• Disallowance Due to Default in TDS / Section 40(a)(ia)

The Visakhapatnam ITAT bench in Merilyn Shipping & Transports v/s ACIT, Range - 1,
Visakhapatnam, 20 taxmann.com 244 (Visakhapatnam - Trib.) (SB) has held that provisions
of Section 40(a)(ia) are applicable only to amounts of expenditure which are payable as on 31st March of every year and it cannot be invoked to disallow expenditure which has been actually paid during previous year, without deduction of TDS.

• Fees For Technical Services / Section 9, Read With Article 12 Of DTAA Between India and Singapore (Royalties and Fees for Technical Services)

International Taxation / 10A / 10B / FTS / Royalty

The society of Indian Law Firms (SILF) decided to ask all management and accounting firms to
stop providing legal advice to their clients, after a recent Supreme Court order that observed that
the expression "to practise the profession of law" under the Advocates Act, 1961 covers both
litigation as well as non-litigation matters, and must be handled only by advocates. This could
translate into the auditing firms losing a substantial amount of revenues and clients. According to
SILF, the foreign law firms have for long been offering advice on non-litigation matters to their
clients. In a recent meeting, the society also decided to take up the issue with the Institute of
Chartered Accountants of India and the ministry of corporate affairs.

The Finance Ministry will shortly issue the much-awaited notification granting oil companies
exemption from withholding tax on payments to Iran for oil imports in rupees.
Mrs Pratibha Patil, has also given her assent to the move. The Government has also received the
required undertaking from the National Iranian Oil Company (NIOC) to go ahead with the
operationalisation of the rupee payment mechanism.

The Finance Ministry has withdrawn its proposal to bring life insurance companies under the Minimum Alternative Tax (MAT) regime.

With effect from 1st July 2012, all services besides being covered under negative list or mega
notification will be liable to service tax @ 12.36%.. Movement towards the negative list will result in reducing nearly 290 definitions and descriptions in existing 88 to 10. Finance act has nailed down 17 activities which will be reckoned as non taxable for the purpose of levy of service tax. Thus apart from these, all other activities which are covered within the meaning and scope of definition of service will be made taxable.

The Delhi CESTAT in M/s J R Herbal Care India Ltd. v/s CCE, Noida, Excise Appeal No. 847/
08-SM has said that the question arises as to where the Cenvat credit can be denied just because they had not taken central excise registration during the period prior to 10.09.2004.
Nowhere in CCR, 02 or CCR, 04 there is any provision that Cenvat credit would not be available
to a manufacturer of excisable goods who is not registered.

The Karnataka High Court has held that people with income below taxable limit need not furnish
Permanent Account Number (PAN). The High Court order came as a relief to thousands of individuals who are asked to provide PAN despite having income below the taxable limit. Section
206 AA of the Income-Tax Act, which became effective from assessment year 2010-11, makes
it mandatory for every person to furnish PAN in their transactions with banks and financial
institutions.

A Gujarat High Court verdict has thrown open the debate on constitutional validity of retrospective
changes in the income tax laws. It has said that an amendment in income tax law, withdrawing
benefits under a popular export incentive scheme, could not be done from a past date. A division bench of acting Chief Justice Bhaskar Bhattarcharya and Justice J B Padriwala has held that the amendment to section 80-HHC in 2005 seeking to withdraw incentives granted to exporters from 1998 was valid but could not be implemented retrospectively.

Investors coming via Mauritius and Singapore may breathe easy, as the provisions of the General
Anti-Avoidance Rules (GAAR) may not apply to their transactions. The government will also spare
investors of foreign institutional investors (FIIs) who route their investments through tax havens
provided the FII is a genuine residents the tax havens. To end uncertainty, a clarification will
also be issued on retrospective amendments.

With the new disclosure requirement, the penalty for concealing income - three times the tax evaded
in addition to the payable tax - would now come into play for non-disclosure or inaccurate reporting of foreign assets as well.

The government made it compulsory for people with annual income of over Rs.10 lakh to file their
tax returns for 2011-12 electronically.

Banks with overseas presence will have to extend credit directly or make funds available to exporters
through smaller banks for which arrangements have to be finalized within a week, the finance
ministry has told chief executives of public and private sector banks. Big banks to lend directly to these banks with a mark - up of not more than 10 basis points.

The Supreme Court directed the Reserve Bank of India (RBI) not to allow foreign law firms to
open liaison offices in the country. The order was passed on an appeal filed by the Bar Council of India against a February judgment of the Madras High Court that allowed foreign advocates to visit India to offer legal advice to their clients. It also clarified that under section 29 of the Advocates Act, 1961, the term 'practice' covers consultation, legal drafting and all other non-litigious matters, besides litigious matters. The BCI had sought clarification on the Madras HC's order as it was opposed to an earlier ruling of the Bombay High Court, which had asked the BCI to take action against firms that were flouting provisions under the Advocates Act. Based on the BCI's appeal, the Supreme Court
also issued notices to 31 law firms in the country.

It has now been decided by the ministry to mandate the following select class of Companies
to file their Balance Sheet and Profit & loss Account in XBRL mode for the financial year commencing on or after 01.04.2011:

• All companies listed with any Stock Exchange(s) in India and their Indian subsidiaries; or
• All companies having paid up capital of  Rupees five crore and above;
• All companies having turnover of Rupees one  hundred crore and above; or
• All companies who were required to file their financial statements for FY 2010-11, using XBRL mode.

The Ministry of Corporate Affairs (MCA) has decided that fees shall be applicable on the
number of forms including form 23B regarding information by statutory auditor to the Registrar
of Companies Act, 1956 pursuant to Section 224(1)(a) of the Companies Act, 1956.
The circular shall come into force w.e.f. 22.07.2012

Buddhist and Taoist temples have no right to go public and list shares on stock exchanges, Xinhua
news agency quoted Liu Wei, an official with the State Administration of Religious Affairs.

The Securities & Exchange Board of India (SEBI) is not in favour of revoking the three-year ban
on entry load. All these issues were discussed at a meeting called by the Finance Ministry with
fund houses and SEBI officials

You will be able to invest in an initial public offer electronically. Markets regulator Securities and
Exchange Board of India (SEBI) has said implementing e-IPOs is next on its agenda to revitalize the primary market. Meanwhile, the regulator also indicated it is considering increasing the expense ratio limit, as well as providing mutual funds greater flexibility on expenses, within the overall limit.

The Securities and Exchange Board of India (SEBI), has made it easier for promoters of listed
companies to dilute their stake and comply with public holding rules by next year. Private sector companies as well as state-owned corporations must have a minimum public holding of 25% by August 2013. Till now, this could have been achieved through follow-on public offerings and institutional placement of stocks. The Securities & Exchange board of India (SEBI) board, announced a simpler share auction mechanism that would help listed companies to attract investors. The regulator has provided institutional investors with the option of applying for shares either with 100% margin or with a lesser margin to be fixed by stock exchanges. But in the latter case, the bids cannot be changed.

The Directorate of Revenue Intelligence (DRI) had warned the Securities & Exchange Board of
India (SEBI) in June 2008 that funds transferred through a Mauritius - based entity were being used to manipulate stock of two companies of the Anil Ambani - led Reliance Group.

Securities & Exchange board of India (SEBI) has mandated listed companies to use electronic voting for seeking shareholder approvals. This will enable greater shareholder participation in decision-making. The Securities & Exchange board of India (SEBI) diktat will be applicable to the top 500 companies by market capitalisation on the NSE and the BSE. SEBI has also made changes to offer-for-sale (OFS) through stock exchanges. Promoters may offload stake within the cooling-off period of plus/minus 12 weeks only through OFS or institutional placement programme (IPP) with a two-week gap between two such stake sales, said SEBI. This is also applicable to promoters who have already shed stake through OFS or IPP. Time for modifying or cancelling bids has been increased from 30 to 60 minutes prior to close of bidding session. Indicative price will be shown during the last 60 minutes of the bidding session. This is irrespective of book-building, said SEBI.

Institutional Investor Advisory Services (IIAS) has recommended he auditors must be rotated every
six years and the signing partner must be rotated every three years to maintain independence. Hence,
it also recommends voting against the reappointment statutory auditor and audit partner of companies not following this policy.

A committee set up by the Securities and Exchange Board of India, or SEBI, will scrutinise all auditor qualifications of balance sheets of listed companies and ask the management to restate numbers in case of violation of accounting rules. If, prima facie, the committee is of the view that
the qualifications are significant and the explanation given by the management or the board's audit committee is unsatisfactory, the case may be referred to ICAI - FRRB.

The Reserve Bank of India (RBI), vide its circular dated 25.06.2012 has decided to enhance the
existing limit for investment by SEBI registered Foreign Institutional Investors (FIIs) in government debt by a further amount of USD 5 billion taking the overall limit for FII investment in Government debt from USD 15 billion to 20 billion.

The Finance Ministry has claimed that Qualified Foreign Investors (QFIs) in the Gulf were looking to invest for the medium and long term in India. They desired easy exit and entry, stability in policy and also lower tax.

The Apollo Hospitals board has approved the allotment of 13.8 lakh equity shares to International Finance Corporation (IFC), Washington, as the latter insisted to convert their foreign currency convertible bonds (FCCBs). With this, the company has no outstanding FCCBs. IFC, a member of the World Bank Group, finances and provides advice for private sector ventures and projects in developing countries.

Syndicate Bank by revisiting its existing micro and small enterprises products now has brought
all of them under one umbrella - 'SyndMSE' and have come out with a reduced interest rate, margin
and liberalized terms and conditions to micro and small enterprises. Further to encourage micro
enterprises, rebate in interest rate for prompt repayment has also been introduced. The bank's board has also approved a policy for restructure/rehabilitation of potentially viable MSME units.

Prime Minister, Dr Manmohan Singh, has decided to keep the Finance portfolio for now. He will
keep the portfolio till any further announcement is made.

Home loan borrowers will get interest subsidy at the rate of one per cent for loans up to Rs 15
lakh taken during the current financial year, that is, 2012-13. However, the condition is that the cost of house should not exceed Rs 25 lakh.

One problem that has still persisted even after the introduction of the base rate system relates to the lack of transparency in the customer- specific spread charged to a borrower over the base rate. There have been complaints that the spread charged to a customer has been revised upwards without any apparent change in risk profile, said the RBI Governor. Also, where floating rate loans are concerned,
existing customers have been disadvantaged vis-à-vis new customers with similar credit ratings,
resulting in complaints about discrimination. To address this, the Reserve Bank of India (RBI)
has constituted a working group under the chairmanship of Deputy Governor, Mr Anand
Sinha, to determine the principles that must govern proper, transparent and non-discriminatory
pricing of credit. The working group is expected to submit its report by August 2012.

In a major relief to the telecom industry, laden with high debt, the Reserve Bank of India (RBI)
has given its green signal to the proposal to mortgage, spectrum. This will enable telecom companies to raise money from financial lending institutions.

The Reserve bank of India (RBI) has decided that banks will not be permitted to charge foreclosure charges / pre-payment penalties on home loans on floating interest rate basis, with immediate effect.

The Reserve Bank of India (RBI) has decided to enhance the eligible limit of the ECR facility for
scheduled banks (excluding RRBs) from 15 per cent of the outstanding export credit eligible for refinance to 50 per cent, effective fortnight beginning June 30, 2012. This will provide additional liquidity support to banks of over 300 billion. The rate of interest charged on the ECR facility will continue to be the prevailing repo rate under the LAF, which is currently 8.0 per cent.

Government of India has decided to extend interest subvention of 2% on rupee export credit on specified export sectors from April 1, 2012 to March 31, 2013.

The Reserve Bank of India (RBI) has decided to allow Indian companies to avail of External
Commercial Borrowings (ECBs) for repayment of Rupee loan(s) availed of from the domestic
banking system and / or for fresh Rupee capital expenditure, under the approval route, subject to
them satisfying the following conditions:-

• Only companies in the manufacturing and infrastructure sector will be eligible to avail of such ECBs;
• Such companies shall be a consistent foreign exchange earner during the past three financial years;
• Such companies are not in the default list/caution list of the Reserve Bank of India; and
• Such ECBs shall only be utilized for repayment of the Rupee loan(s) availed of for 'capital expenditure' incurred earlier and are still outstanding in the books of the domestic banking system and / or for fresh Rupee capital expenditure.

• The provisions of Section 45-IA of the Act shall not apply to a non- banking financial company being a Core investment company which is not a Systematically Important Core Investment Company; and
• The provisions of Section 45-IA of the Act shall not apply to a non- banking financial company being a Core investment company which is not a Systematically Important Core Investment Company; and important Core Investment Company subject to the condition that it meets with the capital requirements and leverage ratio as specified in the said directions.
• The Non - Banking Financial (Non- Deposit Accepting or Holding) Companies Prudential Norms (Reserve Bank) Directions, 2007 shall not apply to a non - banking financial company being a core investment company which is not a Systematically Core investment Company as defined in Clause (h) of sub-paragraph (1) of paragraph 3 of  the CIC Directors.
• The provisions of paragraphs 15, 16 and 18 of these Directions shall not apply to a Systematically Important Core Investment company.

Micro Finance institutions

Section 45-IA, 45-IB and 45-IC of the Reserve bank of India Act, 1934 (2 of 1934) shall not apply to any non - banking financial company which is.

• Engaged in micro financing activities, providing credit not exceeding Rs. 50,000 for a business enterprise and Rs. 1,25,000 for meeting the cost of a dwelling unit to any poor person for enabling him to raise his level of income and standard of living; and
• Licensed under Section 25 of the Companies Act, 1956; and
• Not accepting public deposits as defined in paragraph 2(1)(xii) of notification No. 118 / DG(SPT)-98 dated January 31, 1998.

• Eligible issuers of Commercial Papers: Corporates, Primary dealers & All India Financial institutions. A Corporate would be eligible only if:
• Tangible net worth > 4 crores;
• It has been sanctioned working capital limit by banks or FIs;
• & classification of borrowal a/c should be Standard Asset.
• Rating Requirement: All eligible participants shall obtain a minimum credit rating of 'A2'  from the agencies as specified by the RBI.
• Maturity: Minimum of 7 days & maximum of up to 1 year.
• Denominations should be of Rs.5 lakhs or multiples. Single investment should not be less than 5 lakhs.
• Limits & amount of CP: Aggregate amount = (Limit approved by BOD or quantum indicated by CRA, whichever is lower)
• Investment in CP: Individuals, banking companies, other body corporate, NRIs & FIIs (should be within limit).
• Procedure of issuance:
• Every issuer must appoint an IPA for issuance of CP.
• The issuer should disclose to the potential investors its financial position
• After the deal confirmation, physical certificates will be issued to the investor or shall be credited to the investor's account with a depository.

• Eligibility: CDs can be issued by (i) Scheduled commercial banks (excluding RRBs & Local area bank); (ii) Selected FIs that have been permitted by RBI.
• Aggregate Amount: Banks have the freedom to issue but FIs can only issue within Specified limit
• Minimum size of issue should be 1 lakh.
• Maturity should not be less than 7 days and not more than one year.
• CDs may be issued at discount.
• Ds may be transferred as per the procedure prescribed. CDs in physical form only are freely transferable by endorsement and delivery.
• Banks/FIs cannot grant loans against CDs.
• The physical certificates may be presented for payment by the last holder.

The power ministry is set to refer the issue of cost escalations and price pass - troughs to the Central Electricity Regulatory Commission, providing a ray of hope to power players such as Tata Power and Reliance Power and the state run NTPC.

The Profession of Chartered Accountants is witnessing a major shift in professional requirements and practices. More importantly the following major changes require attention :

• The various taxation statutes including value added tax, income tax, service tax are becoming compliance oriented and procedural requirements have been increased significantly.
• The use of technology and electronic filing has resulted into new problems of mismatches resulting into high demand in case of VAT. Also in case of tax deduction at source (TDS), it is becoming very difficult to obtain credit of tax deducted by other parties, even if Form 26AS is reflecting such deductions. Some times technical error may even impact reflection of credit in 26AS. The Income Tax department is not even considering 26AS as final and is relying on its own system OLTAS. A large number of credits appearing in 26AS are not appearing on OLTAS resulting into unnecessary demand and delay in refund.
• A large number of penalties and prosecutions have been legislated for non compliance of procedure, imposing large fines and penalties. In fact, earlier penalties and prosecutions were limited to substantive default. For example, even tax but now the government have been misdirected to concentrate on procedures and compliance's.
• The compliance oriented atmosphere do not leave enough time to Chartered Accountants community to advise businesses on financial planning, business planning and tax planning and planning for growth.
• The recent service tax amendment bringing out comprehensive taxation on all the services except those which are in the negative list and list of exempted services, has created a lot of confusion including -
• Exempting CAG services indicate that the government feels that the services provided by Municipal Corporation, State Governments and various central government departments, judiciary as well as legislature may be subjected to service tax. It is important to appropriately  carve out legislative and regulatory function from the definition of services itself.
• A number of services have been brought into reverse charge method, for example, legal services. It is noted that the chartered accoun-tants also provide services which are similar to the services being provided by lawyers under various legislations including representation before tax authorities, CLB, BIFR, ITAT, SEBI, SAT etc. - will these services be subjected to reverse charge? 
• Education at school level is subjected to exempt, which indicate that any person including coaching organizations providing education up to high school education is exempted from service tax.
• Services provided by transporter is included in exempted services, except those which are provided by a transport agency, how to distinguish a transport agency and a transporter will result in litigation.
• The Direct Tax Code, GST and New Companies Bill being the pipe line may bring further stream of comprehensive changes for which all of us chartered accountants need to gear up. The Council of the Institute is actively working on taking up necessary issues to the Government  and at the same time warning the profession to meet the new challenges.