“We will come up with a database of mortgage defaulters very soon,” CIBIL Managing Director, Mr Arun Thukral said after announcing the launch of a database of fraudulent activities here.

CIBIL, a repository for credit information, is also looking at providing data to telecom and insurance companies which would help them retain customers.

“We are looking at expanding our database. Giving data to telecom and general insurance companies are right now what we are looking to. Also we would come up with data for micro finance institutions (MFIs),” Mr Thukral said.

Members of CIBIL include banks, financial institutions, non-banking financial companies and housing finance companies.

The database for MFIs is aimed at providing information mainly about multiple lending to rural consumer borrowers, he said, adding that MFIs would gradually become main players in the domestic lending space.

CIBIL, a joint venture of TransUnion, banks and financial institutions, announced the launch of CIBIL Detect — a nationwide database of reported fraudulent and suspect activities.

The repository would provide data on high risk incidents in the credit sector of India. It would also provide details of individuals who have committed banking-related frauds in the past.

“Banks and financial institutions have been reporting rising cases of frauds and spurious incidences. As more and more banks start reporting fraud cases to CIBIL, the database would increase,” Mr Thukral added.

Overall direct tax collections were up 15% to Rs 68,675 crore in the April-June quarter, data released by the finance ministry on Tuesday showed. India’s manufacturing had grown a strong 19.4% in April, suggesting a strong industrial recovery.

Corporate tax collections for the quarter added up to Rs 43,439 crore while personal income tax grew marginally by 1.24% to Rs 24,075 crore.

However, part of the buoyancy in direct tax collections was due to the base effect. Hit by the slowdown , corporate tax collections had grown only 3.3% in the first quarter of last fiscal while personal income tax had grown 4.4%.

The government has budgeted an overall tax mop-up of Rs 7.46 lakh crore during this fiscal, out of which Rs 4.3 lakh is to be realised from direct taxes, an increase of 13% over the amount realised last year.

The robust tax collection will help the government prune its fiscal deficit even more. It is already sitting on a Rs 65,000 crore excess windfall from 3G and broadband auction.

The fiscal deficit for current year is pegged at 5.5% of GDP. Better then budgeted realisation will help reduce government borrowing, leaving more funds for the private borrowers.

However, the realisation from the securities transaction tax (STT) declined to Rs 1,094 crore, from Rs 1,462 crore in the first quarter of previous fiscal reflecting possibly lower volumes because of the volatility in the stock market.

Advance tax collection in the first quarter was up by 31.4% to Rs 26,876 crore as against Rs 20,456 crore in the same period last fiscal.

“We have left it (fixing a cap on FDI) open. Based on the response which we get from the stakeholders, we will take a view,” Singh told.

The secretary of the DIPP — which is responsible for the policy on the country’s foreign direct investment (FDI) — indicated that the government has taken a cautious approach in the case of multi-brand retail.

“We have not taken a clear stand like we did in the case of defence. We did not give a stipulation as to what should be percentage (for FDI)” he said.

As a formal move towards permitting entry of global retailers like Wal-Mart, Carrfour, Tesco and Metro, the DIPP released a discussion paper yesterday inviting comments from stakeholders by July 31.

India, at present allows 51 per cent FDI in single brand retail and 100 per cent in the cash-and-carry (wholesale) formats. Though permitted in 1996, FDI inflows of just USD 195 million (about Rs 900 crore) have come in the single brand retail segment, comprising 0.21 per cent of the total FDI into the country.

Single brand investment is confined to sportswear, luxury goods, apparel, jewellery and handbags.

In the case of cash-and-carry trading, FDI of USD 1.77 billion (about Rs 8,000 crore) has come since April, 2006, when it was brought under the automatic clearance route, though it was opened in 1997.

In the paper on FDI in defence, the DIPP favoured 75 per cent foreign investment. It had said that even 100 per cent would be desirable. However, the Ministry of Defence is known to be opposed to increasing the FDI cap beyond the existing 26 per cent.

Asked how soon multi-brand retail, a politically sensitive sector employing about 33 million people in the neighbourhood mom and pop (kirana) stores, would be thrown open for overseas investment, Singh said it was difficult to fix a timeline.

“We cannot say… depends upon the kind of response we get, kind of concerns people express,” he said, adding, “We have to find ways of addressing (concerns) and we are trying to build a consensus to the extent possible.”

He said concerns over the impact on small traders by the entry of big retailers have to be taken on board. “You have to see how to integrate the retail sector with this value chain, that is important,” Singh said.

Singh said it also has to be seen how unorganised retail should cope with the competition.

It did so while setting aside an order by income tax (I-T) authorities to disallow as a deductible expense the royalty paid by Maruti Suzuki India to its Japanese parent, Suzuki Motor Corporation, for using the latter’s ‘S’ logo on cars sold in India.

While saying money was due from Suzuki, the HC told the tax department to determine an appropriate arm’s-length pricing mechanism in this case.

The HC said a foreign company was not required to pay its Indian affiliate for the use of a trademark if such use was optional. It said payment should be made by the foreign company on account of benefits derived to it from brand promotion only when the domestic affiliate is mandatorily required to use its trademark.

Do your arithmetic

Maruti, it said, was under contractual obligation to use the trademark. It told the tax authorities to determine the arm’s-length price of the benefits obtained and obligations incurred by both parties under the agreement. The tax officials would have to determine if the payment by Maruti was comparable to the payment an independent entity would have made to any other company.

“There are about eight to 10 similar cases which are being heard at different levels. The High Court is saying that if the foreign company is charging a lower royalty to enable the Indian company to incur expenses on advertising, then an adjustment is not required,” said Vijay Iyer, tax partner, Ernst & Young.

Maruti had moved court after the I-T department passed an order saying that the company had incurred huge advertising, marketing and promotion expenses in order to develop a market for vehicles, which included promotion of trademark ‘Suzuki’. It said Suzuki should have compensated the taxpayer for the assistance provided in developing the marketing intangibles.

The HC said expenses incurred on advertising, marketing and promotion by a domestic enterprise of a brand name or trademark of its foreign associate do not require any compensation by the owner, provided the expenditure incurred is similar to what an unrelated company would have incurred.

Mukesh Butani, partner, BMR Advisors, said marketing tangibles had been an issue with most fast moving consumer goods’ companies, but this ruling might not be applied to other cases, as the facts of each would be different.

Sameer Gandhi, leader, transfer pricing, at Deloitte, also said it would be decided case-to-case whether the expense incurred to effect sales or building a brand was factual. “In the recent past, development and compensation for a marketing intangible is becoming of utmost importance. We have the DHL case and Glaxo case in the US laying down conceptual principles for this topic,” he added.

Maruti was earlier using the logo ‘M’ on the front of its cars. In 1992, it had entered into an agreement with Suzuki for the manufacture and sale of Suzuki automobiles. Since then, it has also been using Suzuki’s ‘S’ logo with its own ‘M’ on cars manufactured and sold by it.

The Takeover Regulation Advisory Committee (TRAC) was set up in September last year.

“The report is in its final stage. Barring a few issues, on which discussions are on, the committee is ready to submit the report to the market regulator within three weeks,” said six people familiar with the development. They, however, did not disclose the key recommendations, saying the report was sensitive.

“What I can say is that it’s an exhaustive and detailed report. Once submitted, the recommendations will be available on Sebi’s website for public comments,” said a member of the committee.

This is the second review of takeover regulations by Sebi after the takeover code was introduced in 1997. The last review was in 2002, when Sebi brought in greater disclosures of holdings at every stage and exempted preferential issues from the purview of the code.

A top Sebi official said, “The takeover code will be one of the major areas of reforms for Sebi in the current financial year.” He added the report was expected soon and would be put on the regulator’s website for public comments before a final decision was taken.

A rise in mergers and acquisitions (M&As) during the decade and complexities arising out of such deals have made it necessary to re-assess the code, say M&A experts.

Committee members said that rising M&As had revealed several loopholes in the system. “These need to be plugged,” a member had said.

They also said that in several cases, promoters got all the benefits at the cost of small shareholders. The members said the level of purchase that triggered an open offer (which is 15 per cent) should be on the higher side.

Moreover, the committee members had expressed reservations over non-compete fees which an acquirer pays to the seller company to keep other potential buyers at bay.

ICAI sees huge shortage of practising professionals

CA G. Ramasamy, Vice-President, ICAI

The Institute of Chartered Accountants of India (ICAI) is trying hard to get more professionals into practise. “At present more than 80 per cent of chartered accountants are employed with some company or the other. Very few opt to take up practice. But the opportunities are opening up and we foresee a huge shortage of practising professionals,” Mr G. Ramasamy, Vice-President, ICAI said.

To get more candidates take up the CA programme, the institute is planning to conduct the CPT (Common Proficiency Test) exam every month. “It will be an online exam. The candidates can go to the respective centre and do the exam and get the result almost immediately. Once he/she clears the CPT exam, they can register for article-ship and take up the intermediate and final exams.’ This will enable more candidates to take the CA course. The institute has tied up with Bharathiar University here to offer a programme for students.

The institute is also gearing up to reorient the examination system to test the application skills of the students. “CA students have always been good in theory. But there is huge demand for intelligent candidates and those capable of applying their knowledge efficiently. We have therefore planned to reorient the current examination system and correct the balance by emphasising more on practical application skills,” he said.

Further, to hone the skills and mould them into excellent professionals, the institute is planning to put in place regular classroom teaching at all important places under the aegis of Board of Studies. These classes would provide complete guidance and enable personal interaction between teachers and students. Applicability skills would be a thrust area and the study material revised accordingly.

The Central Board of Direct Taxes (CBDT) suspects the government is losing large amount of revenue due to routing of investments by domestic firms through Mauritius.

Capital gains tax is a levy on the profit from sale of assets, investments, capital accumulation, among others.

“The government would soon press for a review of the capital gains tax provisions in its tax treaty with Mauritius. The main reason cited by CBDT is suspected round-tripping of funds and also loss of revenue, particularly in the case of large investments,” a finance ministry said.

Round-tripping refers to money from one country going out through unofficial channels and being invested back into the same country from outside to avail of tax benefits under the double tax avoidance agreement (DTAA). India had signed a DTAA with Mauritius way back in 1983.

During the 2000-2010 period, the maximum foreign direct investment inflows into the country came through the Mauritius route. The Indian Ocean nation has pumped in a whopping $47.24 billion into the country during the period, constituting 43 per cent of the total FDI inflow.

The CBDT has been pressing for a review of the capital gains tax provisions for the past four to five years. However, it could not be done due to the diplomatic ties New Delhi has with the island nation.

“We are discussing it (the Bill) with the law ministry. It is in the semi-final stage. Hopefully it will be ready by next week,” said an official in the finance ministry.

The empowered committee will have its next meeting on GST on July 21. The Centre plans to send the draft Bill for consideration of the states before this meeting so that its provisions can be discussed on that meeting and GST is put on the fast track.

The government is trying to get the approval of the states on the draft of Constitutional amendment at the earliest so that the Bill can be introduced in the monsoon session of Parliament likely to begin on July 26.

This is for the first time since the Constitution was enacted that a tax base is proposed to be shared between the Centre and the states. GST’s entry in the Constitution will allow both the Centre and the states to levy tax on the same set of goods and services.

For students appearing in November 2010 examination, the amendments made by the Finance (No.2) Act, 2009, as applicable for assessment year 2010-11 are relevant. Therefore, the amendments made by the Finance (No.2) Act, 2009 which are not applicable for A.Y.2010-11 would not be relevant for students appearing for November 2010 examination.

Accordingly, the amendments made by the Finance (No.2) Act, 2009 in sections 44AA, 44AB, 44AD, 44AE and 44AF of the Income-tax Act, 1961 would not be applicable for the students appearing for the above-mentioned papers in November 2010 examination, since these amendments are effective only from A.Y.2011-12.

This clarification has also been given in the Supplementary Study Paper – 2009 for PCC/IPCC and the study material on “Taxation” for A.Y.2010-11 at the appropriate places where these sections are discussed.

The department of public enterprises is considering a proposal to reduce the period of audit pendency for public sector undertakings (PSUs) to seven years, before their accounts are taken up for an finalisation.

The move assumes significance in the wake of several public sector units – primarily at the state level – having a lax approach towards finalising their accounts, some of which are pending for over two decades.

As on September 2009, 14 central PSUs had their accounts in arrears for periods ranging from 2 to 13 years and over 600 operational state PSUs whose accounts are in arrears for periods ranging from 1 to 25 years.

The ‘rational cut-off’ of the pendency period will give the government an opportunity to formulate a proper strategy to fix a time limit within which the accounts of the firms could be updated, said a senior government official on conditions of anonymity.

The proposal was discussed at a recent meeting of the department of public enterprises, Comptroller and Auditor General of India (CAG), ministry of corporate affairs and the Institute of Chartered Accountants of India (ICAI).

The meeting thought it best that the pendency gap be reduced and appropriate guidance be prepared to audit the PSU accounts to the latest financial year.

While the proposal is at a nascent stage, the ICAI – which is the apex body of auditors in the country – has been asked to prepare a guidance format that will be required to bring down the pending period audit and update them to the latest date.

“It is a matter of concern that so many PSUs take critical financial decisions in the absence of required financial information,” said Amarjit Chopra, ICAI president. He said that the accounts-in-arrears beyond a certain period, for example seven years, would not be considered, which will then be adjusted through appropriate guidance for the auditors.

While identifying the list of products that will go out of the 350-item list, the Union finance ministry is looking at levying a lower rate of tax under the new regime.

The Centre has already acceded to the demand from the states to settle for a two-rate structure, with essential items facing a lower rate of tax. Most of the items that come out of the exempted category would be treated on a par with essential goods and would face a lower levy, said a senior government official on condition of anonymity.

Unlike the Centre, the states are, however, unlikely to make significant changes to the list of 99 items that are at present exempted from the value added tax (VAT).

“Many exempted items are likely to be taxed at a lower rate in GST. It will be difficult to straightway tax zero-tax items at 16 per cent or above in GST,” said Pratik Jain, executive director (indirect tax) at consultancy firm KPMG. He added it would be difficult for states to exempt over 90 items under the GST regime.

Food items such as curd and butter milk and certain textile products might be taxed at a lower rate in GST, but branded food items, footwear and most information technology products were likely to attract the standard rate, Jain added.

Another government official said the exemption list would be common for the Centre as well as the states and states would not be allowed to expand the exemption list even for goods of local importance. The list would be substantially reduced over the years to minimise exemptions.

“The Centre has agreed to most of the demands of the states but it will not agree on different exemptions and different thresholds. The different exemption list would lead to distortions,” the official added.

While the empowered group of state finance ministers had suggested that the existing exemption lists of the states and the Centre continue in GST, the task force of the 13th Finance Commission had suggested only five exemptions – public services such as civil administration, defence and police; employer-employee transactions; unprocessed food sold under the public distribution system; education services provided by non-governmental bodies; and health services offered by non-governmental agencies.

In Australia, health and medical care, educational supplies and childcare, fresh food and beverages are exempted from GST. Tax-exempt goods and supplies in Canada include basic groceries, prescription drugs, transportation, medical devices, health and dental care, educational and financial services. Singapore exempts sale and lease of residential property, financial services and exports of goods.

India might draw upon the experience of these countries while finalising its list of exempted items.

“The Group of Ministers on the proposed legislation will meet on July 22,” Mines Secretary Santha Sheela Nair told reporters. Last month, the government had formed a 10-member Group of Ministers (GoM) headed by Mukherjee to resolve certain issues among different ministries in the proposed mining Act.

Besides Mukherjee, the GoM includes Home Minister P Chidambaram, Steel Minister Virbhadra Singh, Law Minister Veerappa Moily, Mines Minister BK Handique, Commerce Minister Anand Sharma, Tribal Affairs Minister Kantilal Bhuria, Planning Commission Deputy Chairman Montek Singh Ahluwalia, Coal Minister Sriprakash Jaiswal, and Environment Minister Jairam Ramesh.

The Mines Ministry has already sent the proposed Bill to the GoM, which will consider many issues including conservation of minerals, powers of granting mining leases, reservation of mineral-bearing areas for PSUs among others.

“After the GoM’s deliberations, the bill will be sent to the Cabinet for its approval and then the Parliament,” Nair said.

Differences between Steel and Mining ministries among the various inter-ministerial issues are likely to figure in discussions, especially since both are at loggerheads over exports of iron ore.

Virbhadra Singh recently wrote to the Prime Minister Manmohan Singh and Finance Minister Pranab Mukherjee to restrict such shipments and increase the domestic availability of iron ore, which was opposed by the Mines ministry.

The domestic output of iron ore is over 200 million tonne, half of which is exported.

The Law Ministry, which vetted the proposed legislation, has stressed on the need of conserving such minerals and even pitched a name for the new act as “Mines and Minerals Conservation, Development Regulation Act.” However, the Mines Ministry has expressed its reservations to such a view.

The Law Ministry had also referred to a recent Supreme Court ruling on the gas dispute between Mukesh Ambani’s Reliance Group of Industries and Anil Ambani’s Reliance ADA Group where it held the Centre had sovereign authority over the natural resources.

The Mines Ministry is, however, of the opinion that the Law Ministry has made “reference to the case but has not made any specific suggestions,” a Mines Ministry official said, adding the case concerned talks about off-shore minerals for which there is a separate act.

“If there can be 33 per cent representation for women in Parliament, then why not something like that in the chartered accountancy profession too?,” Mr Khurshid said at the Chartered Accountants’ Day celebrations organised by the Institute of Chartered Accountants of India (ICAI) held here.

Noting that there were not many women in the audience at Vigyan Bhavan, the Minister told a packed house that, “when in comes to the household budget, there is no one better than the lady of the house who holds the key to all finances. They are very good at budgeting. So, why not more women in the CA profession too? I would like the ICAI to ensure more representation of women in the CA profession.”

Of the 1.61 lakh CAs in the country, women account for only 15-20 per cent, ICAI sources said.

Mr Khurshid went to the extent of saying that he would like to see a woman at the helm of the Corporate Affairs Ministry.

Meanwhile, Mr K Rehman Khan, Deputy Chairman of the Rajya Sabha, who himself is a CA, said on the occasion that CAs should help in bringing greater transparency to the Government’s accounts.

He said the Government must soon switch from single-entry accounting system to double-entry accounting, adding that even the Comptroller and Auditor General of India is keen on the same.

He said this was important because the Government was spending over Rs 1.6 lakh crore in its flagship programmes, but it is not clear how much of it is reaching the intended beneficiaries. Mr Khan also expressed concern over the cost over-runs in several Railway projects, including the Konkan Railway, as well as the lack of transparency in Government programmes like the MGNREGA.

Mr R Bandyopadhyay, Secretary, Corporate Affairs Ministry, said one of the biggest challenges facing the CA profession is to help in building an Indian multinational CA firm.

The ICAI President, Mr Amarjit Chopra, said Indian CAs will soon be able to offer their professional services in Ireland as both the countries will soon sign an agreement in this regard. Also on the cards are similar arrangements with countries such as New Zealand, Canada and UAE.

The Institute of Chartered Accountants of India (ICAI), in a report to the ministry of corporate affairs (MCA), has asked that its committees be given the power to summon witnesses and ask for production of records of companies when it is investigating corporate and accounting frauds perpetrated by audit firms.

ICAI has also suggested that it be given powers to investigate companies where it has observed continued transgressions.

And it has suggested that the behaviour of rating agencies and equity analysts be regulated more stringently by the government.

“In the high-powered committee report, the institute (ICAI) has requested MCA to give additional powers to it (the institute) so that it can play a better role of a regulator,” said Amarjit Chopra, president of ICAI.

The institute currently has powers to only investigate the role of auditors in cases of corporate frauds.

ICAI’s report to MCA was prepared in the aftermath of the events at Satyam, when Raju confessed in January 2009 to having misstated accounts to the tune of Rs7,136 crore over a period of several years.

The government had asked ICAI to look into auditing lapses at Satyam.

In its report, ICAI has also asked for better regulation of credit rating agencies, which, Chopra said, played an important role in enhancing the profile of a firm. “Nobody questions the rating agencies when they suddenly change the rating of a company’s financial instrument without actually going into the details of the company’s performance, which may mislead investors,” he added.

Credit rating agencies do not agree with that recommendation.

Naresh Takkar, managing director of credit rating agency ICRA Ltd, said: “Credit rating agencies are already regulated by the Securities and Exchange Board of India (SEBI) and the Reserve Bank, so I don’t know what ICAI is talking about. I have not read the report, so I will not be able to comment on it.”

Madan Sabnavis, chief economist at CARE Ratings, said: “Recently, SEBI came out with guidelines suggesting better disclosures and transparency by credit rating agencies, which are in lines with global practices, so I don’t think the government needs to get more stringent while regulating the rating agencies.”

A 3 May circular by SEBI asked for better record-keeping by credit rating agencies for the financial instruments rated by them. The records should be made available to auditors and regulating bodies when required, it said.

Chopra also said the Reserve Bank of India should play a bigger role in the appointment of auditors in a company.

The report, which was prepared by a team headed by former president of ICAI, Uttam Prakash Agarwal, was presented before the ICAI council on 4 February and then submitted to MCA in May.

“MCA is looking into the report. As of now, nothing can be said if the recommendations of ICAI will be accepted,” said a senior official at MCA, who did not want to be identified.

As it is, the kaleidoscope of conflicting perspectives is complex enough to confound even the knowledgeable. For example, when you depreciate different components of an asset over varying useful lives and at different rates as mandated by the International Financial Reporting Standards (IFRS), as opposed to applying a single rate for the entire asset as is, will the depreciation load rise or decline?

You have freehold land and haven’t decided if it is for real estate development or your own office building — is the land, then, an asset or an investment? If preference capital is to be treated as a loan, then is the dividend actually ‘interest’?

Questions, hundreds of them, answers to which is more a matter of opinion than an established principle, are buzzing around the Indian accounting profession.

Yet, these appear mere pinpricks when you compared with the problems thrown up by aspects of taxation policy and the companies law.

Uncertainties

At a seminar on IFRS organised here by the Confederation of Indian Industry, experts rued that the authorities were yet to come out with a fundamental guideline as to whether from April 1 next year, the taxable profits will be computed according to existing Indian accounting standards or IFRS.

A committee has been formed comprising members from the Central Board of Direct Taxes and the Institute of Chartered Accountants of India. The committee will presumably first look into revenue implications for the Government rather than extend help to the corporate sector.

Beyond that nobody knows how the taxation regime will pan out I the IFRS era. The predominant view is that since only about a thousand companies will mandatorily migrate to IFRS on April 1 (see table), the Government will continue with the Indian GAAP (Generally Accepted Accounting Principles) for computing taxable profits.

If it is to be Indian standards for tax computation and IFRS for compliance with corporate legislation, it will be tough on accountants who will have to keep two separate books of accounts.

Yet, experts point out, it is not as simple as that. The Income-Tax Department being no spring chicken, the principal alarm in the corporate world is that the taxman will choose what suits him best, from Indian standards and IFRS, and you will end up with the worst of both worlds. A senior finance professional puts this succinctly: “What is not ‘income’ will become ‘income’, what is ‘expenditure’ will not be treated as expenditure.”

For instance, under IFRS, preference capital is treated as a loan and you will charge preference dividend to Profit and Loss account, but the I-T Department will not let you call it ‘expenditure’.

If you ‘fair value’ an asset (as opposed to the conservative ‘cost method’) and sell it, what will be the basis for calculating capital gains?

If you fair value your property, will the local municipal authorities not ask you to pay property tax on the basis of “your own valuation”?

Unless the haze of taxation clears first, there is bound to be chaos in the marketplace.

Balance sheets

Equally, the lack of alignment between the Companies law and IFRS has left the accountants nonplussed.

The familiar Schedule VI in which we are all used to reading the balance sheets will be (or ought to be) a relic in a few years because the format of presentation of the balance sheet under IFRS would be in according to a different prescription.

But the Companies Act will need to be amended to make way for a smarter presentation of financial statements than Schedule VI.

Leave aside the disconcerting fact that an overhaul of the Companies Act has been pending for nearly a decade and several avatars of the Companies Bill have come, and gone.

The current Bill does not seem to be in alignment with IFRS. Schedule VI is one example, but there are other issues, such as the classification of current and non-current assets.

Amid all this confusion, there seems to be one hope in the corporate world: That like the Companies Bill, the Direct Taxes Code, and a whole lot of other things, IFRS implementation will also get put off to a later date.

DCIT

vs.

Times Guaranty

(ITAT Mumbai Special Bench)

Unabsorbed depreciation of AYs 1997-98 to 2001-02 not eligible for relief granted by amended s. 32(2) in AY 2002-03

Till AY 1996-97 unabsorbed depreciation could be set off against income under any head. From AY 1997-98 to 2001-2002 unabsorbed depreciation could be set off only against business income. From AY 2002-2003 onwards unabsorbed depreciation could again be set off against income under any head of income.

The question before the Special Bench was whether in AY 2003-04, the unabsorbed depreciation relating to AY 1997-1998 to 1999-2000 could be set off against non-business income.

The assessee claimed that law prevailing in the year of set-off should apply and as in AY 2002-03 unabsorbed depreciation is permitted to be set-off against non-business income, that should apply to the earlier years’ brought forward depreciation as well. HELD rejecting the claim:

(i) The amendment made to s. 32(2) w.e.f AY 2002-03 is substantive. A substantive amendment is normally prospective in operation. S. 32(2) is a deeming provision which by legal fiction provides that the unabsorbed depreciation allowance u/s 32(1) is deemed to be depreciation allowance for the succeeding year(s). A deeming provision has to be strictly interpreted and cannot extend beyond the purpose for which it is intended. S. 32(1) deals with depreciation allowance for the current year and s. 32(2) uses the present tense to refer to allowance to which effect `cannot be’ and `has not been’ given. This indicates that s. 32(2) speaks of depreciation allowance u/s 32(1) for the current year starting from AY 2002-03. Brought forward unabsorbed depreciation of earlier years cannot be included within the scope of s. 32(2). If the intention of the legislature had been to allow such b/fd unabsorbed depreciation of earlier years at par with current depreciation for the year u/s 32(1), s. 32(2) would have used past or past prefect tense and not the present tense. Further, the unabsorbed depreciation for the period from AY 1997-1998 to 1999-2000 has been referred to as “unabsorbed depreciation allowance” and given a special name and cannot fall within s. 32(1) in AY 2002-03.

(ii) The substitution of s. 32(2) w.e.f AY 2002-03 is a limited repeal of the old s. 32(2) and its effect is that unabsorbed depreciation of the earlier period is allowable under the new provision but has to be dealt with in accordance with the old provision and is subject to the limitation of being eligible for set-off only against business income and for 8 years.

(iii) The argument that the department having taken a stand in Jai Ushin cannot argue to the contrary is not acceptable. Such limitation if placed on the revenue will also have to apply to assessees. Further, as a Special Bench is constituted to resolve conflict of opinion amongst different Benches it will be too harsh to stop the assessees or the Revenue from arguing the case in the way they like.

(iv) The principle that if two interpretations are possible then the view in favour of the assessee should be adopted cannot be applied in a loose manner so as to debar a superior authority from examining the legal validity of conflicting views expressed by lower authorities. This rule is applicable where the provision in question is such which is capable of two equally convincing interpretations and not otherwise.

But first, some deep congratulations to all those, and especially the UPA government, for daring to change the landscape. The credit largely goes to the present Home Minister, P Chidambaram who, in his previous avatar, introduced wide-ranging tax reforms in early 1997.

Then, starting in May 2004, he started his campaign again, and while there were some missteps (e.g. the fringe benefit tax, banking transaction tax), the overall thrust of tax reforms under his leadership has been immense.

And now the credit goes to the man for all seasons (and all policies) – Pranab Mukherjee.

We have been witness to a flurry of activity since his arrival on the scene in 2009. First, the successful fire-fighting with the Great Recession, then the introduction of long overdue rational pricing of fuels, and, of course, the presentation and championing of the DTC.

A noteworthy feature of this new policy is the transparency and humility with which it has been handled.

It has been up for debate, and the government is listening. Whether it continues to listen, especially on its rather non-economic, non-logic and ideologically inconsistent recommendations on capital gains tax, remains to be seen.

But there are many, including some senior economists/journalists, who question the DTC on its recommendation of personal taxes.

Their belief is that the DTC is a giveaway, i.e. it has reduced the effective tax rate for all individuals by too much.

If these learned people were younger, they would be chanting “down with imperialism, down with fascism, down with capitalism” and “the government recommendations will only make the rich richer and the poor poorer”.

Further, according to the learned, this is a particularly bad time for giveaways because India has a major debt and deficits problem.

And finally, the critics add, only 30 million or 3 per cent of the people in India pay taxes (this news is received with much applause by those who believe in rank populism).

The 3 per cent figure is broadly correct. But not much more should be expected!

The reasoning is straightforward.

First, the universe is not the total population but the worker population, and this is 40 per cent of the total.

Second, only non-farmers pay income taxes, and farmers are about 10 percent; so the relevant population universe is 300 million, not a billion.

Given that not everybody who has income is eligible to pay taxes (there is a minimum exemption which, for the fiscal year 2009-10, is Rs 1, 60,000 per earner), the number of people in the taxable bracket goes down still further.

In 2007-08, the last year for which returns data are available, about 74 million workers were eligible to file tax returns, and 33 million did. This means that only 7.4 per cent of the population should be filing taxes, and the fact that 33 million did is bad, but 45 per cent compliance rate (ratio of 33 and 74) is much, much better than “only” 3 per cent (the compliance rate is expected to have averaged 39/69 or 56 per cent in 2009/10).

The critics have a second arrow; they come armed with the following (and only!) fact in their favour, i.e. there has been stagnation in personal income tax revenues.

In 2007-08, PIT collections were Rs 118,000 crore (Rs 1,180 billion), and in 2009-10, Rs 125,000 crore (Rs 1,250 billion). Worse, the critics argue, the budgeted tax collections with the new 2010-11 code is only 121,000 crore (Rs 1,210 billion).

While the bare facts are correct, the critics miss the whole picture.

First, that there has been a phenomenal over-the-top increase in PIT since tax cuts were first introduced in the 1997-98 Budget.

The effective tax rate (defined as the tax rate applicable to the tax-paying population) in 1996-97 was 16.8 per cent.

The next year, the effective tax rate was reduced by more than 6 percentage points to 10.2 per cent, and in 1998-99, a recession year, the tax rate went up to 11.6 per cent.

What happened to PIT revenues? They went up from Rs 18,000 crore (Rs 180 billion) to 21,000 crore (Rs 210 billion), a 17 per cent increase (the 1997-98 tax collections are “tainted” by collections due to the tax amnesty VDIS).

How did tax revenues go up when tax rates were going down? Because of the Laffer effect, or the compliance effect.

As tax rates are raised, more and more people cheat, and cheating takes two forms – under-declaring your income, or not filing tax returns.

As tax rates decrease, the reverse gear operates – less people cheat, and tax revenues increase.

Which brings us to the stagnation of tax revenues in the last few years. Note the steady increase in tax rates since 2002-03 – in 2007-08, the effective rate was 15.7 per cent, almost identical to the peak tax rate of 16.8 per cent in 1996-97!

Any wonder then that the government made the sensible decision of reducing the effective tax rate by 6 percentage points in 2008-09 and by a further 2.6 percentage points in 2010-11?

And taxpayers are rewarding the good sense prevailing: Mumbai TDS returns for April 1 to June 9 are up 18 per cent over last year; and this, based on the reduced tax code!

Dear All,

A birth is a cause for celebration. So is July 1, when all of us celebrate the spirit of fearlessness, integrity and evervigilant attitude of the CA profession.

Birth of an institution is a dignified event that moves us above the temporary concerns of our day-today lives. It is a symbol of human aspirations for the generations to come. We, generally, anticipate its significance, but disinterestedly, without realizing that there are always efforts and resolutions of multitude of differences behind the birth of an institution. Here, we must remember that gold has to get through the fire to become kundan losing all its impurities. Differences, therefore, need to be celebrated. And from this very mix of differences, appears a being that gives us reasons to rejoice and celebrate. It is said, the more we celebrate something, the more there will be of that thing to celebrate.

A celebrated author Og Mandino says: Never again clutter your days or nights with so many menial and unimportant things that you have no time to accept a real challenge when it comes along…A day merely survived is no cause for celebration. What we have with us at present is a longlong tradition of knowledge systems with a comparatively smaller today, which is the space available to us where we can deliver our decision, creation and intention. This long-long tradition includes volumes of accomplishments by the forefathers of our profession. The tradition we have behind us has to be our guiding force and our vision. Shri G. P. Kapadia writes: No profession can aspire to progress unless it has a vision and (it) sets service to the community as its objective. In the last 61 years of the existence, the tangent of growth the profession has drawn will, for sure, widen the frontiers of our scope and opportunities. We have an obligation towards our society that emanates from the respect we are given for the roles we play and the measures we take in the interests of the nation.

On the eve of the auspicious CA Day, let us vouch for our professional integrity that we should never indulge in work without regard to the ultimate truth.

As part of our responsibility to train officials of various departments of the Government and public sector undertakings on the matter of IFRS implementation, meetings were held with the Secretary, Ministry of Urban Development, CMD, Power Finance Corporation, Finance Advisor, Department of Telecommunications, etc. As a matter of follow-up, details of the training programmes/workshops are being sent wherever desired. Also, meetings with officials of various Departments and public-sector undertakings are being arranged. It shall be our sincere endeavour to perform the role in a manner befitting the ICAI as expected of us by the Ministry of Corporate Affairs.

Shri Salman Khurshid, Minister of State (Independent Charge) for Corporate Affairs (Independent), while chairing the sixth meeting of the NFCG, talked about a need for nation-wide investor awareness programmes. The meeting was also attended by various regulators, institutes and chambers, which were assigned various roles to undertake the same, i.e. investor awareness programmes all over the country. The MCA has decided to organize Indian Investor Week from July 12 to 17, 2010 on the theme, ‘Informed Investor – An Asset to Corporate India’. We will conduct a mega event in Chennai during the Investor Week and hold 750 investorawareness programmes across the country particularly in remote towns in this financial year. We have issued directions to our Regional Councils and Branches to ensure success of the same. ICAI being a partner in nation building, we consider it our duty to educate and guide our aam aadmi (investors) towards safe investments to support the MCA initiatives

The meeting was apprised that the Institute had been formulating standards in internal audit since 2004. The same were not mandatory keeping in view the multidisciplinary nature of such audits in various undertakings. It was suggested that the Central Government on its own or through the SEBI may mandate the adoption of standards in internal audit as formulated by the ICAI for various entities.

The Indian Institute of Corporate Affairs organized a workshop on Compliance of Provisions Relating to Finalization and Disclosures of Accounts under the Companies Act, 1956 on May 25, 2010 wherein officials from the C&AG, various State PSUs, Registrar of Companies, Standing Committee of Public Enterprises, Department of Public Enterprises, Ministry of Corporate Affairs and the ICAI participated. In the meeting, the issue of accounts of various PSUs being in arrears, both central & state, was discussed. Public sector plays a key role in Indian economy. It is quite disturbing to note that as of September, 2009, 14 Central PSUs had their accounts in arrears for periods ranging from 2 to 13 years and over 600 operational state PSUs whose accounts are in arrears for periods ranging from 1 to 25 years. It is a horrific knowledge that these companies are taking critical financial decisions even in the absence of required financial information. A three-pronged strategy was agreed to be explored by fixing a rational cutoff in terms of the number of years, e.g. seven years, beyond which accounts would not be considered, by developing appropriate guidance to help the concerned auditors in such situations, and by utilizing services of the CA firms in updation of accounts and imparting training to the officers of the State PSUs. Since the cutoff may have implications on the audit and the concerned auditor would then need to start with an appropriate modification in respect of non-availability of the opening balances, therefore a ‘development of appropriate guidance’ by the ICAI was suggested.

Owning our responsibility to the Government and our society at large, in ensuring effective utilization of public finance, which involves issues in budgetary allocation, we are happy to announce that we will release, on the auspicious CA Day, i.e. July 1, 2010, a book titled, Issues in Public Finance, that covers areas like fiscal policy, direct and indirect tax structure, fiscal responsibility and budget management act, public expenditure control measures, and external debt.

Continuing with our efforts to request the Government to review the process of autonomy to banks for the appointment of auditors, a meeting was held with Shri Pranab Mukherjee, Hon’ble Finance Minister of India. Apart from the issue of autonomy to banks in the matter of appointment of auditors, continuance of branch audit and tax audit of branches of publicsector banks, mandatory appointment of chartered accountants as internal/ concurrent auditor of banks and allotment of audit of not more than one foreign/private bank, either on central or branch level to one firm, were raised. These concerns were also shared with Shri Ashok Chawla, Finance Secretary, Government of India, during the Council meeting of the Institute on June 18, 2010, which he addressed. The same were also discussed with Shri Alok Nigam, Joint Secretary and Shri Samir K. Sinha, Director, Banking Operations, Ministry of Finance. We also met Shri Motilal Vohra, General Secretary of All India Congress Committee, to press our views on the issue of autonomy of appointment of auditors.

On the sidelines of the CAPA Board Meeting, meetings were held with the office bearers of the New Zealand Institute of Chartered Accountants with regard to the mutual recognition agreement (MRA). We were informed that New Zealand was looking at our model of the MRA entered into with the Institute of Chartered Accountants, Australia. Certain positive outcomes are expected towards the end of November 2010.

We are pleased to share with you two important agreements which are likely to be concluded in July 2010. The approval from the Ministry of Corporate Affairs on the MRA with the CPA, Ireland, has been received and we are on the verge of signing this qualification recognition arrangement very soon with them. In a similar development, approval from the MCA with regard to the Memorandum of Understanding (MoU) with Higher Colleges of Technology, Ministry of Higher Education and Scientific Research, UAE has also been received which contemplates a technical cooperation program by the Institute in developing Competency building. We shall sign this MoU upon getting a clearance from the Ministry of External Affairs.

The undersigned along with the ICAI Vice President CA. G. Ramaswamy and a past-President CA. Kamlesh Vikamsey attended the CAPA Board meeting held in Wellington, New Zealand. There was a change of guard at the CAPA management with Keith Wedlock, a representative of New Zealand Institute of Chartered Accountants, taking over the reins as its Deputy President. We discussed the CAPA’s involvement with the IFAC Board and Committees and its contribution in providing inputs into the IFAC activity and to identify opportunities to consider in planning future initiatives. Issues related to small and medium-sized entities (SMEs) and practitioners (SMPs) were also discussed. It was also discussed how the IFAC could be effective in supporting the profession in the area of corporate governance.

We had also the occasion to represent the ICAI at the IFAC Board during June 2-4, 2010, at Vancouver in Canada to share the ongoing international perspectives in many of the emerging developments which accountancy sector has on its radar. The IFAC meeting primarily focused on how SMPs can help SMEs perform better and conform to the rules and various operational regulatory challenges that SMPs face. We pointed out in the Edinburgh Group that we must first lay down the criteria of assessment that is objective and amenable to the measurement. We must be able to assess if the jurisdiction has done something for them by its corrective actions, e.g. reducing the cost of implementation by providing checklists, software, etc., and, then assess on regular basis if SMPs were empowered. We suggested to striving to assess, through a survey, the impact of measures in the form of a rise in the income of SMPs over a period, and an increase in mergers and the number of consolidations taking place. Or else, no initiative will be productive without such an assessment, we suggested.

Improving the principle-based Standards on International Accounting Education, various key developments on International Standards on auditing and the issues relating to the definition of the Professional Accountant were also deliberated upon at the meeting. It was important to understand and deliberate upon the changing paradigm and to interact with other counterpart institutions from other accountancy bodies and share areas of mutual interests including the CGA, Canada, with whom currently a dialogue on reciprocity is receiving attention.

The Ministry of Commerce, Govt. of India, has sought comments on position paper in regard to the accountancy sector in general and India’s view point on the position paper on accountancy’s service as under formulation at WTO level, as also the disciplines on Domestic Regulations of the GATS agreement. We wish to make it clear that the Institute is not averse to competition and our members are capable of excelling and making their mark felt in professional arena globally. What we aim at is a quid pro quo and reciprocity in its right earnest by addressing the current limitations as also recognition of our qualification and would strive to take up the matter with the policy makers so that the while the interest of our members are protected, and as and when the element of competition gets factored in, equal opportunities are leveraged upon them as well in other territories by pressing for removal of non-trade barriers.

With a view to spread the ICAI message across the industry, we met Mr. Mukesh Ambani, the Chairmancum- Managing Director of the Reliance Industries Limited (RIL), the largest Indian business house. Discussions were held on the issues arising out of implementation of the IFRS, new Companies Bill, GST, Direct Tax Code, etc. The meeting was extremely useful. Mr. Ambani assured us of the whole-hearted support of the RIL in our endeavour for training programmes, particularly on the IFRS. He, however, laid stress on the fact that while implementing the IFRS, care may be exercised to study and determine the requirements of the Indian industry. Central Council members CA. Subodh K. Agrawal and CA. Pankaj I. C. Jain were also present in the meeting. We are grateful to our Central Council colleague CA. Mahesh P. Sarda for organizing this meeting.

A meeting with Ms. Tina Ambani from Anil Dhirubhai Ambani Group (ADAG) was held. She explained the work undertaken by the ADAG particularly with regard to CSR (corporate social responsibility) – like setting up of hospitals, etc., and other charitable initiatives. She was all praise for the valuable contributions made by the Indian chartered accountants to the industry. We apprised her of our publications on accounting in non-profit organizations, etc. Central Council members CA. Subodh K. Agrawal, CA. Bhavna G. Doshi and CA. Pankaj I. C. Jain were also present in the meeting. Role of CA. Bhavna Doshi is praiseworthy for organizing this meeting.

We are pleased to apprise that the Institute has recently decided to grant fee exemption to members of the Institute on the grounds of the physical challenge in related fields to the extent of fifty per cent of the registration fee for the various post-qualification courses of the Institute. We are confident that the fee exemption would facilitate and motivate the members concerned to pursue the post-qualification course of their choice to acquire industry-specific knowledge and develop expertise in the related field.Capacity Building of SMEs/ SMPs

We, at the Institute, strive to help the SMEs and SMPs in escalating their productivity and services. We are relaeasing, on July 1, a toolkit on Correspondence Automation, Management Software and Knowledge Management Solution namely, eSecretary and KDOC. We want the CA Firms and SMPs to grow bigger and create world-class identity. It is proposed to provide eSecretary and KDOC software free of cost and providing free licenses and post sales training to all our members and firms, as a significant addition to their professional assets.

We want to inform you that as a part of the revival of the CFC scheme, the MCA has proposed the renewal of existing CFC and also allowing fresh application for the new CFC. The new scheme will be launched on July 1, 2010, and may be kept open for two months from the date of the launch. Members can apply for registration/ renewal to the Corporate Law and Corporate Governance Committee (CL&CGC) of the Institute.

More than 28,800 multipurpose empanelment applications have been received, without any extension of last date. We believe members must have already sent their physical declarations to the office for further processing.

The undersigned attended felicitation functions held at Ambala, Amritsar, Jalandhar and Panipat Branches of NIRC, and at Nagpur Branch of WIRC. We had extensive interaction with the members and students of the respective Branches and we assured them that the Council would do everything possible to come up to their expectations. Member were concerned about the issues on IFRS and GST. Branches sought revision of their grant and a larger infrastructure facility, particularly in relation to manpower.

We are really pleased to see the enthusiasm and participation of our employee members, as they turned up in large number for the workshop on IFRS, Orientation Programme on IFRS. During the workshop, first-time adoption of IFRS and issues in revenue recognition and financial instruments were discussed. At its conclusion, the employees expressed their desire for a repeat of the aforesaid programmes and also for holding the programmes on other topics including corporate governance and corporate laws. We consider the quality of manpower of an organization is barometer of its excellence. We assure to conduct such programmes all over the country for our staff members.

It is a matter of great satisfaction that the National Conventions held in Ludhiana and Jaipur were attended by a considerably large number of students. The students raised primarily three issues, viz. propagation of the concept of secondment, transfer of the articles and revision of stipend. They also wanted us to address their need for coaching classes and quality study materials from the Institute. The matter concerning the transfer of the articles and the revision of stipend will be taken up and discussed in the coming Council meeting to be held from June 29, 2010, to July 1, 2010, at the Institute headquarters.

We are happy to inform our students that as part of the Board of Studies initiatives to ensure uniform quality education to them, it is proposed to connect various ITT centres through web-based model. The proposed Project would be launched in the mid of July. The Board is addressing the issue of holding the coaching classes through virtual classes. The same may be implemented in a phased manner and the first phase may be launched by the end of September 2010.

Recognition to Profession

CA. Piyush Goyal Elected to Rajya Sabha

We are happy to share with you that our member CA. Piyush Goel has been elected to Rajya Sabha from Maharashtra recently. We heartily congratulate him and expect him to take up the case of profession.

ICAI Past-President CA. Kamlesh Vikamsey on UNDP Audit Committee

It is again great news that our past- President CA. Kamlesh Vikamsey has been appointed as the member of Audit Advisory Committee (AAC) of United Nations Development Programme, where he is expected to contribute in building a stronger culture of transparency and accountability. We congratulate him and wish him the best for this 2-year term with the UNDP.

I always remember what Shri G. P. Kapadia had said on our allegiance to the Institute in 1951: ‘This is your Institute and mine and of each of us. Let us stand by it very loyally, let the altar of worship be our own Institute, our own country. We owe a homage to our country and our own Institute. It is our sacred duty to build it up, to strengthen it, to get for it the best of traditions and the highest status possible in course of time.’

We have noticed that at times members have grievances regarding the services rendered by the Institute. Many a time, the grievance takes the form of expression of irreverence towards the Institute. It is really strange how they can dissociate themselves from their roots. We would only suggest they should strive to know more about the Institute and its glorious intellectual tradition, and, we are sure, there will automatically be an emergence of respect in their attitude to their Institute. Let me say that that it is our Institute and we need to show the reverence that the Institute deserves. In all, it is our Alma Mater and we all must have a sense of pride in being a member of the Institute which has produced chartered accountants second to none.

Human beings are turning utilitarian and, therefore, are in a hurry to get rid of everything that is old and past. It is as if we want to get disconnected from our history. If, actually, this is done, we will have to unlearn all our learning and forget our cognition processes, and go back to the pre-historic days. That is to say, our knowledge at present is because of the history behind us. We can not afford to ignore our tradition, as, after some years, we have to and will get merged with it.

And it is with this spirit, we want to congratulate all associated with the profession on the coming CA Day, i.e. July 1. Let us celebrate together the glorious gift of our forefathers to our profession. Adieu!

1) Centres in India – Agra, Ahmedabad, Ahmednagar, Ajmer, Akola, Alappuzha, Aligarh, Allahabad, Alwar,   Ambala,  Amravati,  Amritsar,Anand,  Asansol,  Aurangabad,  Bangalore,  Bareilly,  Bathinda, Beawar, Belgaum, Bellary, Berhampore, Bharauch, Bhavnagar, Bhilwara, Bhopal, Bhubaneswar, Bhuj, Bikaner, Bilaspur, Chandigarh, Chennai, Coimbatore, Cuttack, Dehradun, Delhi / New Delhi, Dhanbad, Durg,  Ernakulam,  Erode,  Faridabad, Gandhidham,  Ghaziabad,  Goa,  Gorakhpur,  Guntur,  Gurgaon, Guwahati, Gwalior, Hisar,  Hubli, Hyderabad, Indore, Jabalpur, Jaipur, Jalandhar, Jalgaon, Jammu, Jamnagar, Jamshedpur, Jodhpur, Kanpur, Karnal, Kollam,  Kolhapur, Kolkata, Kota, Kottayam, Kozhikode, Kumbakonam, Latur, Lucknow, Ludhiana, Madurai, Mangalore, Mathura, Meerut, Moradabad, Mumbai, Muzaffarnagar,  Mysore, Nagpur, Nanded, Nashik, Nellore, Noida, Palghat, Panipat, Pali-Marwar, Panvel, Patna, Patiala, Pimpri-Chinchwad, Pondicherry, Pune, Raipur, Rajamahendravaram, Rajkot, Ranchi, Ratlam, Rewari, Rohtak, Rourkela, Saharanpur, Salem, Sambalpur, Sangli, Satara, Shimla, Sikar, Siliguri, Sirsa, Solapur, Sonepat, SriGanganagar, Surat, Thane,   Thiruvananthapuram, Thrissur, Tinsukia, Tiruchirapalli, Tirupati,  Tirupur,  Tuticorin,  Udaipur, Udupi, Ujjain, Vadodara, Vapi, Varanasi, Vellore, Vijayawada, Visakhapatnam and Yamunanagar.

2) Overseas Centres -   Abu Dhabi (UAE) and Dubai (UAE) and at Kathmandu (Nepal) (ONLY FOR PCE,IPCE AND FINAL EXAMINATIONS).

Applications for admission to Professional Competence Examination (PCE) Integrated Professional Competence  Examination  (IPCE)  and  Final  Examinations  are  required  to  be  made  either  online  at http://icaiexam.icai.org or in the prescribed forms which are priced at Rs.100/- per form. In order to capitalize the Technological Advancements and to make ICAI’s Students Community more technology savvy, it has been  decided to waive off the cost of application form (i.e, Rs.100/-) in respect of candidates who fill in their forms online at  http://icaiexam.icai.org from 5th August ,2010 to 3rd  September,2010 and remit the examination fee online by using credit cards , either VISA or Master Card . Alternatively, students can utilise  the physical examination application forms which are priced at Rs. 100/- each and will be available for sale from 5th August ,2010 to 3rd September,2010.  The candidates   requiring  forms  by  post  may  please  send  their  requisition  to  the  Additional  Secretary (Examinations), The Institute of Chartered Accountants of India, ICAI Bhawan, Indraprastha Marg, New Delhi – 110002, along with a remittance of Rs. 100/- per application form by Demand Draft/ Indian Postal Order, drawn in favour of the “Secretary, The Institute of Chartered Accountants of India”, payable at New Delhi alongwith a self addressed envelope with postal stamps worth Rs. 15/-.

Management Accountancy Course (MAC Part-I),  Insurance and Risk Management (IRM) examinations will also  be held from 16th  November, 2010   and International Trade Laws and World Trade Organisation (ITL&WTO)  Examination will also be held at the centres mentioned above (except Abu Dhabi, Dubai and Kathmandu) from 9th   November ,2010. For application forms for these examinations, please write to the Additional Secretary (Examinations), ICAI, New Delhi –110002 along with a Postal Order/Demand Draft for Rs. 100/- drawn in favour of the Secretary, ICAI, New Delhi or obtain the same against the cash payment from Regional and Branch offices of the Institute from 5th August ,2010. The Management Accountancy Course (MAC Part-I), Insurance and Risk Management Course (IRM) and International Trade Laws and World Trade Organisation (ITL&WTO) Examinations are open only to Members of the Institute.

The name of examination i.e. Professional Competence  (PCE), Integrated Professional Competence (IPCE),  Final, Management Accountancy Course (MAC Part-I), Insurance and Risk Management (IRM) and International Trade  Laws and World Trade Organisation  (ITL&WTO) examinations for  which  the form  is required should specifically  be  mentioned in the requisition letter. The examination forms will be sent by ordinary post.  No responsibility is taken for non/ late delivery of forms by post. The forms will also be available against cash payment for personal collection at the offices of the Institute at New Delhi and its Regional and Branch Offices from 5th August ,2010.   Details of date schedule of examinations will be found printed in the relevant application forms.

The Examinations will be held in ONE SESSION ONLY in respect of Professional Competence  (PCE), Integrated Professional Competence  (IPCE), Final, International Trade Laws and World Trade Organisation (ITL&WTO),  Management Accountancy Course (MAC Part-I), and Insurance and Risk Management (IRM) Examinations. Details of Examination timing/session, dates of examinations, venue and sequence of papers pertaining to each examination  will be found printed on the Admit Card. There will be no change in the examination schedule in the event of any day of the examination being declared a Public Holiday by the Central Government or any State Government.

The last dates for submitting the Application Forms online at http://icaiexam.icai.org and receipt of application forms are 26th August ,2010 ( upto 17:30 hrs, for online) (without late fee) and 3rd September , 2010 ( upto 17:30 hrs, for online) (with late fee of Rs. 500/-).

Candidates of the Professional Competence Examination (PCE), Integrated Professional Competence Examination (IPCE)  and Final Examinations will be allowed to opt for Hindi medium for answering questions. Further details will be available in the information sheets attached to relevant application forms.

( G.Somasekhar)

Additional Secretary(Exams)

“I don’t expect any major impact, either on our growth or profitability, because of the base rate coming in,” Paresh Sukthankar, Executive Director, HDFC Bank said. However, there may be some rise in the rate offered on the short-end corporate loans who currently avail loans at much lower rates, he said.

While Sukthankar would not disclose the base rate of the bank, he said most banks are likely to peg it in the range of 6.5-8 per cent.

Asked about HDFC Bank’s credit growth, Sukthankar said that it is likely to be above 20 per cent for the fiscal. The bank has witnessed a healthy growth in its corporate and consumer loans portfolio so far this year with growth in corporate loans, however, out-pacing that of consumer advances.

“Consumer loans in this fiscal are expected to grow faster than last fiscal but growth in corporate loans would be higher,” he said.

As on March, the bank’s loan-book comprised 55 per cent consumer loans while wholesale advances stood at 45 per cent, he said. The bank also expects its asset quality to remain healthy throughout the fiscal on the back of the economic recovery.

The bank expects to add 150 more branches this fiscal and also plans to open a branch in Hong Kong over the next few months, he said.

The Hong Kong branch will focus on NRI-related business, he said. On interest rates, Sukthankar said that given the expected rise in RBI policy rates, interest rates are showing an upward bias. Deposit rates will start rising in the period ahead, he added.

A.P. (DIR Series) Circular No. 56 – June 28, 2010

To

All Category – I Authorised Dealer Banks

Madam / Sir,

Foreign Exchange Management Act, 1999 (FEMA)

Foreign Exchange (Compounding Proceedings) Rules, 2000 (the Rules) -

Compounding of Contraventions under FEMA, 1999

The provisions of section 15 of FEMA, 1999 permit compounding of contraventions and, as such it empowers the Reserve Bank to compound any contravention as defined under section 13 of the FEMA, except the contraventions under section 3 (a) of FEMA, on an application made by the person committing such contravention.

Attention of all the Authorised Dealer Category – I (AD Category – I) banks and their constituents is invited in this regard to the Foreign Exchange (Compounding Proceedings) Rules, 2000 notified by the Government of India vide G.S.R.No.383 (E) dated 3rd May 2000 as amended from time to time (copy as on date given at Annex – I) and the A.P. (DIR Series) Circular No.31 dated February 1, 2005.

2. The compounding  of the contravention under the FEMA, 1999 was implemented by the Reserve Bank by putting in place the simplified procedures for compounding with effect from February 1, 2005 with a view to providing comfort to the citizens and corporate community by minimizing transaction costs, while taking a serious view of the wilful, malafide and fraudulent transactions. It has been decided to put in place an updated procedure for compounding of contravention/s under FEMA on the basis of observations made over the last few years on the compounding process on a continuous basis and the experience gained in dealing with compounding applications. The objective is rationalization and streamlining of the process and the procedure for compounding and to enhance transparency and effect smooth implementation of the compounding process. The directions contained in the compounding of contravention/s issued vide A.P. (DIR Series) Circular No.31 dated February 1, 2005 are superseded by this circular.

3. Application for Compounding

3.1 Foreign Exchange (Compounding Proceedings) Rules, 2000 (the Rules), as amended from time to time, would be the basic framework for the compounding process. As per sub-rule (3) of Rule 4 of the Rules, the compounding process would be subject to the direction, control and supervision of the Governor of the Reserve Bank.

3.2 An application for compounding of a contravention under FEMA, 1999 may be submitted to the Reserve Bank on being advised of a contravention under FEMA, 1999 either through a memorandum or suo moto being made or becoming aware of the contravention. The format of the application is appended to the Foreign Exchange (Compounding Proceedings) Rules.

3.3 On receipt of the application for compounding, the proceedings would be initiated in accordance with the Foreign Exchange (Compounding Proceedings) Rules, 2000 and the compounding order shall be issued by the Compounding Authority within 180 days from the date of the receipt of the application for compounding. The time limit for this purpose would be reckoned from the date of receipt of the completed application for compounding by the Reserve Bank.

3.4 On receipt of the application for compounding, the Reserve Bank shall examine the application based on the documents and submissions made in the application in terms of sub rule (1) of Rule 4 of the Foreign Exchange (Compounding Proceedings) Rules, 2000 and assess whether contravention is quantifiable and, if so, the amount of contravention.

3.5 The Reserve Bank shall examine the nature of contravention keeping in view, inter alia, the following indicative points:

a) whether the contravention is technical and/or minor in nature and needs only an administrative cautionary advice;

b) whether the contravention is serious and warrants compounding of the contravention; and

c) whether the contravention, prima facie, involves money-laundering, national and security concerns involving serious infringements of the regulatory framework.

If, before disposal of the compounding application by issue of a compounding order the Reserve Bank finds that there is sufficient cause for further investigation, it may recommend the matter to the Directorate of Enforcement (DoE) for further investigation and necessary action under FEMA, 1999 by them or to the Anti Money Laundering Authority instituted under the Prevention of Money Laundering Act, 2002 or to any other agencies, as deemed fit. Since the compounding application will have to be disposed of within 180 days, the application will be disposed of by returning the application to the applicant in view of such investigation required to be conducted.

3.6 The Compounding Authority at the Reserve Bank may call for any additional information, record or any other document relevant to the compounding proceedings. Where additional information/document is called for, such additional information/ document shall be submitted within the period as may be specified by the Compounding Authority. In case the contravener fails to submit the additional information/ documents called for within the specified period, the application for compounding will be liable for rejection.

3.7 The Compounding Authority at the Reserve Bank shall consider the application and shall pass an order of compounding after affording the contravener an opportunity of being heard as expeditiously as possible but not later than 180 days from the date of receipt of the completed application.

3.8 The Compounding Order shall specify the provisions of the FEMA, 1999 or any rule, regulation, notification, direction or order issued in exercise of the powers under FEMA, 1999 in respect of which contravention has taken place along with details of the alleged contravention.

3.9  Operational checkpoints for submission of a compounding application and the related matters are given in Annex – II.

4. Scope and Manner of Compounding

4.1 The Compounding Authority (CA), as defined under the Foreign Exchange (Compounding Proceedings) Rules 2000, shall exercise jurisdiction in respect of the contraventions alleged to have been committed in relation to any of the provisions of the FEMA, 1999 or any rule, regulation, notification, direction or order issued in exercise of the powers under the FEMA, 1999.

4.2 The CA on the basis of the application together with the documents submitted and the submissions made during the personal hearing shall form an opinion on the nature of the contravention.

4.3 The application for compounding shall be processed further and disposed of on merits upon consideration of the records and submissions and at the absolute discretion of the CA. The following factors, which are only indicative, may be taken into consideration for the purpose of passing compounding order and adjudging the quantum of sum on payment of which contravention shall be compounded:

i. the amount of gain of unfair advantage, wherever quantifiable, made as a result of the contravention;

ii. the amount of loss caused to any authority/agency/exchequer as a result of the contravention;

iii. economic benefits accruing to the contravener from delayed compliance or compliance  avoided;

iv. the repetitive nature of the contravention, the track record and/or history of non-compliance of the contravener;

v. contravener’s conduct in undertaking the transaction and  in disclosure of full facts in the application and submissions made during the personal hearing; and

vi. any other factor as considered relevant and appropriate.

5. Issue of the Compounding Order

5.1 The applicant/ contravener shall be given an opportunity for personal hearing for further submission of documents in person in support of the application within a specified period. If the contravener or its authorised representative fails to appear in person or make any submissions before the CA for personal hearing, the CA shall proceed with the processing of the compounding application on the basis of available information and documents submitted alongwith the application for compounding.

5.2 The CA shall pass a compounding order on the basis of the averments made in the application as well as other documents and submissions made in this context by the contravener during the personal hearings.

5.3 One copy of the compounding order issued under sub rule (2) of Rule 8 of Foreign Exchange (Compounding Proceedings) Rules, 2000 shall be supplied to the applicant (the contravener) and also to the Adjudicating Authority, where the compounding of any contravention is made after making of a complaint under sub-section (3) of section 16 of the FEMA, as the case may be.

6. Payment of the amount for which contravention is compounded

6.1 The sum for which the contravention is compounded as specified in the order of compounding under sub-rule (2) of Rule 8 of Foreign Exchange (Compounding Proceedings) Rules, 2000, shall be paid by way of demand draft in favour of the “Reserve Bank of India” within 15 days from the date of the order of compounding of such contravention. The demand draft has to be deposited in the manner as directed in the compounding order.

6.2 The provisions of the Rules do not confer any right to the contravener, after a compounding order is passed, to seek to withdraw the order or to hold that the compounding order is void or request review of the order passed by the Compounding Authority.

6.3 In case of failure to pay the sum compounded within the time specified in the compounding order and the Foreign Exchange (Compounding Proceedings) Rules, 2000, it shall be deemed in terms of Rule 10 of the Rules that the contravener had never made an application for compounding of any contravention under these Rules.

6.4 In respect of the contraventions of the FEMA, 1999 (as defined in section 13 of FEMA, 1999), which are not compounded by the Compounding Authority, other relevant provisions of FEMA, 1999 dealing with contraventions shall apply accordingly.

6.5 On realization of the sum for which contravention is compounded a certificate in this regard shall be issued by the Reserve Bank subject to the specified conditions, if any, in the order.

7.    Prerequisite for Compounding Process

7.1 In terms of sub rule (2) of Rule 4 of Foreign Exchange (Compounding Proceedings) Rules, 2000, in respect of a contravention committed by any person within a period of three years from the date on which a similar contravention committed by him was compounded under the Compounding Rules, such contraventions would not be compounded and relevant provisions of the FEMA, 1999 shall apply. Any second or subsequent contravention committed after the expiry of a period of three years from the date on which the contravention was previously compounded shall be deemed to be a first contravention.

7.2 Contraventions relating to any transaction where proper approvals or permission from the Government or any statutory authority concerned, as the case may be, have not been obtained, such contraventions would not be compounded unless the required approvals are obtained from the concerned authorities.

7.3 Cases of contravention, such as, those having a money laundering angle, national security concerns and/or involving serious infringements of the regulatory framework or where  the contravener fails to pay the sum for which contravention was compounded within the specified period in terms of the compounding order, shall be referred to the Department of Enforcement for further investigation and necessary action under FEMA, 1999 or to the authority instituted for implementation of the Prevention of Money Laundering Act 2002, or to any other agencies, for necessary action  as deemed fit.

7.4 The Reserve Bank generally advises the persons concerned of their choice and option to make an application for compounding as and when the contraventions come to its notice. The facts constituting such contraventions will be brought to the notice of the DoE for further necessary action in case no application for compounding is made within the time indicated by the Reserve Bank.

8. Authorised Dealers may bring the contents of this circular to the notice of their constituents and customers concerned.

9. The directions contained in this circular have been issued under sections 10 (4) and 11 (1) of the Foreign Exchange Management Act, 1999 (42 of 1999).

Yours faithfully,

(Dr. Sujatha Elizabeth Prasad)

Chief General Manager

“Well the Tobin tax has merit in particular situations but as far as India is concerned we have not reached a stage where capital flows have become a problem.”

“I think if capital inflows into our country both by way of direct investment and by way of portfolio investment have been at reasonable levels, we don’t face situations of the kind which would require an imposition of Tobin tax,” he said in reply to a question on his views on the tax.

There has been a talk among economists on a Tobin-like tax – a levy on all spot conversions of one currency into another – to prevent fluctuations in the market due to excessive capital inflows into the country.

Foreign Institutional investors have been pumping in money into the Indian stock markets, adding to the capital inflows into the country. The inflows up to June this year were a little over Rs 31,000 crore.

Since the country is battling double digit inflation, there is a feeling in certain quarters that funds coming from overseas are adding to the pressure.

He also said that the government was not into contemplating a legislation in the area of corporate social responsibility.

“There is now a lot of discussion on corporate governance. I think good corporate houses are looking at what they can do in non-traditional areas of providing social services, education, health facilities for their employees.

“I think that it is a corporate responsibility, which has to be shouldered by the corporate sector on its own. We are not contemplating any legislation in that area,” the prime minister said.

The Indian tax law does not tax a shareholder of a company on the company’s income until the income is distributed as dividend. Therefore, it has become common for Indian companies to form foreign subsidiaries in tax havens and shift “portable” income to those subsidiaries.

Tax on this income is avoided until the subsidiary located in the tax haven country pays a dividend to the parent Indian company. This dividend could also be avoided indefinitely by loaning the earnings to the parent Indian company without actually declaring a dividend.

The Governments all over are not always happy that multinationals based in their countries are keeping large amounts of profits offshore. Therefore, in several countries, a new law has been introduced to eliminate the benefits of tax deferral, by taxing income in the parent country even when the income has not been actually repatriated or remitted to that country. These laws are generally referred to as Controlled Foreign Corporation (CFC) laws. The CFC rules have also been adopted by US, UK, Germany, etc to prevent avoidance or deferment of domestic tax collection by home companies on income earned from overseas businesses carried out through offshore subsidiaries or affiliates.

In India a Working Group on Non-resident Taxation was formulated in, January 2003.

The Group termed the deferral of taxes as an unjustifiable loss of revenue and recommended the introduction of CFC regime in India. The intent is to prevent the avoidance or deferment of tax on income, by levying taxes in the hands of the parent company on the consolidated world income.

CFC legislation as prevailing in most countries, has a number of components. The rules generally have an ownership/control test, so that an entity will be treated as a Controlled Foreign Corporation only if a certain percentage of ownership/control is in the hands of the parent company or other residents of the parent country.

Once a CFC is identified, the rules set out the consequences of being treated as a CFC. Generally speaking, the consequence is to tax certain income of the CFC ‘currently’ in the hands of the parent company, as if the said income had been remitted to the parent company or was the income of the parent company, even though there is no actual remittance. In fact the income clearly remains in the legal ownership of the CFC abroad.

The revised discussion paper on The Direct Taxes Code released on 15th June, 2010 also contains discussion on CFC as under:

“As an anti-avoidance measure, in line with internationally accepted practices, it is also proposed to introduce Controlled Foreign Corporation provisions so as to provide that passive income earned by a foreign company which is controlled directly or indirectly by a resident in India, and where such income is not distributed to shareholders resulting in deferral of taxes, shall be deemed to have been distributed. Consequently, it would be taxable in India in the hands of resident shareholders as dividend received from the foreign company.”

It is strongly felt that the Government should not take any hasty step in this direction. It is to be kept in mind that outbound investment from India is very small compared to inbound investment. In fact CFC Rules have generally been adopted by developed countries whose outbound investments far exceed the capital inflows. There is no comparison between India and such other developed countries.

The issue should be seriously addressed as to whether the economic conditions in India justify introduction of CFC Regime. Is India ready to afford restrictions on outbound investments? Should Indian tax regime deny the benefit of deferral of tax liability available to foreign arms of Indian companies, which makes them more competitive?

During his visit, the finance minister will also meet the heads of all public sector banks and financial institutions as the government steps up its efforts towards financial inclusion. Mr Mukherjee will be meeting the chief ministers of Chhattisgarh, Maharashtra, Rajasthan, Gujarat, Madhya Pradesh and Goa.

The Centre has been negotiating with the states for the early introduction of GST, but concerns over revenue loss with the proposed tax and compensation has been a bone of contention. The Centre has, however, promised to compensate states in full for any revenue loss that they may incur due the new tax.

In an interview, finance secretary Ashok Chawla had expressed hope that the government will meet the deadline.

“After finance minister’s announcement that states will be fully compensated, there is a revival of spirit among states,” he had said.

The new tax, it is proposed, will replace excise duty and service tax at the Centre and VAT and local taxes at the states’ level.

The finance minister will also review the implementation of centrally-sponsored schemes in each state and the credit flow to priority sector areas such as agriculture, credit to weaker sections and micro and small enterprise credit. There are around 29,666 bank branches in the central and west zone, which comprises 34.18% of the total branches in the country.

“Banks have a good spread in these areas. There are no unbanked blocks in the central and western zone and almost 47% branches in this zone are in the rural areas,” said a finance ministry official.

Mr Mukherjee will also be meeting with the heads of all public sector banks and review their annual performance. “The major focus will be on the financial inclusion plans as the banks have been told to select the required technology and operationalise it by June 15,” the official said.

]]> http://www.forum4finance.com/2010/06/28/fm-to-meet-cms-to-discuss-gst-rollout/feed/ 0 http://www.forum4finance.com/2010/06/28/gems-jewellery-industry-bodies-do-not-favour-proposed-dtc/ http://www.forum4finance.com/2010/06/28/gems-jewellery-industry-bodies-do-not-favour-proposed-dtc/#comments Mon, 28 Jun 2010 15:00:05 +0000 admin http://www.forum4finance.com/?p=28177 The national body for jewellery trade the All India Gems & Jewellery Trade Federation (GJF) and apex industry body Gems and Jewellery Industry (GJI) have opposed the proposed Direct Taxes Code.

Both the industry bodies have also made representations to the Finance Ministry to seek modifications in the DTC.

The International Accounting Standards Board (IASB) has issued Exposure Draft on proposed amendments to IAS 1 Presentation of Financial Statements to improve the presentation of items of other comprehensive income (OCI).

At present entities have an option in IAS 1 to present either a statement of comprehensive income or two separate statements of profit or loss and other comprehensive income. This exposure draft proposes to require that entities present profit or loss and other comprehensive income in separate sections of a continuous statement.

Invitation to comments

ASB invites comments on the Exposure Draft from the public. The downloadable version of the draft is available at http://www.iasb.org/NR/rdonlyres/A366AC39-6AE3-4516-A81D-ACFB4A9E5D42/0/EDIAS19DefinedBenefit.pdf. Comments would be most helpful if they indicate the specific paragraph or group of paragraphs to which they relate, contain a clear rationale and, where applicable, provide a suggestion for alternative wording.

Comments should be submitted in writing to the Secretary, Accounting Standards Board, The Institute of Chartered Accountants of India, ICAI Bhawan, Post Box No. 7100, Indraprastha Marg, New Delhi-110002, so as to be received not later than August 16, 2010. Comments can also be sent by e-mail at asb@icai.org or edcommentsasb@icai.org.

At present, if you make donations to religious institutions, you get tax relief for 50 per cent of the amount. That is, if you donate Rs 5,000 to a registered regional institution, you can claim a deduction of Rs 2,500 under Section 80G (for companies, it is Section 35AC). The rest is added to your income and taxed according to the income tax slab.

Under the new regime, the entire amount of Rs 5,000 will be added to your income and taxed, accordingly. The first draft of DTC had proposed that this deduction will be made available only if the religious institution uses the money for renovation or repair of a religious structure. The new draft said: “Donations to such (religious) trusts or institutions will not enjoy any deduction in the hands of the donor.”

The government has proposed that no deductions be allowed, even in case of institutions that are partly religious and partly charitable. However, these institutions will pay tax on their charitable activity, but no taxes on a religious one.

So, what is the way out?

Instead of donating money to religious institutions, you can donate to charitable institutions. These non-profit organisation (NPOs) include non-governmental organisations like the Red Cross and CRY. In fact, many of these religious institutions have charitable trusts as well. A donor can use this route.

“In fact, religious bodies that do not have trusts may need to create one for providing tax benefit to their donors,” said Sunil Shah, partner, Deloitte Touche Tohmatsu India .

For income tax purposes, the revised draft divides the charitable organisations into three categories – NPOs, public religious institutions and partly religious & partly charitable institutions. And, allows tax benefits for them. The reason: The income of these charitable institutions will be taxed.

“NPOs would be subjected to tax on the surplus money, which is the excess of the basic exemption limit prescribed in the code. The surplus here means the excess of the donations and other receipts over the expenditure incurred,” said Vikas Vasal, executive director, KPMG India. These institutions do not pay income tax.

The quantum of deduction remains the same. The donor will get 50 per cent deduction on the money donated. The finance minister has also kept the cap of 10 per cent of the total income to claim such donations. Any amount in excess of 10 per cent of the total income will not be eligible for deduction.

Moreover, donations made to certain institutions engaged in scientific research – like national laboratories – will get tax benefits of 125 per cent (as proposed in the first draft of DTC). At present, there is a 100 per cent tax benefit on these donations under Section 80GGA.

Donors will continue to get 100 per cent deduction if they donate money to such government schemes as the Prime Minister’s National Relief Fund, The National Foundation for Communal Harmony and National Defence Fund.

There are two bids worth Rs 250 crore each for the 6.57 per cent 2011 bond at 5.32 per cent and 11.30 per cent 2010 bond at 5.22 per cent, three dealers confirmed.

The Reserve Bank of India announced a buyback on behalf of the government on June 16 to ease a cash crunch in the banking system as a result of telecom spectrum payments.

Of the Rs 20000 crore that the government aimed to buy back, it bought a little over Rs 9000 crore over two auctions.

“The press release states that bonds can be bought back either through a open market purchase or through secondary market. We are giving an offer, it is up to the banks to sell,” said the source.

The Reserve Bank’s offers were at a lower yield than on Thursday, dealers added.

The RBI had offered to buy the bonds for the same amount at 5.34 per cent for the 2011 bond and 5.25 per cent for the 2010 bond.

The central bank had announced to buy back 12.25 per cent, 2010, 11.30 per cent 2010 and the 6.57 per cent 2011 papers from the open market, but the plan did not succeed given banks asking for higher cut-off price to sell these bonds.

In what is seen as a bid to prevent further inflation spiral in the economy, the Finance Ministry has once again deferred the implementation of service tax levy on transport of goods by rail. The levy will now come into effect from January 1 next year.

Second time

The latest move has come in the backdrop of the wholesale price index-based inflation nearing double-digit level. This is the second time this year that the Finance Ministry had resorted to deferral of the proposal.

The Government had in Budget 2010-11 proposed to bring transport of goods by rail in the service tax net from April 1.

Its implementation was, however, deferred to July 1 in similar inflationary circumstances.

Besides the postponement of the levy, the Finance Ministry has also now said that the earlier proposed exemption on certain goods (such as pulses, foodgrains, petroleum products for PDS, organic and chemical manure and motor vehicles) would now come into effect from January 1, along with the 70 per cent abatement.

After the Budget announcement, the Railways had indicated that it would have no choice but to pass on the tax burden to its freight customers.

A service tax levy on railway freight would have a cascading impact on coal, cement and steel prices, a section of industry had contended.

Railways performance

In the first two months of current fiscal, the Railways has generated Rs 10,044.54 crore revenue (up 8.99 per cent against the corresponding period last fiscal) by carrying 146.41 million tonnes freight traffic (up 3.37 per cent).

This fiscal, the Railways expects to earn Rs 62,489 crore from freight transportation. The Finance Ministry was looking to garner close to Rs 1,000 crore from the service tax levy on railway freight.

The issue was flagged at the recent conference of the chief commissioners and director generals of income-tax, a department official said.

A scrutiny of data filed by a number of listed companies revealed that many of them were not including proceeds from the sale of carbon credits in their income while calculation income-tax liability.

Field officers are expected to look into such cases of more closely. Though, tax authorities are gunning for companies for non-payment of taxes, lack of clarity on treatment of carbon credits is also an issue. Industry has for sometime lobbied for clarity on tax treatment of carbon credits. Presently, there is no clear definition in the tax laws about treatment of carbon credits.

They can both be accounted for as capital assets or goods. Industry has pitched for treating them as capital assets and further exempting them from capital gains tax. If treated as goods the income generated from their trading is treated as business income attracting 30% corporate tax.

“The tax treatment of receipts from sale of CERs will very much be driven by whether CERs are goods or intangible assets which is currently a grey area. The ICAI’s exposure draft proposes to consider CERs as intangible assets but to be accounted for as inventories and that could be a possible reference point,” said Amitabh Singh, partner, Ernst & Young.

Under the Kyoto Protocol, companies from developing countries earn certified emission reduction (CER) or a carbon credit for each tonne of carbon dioxide emission they avoid. These carbon credits can be sold to companies or governments in developed countries that are under mandatory obligation to reduce carbon gas emissions.

The buyers can then offset their own targets against the CERs they purchase from companies in developing countries under the UN’s Clean Development Mechanism or CDM. Trading in CERs is a growing area that has generated huge interest in the country’s corporate sector.

According to estimates, the industry has already invested close to Rs 60,000 crore into projects that will generate more than four crore carbon credits by the end of 2012. A World Bank study has pegged the total global market size for carbon credits at $10 billion.

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