CAI MAY MANDATE IFRS

The Institute of Chartered Accountants of India (ICAI) may in the coming days decide to adopt International Financial Reporting Standards (IFRS) in toto and shed its current role as an independent standard setter. It has now set up an 11- member task force to examine various issues involved on full convergence and formulate a concept paper in this regard.

PRICING CODE FOR FOREIGN EXCHANGE DERIVATIVES

The Fixed Income Money Market and Derivatives Association of India (FIMMDA), a body of market players, has issued a code that advises banks against entering into transactions at rates or reference levels that differ materially from market levels.

• The code has called for a process that ensures pricing at market levels, thereby preventing concealment of profit or loss by dealers.
• The code has barred banks from transactions like interest rate swaps

The RBI recently asked select foreign banks active in the derivatives market to provide information on derivative structures sold by them following many complaints.

Editorial Note :

As per leading experts the corporates are advise to hedge their foreign currency risk by plane vanilla derivative products. The series/ combination of vanilla products could also be considered. This will facilitate:

• Competitive pricing as simple products are offered at very reasonable cost 
• Unwinding of all or certain legs of the hedging transactions will be very easy once the corporate see that the market has improved and hedging risk has reduced.

NO LOCK-IN OF SALE PROCEEDS

Non Resident Indians (NRIs) can now remit up to $ 1 million per year abroad immediately after they sell immovable property. So far, NRIs and Persons of Indian origin (PIOs) had to lock in their sale proceeds for a certain period in their Non-Resident Ordinary (NRO) accounts. Now, the RBI has done away with the lock-in period. However, the annual ceiling on total remittance out of NRO accounts will remain at $ 1 million.

NO ‘SAFETY NET’ TO PUBLIC ISSUES

The Reserve Bank of India has told banks and their subsidiaries not to offer “safety net” facilities to public issues. There is also no income for the banks to corrospond with the risk of loss built into these schemes as the investor will take recourse to the safety net only when the market value of the share falls below the pre determined price.

SELF-REGULATORY BODY FOR BOURSES TO BE SET UP

SEBI is planning to set up Self Regulatory Organisations (SROs) soon for surveillance of the capital market. The SROs will constitute to represent capital market participants with adequate (20% to 30%) SEBI nominees to represent independent professionals, investors and SEBI officials. These SROs will exercise all day-to-day supervisions, surveillance, inspection and investigation on market participants. According to a SEBI official, the idea is to rope in independent professionals such as practicing chartered accountants, lawyers and financial experts to do this job. The proposed separate entity would be in a position to hire professionals on assignment-basis. Instead of making disclosure to the BSE, NSE and SEBI, the regulator is working on uniform e-filing of disclosure details. This way, while compliance is not diluted, its cost will be minimised. 

SEBI TIGHTENS NORMS FOR VC FUNDS’ IPO

Sebi has tightened norms for offloading shares held by Venture Capital Funds (VCFs) and investors through an IPO to make the Indian primary market more efficient and transparent. The revised Disclosure and Investor Protection guidelines restricted the benefit of ‘No lockin’ on the pre-issue of shares of an unlisted company, launching the initial public offering on shares held by Venture Capital Funds and Foreign Venture Capital Investors (FVCIs). This no lock-in facility will hereafter be available to the shares held by VCFs and FVCIs, which are registered for at least one year. 

CDSL TO ISSUE IIN FOR MF INVESTORS

Central Depository Services (India) Ltd. (CDSL) has been appointed as the issuing authority of “Investors Identification Number (IIN)” previously known as Client Identification Number. The deadline to issue IIN, has been extended to January 1,2007.

Editorial Note :
A demat account number of investor or PAN number could be considered as enough for MF investors. AMFI should work out data sharing with NSDL and CDSL without requiring investors to incur cost and effort to obtain another identification. 

FMC CRACKS THE WHIP AT TRADERS FOR NONCOMPLIANCE OF DELIVERY NORMS

Forward Markets Commission (FMC) will levy stiff penalties for traders who don’t comply with delivery obligations under mandatory delivery contracts.

NYMEX TO LAUNCH ELECTRONIC CONTRACTS

The New York Mercantile Exchange (Nymex), the world’s biggest energy market-place, will introduce electronic contracts to compete with the London Metals Exchange (LME) if a buyout of trading rights is approved by members.

SMALL FIRMS COULD BE HIT UNDER NEW INSURANCE REGIME

Small and medium companies are likely to be the worst affected in a regime where there are no controls on premium charged on general insurance risks. The proposed lifting of controls on premium rates is expected to bring to an end the prevalent practice of cross-subsidising tariff-free group health insurance and marine risks against profitable portfolios like fire and engineering covers, premium rates for which are tariff based. General insurance would move to estimating premium rates based on assessment of risks on a standalone basis from a client portfolio basis.

IRDA CODE OF CONDUCT FOR BROKERS, INSURERS

To ensure healthy competition in the general insurance sector after it is de-tariffed, the Insurance Regulatory and Development Authority (IRDA) has set out a code of conduct for brokers and insurers. These, they will have to mandatorily adhere to, especially for large accounts. Any deviation will require Irda’s prior approval.

RELIEF TO INSURERS ON PAYMENT OF INTEREST

The Supreme Court has ruled that the insurance companies are liable to pay the interest as damages on delayed payment of the insured amount from the date of awarding of the compensation. Such damages shall not be claimed from the date of claim or correspondence in this regard started between the parties concerned.

IRDA TO MONITOR SOLVENCY MARGIN

Post-detariffing from Jan 07, Irda would monitor solvency of general insurance companies on a monthly basis. The accounting as well as actuary professional’s role is going to be more important.

NEW IRDA NORMS FOR NONLIFE COVERS

With the free pricing (detariffed) era for general insurance industry nearing, the Insurance Regulatory and Development Authority (IRDA) has announced new guidelines for ‘file and use’ requirements for general insurance products. Keeping in mind the interests of policyholders, it has retained the authority of suspending the sale of products at anytime if they appear inappropriate and unfair in terms of rates and terms and conditions. IRDA has made it clear that the insurers would be required to justify the rates and terms and conditions of insurance products offered and said it would not accept a mere statement that the risk is rated ‘on merits’.

NO SERVICE TAX ON FEES FOR CAMPUS INTERVIEWS: CBEC

The Central Board of Excise and Customs (CBEC) recently clarified that educational institutes like IITs and IIMs were not liable to pay service tax under the category of “manpower recruitment or supply service” on the fees charged from prospective employers like corporates, who come to these institutes for recruiting candidates through campus interviews. These institutes were not liable to pay service tax prior to May 1, 2006 under the category of ‘manpower recruitment or supply service’ as during this period only commercial concerns were to be taxed. As regards the period after May 2006, decision should be taken after taking into account all material facts on case to case basis.

INSURERS MAY HAVE TO ABSORB EXTRA SERVICE TAX

General Insurance companies will have to reckon paying extra service tax on premium if the rate is hiked mid-way during the tenure of a policy. Policyholders, in turn, could feel the pinch if the extra cost is passed on to them. In an order passed recently on Bajaj Allianz General Insurance, the Commissioner (Excise) struck down the company’s contention that it does not have to pay extra service tax, consequent to the hike in service tax rate. The case relates to Sept 04, when the rate was revised from 8% to 10%.

NOTICES ISSUED TO COs CLAIMING ABATEMENT ON PAYMENTS TO GTA

Trouble seems to be brewing up for companies availing services of Goods Transport Agencies (GTAs). The service tax department has issued show cause notices to them for claiming abatement for service tax on payments made to GTA. The issue of claiming abatement for service tax on payments made to GTA has been hanging fire for quite some time. While the Central Board of Excise and Customs had said the companies could claim an abatement of 75%, the Comptroller and Auditor General (CAG) had raised objections to it. In wake of CAG objection and no clarification on the issue, the field formations have raised demands and show cause notices have been issued.

Editorial Note :
The show cause notices are illegal. The abatement circular is binding on the Government. 

SUMMONS TO SHIPPING FIRMS ON SERVICE TAX PAYMENT

The Directorate General of Central Excise Intelligence (DGCEI), as a part of its inquiry into evasion of service tax, has issued summons to all domestic shipping companies, asking them to submit information on services availed abroad and payments made in foreign exchange retrospectively since August 16, 2002.

BANKING SERVICES TO SEZ UNITS OUT OF TAX NET

Banking services offered to units set up in Special Economic Zones (SEZs) have been exempted from paying service tax. The clarification has been issued by the Central Board of Excise and Customs (CBEC) in response to a query from the Indian Banks’ Association (IBA).

NEW FORMAT FOR ER-1 & ER-3 EXCISE RETURNS ISSUED

Following the functioning of Large Tax Payers Unit (LTUs) from October 1, the department of revenue has issued a revised format for ER-1 and ER-3 returns for all Central Excise assessees on October 12, 2006. The ER1 and ER3 return forms are applicable for all assessees, including large taxpayers. In the new format, the department has included new tables to get information on inter unit movements of intermediate goods of large taxpayers who have opted for LTU. Similarly, the excess CENVAT Credit transfer to deficient transfer are also sought in the new form. A large taxpayer has the option to transfer any excess CENVAT credit (of Central Excise Duty or Service Tax) accumulated in one manufacturing unit or service providing unit to any other unit under cover of a transfer voucher under rule 12A(4) of the CENVAT Credit Rules, 2004. Self-adjustment of excess duty paid through CENVAT credit account must be reported to the excise office. Other details such as credit taken on imported inputs, and credit taken on imported capital goods, are also being sought from all central excise assessees.

CBEC MULLS SERVICE TAX RELIEF FOR ONSCREEN SERVICES OF BOURSES

Stock and commodity exchanges could be on their way to getting some relief on service tax. The Central Board of Excise and Customs (CBEC) is examining whether onscreen services provided by stock and commodity exchanges to their members are taxable or not.

INCOME TAX DECISIONS

Lower rate of tax under DTAA
Hon’ble Madras High Court in the matter of CIT vs. Reiter Ingolsteadt Spimereimaschinenbau AG held that benefit of lower tax rate will go to assessee even when the DTA Agreement was informal by exchange of notes only. [285 ITR 199].

Withdrawal of registration u/s 12A of the Income Tax Act Hon’ble Uttaranchal High Court in the matter of Welham Boys’ School Society vs. Central Board of Direct Taxes, held that once registration is granted u/s 12A there is no inherent power to the registering authority to rescind it on the ground that the institution was running for profit. There is no power in the statute available to the registering authority to cancel the registration. Even assuming that it is possible, it cannot be cancelled, unless the original registration was obtained by practicing fraud or forgery. [285 ITR 74 ].

Attachment of bank account in respect of disputed tax by Income tax officials Hon’ble Bombay High Court in the matter of Coco Cola India Pvt. Ltd. Vs. Addl. CIT cautioned the revenue to advise its officers strictly to follow the appropriate procedures and take such coercive action in case where it is so required after observing the requirement of law. Where an appeal has been filed, no coercive action can be taken till the time the appeal is over and after such period, consider coercive action, if no application is filed and if filed, deal with the same only on merit after considering the parameter set out by the Court. [285 ITR 419].

Revisional Jurisdiction u/s 263 of the Income Tax Act Hon’ble Rajasthan High Court in the matter of CIT Vs. Mangilal Didwania found that once assessing officer made enquiries into various aspects of the case and applied his mind before framing the assessment, there is no jurisdiction for the Commissioner who holds assessment order as erroneous and pre-judicial to the interest of revenue. [286 ITR 126].

Non-resident NGO’s are liable to pay fringe benefit tax Hon’ble Authority for Advance Ruling (Income Tax) in the matter of Population Council Inc. given a ruling that the applicant of non-resident non-profit making organization, having a regional office in India, which carried on charitable, scientific and educational activities, was liable to pay fringe benefit tax u/s 115WA of the Income Tax Act, 1961, in relation to fringe benefits provided to its employees. [286 ITR 243]. 

TECHNICAL SNAGS BUG EFILING OF TAX RETURNS

Tax payers across the country have been facing great difficulties in electronic filing of tax returns on account of technical snags in the software developed by the Income Tax Department. The system is in the process of regular modification to correct errors or logic mismatch.

RETURNS DEADLINE FOR CORPORATES EXTENDED

The Government has extended the due date for corporates to obtain the Tax Audit Report and furnish the Return of Income and Fringe Benefits to November 30 from October 31 for the Assessment year 2006-07.

TAX HOLIDAY FOR DELHI BUDGET HOTELS

The Government is considering granting infrastructure status to all budget hotels and convention centers set up in Delhi and National Capital Region between now and the 2010 Commonwealth Games. This will enable them to enjoy a 10-year tax holiday as in case of other infrastructure projects such as roads, ports and power. The move will help to meet an estimated demand for 1,00,000 hotel rooms in Delhi and NCR during the Commonwealth Games and correct the skew that is currently in favour of luxury and first class properties.

OBTAINING PAN NOW EASIER FOR NRIs

Obtaining a Permanent Account Number (PAN) for Indians living abroad, a foreign citizen, or a company, trust or firm not having an office in India has become easier. The Income Tax department has clarified that it will no longer insist on details of a “representative assessee” while accepting PAN applications from the aforementioned categories. The tax department has issued a circular to the two designated PAN service providers – UTI Technology Services Ltd. and National Securities Depositories Ltd. – clarifying on the revised guidelines for allotment of PAN to these categories.

NEWSPAPERS’ AD PAYMENTS LIABLE TO BE TAXED

The Central Board of Direct Taxes has informed the Indian Newspaper Society (INS) that Tax Deducted at Source (TDS) is liable to be deducted by newspapers on payments made by them to advertising agencies. The CBDT has written to the INS following a clarification sought by the latter on whether TDS was deductible on payments made by them to advertising agents. The contention of INS was that such payments are not in the nature of a commission but a discount. So no TDS was liable on such payments. However, revenue department officials said the CBDT was of the view that such payments were covered by the definition of the term ‘commission or brokerage’ given in Section 194H of the Income Tax Act and hence liable to TDS.

TRADE MARKS OF INDIAN COs TO BE PROTECTED ABROAD

With more and more Indian companies going global, the government has decided to protect the trademarks of Indian firms abroad. India is planning to become a part of the Madrid International Protocol (MIP) for trademarks under the World Intellectual Property Rights Organisation (WIPO). The protocol has a 78-country membership. Indian companies will be able to get trademark protection in all these countries by simply filing one trademark application at the local or regional trademark office. If the trademark office of a designated country does not refuse protection within a specified period, the mark is considered as registered. MIP also allows for recording subsequent changes and renewal of trademarks by the same single step procedure.

CABINET NOD TO IT ACT AMENDMENTS

With an aim to enforcing stricter data security laws in the wake of data thefts from BPOs in the country, the Union Cabinet on Monday approved amendments to the Information Technology (IT) Act 2000. The amendments are aimed at preventing computer misuse like video voyeurism, identify theft, e-commerce frauds like phasing, frauds on online auction sites, sending offensive emails, etc.

OUTSOURCING UNITS CANNOT BE CLUBBED FOR EPF

The Delhi High Court has ruled that outsourcing units cannot be clubbed with each other or the company outsourcing work to them, for the purpose of taking the benefit of Employees Provident Fund (EPF). These ancillary units are independent business entities despite the fact that they are dependent on an automobile company or engineering firm. These units cannot be clubbed with each other or with main company for purpose of EPF Act on the ground of interdependence.

BUILDERS FINALLY GET HEMMED IN BY DEADLINES

The Government has made it mandatory for developers to adhere to deadlines on finished housing properties. Property developers will now have to refund the entire advance amount with interest if they fail to deliver flats to customers in the agreed time-frame.

COACHING CENTRES TOLD NOT TO CHARGE FEES IN ONE GO

As per Delhi State Consumer Disputes Redressal Commission all training imparting institutes, educational centres preparing students for entrance examinations have been directed not to charge the fee for the whole duration of the course in advance by way of lump sum payment. They are duty bound to refund fee for balance period to a student who does not wish to pursue the course further.

MONEY LAUNDERING ACT TO BE AMENDED

Indian Banks can now look forward to easy entry into the US financial market. The Government has to decided to move amendments to the Prevention of Money Laundering (PML) Act, which will make it more in sync with the demands of the US and EU. The amendments will bring terrorism financing and Customs offences under the glare of the Act. While the International Financial Action Task Force (FATF) has also asked for making insider trading in stock markets a money laundering offence, the Government is not in favour.

STATES FOR UNIFORM STAMP DUTY ON DEBIT INSTRUMENTS

India’s moribund debt market is set to finally get a leg up with State Governments granting an in-principle approval to rationalize stamp duty on a host of financial instruments including debentures and promissory notes. Reforms have long been in the offing in the local debt market but a major stumbling block has been the levy of stamp duty. A sub-group set up by the standing committee of finance secretaries on stamp and registration has decided to recommend uniform stamp duties on these financial instruments across all states.

BEST PRACTICE GUIDE ON ESTABLISHING CREDIT BUREAUS BY IFC

The International Finance Corporation (IFC), the private sector arm of the World Bank Group, has launched a new guide explaining how to establish Credit Bureaus. The guide, entitled Credit Bureau Knowledge Guide, is the first publication to prove a comprehensive overview of the development of Credit Bureaus.

RBI TIGHTENS REALTY LENDING NORM

The Reserve Bank of India (RBI) norms for lending to the real estate sector are getting stricter. After blocking funding for purchase of land, the central bank has further tightened its measures for checking flow of funds from banks to the real estate sector. It has asked banks to ensure that credit disbursed is used only for “productive construction activity.” The risk weights of bank’s exposure to commercial real estate and home loans above Rs. 20 Lacs has been raised to 150 bps. The banks need to monitor diversion of funds to speculative trading/investments.

TRADING IN CORPORATE BONDS : SEEKS SEPARATE PLATFORM FOR BANKS AND FIs

SEBI’s plan to create a uniform exchange for trading in corporate bonds is stuck with the Reserve Bank of India (RBI) seeking a separate platform for banks and Financial Institutions (FIs). An RBI committee is understood to have pointed out that banks and FIs will face settlement problems if they trade on the platform of the BSE, chosen by SEBI for on-line trading in corporate bonds. The committee has suggested a separate trading system for banks and FIs. Participation of brokers is to be tackled. RBI is not comfortable with the deals getting routed through brokers and instead prefers an order matching system for better transparency.

KYC NORMS EASED FOR SMALL BANK ACCOUNTS

The stringent Know Your Customer (KYC) norms had forced banks to put off many small customers or those aspiring to be part of the banking system. RBI has now done away with the requirement to follow the KYC norms for customers in cases where the outstanding balance is not more than Rs. 50,000 and the maximum transaction is not more than Rs. 2 lakh. In such cases, customers will need to provide just a photograph and self-certification of address. However, as and when the transaction size and the balance increased beyond the limit, banks would be required to follow the normal KYC norms. RBI has also made life easier for the retired people by allowing them to operate a joint account for receiving pension payments. RBI said that it would allow crediting of the pension amount to a joint account operated by pensioner with her / his spouse where family pension has been authorized.

RBI TELLS STATES NOT TO REGULATE INTEREST RATES CHARGED BY MFIs

The Reserve Bank of India (RBI) has told some of the State Governments to refrain from regulating interest rates charged by Micro-Finance Institutions (MFIs). The regulator feels that the various money lending legislations, which put a cap on the interest rate charged by an entity (not banks), should not apply to MFIs. This comes on the back of a recent incident in Andhra Pradesh where the State Government pulled up local MFIs for competing with the state’s lending programme . The RBI is understood to be of the view that the provisions of the Money Lending Act should not apply to MFIs operating in the form of Non-Banking Financial Companies (NBFCs) and companies which do not declare dividend and are registered under Section 25 of the Companies Act. However, state legislations may continue to govern MFIs operating as trusts or NGOs.

CLEARANCE TO 44 NEW SEZs

At its meeting on 27th October, 2006 the Board of Approvals in the Commerce Ministry gave formal clearances to 24 SEZ proposals and in-principle nod to 20 others, entailing an aggregate investment of Rs. 40,000 crore. That takes the total applications so far approved to 236 and those with in-principle clearance to 169.

FIRST PVT. GOLD MINE TO BE OPERATIONAL IN 07

• Ramgad Minerals and Mining Pvt. Ltd., a Mineral Sales Pvt. Ltd. Group firm, has struck gold in Gadag district in Central Karnataka.
• The firm obtained gold reconnaissance permits and prospecting licence in an area covering 10,000 square km in Gadag, four years ago.

CENTRE FINETUNES MCA TO WOO FOREIGN INVESTORS

The government is further fine tuning the model concession agreement (MCA) and making changes in its policy framework to attract foreign investment to finance mega infrastructure projects.

GOVT CALLS MEET ON NRI VARSITIES IN SEZs

In a bid to use Special Economic Zones (SEZs) to promote investment in higher education, the Cabinet Secretariat has called a meeting of a committee of secretaries to discuss the policy for setting up of Non Resident Indian (NRI)/People of Indian Origin (PIO) universities in these zones.

DIN-3 CERTIFICATION – EXCLUSIVELY TO CS – REQUIRING SERIOUS RECONSIDERATION

The Ministry of Company Affairs, Government of India has recently notified DIN-3 to be mandatory submitted by all the companies to the Registrar of Companies on or before 7th December, 2006, wherein the companies are required to inform the DIN (Director Identification Number) of their Director to Registrar of Companies through MCA-21 Portal, duly certified by:

• A Company Secretary in full time practice or
• A Company Secretary in employment of the concerned Company

It may be noted that the Chartered Accountants or Company Secretaries are permitted to certify all the forms under MCA 21 requiring certification so far and this is the first time that the Chartered Accountants in practice are not recognized by Ministry of Company Affairs for authenticating DIN-3. As a matter of principle, this is a serious departure. The Chartered Accountants have been rendering valuable services to the corporate sector including incorporation of companies, company law compliance's, filing of various forms, maintenance of statutory records, representing before the Hon’ble Company Law Board and Ministry of Company Affairs for obtaining various approvals and similar other services. The CA Course Curriculum and 3- years practical training provide an expert knowledge to Chartered Accountants to provide valuable services in the corporate law sector including Company Law, SEBI Act, Competition Act and various other Economic and Corporate legislations.

The Chartered Accountants fraternity need to take up with Ministry of Company Affairs that Chartered Accountants cannot and should not be distinguished, while providing various key services to the corporate sector and it may be completely inappropriate to provide exclusivity to the Company Secretaries in relation to any professional service related to Company Law. It may be noted that 4 members of the Central Council out of 12 elected members recently resigned few months ago from the Membership of the Central Council of ICSI in protest against the Ministry of Company Affairs not providing exclusivity to Company Secretaries for certifying various forms under MCA-21. The provision of exclusivity to Company Secretaries in certifying DIN-3 is being viewed as a result of these pressure tactics, which is highly unfortunate. It may be noted that the compliance certification of listing guidelines including corporate governance were earlier exclusively reserved by SEBI in favour of Chartered Accountants and in-spite of several aspects requiring deep knowledge of financial accounting and financial matters, Company Secretaries in whole time practice have also been permitted to certify corporate governance compliance. The corporate law services provide a very important, challenging and promising avenue for the profession of Chartered Accountants and those who are able to have specialized knowledge are able to command a very good respect, seniority and professional standing. It may be necessary for the Institute of Chartered Accountants of India and various Chartered Accountants’ Associations to project Chartered Accountants as highly competent professionals having holistic knowledge of corporate law and affairs with an in-depth understanding of financial nitty gritty to take challenges of complex business dimensions in a comprehensive approach to derive the best results. 

• ICAI may consider prescribing corporate law standards and issuing guidance note on various aspects of Company Law and various other corporate law compliance's, procedures and complex aspects of such laws as may be considered important from time to time.
• A guidance note on MCA21 certification may be issued urgently.
• CA professional bodies may consider publishing advertisements, pamphlets, brochures and similar other publicity materials outlining various important aspects of professional services being provided by Chartered Accountants to the corporate fraternity.
• To publish easy to understand handbook and guides to enable provisioning of complex as well as routine corporate law services by Chartered Accountants to their clients. This may include procedure, forms, compliance and practical tips as well as check-list to enable Chartered Accountants to easily provide various services in a standardized manner.

We need to strengthen our competitive positions in the corporate law sector consciously and actively.