LIMITED Liability Partnerships in the country may not have access to cheap overseas funds,
which could discourage big firms from switching to this form of business that combines the features
of companies and partnerships. The finance ministry and the Reserve Bank of India (RBI) have
opposed changes in the external commercial borrowings (ECB) policy to allow overseas
borrowings by LLPs.

The Supreme Court stated that the adjudicating authorities under the Foreign Exchange
Management Act and Rules are not bound to furnish all documents in their possession to the
person to whom they issue show cause notice. Only those documents they rely on are required
to be shown to the person under notice.

• The SLB mechanism enables an investor to sell security in the cash market without actually owing them.
• Investor need not square off their positions as the SLB platform enables borrowing via an approved intermediary
• SLBM period extended up to 1 year
• 100% upfront margin is called.
• Stock borrowers must return dividends to lender on record date on T + basis.

The Reserve Bank of India (RBI) has thrown a spanner in the works of a government proposal to liberalise the pricing guidelines of hybrid securities such as foreign direct investment (FDI)
compliant instruments. RBI fees that only shares, as well as fully and compulsorily convertible
debentures (CCDs) and preference shares (CCPs), should continue to be considered FDI compliant.
If any of these instruments have an option, under which the price is determined at a future date based
on performance, it ought not to be considered FDI compliant.

The Insurance Regulatory and Development Authority has banned further sale of universal life insurance policies from October 22 till guidelines for these products are issued.

When the insurance policy for transit of goods insists on declaration of 'each and every consignment', failure to comply with it would result in rejection of the claim by the insurer, the Supreme Court stated while dismissing the appeal case, Suraj Mal Ram Niwas Oil Mills vs United India Insurance Co. A huge consignment of oil tins from Jaipur to Agartala was damaged in a rail accident. The surveyors found that it contained more than that was declared. So the insurance company rejected the claim, arguing that it was against the term of the cover note. Though the mill was successful in the Rajasthan consumer commission, the national commission and the Supreme Court justified the stand of the insurance company and dismissed its appeal.

The Securities and Exchange Board of India (SEBI) has decided to provide exchanges the flexibility
to choose between the European and American styles of exercising stock option contracts.

An analysis by the capital market regulator SEBI has concluded there is no correlation between the
grades and the performance of the shares after listing.

Fund flows from overseas investors have crossed the earlier record of Rs. 99,700 crore ($21.6 billion)
this year and are set to breach the magical Rs 1 lakh crore mark for the first time since they were
allowed to invest here.

NSE and BSE have introduced a special call auction window to enable market to determine opening rates of major securities in a systematic manner

• Call-auction session for Sensex & Nifty shares to last 15 mins from 9-9.15 am
• Orders for this session not executed directly, but will go to a common pool
• Price for maximum orders matched to be the equilibrium price for each share.
• Orders priced other than at equilibrium will be shifted to the normal segment.

In a move to impart knowledge about financial markets, United Stock Exchange (USE) has signed
on MoU with the Institute of Chartered Accountants of India (ICAI). As part of MoU, the exchange plans to educate members of ICAI by organizing seminars, workshops on financial markets and corporate governance.

The booming exchange-traded currency derivatives segment will soon see the introduction of options trading. The National Stock Exchange (NSE) and the United Stock Exchange (USE) have received the regulator's approval for launching options trading on the rupee-dollar spot rate. According to market participants, the move will boost the turnover of exchange-traded currency derivatives, where only futures trading is allowed at present. Options will provide an additional tool to hedge against currency volatility. Apart from NSE and USE, the MCX stock exchange (MCXSX) offers currency futures.

The market regulator Securities and Exchange Board of India (SEBI) said the government holding
in non-promoter category may be excluded while computing the requirement of minimum 50%
shareholding of non-promoters in demat form in a company.

In the case of MSEB vs Datar Switch gear Ltd. the Supreme Court has decided that though the ex-
chairman was in charge then, it is a settled proposition of law; one cannot draw a presumption that the chairman of a company is responsible for all acts committed by or on behalf of the company.

• Rotation of audit firms should not be made mandatory.
• Pyramid Structure  on the recommendation of the standing Committee of dismantling the pyramid structures of companies, CII is of the view that no such restrictions should be imposed. Allow flexibility of corporate planning, structuring and business operations as per CII.
• CSR should be left to the board. Promote voluntary CSR backed by Government recognittion and honour.
• Independent Directors Recommendations  The committee had suggested that independent directors should not be entitled to stock options in order to preserve their independence. CII is of the opinion that the board should be free to design remuneration structures, including stock options subject to shareholders' approval.
• Tenure The tenure of independent directors should be left to the board and shareholders to decide. It may be fixed by companies in their Article of Association, said CII. The committee had recommended a six- year tenure for the independent directors with a lapse of three year in between two tenures with the same company.
• Directors Responsibility  CII recommends that non-obstante clause should be incorporated in the bill to exclude non- executive directors, including independent directors from any criminal liability for the offences committed by the company. This provision should have overriding effect on all other laws. The committee had not suggested immunity from other laws for independent directors. The liability of independent directors would arise only when any act of omission or commission occurred with his knowledge and consent or connivance and where he had not acted diligently, the committee had said. CII recommends that devolution from liability should also be extended to non-executive directors.

Under the composition scheme, a distributor or lottery selling agent who is liable to pay service
tax, can opt to pay flat service tax of Rs.6000 on every Rs 10 lakh of aggregate face value of lottery
ticket printed by the organizing state for a draw. This rate will apply in those lottery schemes were
the guaranteed prize payout is more than 80 per cent, the Finance Ministry has said. For lottery
schemes where the guaranteed prize payout is less than 80 per cent, a distributor or selling agent will
have to pay service tax of Rs.9000 on every Rs 10 lakh of aggregate face value of lottery ticket
printed by the organizing state for a draw.

The Supreme Court has held that banks and financial institutions, including non-banking financial companies (NBFCs), are liable to pay service tax on transactions of leasing and hire purchase of moveable goods. While bringing such service within the service tax net, a Bench headed by chief justice SH Kapadia has upheld the levy of service tax on hire purchase and leasing transactions, notwithstanding that the same transactions are chargeable to the sales tax (now VAT). The decision in effect has upheld the double taxation of the same transaction of hire purchase and leasing to both the service tax as well as the VAT.

TThe freebies such as extended warranty and free maintenance and service thrown in with cars and
consumer durables will now be included in the costs of goods and taxed appropriately, pushing their prices higher. The apex indirect taxes body, the Central Board for Excise and Customs, has said after-sales service and pre-delivery inspection charges are to be included in the assessable value, the value on which excise duty is levied.

The High Court held that the Board has the power to condone the delay in case of a return which
was filed late and where a claim for carry forward of losses was made. The delay was only one day
and the assessee had shown sufficient reason for the delay of one day in filing the return of income.
If the delay is not condoned, it would cause genuine hardship to the petitioner. Therefore, the
Court held that the delay of one day in filing of  the return was to be condoned.

Note - Section 119(2)(b) empowers the CBDT to authorise any income tax authority to admit an
application or claim for any exemption, deduction, refund or any other relief under the Act after the
expiry of the period specified under the Act, to avoid genuine hardship in any case or class of
cases. The claim for carry forward of loss in case of a loss return is relatable to a claim arising under
the category of any other relief available under the Act. Therefore, the CBDT has the power to
condone delay in filing of such loss return due to genuine reasons.

The power to reopen an assessment is conditional on the formation of a reason to believe that income
chargeable to tax has escaped assessment. The existence of tangible material is essential to safeguard against an arbitrary exercise of this power. In this case, the High Court observed that there was no tangible material before the Assessing Officer to hold that income had escaped assessment within the meaning of section 147 and the reasons recorded for reopening the assessment constituted a mere change of opinion. Therefore, there assessment was not valid.

In this case, the High Court observed that the power under section 254(2) is limited to rectification of a mistake apparent on record and therefore, the Tribunal must restrict itself within those parameters. Section 254(2) is not a carte blanche for the Tribunal to change its own view by substituting a view which it believes should have been taken in the first instance.

The Government clarified the policy concerning the transfer of used capital goods into special
economic zones (SEZ) from outside of the enclaves, stating that a company can shift the equipment to set up units into the SEZs. However, the value of such second-hand goods should not exceed (20 per cent) to avail of the tax benefits.

The Delhi Income-Tax Appellate Tribunal (ITAT) has held that payments received by Microsoft
Corporation from end user (in India) through distributors for sale of Microsoft software, are taxable as royalty. This would also be applicable for all the payments made before January 1, 1999, the ITAT has said. From January 1, 1999, the business model was changed and Microsoft granted exclusive licence to Grace mac Corporation of the US to manufacture the Microsoft software and distribute it in terms of the licence agreement. Even under the changed business model, the ITAT has now held that
payments for the software licensing should be treated as royalty for tax purposes. The Judgement
has also not fully accepted the supremacy of DTAT over Indian Tax Law.

In a notification issued RBI said that promoters of companies seeking debt recast could be allowed
to bring in 50 per cent of their sacrifice upfront and the balance within a period of one year.

Reserve Bank of India ruled out curbs on foreign portfolio investment into the equity market but said
the Central Bank may intervene in the forex market to check rupee appreciation that was hurting
exports. Finance minister Pranab Mukherjee said at the Annual Economic Editors' conference that
he was not thinking of putting any cap on FII (Foreign Institutional Investment) inflows. SEBI has also confirmed of having no plans to curb FII inflow.

RBI has decided that:

• Banks should henceforth not invest in ZCBs unless the issuer builds up sinking fund for all accrued interest and keeps it invested in liquid investments/securities (Government bonds), and
• Banks should put in place conservative limits for their investments in ZCBs.

Credit Rating Agency (ICRA) launched its equity research service, through its wholly-owned
subsidiary, ICRA Online. The assessments by the agency will not specify any target price for the
shares evaluated, but will look into two key factors - Fundamental earning quality or fundamental
grade and relative valuation or valuation grade. The fundamental grades are on a five-point scale,
with 5 being the highest grade and one the lowest.

Micro finance Institutions (MFIs) have agreed to restructure loans from 50 weeks to 75 or even 100
weeks for those who find it difficult to repay the same, according to Micro finance Institutions'
Network (MFIN) president, and founder of Basix, Vijay Mahajan. The interest rates, however, would
be only for 50 weeks. The five members of MFIN- who account for 60 per cent of all loans disbursed
have agreed to restructure the loans. These members are SKS, Spandana, Basix, Share and Trident. More members are expected to follow suit.

The International Monetary Fund (IMF) raised India's growth forecast for 2010, citing robust
industrial output and strong macro-economic indicators, but warned that global economical recovery remained fragile. Indian economy will expand 9.7% this year, up from July forecast of 9.4%, IMF said in its World Economic Outlook Report. Asia's third largest economy is projected to slow down to 8.4% in 2011.

The Confederation of Indian Industry (CII) told the Reserve Bank of India that it did not favour
automatic conversion of non-banking finance companies (NBFCs) into banks. The industry body sought minimum capital requirement of Rs. 1,000 crore for setting up a bank. NBFCs, whether part of an industrial group or not, (should) be treated on par with other applicants and allowed to promote a bank with fresh capital. NBFCs are complementary financial institutions to banks, typically focusing on niches that are under served and neglected by the normal banking channel.

LENDERS who sell their loans through the securitization route will now have to make monthly disclosures to stock exchange if they wish to list their securitized paper. SEBI announced a standard listing agreement with continuous disclosure requirements for securitized instruments. Securitization refers to the process where an entity gets money upfront by converting future cash inflows into marketable securities. The process enables the lenders to transfer their loan assets to a special purpose vehicle which will make regular payments to investors who put money upfront. Besides loan repayment, any form of receivables can be securitized. Instances of securitization in the past include toll collection and royalty payment due to artists. In India bulk of securitization deals relate to either mortgaged- backed securities or asset-backed securities.

RBI has clarified that amount raised by issue of infrastructure bonds by infrastructure Finance
Companies, as specified in the notification issued from time to time by the Central Government
under Section 80CCF of the Income Tax Act,1961, shall not be treated as 'public deposit'.

In the recent months several corruption oriented financial scams have come to surface. Serious
allegations and counter-allegations have been raised against topmost politicians and bureaucrats of the country. Our Prime Minister Dr. Man Mohan Singh is known for his honesty and the time has come for him to stand up and address the issue of corruption aggressively by bringing out systematic changes in the working and operations of the Government in such a manner that the corruption cannot breed. It is important to bring complete transparency, honesty and dedication at the highest level of the politicians as well as bureaucracy to enable India to grow in a sustained manner. The Government of India has set up various inquiry committees; CBI has been mandated investigation
besides Public Accounts Committee has been advised to review the CAG report matter. The UPA
government is clearly in a defensive mood. It is important that the topmost leadership of UPA stand
together and eradicate corrupt politicians from their cadres. Also the opposition led by BJP should fully support all such initiative and may provide political support to the Government on such crucial and decisive actions needed. The government has to play its cards in a transparent and strategic manner.

The real test of Indian political system and democracy is ahead of us. In case the government
fails to address this issue effectively, the working of parliament may get derailed and the economy
of the country will unnecessary suffer.

The profession of Chartered Accountants is highly qualified and experienced to address this menace
and through the columns of this journal we hereby offer services of profession of chartered accountants to the Government of India as well as to the State Government to design and develop
operating procedures, operating systems, controls and guidelines in such a transparent manner that
the likelihood of corrupt practices can be minimized substantially. It will also be important to have a proper mandatory double entry accounting system to be implemented in various government departments including a detailed methodology for accounting of fixed assets and other resources. The profession of Chartered Accountants will be glad to design, develop and implement most sophisticated, transparent and simple internal control system so that the menace of corruption can be completely eradicated.

It is important to provide for 100% detailed audit of all government expenditure including
government department, autonomous institutions and other bodies created by an Act
of Parliament or are promoted by the Government.

We are here to support our great nation in the war against corruption. Dr. Manmohan Singh and
other honest politicians and bureaucrats can fully rely on the team of independent chartered
accountants to eradicate corruption from the root of the Indian Economic System.

India is poised to achieve a double digit growth of 10% plus in the year 2011 and is expected to touch
the growth rate of 9% to 9.5% in the year 2010. This is a great news in the backdrop of limping growth of the US and European economy in the range of 2% to 3%. Other developed economies are also growing between 1% to 4%. China is also expected to grow between 9.5% to 11%. It is also important to note that most of the developed economies have large negative balance of trade during last 2 years and the United States of America has requested the G-20 nations to allow more freedom in the exchange rates to adjust according to economic reality and not to artificially manage the same.
India is moving towards the centre stage of the world economy. The dream of every Indian to shift the world economic market to India may become a reality very soon. The American Financial Market as well as the European Financial Market are having much lower level of activity. Singapore, Hong Kong and Mumbai can provide a larger supplementary strong modern sophisticated market to the world to channelized investment and financial resources. The CA community in India is preparing itself for new challenges and opportunities which are arising from the economic development. The profession of chartered accountants will need to play a very important role in designing, development and implement of a rugged market infrastructure and regulatory mechanism which is more open,
transparent and liberal. Government need to consider limited capital account convertibility and
provide for a free international market in India. The proposals of the Direct Taxes Code are to be
reconsidered with a view to provide for certain special economic zones, where International Financial Market may be established with a complete freedom for currency inflow and outflow. The financial market regulatory mechanism has to be upgraded to international levels with a developmental mindset rather than control.