Company Secretary, by one director of the company.

Penalty

In case a Company Secretary in practice certifies the annual return otherwise than in conformity with the requirements of this section or the rules made there under, such Company Secretary shall be punishable with fine which shall not be less than fifty thousand rupees but which may extend to five lakh rupees.

Changes in shareholding of promoters and top ten shareholders

Ø A return to be filed with the Registrar with respect to change in the number of shares held by promoters and top ten shareholders (to ensure audit trail of ownership) by a listed company.

Board’s report (Clause 134)

Ø Board’s Report has been made more informative and includes extensive disclosures like –

(i) extract of annual return in the prescribed form;

(ii) company’s policy on director’s appointment and remuneration including the criteria for determining qualifications, positive attributes, independence of a director etc. ;

(iii) a statement of declaration by independent directors;

(iv) explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer made by the auditor in his report and by the company secretary in practice in his secretarial audit report;

(v) particulars of loans, guarantees, or investments made;

(vi) particulars of contracts or arrangements entered into;

(vii) the conservation of energy, technology absorption, foreign exchange earnings and outgo in the prescribed manner;

(viii) statement indicating development and implementation of a risk management policy for the company including identification therein of elements of risk, if any, which in the opinion of the Board may threaten the existence of the company;

(ix) the details about the policy developed and implemented by the company on corporate social responsibility initiatives taken during the year

(x) in case of listed companies and other prescribed class of companies, a statement indicating the manner in which formal annual evaluation has been made by the Board of its own performance and that of committees and individual directors.

Ø The Directors’ Responsibility Statement shall also include the statement that the directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

Ø The Boards’ Report is to be signed by the Chairperson of the company if he is authorized by the Board and where he is not so authorized, it shall be signed by at least two directors, one of whom shall be a managing director, or by the director where there is one director. (Clause 134).

Related Party Transactions

Ø Every contract or arrangement entered into with a related party shall be referred to in the Board’s Report along with the justification for entering into such contract or arrangement [Clause 188(2)].

Ø Any arrangement between a company and its directors in respect of acquisition of assets for consideration other than cash shall require prior approval by a resolution in general meeting and if the director or connected person is a director of its holding company, approval is required to be obtained by passing a resolution in general meeting of the holding company [Clause 192].

Ø Where a one person company limited by shares or by guarantee enters into a contract with the sole member of the company who is also its director, the company shall, unless the contract is in writing, ensure that the terms of the contract or offer are contained in the memorandum or are recorded in the minutes of the first Board meeting held after entering into the contract. The company shall inform the Registrar about every contract entered into by the company and recorded in the minutes (Clause 193).

8. CORPORATE SOCIAL RESPONSIBILITY (CLAUSE 135)

Ø Every company having net worth of rupees 5000 crore or more, or turnover of rupees 1000 crore or more or a net profit of rupees 5 crore or more during any financial year shall constitute a Corporate Social Responsibility Committee of the Board consisting of three or more directors, out of which at least one director shall be an independent director.

Ø The CSR Committee shall formulate and recommend Corporate Social Responsibility Policy which shall indicate the activity or activities to be undertaken by the company as specified in schedule VII and shall also recommend the amount of expenditure to be incurred on the CSR activities.

Ø The Board of every company shall ensure that the company spends in every financial year atleast 2% of the average net profits of the company made during the three immediately preceding financial years in pursuance of its CSR policy.

Ø Where the company fails to spend such amount, the Board shall in its report specify the reasons for not spending the amount. The approach is to ‘comply or explain’.

Ø The company shall give preference to local areas where it operates, for spending amount earmarked for Corporate Social Responsibility (CSR) activities.

9. DEPOSITS (CLAUSE 173)

Ø A company may, subject to the passing of a resolution in general meeting and subject to the prescribed rules, accept deposits from its members subject to fulfillment of the following specified conditions:

i. passing of resolution in a general meeting.

ii. issue of circular to members including therein a statement showing the financial position of the company, the credit ratings obtained, the total number of depositors and the amount due towards deposits in respect of any previous deposits accepted by the company and such other particulars in such form and in such manner as may be prescribed.

iii. filing a copy of the circular along with such statement with the registrar within 30 days before the date of issue of the circular.

iv. Providing deposit insurance.

v. Certification by the company that it has not defaulted in the repayment of deposits.

vi. Provision of security in respect of deposit and interest and creation of charge on company’s properties and assets. An amount of not less than 15% of the deposits maturing during a financial year shall be deposited in deposit repayment reserve account.

Ø A public company having prescribed net worth or turnover may accept deposits from persons other than its members subject to compliance of rules as may be prescribed by Central Government in consultation by Reserve Bank of India. (Clause 76).

Ø The penalty for failure to repay deposit has been made extremely stringent. Where a company fails to repay the deposit and it is proved that the deposits had been accepted with intent to defraud the depositors or for any fraudulent purpose, every officer of the company who was responsible for the acceptance of such deposit shall, without prejudice to liability under section 447 i.e. punishment for fraud), be personally responsible, without any limitation of liability, for all or any of the losses or damages that may have been incurred by the depositors (Clause 75).

Stringent punishment is proposed for failure to distribute dividend within thirty days of its declaration. (Clause 127)

10. INVESTMENT COMPANIES (CLAUSE 186)

Ø A company can make investment through not more than two layers of investment companies, unless otherwise prescribed.

Ø This shall not affect

a company from acquiring any other company incorporated in a country outside India if such other company has investment subsidiaries beyond two layers as per the laws of such country;

a subsidiary company from having any investment subsidiary for the purposes of meeting the requirements under any law or under any rule or regulation framed under any law for the time being in force.

Ø The restriction on the number of step-down subsidiary companies has been introduced to prevent the abuse of diversion of funds through many step-down subsidiaries.

11. COMPANY SECRETARY

Functions of Company Secretary (clause 205)

Ø The functions of the company secretary shall include-

to report to the Board about compliance with the provisions of this Act, the rules made there under and other laws applicable to the company;

to ensure that the company complies with the applicable secretarial standards;

to discharge such other duties as may be prescribed.

Secretarial Audit (Clause 204)

• Every listed company and a company belonging to other class of companies as may be prescribed shall annex with its Board’s report a Secretarial Audit Report, given by a Company Secretary in Practice, in such form as may be prescribed.
• It shall be the duty of the company to give all assistance and facilities to the Company Secretary in Practice, for auditing the secretarial and related records of the company.
• The Board of Directors, in their report shall explain in full any qualification or observation or other remarks made by the Company Secretary in Practice in his report.
• If a company or any officer of the company or the Company Secretary in Practice, contravenes the provisions of this section, the company, every officer of the company or the Company Secretary in Practice, who is in default, shall be punishable with fine which shall not be less than one lakh rupees but which may extend to five lakh rupees.

Secretarial Standards Introduced [Clause 118(10) & 205]

Ø For the first time, the Secretarial Standards has been introduced and provided statutory recognition

Ø Clause 118(10) reads as:

“Every company shall observe Secretarial Standards with respect General and Board Meetings specified by the Institute of Company Secretaries of India constituted under section 3 of the Company Secretaries Act, 1980 and approved by the Central Government.”

Ø Clause 205 casts duty on the Company Secretary to ensure that the company complies with the applicable Secretarial Standards.

Ø It is the beginning of a new era where non financial standards have been given importance and statutory recognition besides Financial Standards.

12. GENERAL MEETINGS

Ø To encourage wider participation of shareholders at General Meetings, the Central Government may prescribe the class or classes of companies in which a member may exercise their vote at meetings by electronic means [clause 108].

Ø One person companies have been given the option to dispense with the requirement of holding an AGM. [clause 96(1)].

Report on annual general meeting [clause 121]

Ø Every listed company shall prepare a Report on each Annual General Meeting including confirmation to the effect that the meeting was convened, held and conducted as per the provisions of the Act and the Rules made there under. The report shall be prepared in the manner to be prescribed. A copy of the report shall be filed with the Registrar within 30 days of the conclusion of the AGM. Non-filing of the report has been made a punishable offence.

13. AUDITORS

Ø A company shall appoint an individual or a firm as an auditor at annual general meeting who shall hold office till the conclusion of sixth annual general meeting.

Ø However, the company shall place the matter relating to such appointment for ratification by members at every annual general meeting.

Ø No listed company or a company belonging to such class or classes of companies as may be prescribed, shall appoint or re-appoint—

(a) an individual as auditor for more than one term of five consecutive years; and

(b) an audit firm as auditor for more than two terms of five consecutive years:

Provided that—

(i) an individual auditor who has completed his term under clause (a) shall not be eligible for re-appointment as auditor in the same company for five years from the completion of his term;

(ii) an audit firm which has completed its term under clause (b), shall not be eligible for re-appointment as auditor in the same company for five years from the completion of such term:

Ø Members of a company may resolve to provide that in the audit firm appointed by it, the auditing partner and his team shall be rotated at such intervals as may be resolved by members .

Ø The limit in respect of maximum number of companies in which a person may be appointed as auditor has been proposed as twenty companies. (clause 141)

Ø Auditor cannot render any of the following services, directly or indirectly to the company or its holding company or subsidiary company:

Ø Accounting and book-keeping service

Ø Internal audit

Ø Design and implementation of any financial information system

Ø Actuarial services

Ø Investment advisory services

Ø Investment banking services

Ø Rendering of outsourced financial services

Ø Management services

Ø Other prescribed services

Internal Audit

Ø Internal audit may be made mandatory for prescribed companies (clause 138)

Cost Audit (clause 148)

Ø The Central Government after consultation with regulatory body may direct class of companies engaged in production of such goods or providing such services as may be prescribed to include in the books of accounts particulars relating to utilisation of material or labour or to such other items of cost.

Ø If the Central Government is of the opinion, that it is necessary to do so, it may, direct that the audit of cost records of class of companies, which are required to maintain cost records and which have a net worth of such amount as may be prescribed or a turnover of such amount as may be prescribed, shall be conducted in the manner specified in the order.

Ø ‘cost auditing standards’ have been mandated.

14. FINANCIAL STATEMENT (CLAUSE 2(40)]

Ø For the first time, the term ‘financial statement’ has been defined to include:-

(i) a balance sheet as at the end of the financial year;

(ii) a profit and loss account, or in the case of a company carrying on any activity not for profit, an income and expenditure account for the financial year;

(iii) cash flow statement for the financial year;

(iv) a statement of changes in equity, if applicable; and

(v) any explanatory note annexed to, or forming part of, any document referred to in sub-clause (i) to sub-clause (iv):

Ø the financial statement, with respect to One Person Company, small company and dormant company, may not include the cash flow statement;

Signing of financial statement (Clause 134)

The financial statement, including consolidated financial statement, if any, shall be approved by the Board of directors before they are signed on behalf of the Board at least by the Chairperson of the company authorised by the Board or by two directors out of which one shall be managing director and the Chief Executive Officer, if he is a director in the company, the Chief Financial Officer and the company secretary of the company, wherever they are appointed, or in the case of a One Person Company, only by one director, for submission to the auditor for his report thereon.

15. NATIONAL FINANCIAL REPORTING AUTHORITY (NFRA) (CLAUSE 132)

Ø The Central Government may be notification constitute a National Financial Reporting Authority to provide for matters related to accounting and auditing standards.

Ø Notwithstanding anything contained in any other law for the time being in force, the National Financial Reporting Authority shall––

(a) make recommendations to the Central Government on the formulation and laying down of accounting and auditing policies and standards for adoption by companies or class of companies or their auditors, as the case may be;

(b) monitor and enforce the compliance with accounting standards and auditing standards in such manner as may be prescribed;

(c) oversee the quality of service of the professions associated with ensuring compliance with such standards, and suggest measures required for improvement in quality of services and such other related matters as may be prescribed; and

(d) perform such other functions relating to clauses (a), (b) and (c) as may be prescribed.

Ø Notwithstanding anything contained in any other law for the time being in force, the National Financial Reporting Authority shall—

(a) have the power to investigate, either suo moto or on a reference made to it by the Central Government, for such class of bodies corporate or persons, in such manner as may be prescribed into the matters of professional or other misconduct committed by any member or firm of chartered accountants, registered under the Chartered Accountants Act, 1949:

Provided that no other institute or body shall initiate or continue any proceedings in such matters of misconduct where the National Financial Reporting Authority has initiated an investigation under this section;

(b) have the same powers as are vested in a civil court under the Code of Civil Procedure, 1908, while trying a suit.

(c) where professional or other misconduct is proved, have the power to make order for—

(A) imposing penalty of -

(I) not less than one lakh rupees, but which may extend to five times of the fees received, in case of individuals; and

(II) not less than ten lakh rupees, but which my extend to ten times of the fees received, in case of firms;

(B) debarring the member or the firm from engaging himself or itself from practice as member of the institute for a minimum period of six months or for such higher period not exceeding ten years as may be decided by the National Financial Reporting Authority.

Ø Any person aggrieved by any order of the National Financial Reporting Authority, may prefer an appeal before the Appellate Authority constituted by the Central Government.

16. INVESTOR PROTECTION MEASURES

Ø Issue and transfer of securities and non-payment of dividend by listed companies, shall be administered by SEBI by making regulations.(Clause24)

Ø An act of fraudulent inducement of persons to invest money is punishable with imprisonment for a term which may extend to ten years and with fine which shall not be less than three times the amount involved in fraud.(Clause 36)

Ø A suit may be filed by a person who is affected by any misleading statement or the inclusion or omission of any matter in the Prospectus or who has invested money by fraudulent inducement. (Clause 37).

Class action suits

Ø For the first time, a provision has been made for class action suits. It is provided that specified number of member(s), depositor(s) or any class of them, may, if they are of the opinion that the management or control of the affairs of the company are being conducted in a manner prejudicial to the interests of the company or its members or depositors, file an application before the Tribunal on behalf of the members or depositors.

Ø Where the members or depositors seek any damages or compensation or demand any other suitable action from or against an audit firm, the liability shall be of the firm as well as of each partner who was involved in making any improper or misleading statement of particulars in the audit report or who acted in a fraudulent, unlawful or wrongful manner.

Ø The order passed by the Tribunal shall be binding on the company and all its members, depositors and auditors including audit firm or expert or consultant or advisor or any other person associated with the company. (clause 245)

Serious Fraud Investigation Office (clause 211)

Statutory status to SFIO has been proposed. Investigation report of SFIO filed with the Court for framing of charges shall be treated as a report filed by a Police Officer. SFIO shall have power to arrest in respect of certain offences of the Bill which attract the punishment for fraud. Those offences shall be cognizable and the person accused of any such offence shall be released on bail subject to certain conditions provided in the relevant clause of the Bill.

Stringent penalty provided for fraud related offences.

Fraud defined (Clause 447)

Ø The term “Fraud” has for the first time been defined in the Bill. Any person who is found to be guilty of fraud, shall be punishable with imprisonment for a term which shall not be less than six months but which may extend to ten years and shall also be liable to fine which shall not be less than the amount involved in the fraud, but which may extend to three times the amount involved in the fraud.

Where the fraud in question involves public interest, the term of imprisonment shall not be less than three years

Prohibition of insider trading

New clause has been introduced with respect to prohibition of insider trading of securities. The definition of price sensitive information has also been included [clause 195].

Prohibition on Forward dealings

Directors and the key managerial personnel of a company are prohibited from forward dealings in securities of the company.(clause 194).

17. INSPECTION, ENQUIRY AND INVESTIGATION

Ø A new clause has been added to provide that where in connection with enquiry or investigation into the affairs of the company or reference by the Central Government, or on complaint by specified number of members or creditors or any other person having a reasonable any person that the transfer or disposal of funds, properties or assets is likely to take place which is prejudicial to the interest of the company, then the Tribunal may order for the freezing of such transfer, removal or disposal of assets for a period of three years. [clause 221]

Ø Another new clause seeks to provide that the provisions of inspection or investigation applicable to Indian companies shall also apply mutatis-mutandis to inspection or investigation of foreign companies. (clause 228).

18. RESTRUCTURING AND LIQUIDATION

Ø The entire rehabilitation and liquidation process has been made time bound.

Ø Winding up is to be resorted to only when revival is not feasible. (clause 258).

Ø The Tribunal may appoint an interim administrator or a company administrator from the panel of Company Secretaries, CAs, CWAs, etc. maintained by the Central Government. [clause 259(1)].

Ø The Company Administrator shall prepare a scheme of revival and rehabilitation. [clause 261(1)].

Ø If revival scheme is not approved by the creditors, the Tribunal shall order for winding up of the company. (clause 258).

Ø No civil court shall have jurisdiction in respect of any matter on which Tribunal or Appellate Tribunal is empowered. (clause 268).

19. COMPANY LIQUIDATORS (CLAUSE 275)

The Tribunal may appoint Provisional Liquidator or the Company Liquidator from a panel maintained by the Central Government consisting of Company Secretaries, Chartered Accountants, Advocates and Cost Accountants.

On an appointment as provisional liquidator or Company Liquidator, such liquidator is required to file a declaration in the prescribed form disclosing conflict of interest or lack of independence in respect of his appointment, if any, with the Tribunal.

Professional assistance to Company Liquidator (CLAUSE 291)

The Company Liquidator may, with the sanction of the Tribunal, appoint one or more professionals including Company Secretaries to assist him in the performance of his duties and functions under the Act.

20. COMPOUNDING OF CERTAIN OFFENCES (CLAUSE 441)

This clause provides for the compounding of certain offences by Tribunal or regional director in certain cases before the investigation has been initiated or is pending under this Act. It further provides the procedure followed for compounding of offence. It clause also provides penalty for any officer or other employee of the company who fails to comply with the order of Tribunal or Regional Director.

21. National Company Law Tribunal and Appellate Tribunal (Clause 408 and 410)

The Central Government shall, by notification, constitute, a Tribunal to be known as National Company Law Tribunal and an Appellate Tribunal to be known as National Company law Appellate Tribunal.

22. SPECIAL COURTS

Ø For the speedy trial of offences, the Central Government has been empowered to establish special courts in consultation with the Chief Justice of the High Court within whose jurisdiction the judge is to be appointed. (clause 435).

Ø All offences under this Act shall be triable by the Special Court established for the area in which the registered office of the company in relation to which the offence is committed or where there are more special courts than one for such area, by such one of them as may be specified in this behalf by the High Court concerned. (clause 436)

Ø The Special Court would have the liberty to try summary proceedings for offences punishable with imprisonment for a term not exceeding three years, although it may order for the regular trial. (clause 436).

23. MEDIATION AND CONCILIATION PANEL (CLAUSE 442)

Ø The Central government shall maintain a panel of experts to be called Mediation and Conciliation Panel for mediation between the parties during the pendency of any proceedings before the Central Government or the Tribunal or the Appellate Tribunal under this Act.

24. CROSS – BORDER MERGERS (CLAUSE 234)

Ø The Bill has allowed cross border mergers with any foreign company;

Ø The cross border merger may be made between companies registered under this Act and companies incorporated under jurisdiction of such countries as may be notified by the Central Government.

25. REGISTERED VALUERS (CLAUSE 247)

Ø A new chapter has been inserted in relation to registered valuers

Ø Valuation in respect of any property, stock, shares, debentures, securities, goodwill, networth or assets of a company shall be valued by a person registered as a valuer.

Ø The Central Government shall maintain a register of valuers. .

The valuer shall be a person having such qualification and experience and registered as a valuer in such manner and on such terms and conditions as may be prescribed.

26. POWER TO EXEMPT CLASS OR CLASSES OF COMPANIES FROM PROVISIONS OF THIS ACT (CLAUSE 462)

Ø The Central Government may in the public interest, by notification direct that any provisions of this Act:

1. shall not apply to such class or classes of companies; or

2. shall apply to class or classes of companies with such exceptions, modifications and adaptations as may be specified in the notification.

Ø The notification in draft to be laid in both the Houses of Parliament for a period of 30 days.

Ø Houses may disapprove or modify.

27. ADJUDICATION OF PENALTY (CLAUSE 454)

The Central government may by an order publish in the Official Gazette, appoint as many officers of the Central Government, not below the rank of Registrar, as adjudicating officers for adjudicating penalty under the provisions of this Bill in the manner as may be prescribed.