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Friday, September 15, 2006
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Corporates will have to mandatory file annual returns and balance sheets electronically as the Registrars of Companies will stop accepting these documents in physical form from September 16. Having rolled out e-filing programme at all Registrars of Companies, the Ministry of Company Affairs recently said corporates will have to mandatory file annual returns and balance sheets electronically from September 16. All the company representatives authorised to sign the documents are required to obtain digital signatures by that time to ensure the security and authenticity of filing in the electronic mode, Company Affairs Minister P C Gupta said. The filing in electronic mode is part of e-governance project - MCA21 - initiated by the ministry.
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Insurance Regulatory & Development Authority (Irda) has allowed companies to cancel their existing policies and buy new ones to take advantage of cheaper pricing, expected after de-tariffing of general insurance products from January 1, 2007. The premium paid by 15 million corporate clients across all segments is currently pegged at around Rs.10,000 crore. The existing corporate policy can be cancelled by paying a small fine by the policy holder.
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In terms of Regulations 3 and 4 of the Notification ibid, Indian citizen residing outside India and Persons of Indian Origin (POIs) can acquire immovable property in India other than agricultural property, plantation or a farmhouse. It is clarified that the payment for such acquisition shall be made out of following ways:-

  •  funds received in India through normal banking channels by way of inward remittance from any place outside India , or
  •  funds held in any non-resident account maintained in accordance with the provisions of the Foreign Exchange Management Act, 1999 and the regulations made by Reserve Bank of India from time to time.
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The Government has brought about major changes in the Essential Commodities Act, 1955, aimed at having powers to declare any item as an essential commodity for six months, even while pruning down the current list of essential items from 15 to 7. These statutory changes have been brought about through the Essential Commodities (Amendment) Bill, 2005, which was passed by Rajya Sabha. The categories of items deleted from the current list of essential commodities include iron, steel, and their manufactured products; automobile component and accessories; coal, coke, and other derivatives; cotton and woolen textile; raw and ginned cotton, and cotton seed; paper , newsprint, paperboard and straw board; cattle foods and oil cakes, etc.
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National Commodity and Derivative Exchange (NCDEX) has announced the launch of the country's first ever electronic spot trading exchanges in Rajasthan and West Bengal. The online spot trading for agri commodities would begin by October November this year. Trading would be organized in mustard, pulses and guar seed in Rajasthan and in jute, potato and rice in West Bengal.
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A new legislation on actuaries has come into force, with the President's assent to the Actuaries Bill '06 passed by Parliament. Under the Act, Institute of Actuaries of India would be set up to regulate the profession of actuaries and also conduct examinations for the profession. The Actuarial Society of India would be dissolved and its assets and liabilities transferred to the proposed Institute of Actuaries of India.
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As per a Sebi notification, sub-brokers who were granted certificate of registration before August 1, 2006 are required to pay Rs.10,000 for the block of five financial years starting April 1, 2007. After the expiry of these five years, sub brokers are required to pay Rs.5,000 for every subsequent five financial years.
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The Singapore Exchange (SGX) has recently relaxed its listing norms for Indian companies in bid to lure them. The Indian companies now do not require to abide by the SGX listing norms as they are similar to Securities and Exchange Board of India requirement. Indian companies can benefit by listing on the SGX as it offers a higher price per earning ratio than Indian bourses.
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The Securities and Exchange Board of India (Sebi) has notified the guidelines for the Capital Protection Oriented Scheme (CPOS), which has been designed to protect the capital invested by the investors in the scheme through suitable orientation of its portfolio structure. Sebi said, “It should also be indicated that the orientation towards protection of the capital originates from the portfolio structure of the scheme not from any bank guarantee, insurance cover, etc.”
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The Association of NSE Members of India (ANMI) has sought greater and more up-todate disclosure of shareholding patterns in listed companies, and this issue needs immediate attention of the regulator. Shareholding patterns constitute price-sensitive information downloaded every week by the depositories to registrars and share transfer agents. The companies concerned, however, upload this at the end of the quarter. Such quarterly updates are not entirely helpful in many cases. Stock Exchange currently provide information on open position in derivatives, but the concentration of buyers and sellers is not commonly known. This situation needs to be corrected.
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  • Application fees payable by MF: Rs.1,00,000 instead of the earlier Rs. 2,500.
  • Registration fees : Rs.5 million instead of the earlier Rs. 2.5 million.
  • Service fees would now be referred to as annual fees and it would remain same at Rs. 2.5 million.
  • Fees for filing offer documents would be 0.03% of the amount raised during the new fund offer, subject to minimum Rs.100,000. Earlier, filling fees were Rs. 25,000.
The Sebi has said that the revised fees payable by mutual funds would be for those schemes offer documents for which were filed on or after August 3, 2006.
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The Authority for Advance Ruling (AAR) has decided that salary received in India by a person who has resided 182 days or more outside the country is not taxable, since he will be considered a non-resident during the relevant assessment year. AAR gave this verdict on a petition filed by British Gas. AAR was clarifying doubts over the issue whether a person can be considered non-resident Indian if he travels outside India for more than 182 days in year even as his travel is linked to his employment in India.
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TV channels will not have to pay any taxes for up linking and downloading their signals once they register themselves in India. A recent order from the Delhi branch of Income Tax Appellate Tribunal (ITAT) on the PanAmSat case has ruled that the payments made by TV channels to satellites do not constitute 'royalties' or 'fees' and such payment are not liable to be taxed in India. The order is a landmark in itself and henceforth TV channels in India will not have to produce the TDS certificate for the payments made to the Satellite Company.
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The Income Tax department has made changes to Form No. 3CD to seek more information regarding expenses incurred in relation to exempt income and instances where tax has not been deducted, deducted late or short deducted. The main changes are as follows:

  •  A new item 12A inserted to seek information regarding a capital asset converted into stock in trade.
  •  A new sub-item 17(l) inserted to capture information regarding expenses incurred in relation to exempt income which is dis allowable under section 14A of the Income Tax Act, 1961.
  •  Item 27 substituted to elicit information regarding instances where tax has not been deducted, deducted late or short deducted.
  •  A separate Annexure - II has been added to Form No. 3CD to incorporate "data-field" regarding Fringe Benefit Tax.
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With all states, barring Uttar Pradesh and Tamilnadu, implementing the Value Added-Tax (VAT) regime, the central government has turned its attention towards computerization of the VAT departments of states. Pilot projects have begun in four states - Delhi, Andhra Pradesh, Gujarat and West Bengal. Government is also keen on developing a single Harmonised System of Nomenclature (HSN) code for all the products under VAT across the country.
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 Higher rate of depreciation available for leasing companies : Hon'ble Delhi High Court in the matter of Commissioner of Income Tax Vs M.G.F. (India) Limited held that there was no dispute that the vehicles which are subject to lease agreements were in fact given by the assessee to third parties. To this extent, the requirement of law had been met. There was no additional requirement on the assessee to show that the third parties had used those vehicles for hire. Therefore, the assessee was entitled to depreciation at forty percent on the vehicles given on lease. [285 ITR 142]

Auditors' Report is not mandatory to be furnished along-with Return of Income to claim exemption u/s 11 : Hon'ble Andhra Pradesh High Court in the matter of CIT Vs Andhra Pradesh State Road Transport Corporation held that provision of section 12A(b) of the Income Tax Act, 1961 are directory in the nature and not mandatory. Auditors' Report not furnished along-with Return of Income but furnished before assessment was made, assessee entitled to exemption under section 11 of the Income Tax Act, 1961. [285 ITR 147]

The High Court observed that Penalty u/s 271B not attracted if audit report u/s 44AB is filed along with the return after the due date for filing return of income under section 139(4) but before issue of notice by the Assessing Officer under section 142(1). CIT v. K.K. Spun Pipe (2006) 284 ITR 0301 (P&H)

Premium collected by the company on issue of share capital is not capital employed in business for purpose of deduction u/s 35D. Berger Paints India Ltd. V. CIT [2006] 154 Taxman 293 (Del.) 1.5

Expenditure incurred on remodelling of generator is revenue expenditure. CIT v. Salem Co-operative Spinning Mills Ltd. [2006] 284 ITR 621 (Mad.)

Interest on deposits with banks not taxable for societies : Hon'ble Income Tax Appellate Tribunal, Delhi Bench in the matter of Shivalik Group Housing Society Ltd Vs Income Tax Officer held that interest income earned by mutual society on surplus funds deposited with banking institution is covered by principle of mutuality and hence, no addition could be made in the hands of society on account of such interest income. [101 ITD 391]

Corporate E Return Portal Launched: Income Tax Department has released utility to file the Income Tax and Fringe Benefit Tax Returns digitally. Assessees can upload their income tax return directly to income tax department's website i.e. www.incometaxindiaefiling.gov.in

Interest is not leviable u/s 234B and 234C in case of an assessment of a company on basis of book profits u/s 115J (Now 115 JB) CIT v. Kwality Biscuits Ltd. [2006] 284 ITR 434 (SC).

 For a five star hotel, though general repairs (even if it runs into few crores) are revenue expenditure, but expenditure incurred on renovation and refurbishment of hotel is not allowable as revenue expenditure. Asian Hotels Ltd. V. DCIT [2006] 101 ITD 247 (Del).

Restriction on allowance of deduction U/s 44C : The High Court held that allowance under section 44C is allowed if both the parameters stated therein fulfilled. In the absence of any one of the parameters, the entire section 44C becomes not available. The entire head office expenditure will be allowable under section 37(1). CIT v. Deutsche Bank A.G. (2006) 284 ITR 463 (Bom.)

Restriction on allowance of deduction U/s 44C : The High Court held that allowance under section 44C is allowed if both the parameters stated therein fulfilled. In the absence of any one of the parameters, the entire section 44C becomes not available. The entire head office expenditure will be allowable under section 37(1). CIT v. Deutsche Bank A.G. (2006) 284 ITR 463 (Bom.)

The assessment has been completed but A.O. failed to initiate penalty proceedings under section 271B for failure to obtain audit report within the specified time. The High Court held that failure to initiate penalty proceedings does render the order of the assessing authority erroneous and prejudicial to the interest of revenue. Therefore, notice u/s 263 can be issued in such case. CIT v. Ganeshi Lal Ram Krishna (2006) 154Taxman 238 (All.)
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The government has inserted “lock-in” clauses for promoters of the proposed Ultra Mega Power Project. Thus, a promoter will not be able to divest more than 49% of the equity until two years after the project starts commercial production, and will have to retain at least 26% for another 10 years.The restrictions have been incorporated in the proposal document for the 4,000- Mw Sasan Project in Madhya Pradesh, set to be the first of the Ultra Mega Projects to get off the ground.
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The country's largest bank, State Bank of India (SBI) venture fund initiatives have been put on a fast tract. The bank's investment banking arm, SBI Capital Markets (SBI Caps), is now in talks with global investors for setting up two more venture funds- a 'Buy-out Fund' and an 'SME Fund' - as it formally announced launch of its maiden fund jointly with Soft bank Investment, a part of Japan's SBI Holdings group.
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The government has made several changes in the Special Economic Zones (SEZ) Rules, 2006. Major changes include the minimum processing area for multi-product SEZ being raised to 35% from 25% and the ceiling for free trade and warehousing zones fixed at 50%. Following great response from the service and manufacturing companies as well as the demand from some Chief Ministers, the government is looking at reviewing the cap of 150 SEZs.
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The government is toying with the idea of incorporating provisions in the Banking Regulation Act to empower the Reserve Bank of India (RBI) to appoint its nominee on the board of a Public Sector Bank (PSB) in the event of exigencies. The consideration comes in the wake of stiff opposition to the central bank's move to withdraw its directors from banks, including those in the public sector.
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The Reserve Bank of India has rationalized banks' investments under priority sector lending in order to encourage them to increasingly lend directly to priority sector borrowers. Accordingly, banks' investments in bonds issued by National Housing Bank and Housing & Urban Development Corporation from April 1, 2007 on wards will not be eligible for classification under priority sector lending. The foreign and private banks will have to commence priority sector lending directly now.
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The domestic venture fund industry feels it has been delivered a severe blow by the Reserve Bank of India's (RBI's) guidelines on treatment of banks' investments in venture capital funds (VCFs). The classification of investments in VCFs by banks as exposure to capital market, a higher risk weight of 150 resulting in higher capital allocation and capping on banks' investments at 10 percent of net worth appear as a dead-end for non bank Indian venture funds.
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Export Credit Guarantee Corporation of India (ECGC) plans to setup a subsidiary to offer full-fledged factoring services for exporters. The maturity factoring scheme currently offered by ECGC addresses the needs of exporters to avail themselves of pre finance (advance ) on the receivables for their working capital requirements. This requires ECGC to have a bank partner, but with an independent subsidiary the corporation would be able to offer finance as well as insurance.
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Securing education loans will not be herculean task any more. To make the loan-lending process hassle-free, the Union Finance Ministry has endorsed public sector banks' demand for setting up of a Guarantee Fund on the lines of a similar scheme existing for the small enterprises sector. The banks had been pleading with the ministry for a Guarantee Fund for months as they feared the high-level of Non Performing Assets (NPAs) and the sudden surge in educational loan disbursements in 2005-06
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The Tarapore committee has recommended a conservative approach of a Five Year road map for implementing full convertibility. The committee has also recommended for allowing industrial houses to promote banks, a stance contrary to the Reserve Bank of India's (RBI's) guidelines on the ownership of private banks. It also want the voting rights of shareholders in banks to be in accordance with the Companies Act.
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  • Revisit sector wise lending targets.
  • Modify lending priorities.
  • Yield curve has stiffened.
  •  Maximise profits by switching from shorter to longer tenure assets.
  • Let the maturity profile of assets be in conformity with best interests of the economy.
  • PSU banks have a crucial stake in maintaining the growth momentum.
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The accounting treatment of transactions undertaken in 'When Issued' (WI) securities would be as follows:

  •  The 'WI' security should be recorded in books as an off balance sheet item till issue of the security.
  •  The off balance sheet net position in 'WI' market should be marked to market scripwise on a daily basis at the day's closing price of the 'WI' security. In case the price of the 'WI' security is not available, the value of the underlying security (as stipulated in the Master Circular No: 8 dated July 12, 2006) be used instead. Depreciation, if any, should be provided for and appreciation, if any, should be ignored.
  • The off balance sheet (net) position in 'WI' securities, scrip wise, would attract a risk weight of 2.5%.
  • On delivery, the underlying security may be classified in any of the three categories, viz; 'Held to Maturity', 'Available for Sale' or 'Held for Trading', depending upon the intent of holding, at the contracted price.
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The Chartered Accountants practicing in residential areas of Karol bagh , Daryaganj, Laxmi Nagar, Shakarpur and all other residential colonies of Delhi are still facing risk of their offices being sealed by the Government arising out of orders of Honorable Supreme Court. The notification of 7th September 2006 has been issued in such a complex manner that legal experts are still struggling to interpret its real intent.
The Government vide this notification has also permitted professional activities by Chartered Accountants in all residential areas, subject to the following conditions:

  •  Professional activities by Chartered Accountants shall be permitted if carried out by the resident himself / herself;
  • Group Housing / Plots with multiple dwelling units, professional activities shall be permitted on any floor, subject to maximum 50% of permissible or sanctioned FAR for each dwelling unit.
  •  In case of single dwelling unit plots, chartered accountant activities shall be permissible on any one floor only, but restricted to less than 50% of the permissible or sanctioned FAR on that plot.
Similar facility has been given to other professionals including doctors, lawyers and architects. The requirements insist on a condition that professional activity shall be permitted only if it is carried out by the resident himself / herself.This has following implications :
  • The Chartered Accountant concerned should be residing in the same premises.
  • The professional activity is to be carried on by him / him self. This creates an apprehension that Partnership Firms or large setups may not be permitted.
The aforesaid condition of mandatory requirement of residing in the same premises by the Chartered Accountant concerned is practically infeasible in most of the cases. Most of the Chartered Accountant Firms have proper staff and are required to have necessary infrastructure like computer, scanners and various other modern gadgets to enable them to provide high quality services. In a number of cases more than one chartered accountants are associated or working jointly to carry on the professional practice. ICAI has been promoting merger and networking of firms to enable delivery of all specialised services under one roof. The Government is trying to reverse the growth process of the economy. The Government of India and the Delhi Government have miserably failed to provide adequate commercial spaces to take care of all-round growth and development of Delhi's economy. There is a need to urgently develop at least 10-20 thousand acres in Delhi for commercial purpose. The Yamuna bed and wasteland in the midst of Delhi should be targeted for low cost availability. The Government should provide alternate accommodation in commercial areas at reasonable rates to all those who are being displaced due to decision of Honorable Supreme Court or due to non- compliance of reversed master plan. The Government of India vide Notification dated 7th September, 2006 has also permitted commercial usage by retail shops, schools, nurseries, guest houses, banks, fitness centres in the residential areas, subject to certain conditions as to the width of the road and the category of the colony etc.There is no requirement for such users to reside in the same premises. But in all such cases the professional activity can be carried on by the Chartered Accountants and other professionals only subject to the conditions outlined in the 1st paragraph. These improper The Government of India vide Notification dated 7th September, 2006 has also permitted commercial usage by retail shops, schools, nurseries, guest houses, banks, fitness centres in the residential areas, subject to certain conditions as to the width of the road and the category of the colony etc.There is no requirement for such users to reside in the same premises. But in all such cases the professional activity can be carried on by the Chartered Accountants and other professionals only subject to the conditions outlined in the 1st paragraph. These improper condationalities are far from being logical and just not acceptable to the profession and we need to fight unitedly against such oppressive policies of the Government. are far from being logical and just not acceptable to the profession and we need to fight unitedly against such oppressive policies of the Government. The All India Chartered Accountants' Society is in the process of formulating a Joint Forum with doctors including various medical associations, lawyers including Supreme Court Bar Association, Delhi High Court Bar Association and other associations of lawyers and architects, to enable formation of joint strategy and action including lobbying with the Government. The possibility of filing an appropriate writ petition with Delhi High Court and / or Hon'ble Supreme Court is also being examined. We have also submitted detailed memorandum to the Chief Minister of Delhi, Urban Development Minister Jai Pal Reddy, State Urban Development Minister Ajay Makan and Commissioner, Municipal Corporation of Delhi, to consider the needs of the Chartered Accountants in a more judicious and sympathetic manner. We have outlined detailed justification to permit Chartered Accountants to operate from residential areas without any restrictions or conditions. We strongly believe that Chartered Accountants are providing very important services to the society and their activities are neither hazardous nor create any pollution or create any other nuisance or disturbances to the inhabitants around their offices. There is no justification to prohibit Chartered Accountants to operate from residential areas or to put any condition. It is very important for the Chartered Accountants lobby to become active and take up the issue strongly so that the Government could be persuaded to appropriately modify the Master Plan of Delhi. We need your support to take up the issue with the judiciary, Members of Legislative Assembly, Members of Parliament and the Minister of Urban Development besides Senior Leaders of the Congress, BJP and other political parties. The issue can be effectively taken up with the help of individual connectivity and relationship of Chartered Accountants. Today it is Delhi, tomorrow it may be any other. If we are able to effectively take up this issue for Delhi, it will be much easier to similarly convince the other State Governments to permit Chartered Accountants to operate freely from residential areas. Kindly feel free to get in touch with me at my Mobile No. 9811040004 or at my E-mail : vinodjainca@gmail.com or vinodjain@inmacsindia.com. Let us unitedly fight for this common cause for the benefit of Chartered Accountants community, society and the Indian economy.