The issue regarding call auction and its use in various session, including pre-open session was deliberated in Secondary Market Advisory Committee (SMAC). It has been decided to introduce call auction mechanism in pre- open session. To begin with, pre-open session shall be introduced on a pilot basis by BSE and NSE for the scrips forming part of Sensex and Nifty.

The Takeover Regulations Advisory Committee (TRAC) report suggests the most significant changes to the SEBI.

SUGGESTED CHANGES

• Open offer threshold raised to 25% from existing 15%
• Acquirer to make open offer for 100% equity, up from 20% now
• Creeping acquisition only for those holding over 25% stake
• Indirect control on voting rights over 25% to trigger open offer
• Those holding over 25% can make voluntary open offer for 10%
• Acquirer must state in advance if he intends to delist post offer

The three leading stock exchanges of the country, the National Stock Exchange (NSE), the Bombay
Stock Exchange (BSE) and MCX-SX, have applied for launching a separate segment for small and
medium enterprises (SMEs).

Based on the recommendations of the Derivatives Market Review Committee and in consultation with Stock Exchanges (BSE and NSEIL), it has been decided to provide flexibility to Stock Exchanges to offer:

• Cash settlement (settlement by payment of differences) for both stock options and stock futures; or
• Physical settlement (settlement by delivery of underlying stock) for both stock options and stock futures; or
• Cash settlement for stock options and physical settlement for stock futures; or
• Physical settlement for stock options and cash settlement for stock futures.

A Stock Exchange may introduce physical settlement in a phased manner. On introduction, however,
physical settlement for all stock options and/or all stock futures, as the case may be, must be completed within six months.

In order to ensure better compliance with the Know Your Client (KYC) norms it has been decided that with effect from August 16, 2010 such PAN non- compliant demat accounts shall also be "suspended for credit" other than the credits arising out of automatic corporate actions. It is clarified that other credits including credits from IPO/FPO/Rights issue, off-market transactions or any secondary market transactions shall not be allowed into such accounts.

AMCs shall provide ASBA facility to investors for all NFOs launched on or after October 1, 2010.

The Comptroller and Auditor General of India (CAG) and the Institute of Chartered Accountants of India (ICAI) will jointly finalize a panel of eligible audit firms for different categories of projects and entities, based on the project size, number of locations and turnover For each category, there will be a fixed fee and the agencies will be free to select any auditor from the panel. For instance, the CAG-ICAI team will formulate eligibility criteria for audit firms to participate in auditing projects that come under various categories such as: up to Rs. 100 crore, Rs. 100-200 crore and Rs. 200-500 crore, and empanel firms for each sector. The minimum fee for each sector will also be fixed by the joint mechanism that will be set up by CAG and ICAI. This will help reduce instance of unhealthy auditing practices.

Compensation received for delay in supplying an industrial unit is not liable to income tax as revenue
receipt, the Supreme Court ruled in the case, commissioner of income tax vs.saurashtra cement ltd.
The Company bought cement plant walchandnagar industries under an agreement which specified
damages would have to be paid if there was delay in delivery. There was delay and the amount specified was paid. The revenue authorities assessed the damages as revenue receipt, while the company maintained that it was not a revenue receipt. The dispute started in 1974-75 and ended in the Supreme Court, which ruled that it was capital receipt. The revenue authorities lost their three- decade- old case before the tribunal, the Gujarat high court and the Supreme Court.

The finance ministry has made it compulsory for all companies to file income tax returns electronically with digital signatures in form ITR-6. The move will facilitate faster filing of I-T returns by corporates.

The Supreme Court said transfer of goods to special economic zones (SEZs) from areas outside these tax- free enclaves would not attract export duty.

In a recent decision, Special Bench (SB) of the Mumbai Income Tax Appellate Tribunal in the case
of Data craft India Ltd. (Taxpayer) on the issue of whether routers and switches can be classified as
computer entitled to depreciation at 60% or have to be classified as general plant and machinery entitled to depreciation at 25%, under the provisions of the Indian Tax Laws (ITL) has held that the definition of computer should not be restricted to the central processing unit (CPU) of computer, but should also extend to all the input and output devices which support computer in the receipt of input and outflow of output to and from computer. In view of the broader definition given to computers, routers and switches, also form part and parcel of computer. Thus, when a device is used as part of the Computer in its functions, then it would be termed as a Computer, and accordingly entitled to higher deprecation of 60%.

The Centralised Processing Centre of the Income Tax Department here has processed over 26 lakh e-filed returns in Forms 1-4 for the assessment year 2009-10. It has determined refunds in over five lakh cases. A release said refunds are being sent through State Bank of India. The status of these refunds can be checked at CPC's call centre (080-43456700) or at www.tin-nsdl.com. The department has been informed by the bank that a large number of refund cheques in respect of paper returns for 2008-09 have been returned by the postal authorities owing to change in address or for other
similar reasons. Many refunds in ECS mode have not been successfully credited to taxpayers accounts because of incomplete/incorrect MICR and bank account details. Details of these returned intimations are available at www.incometax Bangalore-.org. In respect of paper returns of salary ranges of Bangalore for 2008-09 processed at the CPC, taxpayers may contact the PRO, Income-tax Department at Ground Floor, Central Revenue Buildings, Queen's Road, Bangalore. They may collect the returned intimation and update their details of address/bank accounts/ MICR code by writing to CPC, Bangalore at CPC, Post Bag No. 1, Bangalore-560100. In case of updated bank account/MICR code, taxpayers should enclose a copy of a cancelled cheque while giving the details.

The government of India has concluded the renegotiation for widening the ambit of its tax treaty with Switzerland to access information on swiss bank accounts, a big step towards tracing Indian money stashed away overseas. The tax treaty has been amended on the lines of the OECD Model Tax Convention, which means it will not provide for roving inquiries, or fishing expeditions as
they are commonly called.

The assessee credited its P&L A/c with an amount of Rs. 149.77 crores being the profit on sale of assets to its wholly owned subsidiary. As the said profits were not chargeable to tax u/s 47(iv), the assessee took the view that the same had also to be reduced from the "book profits" u/s 115JB.

• The AO can alter the "book profit" only in two circumstances (a) if the P&L A/c is not drawn up in accordance with Parts II & III of Schedule VI to the Companies Act or (b) If accounting policies & standards, method & rate of depreciation have been incorrectly adopted for preparation of the P & L A/c.
• Parts II & III of Schedule VI to the Companies Act do not permit the exclusion of capital gain from the P & L A/c.

The assessee, a foreign company, without a presence or PE in India, earned long-term capital gains which were exempt u/s 10(38). The assessee applied for a ruling on whether it was liable to pay Minimum Alternate Tax (MAT) u/s 115 JB on the said gains. HELD ruling in favour of the assessee: In P.NO.14 of 1997 (234 ITR 335) the AAR held that s. 115JA (akin to s. 115JB) applied to every "company" and as the term "company" was defined in sec 2(17) to include a "foreign company", there was no reason to presume that the legislature did not intend s. 115JA to apply to a foreign company. This ruling is not applicable because:

• It was rendered in the case of an assessee who was doing business and had a PE in India. Its income was being assessed under the head "income from business and profession". It was required to maintain accounts under section 44AA of the IT Act and prepare accounts under sec. 591 & 594 of the Companies Act;
• Sec 591 of the Companies Act applies only to foreign companies who have established a place of business within India and requires the preparation of a balance sheet and P&L A/c as per sec 594. The obligation in sec 115JA(2) to prepare P&L Account in accordance with Parts II and III of Schedule VI can apply only to a foreign company which has a place of business within India. As the applicant does not have a place of business in India, its preparation of P&L Account in accordance with Parts II & III of Schedule VI cannot be complied;
• Though sec 2(17) defines a "company" to include a "foreign company", the context of the definition has to be seen. Income, which does not have a source in India, cannot be made part of the book profits. The annual accounts, including the P&L Account, cannot be prepared as per sec 115JB (2) in respect of the world income and laid before the company at its AGM in accordance with s. 210 of the Companies Act.

Accordingly, section 115JB is not designed to apply to a foreign company which has no presence or PE in India.

The effect of the judgements in Tata Consultancy Services vs. State of AP 271 ITR 401 (SC), Samsung Electronics Co 94 ITD 91 (Bang), Motorola Inc 95 ITD 269 (SB) & Dassault Systems 229 CTR 105 (AAR) is that the primary condition for coming within the definition of 'royalty' is that the payment must be received as consideration for the use of or right to use any copyright of a literary, artistic or scientific work etc. A 'right to use the copyright' is totally different from the 'right to use the programme embedded in a CD'. In acquiring a ready made off- the-shelf computer programme, no right was granted to the assessee to utilize the copyright of the computer programme. The assessee had merely purchased a copy of the copyrighted article, namely, a computer programme which is called 'software'. Computer software when put into a media and sold becomes goods like any other audio cassette or painting on canvas or book. Accordingly, the amount paid by the assessee towards purchase of the software cannot be treated as payment of "royalty" so as to be taxable in India under Article 12 of the DTAA and the assessee was not liable to deduct tax at source.

Explanation 2 to sec 147 deems income to have escaped assessment if excessive deduction is allowed, the reopening of an assessment u/s 147 has serious ramifications because the AO is empowered to reassess income even in respect of issues not set out in the notice. Therefore, if the power to rectify an order u/s 154(1) is adequate to meet a mistake or error in the order of assessment, the AO must take recourse to that power as opposed to the wider power to reopen the assessment. If the error can be rectified u/s 154, it would be arbitrary for the AO to reopen the entire assessment u/s 147. Further, the error in the order was not attributable to a fault or omission on the part of the assessee and the assessee cannot be penalized for a fault of the AO

A panel has recommended that Individual foreign investors should be allowed to buy shares directly in Indian companies, thereby opening the possibility of increased portfolio flows into India.

The International Monetary Fund (IMF) raised India's growth forecast for 2010 to 9.5%, saying that robust corporate profits and favorable financing conditions are likely to fuel investment.

THE uncertainty over tax benefits for Special Economic Zones (SEZs) arising out of the proposals in the draft direct taxes code seems to have started impacting flow of investments into these enclaves. The number of new applications for setting up dropped.

Moody's Investors Service has upgraded the local currency government bond rating to Bal from Ba2. Moody's has also affirmed India's Baa3 foreign currency government bond rating.

Exports from special economic zones (SEZs) reached Rs. 58,756.68 crore in the first quarter of 2010-2011, up 67 per cent over the period in 2009-10, when exports from SEZs had topped Rs. 35,013 crore.

RBI issued its guidelines on CDS whereby RBI- regulated lenders, mutual funds and listed companies can buy credit protection on the bonds they hold. The protection can be sold by banks and finance companies with a net worth of over 500 crore and non-performing assets of less than 3%. Banks that intend to sell protection need to have a capital adequacy of at least 12% while non-banks it would be 15%. In a way, credit default swaps work like an insurance cover. The premium of the cost of cover is determined by the CDS spread. Credit default swaps had got a bad name following the global financial crisis as it emerged that AIG had sold protection against subprime loans most of which turned bad.

There are a number of ways in which CDS in India will be different from those that brought down AIG.

• The protection can be sold against risks of a single issue. In the case of AIG the protection was provided for a mortgage backed security representing thousands of unknown home loans.
• The protection can be bought by only those who actually hold the bonds. The crisis was accentuated by the fact that many investors not holding any bonds bought protection betting on the default of a particular corporate.
• RBI has severely restricted the number of parties that can issue of protection.

The biggest gainers will be large corporates, particularly infrastructure companies. A bank which
risks hitting its exposure limits in respect of a particular loan can safely continue lending without hitting its exposure limit by purchasing protection through CDS. Once the CDS is purchased the banks exposure will be to the entity that is providing protection.

The International Monetary Fund (IMF) wants to boost its lending resources to $1 trillion from $750
billion in order to prevent future financial crises.

Accusing India and US of following protectionist policies, China said any attempt to politicize outbound investments by Chinese firms or "abuse" investment protection tools to protect domestic industries would hurt bilateral ties. Naming India and the US among other countries, the Chinese Commerce Ministry spokesman Yao Jian said that such abuse will sour trade and investment relations with China, as well as dampen the confidence of the country's outbound direct investment (ODI).

A master circular on housing finance issued by the Reserve Bank of India (RBI) has once again
reiterated that builders publicly disclose names of the banks they have mortgaged their land and apartments to. However, despite this directive, none of the developers have done this so far.

As per Income Tax Act, individual income received by a particular trust for a particular deity may be
treated as income of said deity, but provisions of Income Tax Act cannot be relied upon so far as
opening of Demat account is concerned. Demat account is essential a commercial activity done on a
day to day basis and it is not expected that a private trust would bring the Gods and Goddesses in the
matter of share trading business.

The Reserve Bank of India has communicated that all participants must report their repo trades in corporate bonds on the Fixed Income Money Market and Derivatives Association of India (FIMMDA) platform beginning August 2, 2010.

A person resident in India may enter into currency futures or currency options on a stock exchange recognized under section 4 of the Securities Contract (Regulation) Act, 1956, to hedge an exposure to risk or otherwise, subject to such terms and conditions as may be set forth in the directions issued by the Reserve Bank of India from time to time.

• FIMMDA was requested by RBI to set up a reporting platform to capture all OTC transactions in CDs and CPs, pursuant to a decision to introduce a reporting platform for all secondary market transactions in CDs and CPs.
• It has now been decided that all SEBI Regulated entities shall report their OTC transactions in CDs and CPs on the FIMMDA reporting platform within 15 minutes of the trade for online dissemination of market information with effect from August 16, 2010.

It has now been decided to permit introduction of options on USD-INR spot rate on currency derivatives segment of Stock Exchanges. Eligible Stock Exchanges may do so after obtaining prior approval from SEBI. The details in terms of product design and risk management framework for options on USD- INR spot rate are as given.

It has been decided to permit take-out financing arrangement through ECB, under the approval route,
for refinancing of Rupee loans availed of from the domestic banks by eligible borrowers in the sea port and airport, roads including bridges and power sectors for the development of new projects, subject to the following conditions:

• The corporate developing the infrastructure project should have a tripartite agreement with domestic banks and overseas recognized lenders for either a conditional or unconditional take-out of the loan within three years of the scheduled Commercial Operation Date (COD). The scheduled date of occurrence of the take-out should be clearly mentioned in the agreement.
• Minimum average maturity period of seven years.
• Comply with the extant prudential norms.
• The fee payable, if any, to the overseas lender until the take-out shall not exceed 100 bps per annum.
• On take-out, the residual loan agreed to be taken- out by the overseas lender would be considered as ECB and the loan should be designated in a convertible foreign currency and all extant norms relating to ECB should be complied with.
• Domestic banks / Financial Institutions will not be permitted to guarantee the take-out finance.
• The domestic bank will not be allowed to carry any obligation on its balance sheet after the occurrence of the take-out event.
• Reporting arrangement as prescribed under the ECB policy should be adhered to.

The Government of India and the Delhi Government have undertaken significant developmental work all around Delhi. The various initiatives undertaken by the Government are laudable. The speed and energy with which the work is being carried out now should have been undertaken about a year
ago so that the current tension, pressure, compromise on quality, compromise on procedure and the current state of affairs in which almost all around Delhi is dug up, could have been avoided. There are very serious allegations of impropriety, compromise on mandatory and material procedure. The whole process of incurring expenses, placing orders and ensuring timely and quality delivery has been non- transparent. It is very important to ensure that a detailed investigative audit is undertaken by a panel of auditors appointed by the Institute of Chartered Accountants of India (ICAI) to investigate into the affairs of the Commonwealth Organizing Committee. It is also very important to state that a similar investigation is necessary in respect of various expenses incurred and projects undertaken by Delhi Government as well as Municipal Corporation of Delhi. There are serious allegations of undertaking projects which were not required, awarding contracts at very high cost and compromise on quality and delivery. It is very important for the Government of India, Delhi Government , NDMC, DDA and Municipal Corporation of Delhi to come out with detailed disclosure about all the orders placed, procedure adopted and the cost paid by them for various activities, goods and services, so that the entire truth can come before the public. The ICAI panel can assist and support the exercise being undertaken by CAG. The scope, coverage and reporting requirements of investigative audit should be determined in  consultation with ICAI to enable speedy transparency. The profession of Chartered Accountants is committed to eradicate corruption and to establish the principles of excellence, independence and integrity. The profession will support to all the positive endeavor of the Government in this regard to enable India to be among 3 largest economies of the world very soon.

We wish to congratulate ICAI for undertaking several new initiatives to up-grade quality of the profession of Chartered Accountants significantly. One of those is up gradation of Examination process. The examination results of last 3-4 attempts have indicated that ICAI is committed to pass
all the students who achieve a level of excellence in professional knowledge, concept and their application. The changing trends of the CA examination have ensured that only those who undertake their training more seriously are able to pass the examination more easily. Practical and case study oriented outlook given to the examination process is a step in the right direction and the level of examination papers indicate high caliber of those who are involved in the examination process. The students need to concentrate with full energy on practical training as well as understanding the concept and principles and how these are going to be applied. The revised study material, revision test papers, suggested answers, ICAI publications including Accounting Standards, Standards on
Auditing, Guidance notes and compendium of opinion require detailed study. Most importantly in-depth study of various text books and reference books will enable development of necessary competence and capability to easily pass the chartered accountancy examination. The current trend of only taking oral classes and depending primarily on notes/small (brief and precise) books is one major reason for low success rate in the examination. The lack of concentration and devotion in practical training is another major reason. We are happy to note that ICAI Council and the Board of
Studies are committed to significantly improve the capacity and capability of the students by introducing virtual classroom, mandatory classroom teaching, intensive interaction and facilitation to improve conceptual clarity and understanding of principles and their application among CA students. The dummy training is the biggest enemy of the CA profession and we call upon Chartered Accountants in practice to ensure that this disease is completely eradicated. CA students are most important members of our family and all of us need to spend adequate time, energy and resources for their overall development and growth including directly helping them in improving their understanding so that they can pass the examination with flying colour.