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Bombay Chartered Accountants' Society 7, Jolly Bhavan 2, Ground Floor, New Marine Lines, Mumbai - 400 020. Telephone: + 91 22 6137 7600. Website : www.bcasonline.org E-mail : [email protected] | E-Journal : www.bcasonline.org E-learning : https://bcasonline.courseplay.co/ Continuous No. 738 Price R100 (For Members only) contents In this issue . . . The Bombay Chartered Accountant Journal Namaskaar | 5

Editorial Quote of the month Satyameva Jayate Vs. Propagating Lies | 7

We now live in a nation where From the President | 9 doctors destroy health, lawyers destroy justice, universities destroy ▄ knowledge, governments destroy TAXATION freedom, the press destroys Direct Taxes information, religion destroys morals, and our banks destroy the economy ● ARTICLE: Should Charity Suffer the Wrath of Section 50c? | 26 ● Glimpses of Supreme Court Rulings | 62 Chris Hedges ● CONTROVERSIES: Deduction for Contribution by Employer to Specified Funds – Section 40A(9) | 64 ● IN THE HIGH COURTS: PART A: REPORTED DECISIONS 37 Appeal to Appellate Tribunal – Rectification of mistake u/s 254(2) – Powers of Tribunal – Jurisdiction limited to correcting ‘error apparent on face of record’ – Tribunal cannot review its earlier order or rectify error of law or re-appreciate facts – Assessee has remedy of appeal to High Court | 52 38 Business income – Scope of section 28(iv) – Amalgamation of companies – Excess of net consideration over value of companies taken over – Not assessable as income | 53 39 Business expenditure – Year in which expenditure is deductible – Business – Difference between setting up and commencement of business – Incorporation as company, opening of bank account, training of employees and lease agreement in accounting year relevant to A.Y. 2012-13 – Licence for business obtained in February, 2012 – Assessee entitled to deduction of expenditure incurred for business in A.Y. 2012-13 | 54 40 Deduction of tax at source – Condition precedent – Mere entries in accounts – No accrual of income and no liability to deduct tax at source | 55 41 Direct Tax Vivad se Vishwas Act, 2020 – Scope of – Act deals with disputed tax – Application for revision u/s 264 relating to tax demand – Applicant eligible to make declaration under Vol. 53-A i Part 5 i AUGUST 2021 Direct Tax Vivad se Vishwas Act | 56 42 Revision – Application for revision – Conditions precedent – No appeal filed against journal committeE assessment order and expiry of time limit for filing appeal – Application for revision valid editorial board | 57 Chairman & Editor I Raman Jokhakar Conveners ● IN THE HIGH COURTS: PART B: UNREPORTED DECISIONS Jagdish Punjabi I Vinayak Pai 7 Offence and prosecution – Wilful attempt to evade tax – Section 276C, read with section 132 | 58 Publisher I Raman Jokhakar 8 Reopening of assessment – Information of shell companies – Right to cross-examination Members of Editorial Board – Violation of the principle of natural justice – These pleas to be raised at time of Anil Sathe | Anup Shah | Ashok Dhere | reassessment – Reopening justified | 59 Bhadresh Doshi | Gautam Nayak | Kishor Karia | Mayur Nayak | Sanjeev Pandit | Sunil Gabhawalla ● TRIBUNAL NEWS: PART A: DOMESTIC TAXATION 31 ITAT holds that corrigendum to the valuation report to be considered in ascertainment of Ex-Officio Abhay Mehta I Mihir Sheth value u/s 56(2)(viib) | 49 Members 32 ITAT holds that amendments of Finance Act, 2021 to section 43B and 36(1)(va) apply Abbas Jaorawala | Chandrashekhar Vaze | prospectively | 49 Chetan Shah | Gaurav Shah | Kinjal M. Shah | 33 Section 115JB(2)(i) – Where an amount debited for diminution in value of Investments and Nitin Shingala | Parth Desai | Preeti Cherian | Non- Performing Assets is in nature of an actual writeoff, clause (i) of Explanation (1) to Puloma Dalal | Rajaram Ajgaonkar | sub-section (2) of section 115JB is not attracted and thus the aforesaid amount is not to Riddhi Lalan | Ritu Punjabi | Rutvik Sanghvi | be added back while computing book profits | 49 Shreyas Shah | Siddharth Banwat | Sonalee Godbole | Tarunkumar Singhal | Indirect Taxes Zubin Billimoria. ● DECODING gst: Resolving the Insolvent | 82

Printed and published by Raman Jokhakar on behalf of Bombay ● recent developments in gst | 87 Chartered Accountants’ Society, 7, Jolly Bhavan No. 2, New Marine ● Recent Decisions Part A: Goods and Services Tax | 91 Lines, Mumbai-400020. Phone : 61377600 E-mail : [email protected] ● Recent Decisions Part B: Service Tax | 94 Printed at Spenta Multimedia Pvt Ltd, Plot 15, 16 & 21/1, Village Chikloli, Morivali, MIDC, Ambernath (West), Dist. Thane.

Bombay Chartered Accountant Journal AUGUST 2021 3 524 (2021) 53-A BCAJ

International Taxation ● SECURITIES LAWS: To Be or Not to Be a Promoter | 100 ● ARTICLE: Mli Series: Map 2.0 – Dispute Resolution Framework under ● CORPORATE LAW CORNER | 102 the Multilateral Convention | 12 ● INTERNATIONAL TAXATION: Equalisation Levy on E-commerce Supply ▄ practice management and and Services, Part - 2 | 69 technology

● ARTICLE: Digital Workplace – A Stitch in Time Saves Nine | 45 ▄ accountancy and audit

● LIGHT ELEMENTS | 116 ▄ corporate and other laws ● 72ND ANNUAL GENERAL MEETING AND 73RD FOUNDING DAY | 117 ● ARTICLE: Introduction to Accredited Investors – the New Investor ● BoMBAY CHARTERED ACCOUNTANTS' SOCIETY: ANNUAL Diaspora | 31 PLAN 2021-22 | 124 ● ARTICLE: Valuation of Contingent Consideration | 36 ● ALLIED LAWS | 95 ● soCIETY NEWS | 128 ● laws and business: Cryptocurrencies: Trapped in a Legal Labyrinth (Part - 2) | 98

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Total No. of Pages : 140 including Covers

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namaskaar

C.N. VAZE Chartered Accountant

LOKMANYA

Every educated Indian knows about Lokmanya Tilak. students from different states. He inculcated the spirit of However, very few know about the real greatness, patriotism among them. He lost just one case against him uniqueness and versatility of this multi-faceted son of in the High Court. He was then sent to Mandalay Jail (kala India. The First of August, 2021 is the 101st anniversary paani). There, without any reference books, he raised of his death. It will be really inspiring to know about the certain points of law and of Hindu traditions (regarding amazing range of his activities and achievements. adoption) and he was acquitted by the Privy Council.

He was born in a very small village in Ratnagiri district. His His knowledge of philosophy was acclaimed by most father was a school teacher. His real name was Keshav but world scholars when he wrote ‘Geetarahasya’ (in English) he was popularly known as ‘Bal’. He was one of the well- despite the hard and strenuous life of Mandalay. For that, known trio of Indian patriots called ‘Lal’ (Lala Lajpatrai), he studied about 400 books from different languages. He ‘Bal’ (Bal Gangadhar Tilak), and ‘Pal’ (Bipin Chandra Pal). also learnt four languages for this purpose.

Most leaders of those times did their graduation in He was a visionary. He realised the importance of cinema literature, political science, history, economics, law, as a powerful medium and supported Dadasaheb Phalke, etc. But Lokmanya was a scholar in Mathematics and the first film-maker of India. He encouraged his work Astronomy. His brain was like that of a scientist. Once through his newspapers and raised funds for him. he was asked, ‘Which portfolio would you prefer after India becomes independent?’ He said, ‘It is because of He advocated many social reforms. For public education, the inaction of people like you that I had to enter politics. social reforms and bringing the people together, he After Independence, I would like to be a Professor in started the ‘Ganeshotsav’ and ‘Shivjayanti Utsav’. An Mathematics.’ He wrote two scholastic treatises on anti-alcohol movement was also started by him and he Astronomy – ‘The Arctic Home of Vedas’ and the ‘Orion’. even demanded a prohibition law. This seriously affected He started a ‘panchaang’ (calendar) based on his the revenue collection of the Government. knowledge of astronomy. His ‘Tilak Panchaang’ is still in vogue. Interestingly, after matriculation and before He was also an entrepreneur. Hardly anyone knows that entering college, he devoted one full year to acquire he set up his own ginning factory at Latur and a sawmill physical strength. Perhaps he could anticipate the at Ratnagiri; he also supported the glass factory at Pune. strenuous struggles he would face in his future life. He had a deep sense of commerce and economics. He was one of the promoters of the first Indian joint stock * He established the New English School and Fergusson company ‘Bombay Swadeshi Co-operative Stores’, a College. He was a great educationist and his basic aim listed company. was national education. * He started two dailies, ‘Kesari’ in Marathi and ‘Marhatta’ His sacrifice for the freedom of India was unparalleled in English. He is still respected as a great journalist. The and he was known as the father of Indian unrest (against British Government used to be afraid of his editorials. British rule). * For almost 20 years of his life, he faced litigations and court proceedings and spent about ten years in jail as a These are only a few highlights of his life. That was freedom fighter. why he was loved and revered by one and all – a real ‘Lokmanya’. His knowledge of the law was amazing. He had done his LL.B. and for a livelihood used to give tuitions in law to Doesn’t he deserve our humble ‘Namaskaar’?

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6 Bombay Chartered Accountant Journal AUGUST 2021 527 (2021) 53-A BCAJ editorial SATYAMEVA JAYATE VS. PROPAGATING LIES

We are entering the seventy-fifth year of India’s In the area of medicine, according to doctors, for insulin- independence. Satyameva Jayate – the only words on resistant people giving insulin actually kills. The number the state emblem – was meant to be the beacon not only of diabetics is increasing like nobody’s business4, but the for Government but for our people as the only surviving real cause and therefore the way to cure it, is shoved ancient civilisation became a nation. It encapsulates the under the carpet. The real cause is not sugar alone but essence of the entire Bharatiya traditions. secretion of insulin due to eating and eating too often. Eating is today a global pandemic for industrialised However, with each passing day, not only in India, not only countries. We are likely to die from excess food rather in Governments or businesses, it is increasingly harder to than starvation as was the case a few hundred years ago. find what is true. Take the example of the Government While all this is going on, a private medical association proclaiming in Parliament that there were no deaths due recommends, approves products from anti-bacterial to lack of oxygen in the second wave1. At one level it may paints (for protection from viral transmissions) to LED be ‘true’ but reality backed up by evidence tells a different bulbs (that kill 85% germs), to Pepsico’s Tropicana Fruit tale. Juice (the first medical association to endorse food) when it has high fructose corn syrup that leads to fatty liver and Truth is harder to sight. This is so because it is inflammation (NAFLD)! surrounded, if not eclipsed, by half-truth, post-truth, selective truth, lies as truth, packaged truth, paid research Let’s look at the Media (of course not all media, but enough truth, legitimised / justified truth, cognitive bias, counter- above the acceptable threshold and in the mainstream). factual views as news, promising something without It has remained at the forefront of propagating lies. If expected minimum due care, fake news, possible media were a virus, it would have numerous variants views, misrepresenting, misleading propaganda, false popping their heads out at the opportune time. One equivalence and more. It is everywhere – from billboards variant is the ‘outrage’ variant and the second can be to institutions, from school textbooks to television. called the ‘silent’ variant. They both selectively create outrage or complete silence when reporting, depending This Editorial is dedicated to where we see such on the circumstances favourable to their agenda. Other propagation of lies and how and why we should call variants, and they are global, are: fear, hate, blame, its bluff. We all are surrounded by lies (from subtle anxiety, negativity, victimhood, sensationalism, rhetoric… to blatant), perhaps we have sensed it too, but not for which immunity gained by spotting the truth is the only noticed it very clearly. Yet, nothing is more important way to not succumb. Many suffer from diarrhoea of today than extracting ‘the true’ and setting it apart words but constipation of thoughts5. from that which is untrue. The ability to do this and its consistent application will be the true celebration of What about the web? If you search Ayurveda on Bharat, its nationhood and its civilisational heritage. Wikipedia, the second sentence (the authorship of which

Take the example of cigarettes. It took 50 years for them 1 https://www.livemint.com/news/india/no-deaths-due-to-lack-of-oxygen- to be declared as bad for health in America (one billion were-specifically-reported-by-states-uts-during-second-wave-govt-told- parliament-11626801416761.html people smoke today and governments count on revenues 2 28% + up to 21% cess, but is fairly low compared to many countries. from cigarette sales2). On the other hand, marijuana is Approximately Rs. 53,750 crores is the revenue collection 3 3 https://www.healthline.com/health-news/can-marijuana-kill-you#More- incapable of causing deaths but is illegal, cigarette concerns-with-more-availability smoking annually kills 50 lakh people and yet cigarettes 4 In a ten-year period between 2007 and 2017, diabetics increased from 40.9 m to 72.9 m in India. Globally, 171 m people in 2000; likely to reach 366 m as per are legal and can be purchased anywhere. In fact, a study WHO says that alcohol is 100 times more lethal than marijuana! 5 Adapted from what Dr. A. Velumani wrote recently on social media

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is attributed to the same private medical association) even from the keepers of the law! calls it the practice of quacks – whereas Sushrut is the father of surgery, having done at least eight types Reservation, a national menace today, was meant to of surgery from plastic surgery to dental surgery to be continued for ten years (1951-61). It is now a mega treating fractures and removing stones, full 3,500 years tool of inducement for votes, appeasement and killing ago! As you can imagine, this has been put up with meritocracy. In fact, it is an outright promotion of benefits a purpose, whereas if you look at the Encyclopaedia based on caste (birth-based) rather than class (economic Britannica, it simply gives facts and not selected negative need). This has made people covet and convert to get opinions. benefits. This is legitimising the unjust. This is a race, not to the top, but to the bottom. It’s there in professions, too. People give ‘possible views’ (we never knew that the possibility of something Each Independence Day let’s increase our ability to can become a professional view for there are infinite extract ‘the true’ and set it apart from lies with courage possibilities and they cannot fit the law just because they and sharpness. As professionals, this is what we are are possible). Many of these are outrageously over the trained for and are expected to deliver. Unfortunately, top. Here is one: schools selling notebooks to students it cannot be defined by laws and depends on context could ‘possibly’ be treated as service requiring registration many a time. At a mundane level truth is evidenced by a under GST. measurable reality (existence of something or occurrence of something), often it is what is beneficial and not just One actress put out videos stating how firecrackers during convenient (punish the wealthy for non-serious offences Diwali made her run out of breath due to her asthma; with a fine rather than imprisonment for they give taxes and later she celebrated her wedding with a lavish and generate jobs which can be used for the welfare of fireworks show. Look at the advertising around us, which many rather than killing their business), sometimes it is often sells what you don't need and even can't afford by worthy of one’s role (Federer was asked for a pass at the exploiting fears and insecurities. Or for that matter see Australian Open by a security guard in 2019) and so on. who are called our heroes? They are not just actors and Times are such where the false is promoted as true and entertainers, but rather soldiers, scientists, entrepreneurs, so one must prefer and promote the truth. In the words sports persons and many others. The Punjab CM recently of a famous author: सत㔯 को भी प्रचार चाहिए, अन㔯था वह tweeted that three goals were scored by Punjab players मिथ्य मान लिया जाता है - हरिशंकर परसाई at the Olympics hockey competition and made it sound as if Punjab alone got the goals. Whereas, in a team sport, Sometimes high-ranking people and institutions sacrifice players (from six different states in this case) got the ball truth for something else like peace, etc. Martin Luther to a player who then scored a goal. wrote ‘Peace if possible, truth at all costs.’ Because when truth is lost, all else that remains will be detrimental The top court pushed back a plea for President’s Rule in and ephemeral. In the words of Carl Sagan: If it can be Bengal due to the killing of innocents in post-poll violence destroyed by the Truth, it deserves to be destroyed by 15 days but took suo motu cognizance of the death by the Truth. of a judge in Jharkhand. Courts often take suo motu cognizance, but defer cognized facts for another day. Happy 75th Independence Day! Jai Hind! Some say it’s because the common man is expendable. Who doesn’t remember the Rs. 1 fine on a top lawyer for criminal contempt of the Supreme Court for ‘scandalising the court’ on Twitter. He had the wisdom to know what behaviour is expected and the ability to pay a reasonable Raman Jokhakar fine. But these selective approaches to the truth continue Editor

When truth is not free, freedom is not true — Jacques Prevert

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from the president Dear BCAS Family,

I commence my journey to communicate with you all There are exciting times ahead for CA firms, as as President with this maiden message. I first offer my the government has permitted audit firms to salutations at the holy feet of Lord ‘Shreeji Bawa’ for transform themselves into multidisciplinary partnerships bestowing on me the choicest of blessings and making (MDPs) by notifying the regulations issued by the me worthy to be chosen as President of the august ICAI. The CA firms would be able to forge tie-ups with professional body BCAS. I take this opportunity to thank company secretaries, actuaries, cost accountants, all my seniors at BCAS for honing my skills and making me advocates, architects and engineers, thereby enabling worthy of leading one of the oldest voluntary associations them in scaling up their portfolio of services. The of CAs which is in its 73rd year. If I may consider this regulations have come at an apt time when the RBI, role of President as a success, I am conscious of the too, has come out with common guidelines for the fact that success should feed one’s sense of responsibility. appointment of statutory auditors encompassing all I commence my journey for the year with a thought in major financial lenders. These two moves are in the mind which is conveyed to me by my GURU Mahatria Ra: direction of empowering Small and Medium-size Partnerships (SMPs) to scale up and offer a variety of ‘In the journey of success, every finishing line is the services under one roof. new starting line. In your career, year after year, you have to prove once The Finance Ministry launched its new income tax e-filing again. portal in June, 2021. However, over the last 45 days there You have got to challenge yourself once again. has been a deluge of emails received by the Income-tax After every accomplishment, the heartbeat of success Department, totalling more than 700, regarding complaints remains, about issues faced on the portal. The taxpayers and “What next? What else? What more? How else?”’ professionals are facing various challenges in using the portal and there are issues which remain unaddressed. I have accordingly drawn an elaborate plan for the year There have been representations by various stakeholders to be of relevance by addressing the above questions to and professional associations. The Finance Ministry has move forward and make the year a memorable one for informed that all the issues would be resolved and the BCAS. portal would be fully functional by the first week of August. I hope that the hardships of professionals and taxpayers The Theme for the year has been devised on the acronym are mitigated and there is ease of using the portal and ESG – EMPOWERING, SCALING, GLOBALISING. hopefully the new portal offers many user-friendly features to justify the upgradation. Along with the Theme, in consultation with my team of Office-Bearers, we have devised an internal goal-setting Another landmark event has taken place in India. The exercise for BCAS by the name LEAP: listing of Zomato, the first unicorn tech company to get • Leadership for BCAS listed on the exchanges. With its first mover advantage • Excellence at BCAS as a tech Startup being listed, it has opened the doors • Accountability to BCAS members for other tech Startups which are in the pipeline to get • Professionalism in BCAS listed. This demonstrates that India is on the path towards matured capital markets, which are ready to lap I am not elaborating on the above, as the same has been up opportunities in unique business models. I am of the dealt with in detail in my incoming speech delivered during opinion that the valuation metrics will evolve on the lines the AGM of BCAS, which is also published in this Journal. of such Startups in the US and China. This will also be a great opening for professionals to critically evaluate such I would now like to delve on the professional opportunities, business models and advise their clients and become challenges and the coming of age of the Indian economy. valued business advisers.

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We celebrate Guru Purnima every year on Shukla Independence. As responsible citizens, I would narrate Paksha Ashadha Purnima. The day is celebrated by just a simple way to display our patriotism as narrated by worshipping GURU, who is an enlightened soul imparting my GURU Mahatria Ra: wisdom in both spiritual and academic fields. I dedicate Guru Purnima to all who have influenced my journey as ‘A sensible display of patriotism will be…. a human being by enlightening me with their knowledge To be the BEST in whatever you do, and thus make and recite the following shloka: your country proud.’

ꥍ셇रकः सूचकश्핈व वाचको दर㔶कस㔤था। I conclude by wishing each one of you a HAPPY शिक्षको बोधकश्핈व षडेते गुरवः स्त륃 ाः॥ INDEPENDENCE DAY.

The six Gurus to remember are the one who inspires, one Best Regards, who informs, one who recites, one who guides, one who teaches and the one who awakens.

We shall be entering the 74th year of Independence on 15th August, 2021. India will be launching a year-long Abhay Mehta celebration on this day to commemorate 75 years of President

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Bombay Chartered Accountant Journal AUGUST 2021 11 532 (2021) 53-A BCAJ

MLI SERIES MAP 2.0 – DISPUTE RESOLUTION FRAMEWORK UNDER THE MULTILATERAL CONVENTION

SUDARSHAN RANGAN Advocate K. PRASANNA Chartered Accountant

1. INTRODUCTION border trade and investment. The advent and growth of ‘Like mothers, taxes are often misunderstood, but multinational corporations in India created a significant seldom forgotten’ – Lord Bramwell increase in tax treaty and transfer pricing disputes. Characterisation of receipts, arm’s length pricing, Lord Bramwell’s words reiterate that one cannot escape the treaty entitlement, permanent establishment (PE) and rigours of taxation as it is inevitable. There is considerable attribution of income, etc., are common cross-border certainty regarding the levying of taxes by a State, but taxation disputes. A tax treaty will only achieve its goals the certainty buck stops there. The functional features if the taxpayers can trust the Contracting States to apply of taxation have led to various complexities, eventually the treaty in letter and spirit. paving the way for tax uncertainty. Tax uncertainty is on account of various factors; the OECD-IMF report on If one Contracting State tax authority does not do so, the tax certainty1, inter alia identifies an ineffective dispute affected taxpayer has the right to contest this action of the resolution mechanism as one of the factors for tax tax authority through that state’s legal system. However, uncertainty. Due to the uncertainty element, genuine the domestic dispute resolution mechanism may be taxpayers have suffered the wrath inter alia through laborious, time-consuming and expensive. prolonged disputes, thus losing faith in the system. On the other hand, tax shenanigans have benefited through Therefore, to resolve the double taxation issues, the tax avoidance, leaving the administration with empty tax treaty provides for a mechanism by way of Mutual coffers. Tax revenue being the cornerstone of a stable Agreement Procedure (MAP)2, whereby the competent economy, the economic impact that tax uncertainty authorities (CA) of the relevant jurisdictions consult causes is undesirable for all the stakeholders concerned. each other and endeavour to resolve the differences or Therefore, fostering tax certainty remains at the top of the difficulties in the interpretation or application of the tax agenda and a need-of-the-hour measure for the States. treaty.

As we draw the curtains on this insightful Multilateral However, despite the advantages that MAP offers to Instrument (MLI) Series, we will focus majorly on the resolve disputes, various shortcomings and challenges dispute resolution framework under the MLI in this final puncture its effectiveness. Some of the shortcomings in edition. This measure marches to foster tax certainty. the MAP framework are: However, unlike the other substantive provisions in the MLI, the success of the dispute resolution mechanism Shortcomings of the MAP 1.0 framework relies on an effective procedural framework which will be • No impetus and mandate on the CA to solve a dispute. the focus of our discussion. • No deadline or timetables to resolve the disputes; hence the process is protracted unreasonably and time-consuming. 2. TAX TREATY DISPUTE RESOLUTION – PRE-BEPS ERA • Lack of domestic law support such as non-implementation of MAP due to domestic law conflict. ‘No matter how thin you slice it, there will always be • Lack of training and capacity-building initiatives by Governments for two sides’ – Baruch Spinoza its CA on international tax issues owing to financial constraints. The purpose of tax treaties is to reduce barriers to cross-

1 2019 Progress Report on Tax Certainty (July, 2019) 2 Article 25 of the Model Conventions (Pre-2017 editions)

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comply with. AP 14 included a minimum standard for Shortcomings of the MAP 1.0 framework (Continued) participating countries that should ensure the following • Lack of guidance in MAP processes for taxpayers in emerging aspects: economies on the procedural and administrative aspects for initiating the MAP. (i) Proper Implementation & Process: • Lack of dedicated and experienced resource personnel to focus on Treaty-related MAP, leading to an increase in MAP inventory. obligations on MAP are fully implemented in good 6 • Lack of transparency from the taxpayers' perspective as they are faith and MAP cases are resolved on time. not involved in the process; hence, taxpayers are apprehensiveAlign- (ii) Prevention & Resolution of Disputes: The about resorting to MAP. ment administrative processes should promote the • From a taxpayer’s perspective, there are risks of double taxation prevention and timely resolution of treaty-related due to denial of corresponding adjustments in other state or disputes. re-opening of tax assessments in the other state, delay in issuing (iii) Availability & Accessibility to MAP: Taxpayers refunds, etc3. meeting the requirements under Article 25(1) of the From India’s standpoint, despite being one of the OECD Model Convention can access the MAP. developing countries to have a large inventory of MAP cases, the MAP framework has not been effective owing In addition to the above, the AP 14 also provided certain to the shortcomings identified in theTable above. Lack of best practices for implementation. The AP also addressed procedural guidance from the CBDT, clarity, transparency those members of the Forum for Tax Administration (FTA) in the process and, more importantly, an extremely time- who will undertake a peer review mechanism for effective consuming process with non-TP cases taking more implementation of the minimum standards7. It is to be than 100 months to arrive at a resolution4 are some of noted that India is a member of the FTA. the pain points. Hence, the need for a more effective MAP framework was imperative considering the ever- The AP 14 report, which contains the minimum standard increasing inventory leading to tax uncertainty. and best practice recommendations, is transposed into the CTAs by introducing it in the MLI. Part V of the 3. MAP 2.0 – BEPS MEASURES MLI – Improving Dispute Resolution, focuses on Article The introduction of the BEPS Action Plan (AP) provided 16 dealing with a strengthened MAP Framework for an various measures to eliminate the scope for tax effective resolution of treaty disputes, and Article 17 – avoidance. However, the implementation of these Corresponding Adjustments, deals with MAP accessibility measures involved changes in the domestic laws and for transfer pricing cases to eliminate economic double tax treaty (through MLI). Therefore, with the introduction taxation. of BEPS measures and also with the existing MAP framework being inefficient, the possibility of growing 3.1 Article 16 – MAP 2.0 tax uncertainty was inevitable. To ensure certainty and The salient feature of Article 16 and India’s position predictability for business / taxpayers, AP 14 - Making is as follows: Dispute Resolution Mechanisms More Effective was initiated. BEPS AP 14 dealt with various aspects to Article Scope Inference improve the dispute resolution mechanisms (in addition to remedies under domestic laws) and suggested some 16(1) Taxpayer considers that Availability and action of one or both the flexibility in access best practices that countries could emulate to achieve First contracting states will to MAP: Aggrieved certainty in a time-bound and effective manner. sentence result in taxation that is taxpayer can not according to the CTA. approach for MAP Therefore, irrespective of resolution either of : Minimum Standards are certain Minimum Standards the remedy under domestic the contracting states provisions to which all countries and jurisdictions within law, the dispute can be and not necessarily its the BEPS inclusive framework5 have committed and must presented to the CA of resident jurisdiction either contracting state 3 Carlos Protto Mutual Agreement Procedures in Tax Treaties: Problems and Needs in Developing Countries and Countries in Transition – Intertax, Volume 42, Issue 3; and Jacques Malherbe: BEPS – The Issues of Dispute Resolution and Introduction of a Multilateral Treaty 6 Echoing Article 31 and 32 of Vienna Convention 4 OECD MAP 2016 Statistics 7 OECD (2015), Making Dispute Resolution Mechanisms More Effective, Action 5 Information related to the Inclusive Framework is available at http://www.oecd. 14 - 2015 Final Report, OECD/G20 Base Erosion and Profit Shifting Project, org/tax/beps/beps-about.html OECD Publishing, Paris

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Article Scope Inference Article Scope Inference

[Continued] The time limit for presenting Time Limit: For [Continued] be obstructed by the case must be within initiating MAP, the any time limits in the Second three years from the first aggrieved taxpayer domestic law of the sentence notification of the action must present his jurisdictions concerned resulting in taxation grievance within a minimum time limit of India's Position: three years. This is to ensure that there Article 16(2) First sentence: is no late claim made There is no reservation clause for the said provision. Further, all the to burden the tax CTAs India has entered into contain the said clause except for the administration8 and CTAs with Greece and Mexico. India has duly notified these two CTAs, at the same time give which do not contain the language equivalent to Article 16(2) First adequate time to the sentence. Both Greece and Mexico must make a similar matching taxpayers to initiate notification by including the India treaty in their notification list according MAP access to which the First sentence of Article 16(2) shall apply to these treaties. India's Position: Article 16(2) Second sentence: India has not made any reservation to this clause as most of the Article 16(1) First sentence: treaties it has entered into contain a similar language. However, India India has reserved the right to the application of this First sentence. has notified ten CTAs which do not contain the language specified As per India's view, residents of the contracting state must approach in Article 16 (2) Second sentence. Therefore, Article 16(2) Second only their respective CA to access the MAP. sentence will apply to these ten CTAs, if these treaty partners make Consequent to its reservation, India is bound to introduce a bilateral a similar matching notification by including the India treaty in their consultation or notification process if the Indian CA considers the notification list. Failure to notify by any of these ten treaty partners objection raised by the taxpayer in a MAP request as being not will result in a mismatch notification, whereby the CTA retains status justified. The recent MAP guidance issued by India9 addresses this quo, i.e., it remains unaltered by the MLI provision aspect, wherein India will notify the treaty partner about the reasons for which the MAP application cannot be accepted and solicit the treaty partner's response to arrive at a decision. Article Scope Inference Article 16(1) Second sentence: 16(3) If any difficulty or Dispute Prevention: India has not reserved this sentence as the existing CTA that India doubt arises as to the Cases may arise has entered into contains the specified time limit of three years First interpretation or application concerning the except for four CTAs10 where the existing timeline for initiating the sentence of CTA, then the CA shall interpretation or MAP is less than three years. India has notified these four CTAs. endeavour to resolve this by the application of These four CTAs will be modified by Article 16(1) of the MLI to mutual agreement tax treaties that are include a minimum time limit of three years, where an aggrieved generic and do not taxpayer can initiate MAP with the respective CA where the taxpayer necessarily relate to is a resident individual cases. In such a scenario, this provision makes it possible to resolve Article Scope Inference difficulties arising from 16(2) If objection appears to Bilateral MAP – This the application of the be justified and the CA clause ensures Convention First is not able to achieve a that where the CA Second CAs may also consult This provision enables sentence satisfactory solution by cannot resolve cases sentence together to eliminate double the competent himself, then the case must unilaterally, the CA taxation in cases not authorities to deal with be resolved by mutual concerned must enter provided under CTA such cases of double agreement with the CA of into discussions with taxation that do not the other state – Bilateral his counterpart CA for come within the scope MAP a resolution of the provisions of the Convention. For Second The contracting states' Implementation of MAP example, resident of a sentence settled MAP agreement agreement: This clause must be implemented is to provide certainty third state having PE irrespective of the timeline to taxpayers that in both the contracting prescribed under the implementation of MAP states domestic laws agreements will not India's Position:

8 Para 20 - Commentary on Article 25, OECD Model Convention, 2017 Article 16(3) First sentence: 9 MAP Guidance/2020, F.No 500/09/2016-APA-I, Dated 7th August, 2020, CBDT, There is no reservation clause for this provision. Further, all the CTAs Government of India India has entered into contain the said clause except for two treaties, 10 Belgium, Canada, Italy and UAE

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[Continued] measure through MLI may create significant disputes in the i.e., with Australia and Greece. India has duly notified these two form of disagreement on CTA interpretation, application treaties which do not contain the language equivalent to Article 16(3) First sentence. Therefore, both Australia and Greece shall notify of anti-abuse provisions and denial of treaty benefits, the treaty with India, according to which Article 16(3) First sentence etc. To effectively address these disputes and eliminate shall apply to the CTA concerned and be modified. Failure to notify double taxation, taxpayers access MAP to address their by these two treaty partners will result in a mismatch notification, whereby the CTA retains status quo, i.e., it remains unaltered by the dispute through the framework and minimum standard MLI provision under Article 16 of the MLI. Further, apart from the generic framework under Article 16, there are situations where Article 16(3) Second sentence: other substantive provisions of MLI allow taxpayers to There is no reservation clause for this provision. Further, a majority of the CTAs that India has entered into contain the said clause access MAP to resolve tax treaty disputes. except for six CTAs11. India has notified the six CTAs which do not contain the language specified in Article 16(3) Second sentence. India’s position concerning these other substantive Therefore, the Article 16(3) Second sentence will apply to these six CTAs if these treaty partners make a similar matching notification by provisions is as follows: including India in their notification list. Failure to notify by any of these six treaty partners will result in a mismatch notification, whereby the CTA retains status quo, i.e., it remains unaltered by the MLI provision Article Particulars Scope – MAP India's Position accessibility 4(1) Dual If a person other India has notified 3.2 Article 17 - Corresponding Adjustments Resident than an individual 91 treaties (except Entities is resident in Greece and Libya). more than one Further, India has Article Scope Inference state, the CA agreed to the shall endeavour discretion of CAs 17(1) Unilateral corresponding Mitigating economic to determine to provide relief in adjustment – Normally, in a double taxation: The residency for CTA a case where dual transfer pricing adjustment, provision is a replicated residency is not a taxpayer in a Contracting version of Article In the absence of resolved Jurisdiction (State A), whose 9(2) of the OECD an agreement, the profits are revised upwards, Model Convention. person shall not Australia and Japan will be liable to tax on an Further, the provision be entitled to relief have reserved amount of profit which has is to ensure that or exemption from application of already been taxed in the jurisdictions provide tax except to the discretionary hands of its associated access to MAP in extent and manner relief. Hence, enterprise in another transfer pricing cases agreed by the CA. discretionary relief Contracting Jurisdiction In effect, CAs can cannot be granted (State B) agree and provide under these treaties relief at their by the competent In such a scenario, State B discretion authorities shall make an appropriate adjustment to relieve the economic double taxation 7(4) Principal Deny treaty India has not opted Purpose benefits if for the discretionary India's Position: Test (PPT) reasonable to relief provision as conclude that one it has notified the India has made its reservation under Article 17(3)(a) for the right not of the principal same under Article to include the corresponding adjustment clause in the CTAs, which purposes of the 7(17)(b). Therefore, already contains a similar clause [Article 9(2) in the respective arrangement is to once the treaty tax treaties]. Therefore, Article 17(1) will have no impact on those obtain tax benefits benefits are denied, CTAs. However, in respect of those CTAs that do not contain the the CAs cannot corresponding adjustment clause [for example, the India-France Based on MAP provide any relief at 12 CTA ], the corresponding adjustment clause will be included to request, the their discretion modify the same CA can provide treaty relief after Notwithstanding the 3.3 The interplay of other articles of MLI with MAP consideration above, the taxpayer Part V of the MLI includes mechanism Article 16 of the of facts and can avail the treaty circumstances benefit if it can be MLI. As mentioned earlier, the introduction of the BEPS established that the tax benefit is 11 Australia, Belgium, Greece, Philippines, Ukraine and UK in accordance with 12 Synthesised Text between India and France CTA available at https://www.in- the object and cometaxindia.gov.in/dtaa/synthesised-text-of-mli-and-india-france-dtac-indian- purpose of the CTA version.pdf

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Article Particulars Scope – MAP India's Position and suggested recommendations for more effective accessibility functioning of the MAP. According to the peer review [Continued] and BEPS AP 14, the Indian tax authorities have taken significant steps to reform the MAP framework and make as stipulated it productive. Two significant reforms include: under Article 7(1) without resorting to MAP. Under this  The CBDT amended Rule 44G of the Income-Tax circumstance, the Rules and substituted it with the erstwhile Rules 44G tax authorities can 15 grant treaty benefits and 44H . The amended Rule deals extensively with the implementation and the procedural framework for the 7(12) Specified If a person is not India has opted MAP process. Limitation a qualified person for the provision of of Benefits as per para 7(9) SLOB in addition to (SLOB) nor entitled to PPT13  In line with the BEPS AP 14 recommendation, India benefits as per However, the had released a detailed guidance note on MAP16. The para 7(10)/7(11), provision of SLOB the CA may grant shall apply to MAP guidance addresses many of the open issues relief subject to Indian tax treaties on procedural aspects of MAP and, more importantly, certain conditions only if the other clarifies key practical nuances absent in the pre-BEPS and requirements contracting states have also notified era regime for the taxpayers to resort to. SLOB provisions • Broad features of the MAP guidance issued by the 10(3) PE situated Suppose the India is silent in a third benefit of CTA is on this Article. Indian tax administration, which acts as a handy tool for jurisdiction denied under para Accordingly, the taxpayers in understanding the MAP framework, are as 10(1) regarding the Article will be follows: income derived by applicable subject a resident. In that to notification case, the CA of and reservations Part Nature Brief aspects covered another contracting made by the state (source state) other contracting A Introduction This part addresses the following may nevertheless jurisdiction as per and basic aspects: grant these Articles 10(5) and information Manner of filing MAP request (Form benefits subject to 10(6) of the MLI 34) consultation with Contents of an MAP application the resident state Procedure to be followed in case CA MAP is filed in the home country against the order of the Indian tax From India’s standpoint, Article 7 has a significant impact. authority The application of PPT to evaluate treaty entitlement Procedure to be followed by CA of India upon receipt of a MAP request would create significant interpretation issues and the Participation of Indian CA in taxpayers may explore MAP compared to the domestic multilateral MAP cases dispute mechanism. Communication of views between CAs through a position paper India has committed to resolving 4. MAP 2.0- Domestic measures the MAP cases within an average taken by India timeframe of 24 months • The BEPS AP 14 had suggested a peer review B Access and Access to MAP mechanism to ensure adequate implementation of the denial of MAP Provide instances where MAP can suggested minimum standard and recommendations. As be filed 14 Commitment to provide MAP access a result, the peer review undertaken for India in 2019 in a situation where domestic highlighted India’s progress on the MAP programme anti-abuse provisions are applied Clarification of MAP access in case 13 A total of 14 countries including India have opted for SLOB. Greece opted for of an order under section 201 asymmetric application as per Article 7(b) of MLI; this thereby allows India to adopt SLOB along with PPT even though Greece shall apply only PPT 14 OECD (2019), Making Dispute Resolution More Effective – MAP Peer Review Report, India (Stage 1): Inclusive Framework on BEPS: Action 14, OECD/G20 15 Notification No. 23/2020, CBDT dated 6th May, 2020 Base Erosion and Profit Shifting Project, OECD Publishing, Paris, https://doi. 16 MAP Guidance/2020, F.No 500/09/2016-APA-I, dated 7th August, 2020, CBDT, org/10.1787/c66636e8-en Government of India

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Part Nature Brief aspects covered of Articles 16 and 17, a substantial number of existing CTAs already contain the provisions recommended by [Continued] Access and The situation where MAP access the MLI. Therefore, the ineffectiveness of MAP in the denial of MAP will be granted but Indian CA will not B negotiate any outcome other than pre-BEPS era (MAP1.0) may be attributed largely to what was achieved earlier – such as procedural infirmities and hassles. Unilateral APA, Safe Harbour, order of Income-tax Appellate Tribunal. In these circumstances, Indian CA will • Therefore, for MAP 2.0, the need of the hour is to request the other treaty partner to address the existing shortcomings. In this regard, the provide correlative relief Indian tax administration's recent measures to introduce Denial of MAP in situations where Delay in filing MAP application revised rules and the guidance note on MAP are The objection raised by the taxpayer noteworthy and laudable. They reflect India's approach is not justified – Treaty partner will be to resolve treaty-based tax disputes and stick to its consulted before denial commitment to the BEPS inclusive framework. Further, Incomplete / defective application is not rectified within a reasonable the implementation of reforms based on the FTA-MAP time, or non-filing of additional peer review recommendations on BEPS AP 14 also information within the time limit reflect the approach of the Indian tax administration to Cases settled through Settlement Commission rectify its defects in the MAP process. Cases before Authority for Advance Rulings (AAR) • India's MAP statistics further support the view that MAP Issues governed by domestic law 2.0 is heading in the right direction. One can observe that C Technical The CA can negotiate and eliminate the timeline for resolving MAP cases has considerably issues all or part of the adjustments reduced considering that the time taken for MAP resolution provided it does not reduce the 17 returned income was more than five years in the MAP 1.0 era . Speedy Recurring issues can be resolved resolution of tax disputes fosters certainty and promotes as per prior MAP. However, issues faith in the system. It is imperative to mention that India's cannot be resolved in advance Interest and penalty are positive outlook to resolve disputes is also reflected with consequential and hence not part the OECD conferring India and Japan with the MAP of MAP award for effective co-operation to resolve transfer pricing Indian CA will make secondary cases18. adjustment as per law MAP cannot be proceeded with where BAPA or Multilateral APA is MAP caseload as at 2019-end inventory and time filed frame of resolving Suspension of collection of taxes will be as per Memorandum of Understanding (MOU) entered into Particulars TP cases Others with treaty partner; in its absence, the domestic law provision will apply Cases started before 380 96 Adjustment of taxes paid by payer 1st January, 2016 according to order under section 201 of the Act Cases started after 410 65 1st January, 2016 D Implemen- India is committed to implementing tation of MAP outcomes in all cases except The average time 64.86 61.97 outcomes when an order of ITAT is received for before January, 2016 the same year before implementing cases - to resolve MAP outcome. In such a case, India MAP [months] will intimate the treaty partners and request them to provide correlative Average time after 18.48 19.02 relief. In addition, taxpayers are January, 2016 provided with 30 days to convey their cases - to resolve acceptance of the outcome MAP [months]

5. Reflections 17 April, 2014 – December, 2020 about 790 cases overall were resolved under MAP; Source – Ministry of Finance Annual Report, 2020-21 • Based on the discussions in the earlier paragraphs, on 18 https://www.oecd.org/tax/dispute/mutual-agreement-procedure-2019-awards. juxtaposing the Indian tax treaties with the MLI provisions htm

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• Amidst all the positive changes that the Indian tax MAP position without any deviation. authorities have brought in for an effective MAP 2.0, there are still some aspects that require consideration: o ITAT order overrides MAP settlement – The India MAP guidance suggests that the ITAT order will supersede o Suspension of collection of taxes – India, in its MAP the MAP settlement in cases where the implementation guidance, has stated that in respect of countries with no of MAP settlement has not taken place. The rationale MoU, the CBDT Circular governs the suspension of tax behind this is that the ITAT is an independent statutory collection. However, the Circulars / provisions of stay appellate body and the CA cannot deviate from it. This come with certain riders; for example, u/s 254 the Tribunal proposition is against the commitment granted under does not have the power to grant stay beyond 365 days the treaty. Besides, in practice, most transfer pricing in certain situations19. Therefore, such impediments could cases are usually remanded back to the field officers put taxpayers in a difficult situation and could impair the setting aside the original assessment. Considering that a outcome of the MAP. Hence, a more flexible approach to faceless regime for ITAT is on the anvil, it is our humble suspending tax collection, pending a mutually agreeable view that India should reconsider this proposition and procedure, is desirable. make suitable legal amendments to give effect to MAP settlements. o Resolution for recurring issues – Currently, the aggrieved taxpayer must apply for MAP resolution every CONCLUSION year regarding recurring issues. Hence, the Indian MAP The existing MAP regime in India can foster tax certainty guidance precludes the CA from resolving in advance only by rectifying its flaws and defects. Thanks to the BEPS or prior to an order by the Income-tax authorities on initiative and the MLI, the MAP framework has indeed got recurring issues. For speedier disposal of recurring overhauled. The measures adopted by India by aligning issues under MAP, the Government may consider towards its global commitment by providing necessary introducing a simplified process. Such a mechanism will amendments to domestic law, clarifications and resolving assist in reducing the timelines for MAP resolution for disputes in a shorter period signals that the process recurring issues and foster certainty. Further, in the case is heading in the right direction. Measures undertaken of change in the CA in future years, the incumbent CA through MAP 2.0 for an efficient dispute resolution should maintain consistency and follow the prior years' framework may not be perfect and completely defect-free. Yet, the measures taken are laudable, bringing an element 19 Pepsi Foods Limited [2021] 126 taxmann.com 69 (SC) – The Supreme Court has held that ITAT can grant stay beyond 365 days, if the delay in disposal of of clarity and certainty for taxpayers. After all, what is appeal is not attributable to the assessee coming is better than what is gone!

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CARO 2020 SERIES: NEW CLAUSES AND MODIFICATIONS INVENTORIES AND OTHER CURRENT ASSETS

MANISH SAMPAT i PARESH CLERK i VIJAY MANIAR i ZUBIN BILLIMORIA Chartered Accountants

(This is the second article in the CARO 2020 series that started in June, 2021)

NEW CLAUSES AND MODIFICATIONS b. Apart from ensuring that proper written instructions Whilst the clause on reporting in respect of inventories are issued, it is also incumbent for the auditor to point has been present in the earlier versions, too, CARO 2020 out specific areas where the instructions are not clear or has modified parts of the first clause and added certain other procedural lapses like inadequate segregation of reporting requirements in respect of current assets which duties, cut-off procedures not adhered to especially are given below. for sales and work-in-progress in continuous process industries, as may be observed. It is important for the Modifications auditor to comment on the specific areas where he a. Whether in the opinion of the auditor the coverage feels that the procedures are not adequate rather and procedure for physical verification of inventories is than commenting that the ‘procedures are generally appropriate; adequate’. b. Whether any discrepancy in excess of 10% or more in the aggregate for each class of inventory was noticed c. Covid-19: The onset of Covid-19 has caused significant and the same was properly dealt with in the books of disruptions in the business operations of companies which accounts. could pose challenges in conducting physical verification of inventories. This, in turn, would make it difficult Additional Reporting for auditors to ensure compliance with SA 501, Audit a. Whether at any point of time during the year the Evidence-Specific Considerations for Selected Items, company has been sanctioned working capital limits which requires the auditor to obtain sufficient appropriate in excess of Rs. 5 crores in aggregate from banks or audit evidence regarding the existence and conditions financial institutions, on the basis of security of current of inventories. SA 501 requires attendance at location/s assets; of physical inventory count, unless impracticable, and b. Whether the quarterly returns or statements filed by the performing audit procedures on inventory records to company with such banks or financial institutions are in determine whether the records accurately reflect actual agreement with the books of accounts and if not, to give inventory count results. Some of the challenges may be details. broadly analysed under the following situations:

PRACTICAL CHALLENGES IN REPORTING • Management does not conduct an inventory count The reporting requirements outlined above entail certain (not even any alternative audit procedure) on the practical challenges which are discussed below: balance sheet date: In such cases, as per Key Audit Considerations amid Verification of inventory: Covid-19 issued by ICAI on physical inventory (ICAI’s a. On the appropriateness of coverage and procedure Covid guidance), the management should inform the for physical verification of inventory, the auditor will auditors and those charged with governance about the have to observe the performance of the management’s reasons for the same. However, if carrying out a count physical count taking procedure, control over movement is not feasible, the auditor would need to evaluate the of inventory, adequacy of design and effective operations reasonableness of the circumstances and the internal of internal controls. controls with respect to the existence and condition of

20 Bombay Chartered Accountant Journal AUGUST 2021 541 (2021) 53-A BCAJ inventory. Depending upon the materiality, the auditor may technologies (i.e., Microsoft Teams, Facetime, use his judgement to modify his audit report in accordance WhatsApp). In this case, care should be taken by the with SA 705 (Revised) Modifications to the Opinion in auditor that if inventory items cannot be identified with the Independent Auditor’s Report. Further, its impact on a unique reference number, etc., there is no chance of auditor’s opinion on internal financial controls u/s 143(3) replacement of inventory during / after the count to avoid (i) of the Companies Act, 2013 (‘ICFR’) also needs double counting. It would be advisable to retain the to be evaluated, in addition to reporting under this recording thereof as part of the audit documentation; clause regarding coverage of physical verificationAlign- of iii. Consider using an external party, e.g., an independent inventory. ment CA firm in that location (ICA) or Internal Auditor (IA), in which case the auditor needs to evaluate • Physical verification conducted at a date other than a. Objectivity and independence of ICA / IA; the balance sheet date: b. Inquire for any relationships that may create a threat to In such cases, the design and operating effectiveness their objectivity; of controls over inventory would need to be evaluated c. Evaluate their level of competence; before reporting. Further, the following considerations are d. Determine the nature and extent of work to be assigned; also relevant: e. Communicate planned use of ICA / CA with those i. Whether the inventory records are properly maintained; charged with governance; ii. Understanding reasons for differences in the physical f. Obtain written agreements from the entity for the use of verification count and the inventory records; ICA / IA for providing direct assistance; iii. Performing roll-backward procedures, if the inventory g. Direct, supervise and review the work performed by count is done after the year-end or roll-forward procedures, ICA / IA providing direct assistance, including provide if inventory count is done during the interim period; instruction / work programme, including sample selection, iv. Evaluating whether any adjustment is required in roll- communicate management’s inventory count instructions, forward or roll-backward procedures due to differences etc., and, if possible, supervise the count while it is in observed as in (ii) above; progress. v. To consider whether the time between inventory count date and balance sheet date reflects appropriate When inventory is under the custody and control assessment of the physical condition of the inventory. of a third party, e.g., bonded warehouse, job worker / contractor, etc., the auditor shall verify the procedures • Impracticable for auditor to attend the physical undertaken by the management to evaluate the existence count: and condition of that inventory. This could be by way This issue is relevant for the auditor to issue an audit of obtaining confirmation from the third party as to the opinion on the financial statements and not on CARO quantities and condition of inventory held on behalf of 2020. However, in order to have complete discussion on the entity and / or perform inspection or other procedures physical verification of inventory, specifically its increased appropriate in the circumstances. The auditor needs to importance during Covid pandemic times, the same is focus on whether inventory with third party is for a longer also discussed here. than normal period and obtain reasons for the same.

 In the event that it is impractical for the auditor to In the event the entity has specialised inventory where physically attend the inventory count process, the inventory count is not based on a normal physical auditor can perform alternative audit procedures to verification process but on the confirmation of quantity / obtain sufficient appropriate audit evidence regarding the quality by an expert, the auditor will review the certification existence and condition of the inventory. In addition, to obtained by the entity and compare it with the book records. evaluate design and test the operating effectiveness of For example, in the case of coal, tonnage is calculated by internal control over physical verification of inventory, the considering the height, width, length of the stock yard and following may be considered: the moisture content in the coal to arrive at its tonnage. The entity will normally take the help of engineers in this i. Prepare a document substantiating the impracticality process who would be internal or external experts. and unreasonableness of observing the count in person, given the Covid-19 situation; a. Appropriate coverage: Even if the company has ii. Use of web or mobile-based video-conferencing instituted proper procedures for physical verification, it

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is imperative that the coverage thereof is adequate and identified as per AS 2, ‘Valuation of Inventories’ / Indian appropriate with respect to the nature, size, materiality, Accounting Standard (Ind AS) 2, ‘Inventories’ and the location, feasibility of conducting physical verification and internal policies of the management. The count at the risk of material mis-statement involved. This could involve time of physical verification will have to be compared significant judgement and an interplay of several factors, with the book records and discrepancies in excess of some of which are discussed hereunder: 10% or more in the aggregate for each class will have to be reported. It may be worth it to note that the threshold • Classification of inventory – This is important for limit of discrepancies of 10% should be applied to the assessing the extent of coverage as also for evaluating value and not to the quantity. Hence, if the inventory has the impact of discrepancies. Whilst the class of inventory been valued other than at cost, e.g., net realisable value is broadly specified in the Accounting Standards for (NRV), the discrepancy of 10% needs to be compared manufacturing and trading companies, the same is with NRV. not clear for service companies since all of it may not be amenable for quantification. Further, even if the It is worthwhile to note that this clause deals with classification for manufacturing and trading companies discrepancies observed during physical verification only is appropriate to determine the adequacy of verification, and not with discrepancies observed during audit. Further, an A-B-C analysis is desirable for which the basis would even if the management has a valid explanation for need to be evaluated for reasonableness. Further, the the discrepancies, the fact needs to be brought out auditor also needs to examine whether there is a control while reporting under this clause. system in place to identify and mark slow-moving, obsolete or damaged inventory. Working capital facilities: a. This is a new reporting requirement wherein the • Periodicity of verification– The auditor would need to auditor has to review quarterly returns or statements filed verify the periodicity of such verification and whether all by the company with banks and financial institutions in the material items of inventory have been covered at least case the sanctioned working capital limits with them are in once in a year or as per the systematic plan as designed excess of Rs. 5 crores in aggregate and to report if these by the management. This would depend upon the nature are not in agreement with the books of accounts. of inventory, the A-B-C classification discussed above and the number of locations involved. b. Collation of all working capital facilities: For calculating the limit of Rs. 5 crores, it is important to note b. Dealing with discrepancies: The auditor should, that sanctioned amounts (not disbursed amounts) based on his understanding of the business and operating and both fund and non-fund-based amounts are effectiveness of internal controls, verify explanations required to be considered at any point of time during provided by the management for discrepancies between the year (as against only at the year-end) on the inventory as per the books and as physically verified and basis of security of current assets. This could present steps taken by them to reconcile. Some of the common challenges in identifying the completeness thereof since causes for discrepancies are: sanctioned facilities as well as non-fund-based facilities • Incorrect data entry on receipt are not reflected in the books of accounts. Accordingly, • Issues not recorded the auditor would need to make specific inquiries and • Misplaced stocks obtain a representation and corroborate the same with the • Loss due to theft or natural calamity requisite documentary evidence like sanctioned letters, • Human errors or incorrect unit of measurement used confirmations from the lenders, review of the minutes, • Inventory records not updated ROC filings for charge created, etc. The aggregate of the • Supplier frauds sanctioned limit from all banks and financial institutions is • Goods distributed as free samples also required to be collated. In case of a company which • Weight loss / gain due to passage of time operates from multiple locations and working capital facilities are negotiated locally, care should be taken to Under the modified (changed) reporting requirement, the ensure that all such sanctioned facilities are combined for auditor will have to report on any discrepancy noticed in the purpose of reporting under this clause. The auditor excess of 10% or more in the aggregate for each class will also have to cross-verify the same with the relevant of inventory. Each class of inventory will have to be disclosures, if any, in the financial statements.

22 Bombay Chartered Accountant Journal AUGUST 2021 543 (2021) 53-A BCAJ c. This clause is not applicable to unsecured sanctions or sanctions on the basis of security other than current assets or withdrawals above the sanctioned limit, e.g., in case the company has a combined sanctioned working capital limit of Rs. 4.75 crores but the same is overdrawn by Rs. 0.30 crore. In this case, the total outstanding working capital facility is in excess of Rs. 5 crores, however, since the aggregate sanctioned limit is less than Rs. 5 crores, this clause would not be applicable. d. Considering the discussion in paragraphs (b) and (c) above, in case the sanctioned working capital limit exceeds Rs. 5 crores, the auditor is required to review quarterly returns and statements filed by the company with such banks / financial institutions and report if they are in agreement with the books of accounts and, if not, give details thereof.

The auditor will have to consider materiality of discrepancies, its relevance to the users of financial statements and their professional judgement while reporting discrepancies. e. Each bank and financial institution may have its own requirements of submission of statements and returns. These submissions may be monthly, quarterly, yearly or of any other frequency, including event- based. However, for the purpose of reporting under this clause only quarterly statements / returns and that MSMEs will have to keep their books of accounts updated too which have relevance with the books of accounts based on which statements / returns submitted to banks of the company need to be considered, compared and and financial institutions can be compared, failing which reported. their auditor will issue a disclaimer while reporting under this clause. Though this clause is applicable only if sanctioned working capital limits are provided based on the security g. It is hoped that the introduction of this reporting of current assets, however, the responsibility of the requirement would lead to better discipline and auditor is to compare all the information provided in improvement in internal controls which would result in a the quarterly statements / returns which can be win-win situation for companies, lenders and auditors. compared with the books of accounts and is not restricted only to current assets. Such information may IMPACT ON THE AUDIT OPINION include aging of inventory and receivables, trade payable, Whilst reporting under these clauses, the auditor property plant and equipment, other information, etc. So may come across several situations where he may need long as information can be compared with the books of to report exceptions / deviations. In each of these cases, accounts, it will be the responsibility of the auditor to he would need to carefully evaluate the impact and exercise report. his professional judgement keeping in mind materiality and relevance to the users of financial statements, not only for f. Challenges for MSMEs: Reconciliation of the details reporting under these clauses but also on his opinion on of statements / returns submitted to the lenders with ICFR and / or audit opinion on the financial statements, the books of accounts on a quarterly basis could pose too. These are broadly examined hereunder: difficulties in case of MSMEs since they may not be regular in updating their accounting records. These Continued on Page 30

Bombay Chartered Accountant Journal AUGUST 2021 23 544 (2021) 53-A BCAJ

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24 Bombay Chartered Accountant Journal AUGUST 2021 545 (2021) 53-A BCAJ

POEM FOR INDEPENDENCE DAY

KALPANA K. SAH Chartered Accountant

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हमारा प्यरा हिंदस्ु तन एक ही तो है इस धरती पर, हमारा प्यरा हिंदस्ु तन सबसे प्यरा सबसे न्यरा, सबसे सुंदर सबसे पावन, हर त्यैहार का अपना रंग, बड़ ही सुंदर बड़ ही रंगीन, हर त्यैहार का अपना ढंग, एक ही तो है इस धरती पर, सभी नाचत े गात े एक संग, हमारा प्यरा हिंदस्ु तन कर दे सारी दनियु ा को हम दंग, एक ही तो है इस धरती पर, हर मझहब को पहचान देता, हमारा प्यरा हिंदस्ु तन हर जाति को मान, हर भाषा को देता है तिरंगा हमारी शान, तिरंगा हमारी जान, उसका अभिमान, इस देश को, हमारे तिरंगे को हमारा प्रणाम, एक ही तो इस धरती पर, एक ही तो है इस धरती पर, हमारा प्यरा हिंदस्ु तन हमारा प्यरा हिंदस्ु तन

पⴂगल, पाडवा, बैशाखी, ओणम या हो होली, सारे जहां से अच्छ कहलाता है भैया ईद, 啍섿समस, पटेटि या फिर हो दीपावली, हमारा प्यरा देश, हमारा हिंदस्ु तन मनात े है सारे त्यैहार मिलकर हम, हमारा प्यरा देश, हमारा हिंदस्ु तन ना कोई भेद और ना ही कोई द्वष करे हम,

Bombay Chartered Accountant Journal AUGUST 2021 25 546 (2021) 53-A BCAJ

SHOULD CHARITY SUFFER THE WRATH OF SECTION 50C?

K.S. CHYTHANYA Advocate VIPUL K.V. KAMATH Chartered Accountant

INTRODUCTION Section 11(1A) provides that for the purposes of section In this article, the applicability of section 50C in the case 11(1), where a capital asset held wholly for charitable or of a charitable trust has been deliberated upon. Before we religious purposes is transferred and the whole or any part proceed any further, a basic understanding of the method of the net consideration is utilised for acquiring another of computation of capital gains in the case of a charitable capital asset to be so held, then, the capital gain arising trust would be very helpful. from the transfer shall be deemed to have been applied to charitable or religious purposes to the extent specified COMPUTATION OF ‘INCOME’ IN THE thereunder. CASE OF A CHARITABLE TRUST Section 11 of the Income-tax Act deals with computation Given that the exemption u/s 11(1)(a) is subject to condition of income from property held for charitable and religious of application or accumulation, the Legislature found that purposes. Section 11(1) provides the incomes that shall such condition mandating application or accumulation not be included in the total income of the previous year of of capital gains could lead to eroding the corpus of the the person in receipt of the income. trust. Hence, with a view to ease the onerous condition of requiring application or accumulation of capital gains It is well settled that the ‘income’ as referred to in section for religious or charitable purposes, the Legislature 11(1) must be computed in accordance with commercial introduced section 11(1A) vide Finance (No. 2) Act, 1971 principles and not in accordance with the ordinary with effect from 1st April, 1962. This is forthcoming from provisions of the Act. the Circular No. 72, dated 6th January, 1972.

In this regard, reference may be made to the following It may be noted that section 11(1A) only deems acquisition materials: of another capital asset held for charitable or religious • Board Circular No. 5P (XX-6), dated 19th June, 1968; purposes as application for the purposes of section 11(1). • CIT vs. Ganga Charity Trust Fund [1986] 162 ITR 612 This is clear from the preamble of section 11(1A), which (Guj); uses the words ‘for the purposes of sub-section (1)’. • CIT vs. Trustee of H.E.H. the Nizam’s Supplemental Religious Endowment Trust [1981] 127 ITR 378 (AP); It may be noted that the computation of capital gains will • CIT vs. Rao Bahadur Calavala Cunnan Chetty also have to be made u/s 11(1) by applying commercial Charities [1982] 135 ITR 485 (Mad); principles as capital gains is also an ‘income’ u/s 11(1) • CIT vs. Janaki Ammal Ayya Nadar Trust [1985] 153 and cannot receive any different treatment. Reference ITR 159 (Mad) (para 13); may be made to the Board Circular No. 5P (XX-6), dated • CIT vs. Programme for Community Organisation 19th June, 1968 which provides that even income under [1997] 228 ITR 620 (Ker) upheld in CIT vs. Programme the head ‘capital gains’ will have to be computed under for Community Organisation [2001] 248 ITR 1 (SC); commercial principles in case of a charitable trust. • CIT vs. Rajasthan and Gujarati Charitable Foundation [2018] 402 ITR 441 (SC); and APPLICABILITY OF PROVISIONS OF • DIT(E) vs. Iskcon Charities [2020] 428 ITR 479 (Karn) SECTION 50C (para 7). For section 50C to apply, the following prerequisites must be satisfied: Section 11(1A) and computation of capital gains in i) Consideration received or accruing as a result of a the hands of a charitable trust: transfer of a capital asset is less than the value adopted

26 Bombay Chartered Accountant Journal AUGUST 2021 547 (2021) 53-A BCAJ or assessed or assessable by any Authority of a State Wherever the Legislature has sought to provide for Government for the purpose of stamp duty in respect of application of normal provisions of the Act in the case of a such transfer; and charitable trust, it has expressly provided so. It has done ii) The capital asset being transferred is land or building, so because it is aware that the income of a charitable or both. trust is to be computed in accordance with commercial principles. [See Explanation (ii) to section 11(1A) and Section 50C is a deeming provision which deems Explanation 3 to section 11(1).] the Stamp Duty Value (SDV) adopted, assessedAlign- or assessable as the full value of considerationment for the However, it has consciously chosen not to import the purpose of computation of capital gains u/s 48. fiction of section 50C into sections 11(1) and 11(1A) and hence section 50C would not be applicable in the case of It is well settled that the scope of a deeming provision a charitable trust. must be restricted to the purpose for which it is created and must not be extended beyond such purpose. Such It is a settled principle of interpretation that law has to legal fiction must be carried to its logical conclusion be interpreted in the manner that it has been worded. and must not be taken to illogical lengths. One should Nothing is to be read into and nothing is to be implied in not lose sight of the purpose for which the legal fiction it while reading the law. There is no intendment to law. was introduced. In this regard, reference may be made In this regard, reference may be made to the judgment to the judgments in CIT vs. Mother India Refrigeration in CIT vs. Kasturi & Sons Ltd. (1999) 237 ITR 24 (SC). Industries P. Ltd. [1985] 155 ITR 711 [SC] and CIT vs. Ajax Products Ltd. [1965] 55 ITR 741 [SC]. Even otherwise, it may be noted that section 50C is incompatible with the scheme of sections 11(1) and Thus, the provisions of section 50C, which deem the 11(1A) as there cannot be an application or accumulation SDV as the full value of consideration for the purposes of of any artificial income or consideration created by way of section 48, cannot be extended to the case of a charitable a deeming fiction. trust, in whose case the capital gains must be computed in accordance with commercial principles. In CIT vs. Jayashree Charity Trust [1986] 159 ITR 280 (Cal), it was held that though section 198 provides that Even otherwise, it may be noted that there can be no the amounts deducted by way of income tax are deemed room for importing a deeming fiction of Chapter IV-E in to be ‘income received’, what is deemed to be income computing the income of a charitable trust on commercial can neither be spent nor accumulated for charitable principles u/s 11(1). purposes. Hence, the deeming provisions of section 198 should not be construed in a way to frustrate the object In the following judgments it has been held that section of section 11. 50C has no application in case of charitable or religious trusts: It may also be noted that a charitable trust cannot be • ACIT vs. Shri Dwarikadhish Temple Trust, Kanpur expected to do the impossible act of applying / accumulating (ITA No. 256 & 257/Lkw/2011, dated 21st August, 2014) / investing a notional consideration which it has neither (paras 4.3-6.2); received nor is going to receive. In this regard, reference • ACIT vs. The Upper India Chamber of Commerce may be made to the judgments in Krishnaswamy S. [ITA No. 601/Lkw/2011, dated 5th November, 2014 Pd. vs. Union of India [2006] 281 ITR 305 (SC) and (2014) 46-B BCAJ 282] (paras 4 & 5). Engineering Analysis Centre of Excellence Private Limited vs. CIT [2021] 125 taxmann.com 42 (SC). It would also be pertinent to note that section 50C was inserted into the Income-tax Act much after section 11(1A) The interpretation that section 50C does not apply to was introduced. However, the Legislature has not chosen charitable trusts saves the provisions of section 11 from to make an amendment to section 11(1A) after insertion the vice of the absurdity of requiring the application / of section 50C, thereby indicating that the Legislature accumulation / investment of a notional consideration. does not intend to take away the benefit of section 11(1A) in the case of a trust with the introduction of section 50C Thus, the provisions of section 50C do not apply to the into the statute book. case of a charitable trust.

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NON-APPLICABILITY OF SECTION 50C the statute to do away with the erosion of the corpus. BY APPLYING MISCHIEF PRINCIPLE Thus, when the intention of the Legislature was to ensure By applying the Mischief rule, or Heydon’s rule of that there is no erosion of corpus by way of requiring interpretation, while interpreting the provision, the real application of actual income, it can never be the intention intention behind the enactment of the statute needs to be of the Legislature to import section 50C into section gone into in order to understand what mischief it seeks 11(1A) and require the application or utilisation of an to remedy. This principle of interpretation finds support of artificial sum, thereby eroding the corpus. the judgment in K.P. Varghese vs. ITO [1981] 131 ITR 597 (SC). It can never be the intention of the Legislature to give a benefit with one hand and then take the same away The overarching reason for insertion of section 50C would with the other. Hence, a sincere attempt must be made to be to curb generation of black money by understating the reconcile the provisions to ensure that the benefit given by agreed consideration on records. Under the erstwhile the Legislature is not taken away. In this regard, reference provisions, the A.O. without any evidence to the contrary may be made to the judgment in Goodyear India Ltd. vs. could not question the consideration stated to have been State of Haryana [1991] 188 ITR 402 (SC). agreed between the parties to a transaction by presuming the market value to be the full value of consideration. Thus, even applying the mischief rule of interpretation, Hence, in order to plug evasion of taxes by understating section 50C cannot be applied in the case of a charitable consideration, section 50C has been inserted into the trust. statute books. In Gouli Mahadevappa vs. ITO [2013] 356 ITR 90 (Karn), it has been held that the ultimate object IMPACT OF DECISIONS RENDERED and purpose of section 50C is to see that the undisclosed IN THE CONTEXT OF INTERPLAY income of capital gains received by the assessees should BETWEEN SECTIONS 50C AND 54-54H be taxed. ON SECTION 11(1A) Under section 11(1A)(a)(i), if the entire net consideration In the case of a charitable trust, there can be no is utilised in acquiring another capital asset, the whole motivation whatsoever to generate any black money as of such capital gains arising from the transfer shall be the entire income generated is exempt from taxation if the deemed to have been applied to charitable or religious conditions u/s 11 are met. purposes.

In case of a charitable trust, deposit of sale consideration It may be noted that the definition of ‘Net consideration’ into a Fixed Deposit amounts to utilisation as envisaged in Explanation (iii) to section 11(1A) is similar to that in section 11(1A). In this regard, reference may be made contained in Explanation 5 to section 54E(1), Explanation to Board Circular No. 833 of 1975 dated 24th September, (b) to section 54EA(1), Explanation to section 54F(1) and 1975 and the judgment of the Calcutta High Court in CIT section 54GB(6)(c). vs. Hindusthan Welfare Trusts [1994] 206 ITR 138 (Cal). Hence, a mere investment in a Fixed Deposit could In certain judgments, it has been held that though section amount to utilisation. 50C must not be applied for the purposes of computing ‘net consideration’ as referred to in sections 54F and Thus, when there is no motivation to generate black 54EC, the capital gains referred to therein will also have money in case of a charitable trust, the mischief sought to to be computed without giving effect to the provisions of be remedied by section 50C does not arise. section 50C. In the said judgments, it has been held that the capital gains for the purposes of section 45(1) will have It may be noted that even qua the buyer of the land or to be computed in accordance with section 48 read with building, the provisions of section 56(2)(x) do not apply section 50C. Thus, the effect would be that though the by virtue of exception provided in clause (VII) of proviso to exemptions under sections 54F and 54EC are based on section 56(2)(x). Therefore, neither party will have any tax capital gains computed without applying the provisions of advantage in fixing a consideration lower than the actual section 50C, the capital gains for the purposes of section consideration. 45(1) would be determined after applying the provisions of section 50C, thereby effectively taxing the difference As discussed earlier, section 11(1A) was brought into between the deemed consideration as determined u/s

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50C and the actual consideration agreed between the Without going into the correctness of the said judgments, parties to the sale. the ratios laid thereunder have no application in the context of charitable trusts for the following reasons: The same may be demonstrated by way of an illustration: • The same were laid down in the context of sections 54F Particulars Amount (Rs.) Amount (Rs.) and 54EC and not in the context of section 11(1A). • Sections 54F and 54EC form part of Chapter IV, whereas Full value of consideration 36,00,000 section 11 forms part of Chapter III. Thus, section 11 is to (actual sale consideration - Rs. 20 lakhs or SDV – Rs. be applied prior to the stage of computation of income 36 lakhs, whichever is under Chapter IV which deals with computation of total higher) [A] income, and hence section 50C which forms part of Less: Indexed cost of (1,93,506) Chapter IV would have no application in the context of acquisition [B] section 11. Income chargeable under 34,06,494 • Unlike section 54F which deals with exemption from the head capital gains [C] = chargeability u/s 45, section 11(1A) provides for [A] – [B] computation of capital gains deemed to be applied to Less: Exemption u/s 54F [D] (18,06,494) charitable or religious purposes. As held by various courts, ‘Application’ can be only of real income. Actual sale value [D1] 20,00,000 • Even if one were to conclude that section 50C would Less: Indexed cost of (1,93,506) be applicable to the case of a charitable trust, the fiction acquisition [D2] imported for determining the full value of consideration will necessarily have to be imported into the utilisation of Capital gain u/s 54F [D3] = 18,06,494 [D1] – [D2] such consideration. This is based on the principle of parity of reasoning, which has been upheld by the Supreme Net consideration received 20,00,000 Court in CIT vs. Lakshmi Machine Works [2007] 290 Amount invested in new 20,00,000 ITR 667 (SC) and CIT vs. HCL Technologies Ltd. [2018] asset 404 ITR 719 (SC). Deduction u/s 54F(1)(a) 18,06,494 • The Board, vide Circular No. 5P (XX-6), dated 19th [since the net consideration June, 1968, has itself stated that the income of the trust is invested, entire capital (including capital gains) must be computed by applying gains is exempt] [D4] commercial principles. Thus, no notional income u/s 50C Taxable long-term capital 16,00,000 can be brought to tax in case of a charitable trust. gains [E] = [C] – [D] • The courts have reached the said conclusions keeping in mind the mischief sought to be remedied by section 50C. From the above illustration it is clear that though the As discussed above, the mischief sought to be remedied assessee has invested Rs. 20,00,000 in the acquisition by application of section 50C does not arise in the case of of a new asset which is equal to the net consideration of a charitable trust. Rs. 20,00,000, the assessee is suffering tax on a long- • Sections 11(1) and 11(1A) being exemption provisions term capital gain of Rs. 16,00,000 (Rs. 36,00,000 - Rs. with beneficial purposes, must be interpreted liberally. In 20,00,000), which is nothing but the difference between this regard, reference may be made to the judgment in the deemed sale consideration u/s 50C of Rs. 36,00,000 Government of Kerala vs. Mother Superior Adoration and the actual sale consideration of Rs. 20,00,000. Convent [2021] 126 taxmann.com 68 (SC), wherein the five-judge Bench’s decision in Commissioner of The above implications have been approved in: Customs vs. Dilip Kumar & Co. [2018] 9 SCC 1 (SC), was distinguished on the ground that the said judgment • Shri Gouli Mahadevappa vs. ITO [2011] 128 ITD 503 did not refer to the line of authorities which made a (Bang) upheld in Gouli Mahadevappa vs. ITO [2013] distinction between exemption provisions generally and 356 ITR 90 (Karn); exemption provisions which have a beneficial purpose. • Jagdish C. Dhabalia vs. ITO [TS-143-HC-2019 (Bom)]; • Mrs. Nila V. Shah vs. CIT [2012] 21 taxmann.com 324 CONCLUSION (Mum) / [2012] 51 SOT 461 (Mum). On the basis of the above, it may be argued that section

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50C does not have any application in the case of a lead to the absurd result of requiring a charitable trust charitable trust. Hence, the capital gains as referred to in to apply / accumulate / invest notional gains which have section 11(1A) will have to be computed without applying never accrued or arisen to it, which can never be the the provisions of section 50C. Any other interpretation will intention of the Legislature.

CARO 2020 SERIES: INVENTORIES AND OTHER CURRENT ASSETS Continued from Page 23

Nature of exception / Possible impact on the audit In such cases, it is imperative that the Board’s Report deviation report / opinion contains explanations / comments on every reservation The coverage and procedure • Modification of opinion on ICFR; / adverse comment in the audit report as per section for physical verification of 134(3)(f) of the Companies Act, 2013 and that there inventory is not adequate and / • Depending on the facts and or appropriate circumstances of the case, audit will not be any factual inconsistency between the two opinion on financial statements if, in the auditor’s judgement, the matter / observation may have any adverse effect on the functioning of the Physical verification of • Modification of opinion on ICFR; company. inventory not conducted by the company • Depending on the facts and CONCLUSION circumstances of the case, audit opinion on financial statements The above changes have cast onerous responsibilities Discrepancies in the returns / • Depending upon the nature of on the auditors by making them indirectly responsible to statements submitted to banks the discrepancy, modification on the lenders. Hence, they would also need to go beyond / financial institutions audit opinion or reporting on ICFR what is stated in the order since the devil lies in the reporting, if the discrepancy is in the books of accounts details!

If your work is about creating something that you truly care for, there is no need to balance work and life – life is work and work is life — Unknown

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INTRODUCTION TO ACCREDITED INVESTORS – THE NEW INVESTOR DIASPORA

ESHANK M. SHAH Chartered Accountant

Investors and investments have, over the decades, AI, or as they are colloquially called Professional or evolved with respect to form, structure, taxation and Qualified Investors, amongst others are a class of compliances involved. The constant need to test and re- investors who possess expert understanding of various invent has led to newer market participants exploring the financial products, the risks and returns associated investment universe. with them, coupled with the financial capacity to absorb losses, enabling them to take relatively higher risk in their However, one of the foremost principles of investment investing endeavours. and investing, that is, investors should invest in financial products after knowing the risks and returns associated Hence, they are classified as a distinct group to recognise with them, and therefore take an informed decision their ability to take informed decisions regarding regarding their investments in line with their risk-return investments and to selectively eliminate the need for profile, continues to prevail. extensive regulatory protection. Such investors may also enjoy relaxations with respect to disclosure requirements, SEBI Consultation Paper: On 24th February, 2021, SEBI filings of offer documents / prospectus, etc., and enhanced introduced a ‘Consultation Paper on the Introduction flexibility in respect of investor reporting. of the Concept of Accredited Investors’ (‘Consultation Paper’) in the Indian securities market. Across the globe, other jurisdictions have also similarly demarcated this investor class considering their distinct The Consultation Paper made a case for introduction knowledge and investment experience, alongside of the concept of Accredited Investors (AI) in the financial capacity. Indian securities market and covered the following aspects: (B) WHY HAVE ACCREDITED * Benefits to the Indian Securities Market INVESTORS * Proposed AI eligibility criteria for various categories The investment ecosystem in India today restricts of investors, namely, Individuals, HUFs, Family Trusts, investments in various asset classes based on the Bodies Corporate and Non-Resident Investors capacity of the investor to digest risks associated with * Process and validity of accreditation that investment. This ability to digest risks is determined * Procedure for implementation by minimum investment thresholds and high net worth requirements. SEBI Press Release (SEBI PR): Subsequently, on 29th June, 2021, SEBI via PR No. 22/2021, inter alia proposed However, over time, investors have gained requisite a formal introduction of the framework for AI in the Indian knowledge to demonstrate an understanding of the asset securities markets. class along with the ability to take on the risks associated with such investments. This article covers the following aspects: Therefore, identifying this new investor diaspora as an (A) CONCEPT OF AI ‘Accredited Investor’ enables achieving the premise The AI framework as proposed by SEBI in India and of risk-reward balance coupled with the opportunity prevalent framework across different economies; impact to allow investors to invest in asset classes that they on the Indian securities markets vis-à-vis Private Equity, understand and follow which would fill in the gap in the Venture Capital, Portfolio Management Services (PMS) current investment and securities regulations. This model and the Startup ecosystem. has also been successfully implemented globally (see

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‘Accredited Investor Ecosystem Globally’ below) and has Manner of determination of annual income, net worth resulted in the creation of this new investor diaspora. and value of real estate assets (i) The income and asset details which need to be Overall economic boost in the investment universe considered for assessment of eligibility criteria shall be as and promotion of asset classes which hitherto were per the data furnished in the Income-tax Returns filed for inaccessible to a large set of investors would be visible. the immediately preceding financial year and the financial year in which assessment is being made.

(C) THE ACCREDITED INVESTORAlign- FRAMEWORK AS PROPOSED BYment SEBI (ii) For calculation of net worth, the value of the primary IN INDIA1 AND ACROSS DIFFERENT residence of the investor shall not be included. ECONOMIES: (I) The eligibility criteria for Resident Investors, Non- (iii) In case the assets of the investor accounted for Resident Indians and Foreign Entities as proposed by the assessment of eligibility criteria are in the form of SEBI are as detailed below: real estate, a ‘ready reckoner rate’ as published by the respective local bodies shall be considered. Category Eligibility criteria Eligibility Criteria for Non- of for Indian Resident Indians and Foreign Manner of determination of annual income and net investor investor to be Entities to be Accredited worth in case of joint accounts an Accredited Investors Investor In case of joint accounts held by individuals, the account shall be considered as an AI account only in the following Individuals, Annual income >= Annual income >= USD scenarios: HUFs and INR 2 crores; or 300,000; or Family Net worth >= INR Net worth >= USD 1,000,000; Trusts 7.5 crores with not with not less than USD 500,000 (i) The First holder of the account is an AI; less than INR 3.75 of financial assets; or crores of financial Annual income >= USD 150,000 assets; or + Net worth >= USD 750,000; (ii) The Joint holders are parent(s) and child(ren), where Annual Income with not less than USD 375,000 at least one person is independently an AI; >= INR 1 crore + of financial assets Net worth >= INR (iii) The Joint holders are spouses and their combined 5 crores; with not less than INR 2.5 income / net worth meets eligibility criteria. crores of financial assets; Manner of determination of financial capacity in case Trusts Assets Under Assets Under Management >= of bodies corporate (other than Management >= USD 7.5 million For bodies corporate, the latest statutorily audited Family INR 50 crores information as on the date of application shall be Trusts) considered for assessment of eligibility. Bodies Net worth >= INR Net worth >= USD 7,500,000 Corporate 50 crores For trusts, the calculation of Assets Under Management Others Central and State Multilateral agencies, Sovereign shall be based on the valuation data as included in the Governments, Wealth Funds, International Statutory Audit Report of the preceding financial year or Developmental Financial Institutions and agencies such as Category – I FPIs as on the date of application. SIDBI, NABARD, etc., set up under (II) Accredited Investor Ecosystem Globally the aegis of Government(s), funds set up by Country Accredited Investor criteria Regulation Government(s) and QIB’s as United Earned income exceeding SEC Reg 501(d) defined under States of USD 200,000 (or USD SEBI (ICDR) America 300,000 together with a Regulations, 2018 spouse) in each of the prior two years and reasonable expectation of a similar earning for the current year, or 1 SEBI Consultation Paper dated 24th February, 2021

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Country Accredited Investor criteria Regulation The Indian financial and securities market ecosystem is evolving with the Startups and the alternative investment United (continued) SEC Reg 501(d) States of has a net worth over USD space is fast maturing. America 1,000,000, either alone or together with a spouse The proposed regulations as detailed below create a base (excluding the value of the primary residence for a thriving market and a soft regulatory regime. While the market for customised products for elite investors may Singapore Net personal assets Section not be readily available in the Indian securities market exceeding SGD 2 million 4A(1)(a) of the (or equivalent in foreign Securities and at this juncture, putting in place the required enabling currency), or in case of Futures Act (SFA) framework will propel innovation in and development of Corporates - Net Assets the securities market in time to come. exceeding SGD 10 million (or equivalent foreign currency) or Category Associated Impact (Author’s view) and Income in preceding 12 of market effects under SEBI PR months should be not less participant proposed than SGD 300,000 (or regulations2 equivalent in foreign currency) Investors Recognition Portfolio diversification Australia Net assets of at least AUD 2.5 Section 708(8) of the as AI will help through access to customised million, or Corporations Act, in availing investment products or A gross income for each of 2001 intended structured products; the last 2 financial years of at benefits more investment products due least AUD 250,000 to lower entry barriers such as minimum investment size United ‘Experienced Investor’ Section 3 of Kingdom definition in the UK: Financial Services Alternative Flexible This is a welcome step and a A body corporate which has (Experienced Investment participation for much-needed initiative opening net assets in excess of Investor Funds) Funds (AIF) AI under the up the investment ecosystem to € 1,000,000 or which is part of Regulations, 2012 (Venture AIF and PMS AIs who were hitherto restricted a group which has net assets Capital, regulations from such investments owing to in excess of € 1,000,000; Private prevalent minimum investment Trustee of a trust where the Equity and norms aggregate value of the cash Startups) and investments which form AIFs3 and PMS4 would be able part of the trust’s assets is in and to attract capital from AIs for excess of € 1,000,000; this fast-growing asset class An individual whose net PMS players helping Startup and Venture worth, or joint net worth Capital investments get the with that person’s spouse, much-needed push without is greater than € 1,000,000, the minimum investment norm excluding that person’s requirements. principal place of residence Alternative Beneficial Accredited Investors with When compared to global benchmarks, the financial Investment interrelationship minimum investment of Funds of AI with AIF INR 70 crores with AIF may parameters (vis-à-vis income and net worth) laid down by and PMS avail relaxation from regulatory SEBI are on the higher side and may indicate a sense of and for AI’s with requirements such as portfolio conservative caution which is understandably needed in minimum diversification norms, conditions Portfolio investment of for launch of schemes and the advent of the sensitivity and adaptability concerns that Management INR 10 crores extension of tenure of the AIF surround this critical regulation. However, over time SEBI Services (PMS) or INR 70 OR may consider re-evaluating these parameters as soon as players crores (AIF) INR 10 crores with registered AI investment becomes mainstream and with the imminent th need to reduce entry barriers (income and net worth) for a 2 SEBI PR dated 29 June, 2021 3 As an illustration, the minimum capital commitment required to participate in seamless functioning of these crucial market participants. AIFs is INR 1 crore. In case of an Accredited Investor, the manager may accept a capital commitment less than INR 1 crore 4 As an illustration, any entity may enter into an agreement with a Portfolio Man- (D) IMPACT ON THE INDIAN ager to avail customised asset management, i.e., portfolio management service SECURITIES MARKETS VIS-À-VIS with a minimum capital of INR 50 lakhs. Such capital may be made available to the Portfolio Manager in the form of cash or securities. In case of a client who is PRIVATE EQUITY, VENTURE CAPITAL, an Accredited Investor, the Portfolio Manager may accept capital and manage PMS AND STARTUP ECOSYSTEM a portfolio of less than INR 50 lakhs

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Category Associated Impact (Author’s view) and Accredited Investor. If eligible as per the approved criteria, of market effects under SEBI PR the Accreditation Agency shall provide a certificate to participant proposed this effect, clearly indicating the period of validity. Each regulations2 certificate of accreditation shall have a unique certificate Alternative (continued) number. Investment PMS provider may avail Funds relaxation from regulatory requirements with respect The AI shall provide a copy of the Accreditation Certificate and to investments in unlisted to the financial product / service provider along with a securities and shall be able to declaration to the effect that: Portfolio enter into bilaterally negotiated Management agreements with the PMS Services provider (i) The Investor is aware that being an AI, it is expected to players have the necessary knowledge or means to understand The above benefits shall be instrumental for availing the features of the investment product / service, including better means for investment the risks associated with the investment and also has structuring, pooling of capital, the ability to bear the financial risk associated with the co-investments, etc. investment. However, the threshold of INR 70 / 10 crores seems to be on (ii) The Investor is aware that the investment product / the higher side and may merit service in which it is proposing to participate may have a reconsideration relaxed and flexible regulatory framework and may not be Investment Optimal The terms of the agreement subject to the same regulatory oversight as retail products Advisers (IA) engagement may be determined mutually with IA between the IA and the AI client, / services. without diluting the fiduciary responsibility cast on IAs under (E) WELCOME TO THE AI IN INVESTING the SEBI Investment Advisors Regulations. AND ITS BALANCE AI shall be in a better SEBI continues to pursue its ambitious attempts to position to bargain since the harmonise the Indian securities market with the staggered limits and modes of fees introduction of global best practices in investments while can be governed through bilaterally negotiated contractual giving due recognition to sophisticated market participants terms for better regulation.

Accreditation Agencies While from a risk minimisation and mitigation perspective Accreditation Agencies (AA) can be Market Infrastructure for market participants SEBI will need to ensure a robust Institutions (MIIs), i.e., Stock Exchanges, Depositories recognition process and monitor the impact on the asset and / or subsidiaries of such MIIs. The modalities of classes, short-term liquidity boost and transparency accreditation, including documentation, fees, etc., will be of information by parties looking to on-board AI’s with specified by the AA separately. investor protection and interest would remain the paramount factor. Accreditation, once granted, shall be valid for a maximum period of one year from the date of accreditation. We hope that the accreditation, and acceptance, of specialist investors further propels the quantum of The investor shall submit the necessary data and investments into new asset classes and helps drive the documents to the AA for ascertaining its eligibility to be an Indian economy to greater heights.

Walk away from anything or anyone who takes away from your joy. Life is too short to put up with fools — Unknown

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VALUATION OF CONTINGENT CONSIDERATION

ANAND SHAH Chartered Accountant & Registered Valuer

The billion-dollar acquisitions that we read about, especially a disagreement on the deal valuation. By incorporating of early-stage companies, raise the question, how do a contingent consideration clause in the purchase deal makers arrive at the deal price? There is seldom a agreement, the seller accepts part of the business risk transaction wherein the buyer and the seller would agree along with the buyer and also participates in any upside on the future outcome of certain critical parameters which post-transaction. could be a point of negotiation, or even the cause of some potential deals falling through with the two parties unable Contingent consideration may be contingent on different to reconcile on the deal price. It is contingent consideration events, for example, on the launch of a product, on that helps in breaking this deadlock between two parties receiving regulatory approval, or reaching a certain because it enables the buyer to pay a part of the deal revenue or income milestone. The achievement of such price to the seller only on the achievement of certain events often spans over more than a year. Thus, it is pre-agreed critical milestones. While such contingent necessary to understand the acquisition date as well consideration is commonly observed in M&A deals, there as the post-acquisition treatment of such contingent are several complexities when it comes to the valuation consideration. aspects of such consideration. 2. CLASSIFICATION AND 1. INTRODUCTION TO CONTINGENT MEASUREMENT OF CONTINGENT CONSIDERATION CONSIDERATION Ind AS 103, Para 37 requires the consideration transferred 2.1 Liability vs. equity classification in a business combination to be measured at fair value The classification of consideration is essentially driven which is to be calculated as the sum of the acquisition- by the mode of settlement of such consideration. date fair value of assets transferred by the acquirer, the Consideration settled in cash is always classified as a liabilities incurred by the acquirer to the former owners of liability. In a scenario where the consideration is to be the said business, and the equity interests issued by the settled by issue of certain instruments of the buyer, one acquirer. In fact, contingent consideration is one of the needs to determine whether the number of instruments forms of consideration as described in Ind AS 103 and it to be issued are fixed and determined at the acquisition has to be recorded at the acquisition-date fair value as a date. In a scenario where the number of instruments is part of the total consideration. Contingent considerations fixed, then such consideration is classified as equity, are typically employed in transactions to bridge the and where the number of instruments to be issued is not valuation gap between the buyers’ and the sellers’ fixed, then such consideration is to be recognised as a differences of opinion regarding the target entity’s future liability. Refer to Figure 2.1.1 for a simplified approach to economic prospects. It helps to get the buyer and the determining equity vs. liability. seller on the same page when it comes to the valuation of the target entity. Let us examine this basic concept by Figure 2.1.1: Classification of contingent consideration way of an example: Is the payment in cash?? Company A intends to acquire Company B. Company B has just introduced a new product line that is expected if no, will the arrangement result in the to generate significant sales. Company B’s owners have if yes, classified as a Liability issuance of a fixed number of equity projected a significant amount of sales from the proposed shares? product line and are considering the same to influence

the deal size. Company A, on the other hand, believes if yes, classified as if no, classifiedAlign- as that there is a risk of uncertainty in the achievement of Equity Liabilityment targets contemplated by the seller and hence there is

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Example: A fixed monetary amount to be settled in a broad valuation approaches used to value a contingent variable number of shares would be classified as a liability. consideration. i) Probably weighted expected return method, more Contingent consideration classified as a liability is commonly referred to as ‘PWERM’, or scenario-based required to be re-measured at its fair value at each method (‘SBM’); and reporting period. For example, a consideration depending ii) Option pricing method, also referred to as the ‘OPM’. on revenue achieved over the next three years from acquisition will need to be fair-valued at the end of each 3.1.1 Probably weighted expected return method year / quarter. Whereas, a consideration classified as (PWERM) equity is not required to be fair-valued post the initial The PWERM assesses the distribution of the underlying recognition since the consideration has already been matrices based on estimates of the forecasts, scenarios determined and locked as at the acquisition date. and probabilities. The pay-out computed is then discounted to present value using a discount rate corresponding to 3. VALUATION OF CONTINGENT the risk inherent in the inputs considered while computing CONSIDERATION / EARN-OUTS the compensation. The following are the steps followed: The methods to be followed and the approach will i) Estimate scenarios of outcomes and associated be driven by the way the payment of such contingent probabilities. consideration or earn-outs is structured. The pay-outs are ii) Compute the expected payoffs using the scenario structured based on a single or more than one metric. probabilities. The Table below illustrates the various metrics which are iii) Discount expected payoffs to present value using risk- commonly observed for contingent consideration: adjusted discount rates.

Financial matrices Non-financial matrices Illustration 3.1.1.1

Revenue Result of clinical trials • INR 100 crores payment contingent upon obtaining FDA Gross profits Software development / R&D milestones EBITDA Employee retention targets approval. Profit before tax Customer retention targets • Approval expected in one year. Cash flows targets Closing of a future transaction Stock price Number of units sold Solution:

Mostly, contingent consideration is paid on achievement Particulars Payment Probability Prob.-weighted of certain revenue or profit targets. Additionally, such payment payments may be spread over more than just one year. Approval obtained INR 100 75% INR 75 The pay-outs can either be linear pay-outs or non-linear Approval obtained INR 0 25% INR 0 pay-outs. Total 100% INR 75 crores 3.1 Linear pay-outs Discount rate 10% Pay-outs which are dependent on a single metric and are Present value factor 0.91 expressed in terms of a fixed percentage or the product of Fair value of contingent consideration INR 68 crores a financial or some non-financial parameters, are referred to as linear pay-outs. Considerations that vary based on different levels of revenue or other parameters are non- Advantages: linear pay-outs. For example: i) Management controls scenarios and probabilities: The scenarios and probabilities are generally prepared by Target will receive a payment at some future date as the management because they would be the best source follows: for such data points. • If EBIT < $1 million, the payoff is zero; ii) Understandable: The computation and the • If EBIT ≥ $1 million, the payoff is a 10x multiple of EBIT. flow are understandable to a reader with basic financial knowledge. The valuation method will be driven by the structure of iii) Flexible: The model can be structured to fit most the contingent consideration pay-outs. There are two pay-out scenarios.

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Disadvantages: the matrices over the term of the arrangement. This is i) Management controls scenarios and probabilities: generally provided by the management. While this has been discussed under advantages, management control over these inputs is also counter- * The volatility (standard deviation) of the metric: The intuitive since management tends to be overly optimistic volatility of the metric measures the potential variability or pessimistic in its assumptions. from the expected value. This is generally determined ii) Lots of subjective assumptions: Most of the by using market-based data. However, volatility for methods / inputs are subjective and involve judgement, financial metrics like revenue and EBITDA cannot simply which at times is not the most ideal approach to value be computed using the movement in stock prices of the such pay-outs. comparable companies. It needs to be appropriately iii) Discount rate: Since the methods involve multiple levered and unlevered to capture the variability in scenarios, it is challenging to estimate the appropriate achievement of the metrics. discount rate. iv) Path dependencies: Pay-out scenarios which are There are two widely used option-pricing methods, viz., path dependent, i.e., the result of one scenario is related the Black-Scholes Model (‘BSM’) and the Monte Carlo to one or more dependent scenarios, are difficult to model simulation model. in the PWERM. It can lead to multiple nodes and is prone to errors. 3.2.1.1 Option-pricing method – Black-Scholes Model BSM treats a pay-out arrangement just like an ordinary 3.2 Non-linear pay-outs option which enables use of the standardised Black Non-linear contingent considerations are either not Scholes – Merton formula. This approach can work for strictly linear, or they pay a fixed amount based on a simpler pay-out structures, for example, if the selling milestone correlated with the broader economy; thus, shareholder earns the pay-out only if the target metric hits they require an OPM as their complexity and discounting a threshold, or for linear pay-outs with caps or floors. The cannot be adequately captured in a PWERM; for example, consideration is assumed to represent a call option on the if the buyer pays INR 50 crores if EBITDA is at least INR future performance of the seller. 75 crores in the first three years, or if the buyer pays 40% of revenues above INR 50 crores in year two, subject to Illustration for BSM a maximum of INR 40 crores. Another, more complicated, Earn-outs are contingent upon the target of achieving a example: The buyer pays 40% of revenues in years one benchmark EBIT of INR 11,25,000 within three years. The to three, subject to a minimum of INR 10 crores and a cap EBIT is currently INR 10,00,000. At the end, the acquirer of INR 40 crores. In such an arrangement, a PWERM will will pay additional consideration equal to the excess EBIT not work since it’s impossible to adjust the discount rate over the benchmark. to align with the risk of such a complex pay-out structure. An option-pricing model is generally used to value such The discount rate is 10% and the risk-free rate is 3%. arrangements. Volatility of earnings is 14% based on historical EBIT.

3.2.1 Option-pricing methods The inputs to the Black-Scholes Model for this example The payoff structures for contingent consideration are: arrangements that have a non-linear structure are similar to those of options in that payments are triggered when i) the current INR 10,00,000 level of earnings is the certain thresholds are met. Accordingly, some option- value of the underlying, pricing methods may be appropriate for valuing contingent ii) the benchmark of INR 11,25,000 serves as the consideration that have a non-linear payoff structure and exercise price, are based on metrics that are financial in nature (or, more iii) the term is three years, generally, for which the underlying risk is systematic or iv) the volatility is 14%, non-diversifiable). The OPM is implemented by modelling v) the risk-free rate is 3%, and the underlying metrics based on a log-normal distribution vi) the dividend rate is 0%. that requires two parameters: Based on the above inputs, calculations for the Black- * The expected value: The management expectation of Scholes Model can be incorporated into an Excel

38 Bombay Chartered Accountant Journal AUGUST 2021 559 (2021) 53-A BCAJ spreadsheet. The resulting call option value of INR 84,413 ii) entity volatility based on the relationship between the will be the value of the contingent consideration. target metric and the enterprise value, iii) the difference between analyst forecasts and actual 3.2.1.2 Option-pricing method – Monte Carlo results for peer companies, and Simulation Model iv) Fitting a distribution to management’s estimates. For more complex structures, a Monte Carlo simulation is preferred. Arrangements that pay over multiple periods With any of these methods, a discussion with management or multiple metrics are subject to combined caps or a is recommended since a derived volatility may fail to floor. A Monte Carlo simulation considers the correlation accurately incorporate the economics of the entity’s between matrices and pay-outs over multiple periods. The situation. Monte Carlo simulation repeats a process many times attempting to predict all the possible future outcomes. At Both option-pricing models can get complex and difficult the end of the simulation, several random trials produce to comprehend for a lot of professionals and they have a distribution of outcomes that can be analysed. Random their share of advantages and disadvantages. numbers are used to measure possible outcomes and the likelihood of their occurrence. Generally, simulation Advantages: software are used to generate random numbers. These i) Manage complex payoff structures: Can accommodate random numbers are generated based on the applicable a wide range of complex payoff structures. distribution driven by the metric triggering the pay-outs. ii) Objective assumptions: Most inputs are governed by market-related inputs making it less subjective than the The following are the important considerations of key PWERM. inputs for valuing contingent considerations using an iii) Discount rate: Since the computations are made using option-pricing model: random numbers and volatility, generally risk-adjusted discount rates are used, reducing the need of subjectivity Discount rate applied based on risk of target metric inherent in building discount rates for financial matrices. For earn-outs that require this kind of discount rate, either the top-down or bottom-up approach may be used Disadvantages: to develop the rate. These approaches are well known i) Perceived to be complex and time-consuming. in the valuation field. They rely on the concept of beta ii) rigid: OPMs are based on a prescribed formula and (β), which reflects the level of market risk reflected in an are perceived as rigid relative to the PWERM. instrument. iii) Difficulty in converting real-world cash flows into risk- free cash flows: It is challenging at times to convert the In the top-down approach, β is based on the deal’s pay-out structure into models to be used with the OPMs. rate of return adjusted for the difference in market risk between the target metric and the overall enterprise Valuation of contingent consideration and selection value. Adjustments can reflect many relevant factors, of the appropriate methods for doing so can be quite such as the general risk in the target metric, leverage, challenging. Such valuations are continuously evolving as term, size premium and entity-specific risk. In the bottom- new literature on methods and approaches is published up approach, β is the target metric adjusted for term, size, around the world. The selection of methods to value these entity-specific risk and other relevant valuation factors. arrangements is driven by the complexity of the pay-outs The bottom-up approach may rely on statistical analysis and the experience and the qualifications of the valuer to of the target metric from the entity or its peers. be able to appropriately apply these methods.

Volatility The complexity of contingent consideration is not Valuation techniques that rely on options modelling or limited to its valuation but has several accounting and Monte Carlo simulation require a volatility of the target taxation implications which need to be considered and metric. There are four ways in which such volatility can analysed. The accounting and tax aspects vary, based be computed: on the accounting standard being followed as well as the structure of the transactions. A discussion on these i) historical changes in the target metric for the acquired aspects would warrant an independent article, which we entity and public comparable companies, intend to cover over the next few issues.

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COVID IMPACT ON INTERNAL CONTROLS OVER FINANCIAL REPORTING

MEGHDOOT JAJOO Chartered Accountant

Yes, you read it right. Just as humans are affected by the reliability of financial reporting and the preparation of Covid, internal controls over financial reporting, too, are financial statements for external purposes in accordance affected by Covid. As we all know by now, Covid attacks with generally accepted accounting principles.’ Therefore, when the immune system is weak. Similarly, operations, to prepare reliable financial statements, internal controls and therefore the performance of companies, get affected over financial reporting are imperative. If such internal when their internal controls have deficiencies and controls are affected by Covid and if the company has weaknesses. When the tide will go down is uncertain. not taken adequate steps, the financial statements But there are many interrelated implications on financial prepared may not be reliable for external purposes reporting arising from the pandemic. The way of carrying and the stakeholders will lose confidence in the entity’s out operations has changed significantly for a lot of financial reporting. From the governance perspective, it companies either due to the nature of their own operations, is important for the Audit Committee and management or due to the impact felt by their suppliers or customers. that new processes for financial statements closure and reporting of results and financial / operational controls are This article highlights how Covid might have impacted appropriately documented. the internal controls of companies. Needless to say, when the internal controls have been affected by EXTENDED REPORTING TIMELINES the pandemic, the auditors of such companies need to SEBI has given extended timelines to listed entities to consider its impact on their reporting on the adequacy and report their results in 2020 as well as for the 2021 year- operating effectiveness of internal controls with reference end. This was brought out considering that companies to financial statements as prescribed u/s 143(3)(i) of the were facing challenges to complete the preparation of Companies Act, 2013. financial information due to the impact of Covid on their people and processes. However, the question is was The pandemic has hit all organisations globally and India the challenge faced by the companies related only to is no exception. Considering this, the Securities and reduced manpower at work to complete the tasks, or did Exchange Board of India (SEBI) issued a Circular the company effectively use the additional time to ensure dated 20th May, 2020 encouraging listed entities to make that its procedures as required by its internal control timely disclosures about the impact of Covid on their framework were completed like in any other year? If it is companies. One of the items in the list of information the latter, it will show how the company is impacted by that the Circular states listed companies may consider Covid, how it has assessed such impact and reacted to disclosing is internal financial reporting and controls. it. But if the companies have used the extended timeline for slowing down the pace, it shows that the company has The users of the financial statements, various not assessed the impact of Covid on its processes. stakeholders, including investors, lenders, suppliers and customers, Government agencies and so on, are keen to IMPACT ON FINANCIAL CLOSURES know to what extent the company has been affected by The shift to remote working is testing the operational the pandemic. As stated in the ‘Guidance Note on Audit endurance and the resilience of critical processes of Internal Financial Controls over Financial Reporting’ across companies. The financial close is no exception issued by The Institute of Chartered Accountants of India which is facing multiple problems in conducting an efficient (GN on IFC) for the purpose of auditor’s reporting u/s and effective close process. The financial closure process 143(3)(i) of the Companies Act, 2013, ‘internal financial of a company is a combination of various documents and controls over financial reporting’ shall mean ‘a process components. As explained in the GN on IFC, control designed to provide a reasonable assurance regarding activities may be categorised as policies and procedures

40 Bombay Chartered Accountant Journal AUGUST 2021 561 (2021) 53-A BCAJ that pertain to: are likely to have additional risks in areas such as the (A) Performance reviews following: (B) Information processing (C) Physical controls Access termination – Increased number of access (D) Segregation of duties termination requests and fewer people available to process them – this may increase the risk of unauthorised (A) Performance reviews refer to overall analytical access due to terminated personnel not being removed in procedures of actual performance withAlign- budgets, time. In many organisations, there is an exit form which forecasts, etc. However, it is very likely that mentthe budgets, the employee fills and after approval from the HR itis forecasts, prior period actuals, etc., did not include the handed over to IT to ensure that all access given to that impact of Covid at all, or had considered its impact based employee is terminated and confirmed by IT by signing the on information available at that time. In the absence of same form showing the date and time of termination. In the robustness of a performance review, what controls the Covid scenario, the exiting personnel, HR staff and IT does the company need to establish to ensure the staff are all at different locations. To ensure coordination reliability of financial information? Let’s understand this amongst them for terminating the access immediately by way of an example. A company manufactures white when the employee leaves, different controls need to be goods such as dishwashers, washing machines, etc. Its put in place. volume of production in a given period is predictable as the company had established its plant many years ago. Change management – Verbal approvals may be For F.Y. 2019-20, the company was able to run its normal accepted rather than waiting for approvals to be operations throughout the year, except the last week near documented through a ticketing system, and thus there the year-end due to the lockdown. However, in F.Y. 2020- may be increased use of emergency IDs which may not 21, the lockdown was extended and therefore production be subject to the same degree or timeliness of monitoring was completely shut for part of the year. While reviewing as usually occurs. Whenever any change is required the performance of F.Y. 2020-21 and comparing the same in the IT environment, many companies have a hard with the previous year, the variance can be quantified for copy documentation system showing the requester, the that attributable to the period when the plant was shut. approver and details of the changes made, followed by subsequent testing and implementation. During Covid, (B) Information processing controls are application such hard copy documentation may not be possible given controls and general IT controls. Before Covid, these that the requester, approver, programme writer, testing controls were usually based on the assumption that team and implementation team are at different locations. applications were being accessed by users through LAN. This may require modification of the existing IT change This identifies the user and has security firewalls to protect management controls. the data in the system to ensure its reliability. In the period of the pandemic, where many organisations had to close Execution of review controls – The questions to be their offices and allow employees to work from home, IT answered are: systems are being accessed by employees through their (a) What changes are made to the review process of home networks. The reduced number of employees may access control, change management and other IT result in reduced controls being adhered to. Vulnerability environment processes? of security for data protection and its unauthorised access (b) To what extent are the company’s IT risks affected pose a significant threat to the reliability of the financial by the new way of working and what are the mitigating close process. Further, there is heightened risk of data controls introduced to deal with the security threat to the leakage. For example, a company has IT security through IT systems that process financial data? which tenders submitted by potential suppliers can be accessed by the procurement department only through Many organisations are changing their strategies to take the office LAN. During Covid, when staff is working on advantage of digital technology, such as storing data their home networks, such control cannot be implemented on cloud which can be accessed from anywhere by the and needs to be modified without compromising on the authorised personnel. Even if the employee working on security of the data. IT processes or controls that have an such data is not able to access the company’s server increased volume or that need to be performed differently from her remote location, such data need not be copied due to changes in work environment or personnel, on the workstation of the employee when it is available on

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cloud. With such changes in strategy, it is obvious that the items are required to be stored in temperature-controlled relevant risk control matrix of the company will undergo containers and to be continuously monitored. If there is any a change. The new risks identified will be because the leakage of hazardous gases or chemicals, the implications majority of employees are working from different locations. on the company could be very severe and even lead to Controls to mitigate such risks, for example, data security closure of the factory, thereby affecting the going-concern risk as discussed above, will be plotted against each of assessment. Localised lockdowns imposed by various such processes. State Governments might induce stress on the monitoring mechanism relating to compliance with environmental (C) Physical controls relate to the existence of assets and safety norms. and authorisations for their access. In the Covid scenario, such authorised person holding custody of the physical (D) Segregation of duties as a control was put in place assets is away from the office or location of the assets by companies to ensure that employees preparing the for prolonged periods. How does the company ensure information, authorising the information, recording the the existence of its assets when the person entrusted information and holding the custody of the documents with their physical custody no longer has their custody? are different. In the Covid scenario, the flow of physical How has the company changed its internal controls documents to different employees performing these which earlier were physical controls? For example, different roles is not possible. Further, many organisations during partial lockdown, earlier internal controls might had severe staff absences for prolonged periods as even have been modified in respect of frequency of physical the staff was affected by the pandemic. This requires verification, the authority performing such verification, delegating their responsibility to other staff and modifying etc. Such modified controls may also consider any new internal controls around it. Has the company modified digital technology implemented by the company or any its internal control system and does the revised internal supplemental controls to the original pre-Covid controls. control system ensure effective segregation of duties, this is the question that companies need to answer. Safeguarding inventory Safeguarding inventories is the responsibility of the Fraud risks management which is required to establish procedures to Fraud risks change in such a time of crisis, as new ensure the existence, condition and support valuation of opportunities are created for internal as well as all inventory. There may be transactions as at the yearend external parties. Incentives for committing fraud – both where the company has transferred the control of assets, misappropriation of assets and financial reporting fraud but where physical possession is with the company – may also be heightened, especially if significant such as bill-and-hold arrangements. The internal control terminations are likely or employees suffer significant framework relating to safeguarding and monitoring of personal financial stress. As stated in the GN on IFC, inventories would need to include these considerations, ‘When planning and performing the audit of internal e.g., assessing the inventory shrinkage by location, financial controls, the auditor should take into account the product type, or other disaggregated basis, comparing results of his or her fraud risk assessment.’ In the years the actual inventory value of each location to an expected when the company is hit by the Covid pandemic, fraud range, and investigate any individual locations that are risk assessment of the auditor is expected to be different outside of the expected range. from the earlier years. The risk of fraud has increased significantly due to changes in the way of working. Such Further, with scenarios like localised lockdown, travel risks can range from the basic documentation process restrictions, etc., physical inventory counting would be where scanned documents are being relied upon, which challenging and in some cases impractical. In certain can be forged, as against the original signed documents; situations where the conventional method of physical to frauds in complex transactions where significant verification is not practicable, management may establish estimation is involved such as fair valuation, etc., since internal controls to undertake physical verification these estimates are also significantly impacted by Covid. remotely via video calls with the help of technology. Some of the areas where fraud risk has increased are:

Environmental and safety norms (i) Physical document approvals are replaced by email Companies may be using sensitive chemicals and approvals in the Covid period. Such approvals carry the industrial gases for producing goods. Some of these risk of emails being compromised.

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(ii) Due to the new style of working, the demand for certain that sufficient time is available for remediation before the goods and services has significantly increased. This has year-end, management will need to modify the design of created an opportunity in procurement fraud. existing controls and test the operative effectiveness (iii) Owing to lockdown situations, many customers may of the new controls during the year. If such remediation be facing financial difficulties to pay their dues within the does not take place by the year-end, it will have credit period. This increases the risk of financial reporting consequences of communication with audit committees fraud by resorting to unethical means of recording receipts and modification in the auditor’s report. Further, in the from debtors which are not genuine. absence of controls being effective, auditors may need to modify their strategy to evaluate the impact of ineffective The auditors, while planning and performing the audit of controls. Therefore, companies should change their internal financial control, will need to take into account as plan of testing controls affected by Covid earlier than well as document how their audit plan is different from the usual in the year. If the company has had to incorporate earlier years due to higher risks of fraud, i.e., what is their new controls during the year, these controls should be audit response to such risks. documented in its internal control documentation and appropriately tested. ASSUMPTIONS FOR THE FUTURE Ind AS 1 requires the entity to disclose information about Planned changes in RCM the assumptions it makes about the future, at the end of Each entity’s internal controls will be uniquely impacted the reporting period, that have a significant risk of resulting by Covid, e.g., entities with significant dependence on in a material adjustment to the carrying amounts of assets technology will have different challenges to address and liabilities within the next financial year. In the Covid than those with a more manual control environment. scenario, the future holds a lot of uncertainty and it will With a majority of staff working from home, manual need the company to demonstrate its internal controls for controls maintained through hard copy documents arriving at the estimates, or its estimation process. It may cannot be adhered to. Technology-dependent controls have an impact inter alia on going-concern assessment, may need revision with new technology suitable for impairment of assets, fair valuation, etc., that is, the new environment. Hence, it is imperative that on a financial statement items that are based on assumptions holistic basis the potential changes or shifts in focus, of the future. Companies faced difficulties in estimating both in terms of scoping and risk assessment, testing the impact of Covid on their operations beyond the short approaches, etc., are made and additional controls or term. This is an inherent risk because of uncertainty control modifications of existing controls are undertaken about the future which was never experienced before to address the risks arising from Covid. Based on the in history and has resulted from the global pandemic. experience of Covid, companies will start making changes Due to the disrupted supply chain and distribution in their risk control matrix. It will include identification of models, uncertainty over pricing, etc., projecting future additional risks posed by Covid, new controls to mitigate cash flows with acceptable precision is not possible those risks, modification to existing controls in view of the for many companies. Coordination with management ‘new normal’ and removal of some controls which have experts, such as those heading the strategy department, become redundant. This might include automation of all valuation specialists, etc., when performing impairment key manual controls to reduce dependency on people tests, assessing fair values of assets such as investment and physical access to the work environment, increased properties, investments, etc., and performing actuarial use of continuous monitoring and detection and defining calculations and analyses, can be more challenging. indicators which would suggest that controls may not be Many auditors have considered these matters as key operating effectively. audit matters for their audit of the financial year ended 31st March, 2021. The question is do internal controls Changes to the design of management’s control may over the estimation process of the company consider also require the auditor to alter the combination of the uncertainty brought by Covid? testing procedures (i.e., inquiry, inspection, observation and re-performance). This includes making inquiries Exceptions identified during control testing on the changes in the company’s mode of carrying out It is likely that management will identify exceptions operations in response to Covid. For example, changes during its testing of controls because controls were due to people working remotely, and consequently designed for a totally different environment. To ensure the change in the company’s policies and procedures,

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including execution of controls, segregation of duties, etc. This would also include evaluating the electronic or digital evidence made available by management, and the controls around the same, specifically with reference to review, reliability, security and storage of such evidence by the management.

Enhancing disclosures The pandemic would also have wide-ranging implications on the financial statements. Hence, it is crucial that the management adequately presents their ‘side of the story’ in detail. Disclosures might include entity-specific information on the past and expected future impact of Covid on the strategic orientation and targets, operations, performance of the entity as well as any mitigating actions put in place to address the effects of the pandemic. Updating the information included in the latest annual accounts to adequately inform stakeholders of the impact of Covid, in particular in relation to significant uncertainties and risks, going-concern, impairment of non-financial assets and presentation in the statement of profit or loss, have garnered renewed focus.

SNAPSHOT

In short, the way Covid has impacted internal controls over financial reporting of companies is as follows: operating effectiveness. The auditors will need to evaluate a) New normal – The way companies carry out day-to- ‘what could go wrong’ with increased audit scepticism day transactions from initiation to closure that involves considering the high fraud risk in the new reality, the risk authorisations, recording, cash receipts or payments, of non-compliance with laws and regulations, the impact etc., has changed. Given that these processes have of uncertainty on the estimation process of the company, undergone changes, all pre-Covid controls may not be and so on. relevant and new controls may be needed. b) Risks change due to Covid – Not only are the new NEXT STEPS processes susceptible to new risks, but existing risks may Companies establish criteria for internal controls over also be heightened due to the change in the environment. financial reporting. These are dynamic in nature and In addition to this, there are certain inherent risks of as the circumstances change, companies need to dealing with the ‘unknown’, i.e., how long the pandemic revisit internal controls on identified risks. The impact will continue, what will be its severity and the resulting of Covid will require them to relook at their existing impact on the organisation, etc. criteria and identify what changes are required to be c) Controls must also change accordingly – Companies carried out to achieve the objective. Many companies will need to thoroughly review their risk control matrix have prepared their own checklists to ensure that the in light of the new risks. It will require addition of new internal controls criteria are updated based on the current controls (e.g., those relevant to new technology), changes environment. in the existing controls (such as approval process through emails or physical verification of assets through virtual At the same time, auditors need to be aware of what means, etc.), or removal of some of the irrelevant controls changes are being carried out by their clients in their criteria (like those related to physical documentation). for internal controls and plan their audits accordingly. This d) Audit of internal controls over financial reporting – With may require the auditor to obtain samples of the period the new risk-control matrix, the auditors will need to plan when operations were severely affected by Covid (and their integrated audits in light of the changed processes of the client, the revised design of controls and testing their Continued on Page 48

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DIGITAL WORKPLACE – A STITCH IN TIME SAVES NINE

SHRADDHA DEDHIA Chartered Accountant JIGAR SHAH Company Secretary

Till the beginning of the year 2020, working from home was not possible. However, 2020, the pandemic year, instead of travelling a couple of hours daily to office was has changed everything. With no scope to travel to the looked upon as just an excuse by employers. The major office, everyone was literally forced to adapt to remote change in work style that we saw in 2020 was a paradigm working. The proof of the concept was put to use and now shift from the physical workplace to the digital workplace. businesses have started operating at full capacity at the The pandemic and lockdowns all over the world forced Digital Workplace. people to work from home, or stay without working. While initially it seemed almost impossible for firms to survive A Digital Workplace is the basic set of digital tools in a digital environment, all of us have coped quite well. that employees use to get work done. These include Instant Messaging apps to Meeting Tools and Clearly, the pandemic is proving to be a blessing in online storing of documents, and even automated disguise for firms at all levels. Those in the service workflows to manage the work. Essentially, ‘the industry realised that a Zoom call could replace travelling, Digital Workplace is the virtual, modern version of they were not required to travel to the office daily and, the traditional workplace where work can be done most importantly, it has resulted in huge cost savings through devices, anytime, anywhere’. on real estate. Of course, physical meetings and the ‘office culture’ won’t be replaced by the complete digital However, let’s see what a Digital Workplace is not. It is workspace and irrespective of what we call the ‘new much more than having apps as a part of office workflow. normal’, it is believed that once restrictions are over, It is more than accessing office files from anywhere. But people will get back to the normal office and physical when the flow of work and monitoring of performance workplace. But life and office culture will never be the to get measurable results are seamlessly integrated, same again. Even if the digital office will not replace we can see the Digital Workplace emerge. It starts by the physical office, there is no denying that it will understanding what it really is and how it can help your change the way we look at our office and no one can organisation deliver measurable business value. afford to ignore it. To understand this even better, let us first understand the concept of the Digital Workplace. Why shifting to a Digital Workplace will help an organisation and employees WHAT IS A DIGITAL WORKPLACE?  Talent attraction: A survey1 says that over 60% of Initially, the Digital Workplace was meant to complement employees would not mind being paid less if they get the physical office. The idea was to facilitate easy working flexibility to work from anywhere. People have started for employees who may have difficulties in travelling or realising the importance of staying at home and spending are working from different locations. However, most time with the family, getting those extra few minutes of people used to travel for even the slightest work, or for sleep as they don’t need to rush to catch a train / bus meetings, and the ‘9 to 5’ culture was at its prime with to the office, and so on. Additionally, Work from Home employees expected to reach the office physically to be (WFH) means employees can afford a bigger house at counted as working on a particular day. Remember the a better location rather than fitting in a smaller house struggle we put up with when it was raining just to reach to avoid travelling for work daily, or maybe even have a office safe and dry, or come back walking (or rather, Staycation working with laptops while sipping ginger tea wading) during the deluge of 26th July, 2005 in Mumbai? at Shimla! For the last few years, companies have been spending money on technology and remote working but still always expected employees to travel to the office unless it 1 Business Line

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 Improved inclusivity: The one good part of opting for  Emails – Currently, Google Workspace is very widely a Digital Workplace is that we can have talent without used for emails. However, there are many other players geographical barriers. With a physical workplace, we like Outlook and the Indian Zoho. Each of these offers were restricted to hiring talent within our cities. But now, its unique advantage over the others. But Gmail, since someone with an office in Mumbai can hire talent from it gives auto integration to other widely-used apps like Delhi or Dubai. The physical location of the employee, Google Drive, Google Photos and Android Phones, except for the time zone, hardly matters. has become more popular amongst users. Gmail also

Align- provides its search functionality to its email, which means  Economical: Having a Digital Workplace isment economical that searching past emails with Gmail is always faster. not only for firms, but also for employees. While firms can Though all these companies do provide their free email save on real estate rents, electricity, stationery and support accounts, it is always advisable to buy a company domain staff to facilitate working at the office, for employees (@yourcompany.com or .in, etc.) instead of using standard the savings come as reduction in transportation costs, emails like ‘@gmail.com’. These are paid services but parking charges, travelling time, need for spending on the company domain always gives a better impression. professional wardrobes, lunch and dinner, the need to eat Besides, all the companies provide additional services for outside and so on. paid versions vis-a-vis free versions.

 Less stress of commuting: One of the biggest  Instant messaging apps – A Digital Workplace will worries for people living in big cities in India and all over definitely need an instant messaging app wherein the the world is commuting. While many countries have the employees can keep working while having chats on their best of infrastructure, India is still developing the same queries going on. One of the most common messaging and incidents like the 2017 stampede at Elphinstone apps that comes in handy with Gmail is Google Hangouts. Road railway station during rush hours may be terrifying, The whole purpose of such instant messaging apps is to but these are a regular risk of travelling on local trains facilitate official messages, calls and video calls so that our in metro cities. Besides, commuting in public transport personal space on WhatsApp or any other personal app exposes employees to the risk of losing their valuables, isn’t disturbed. Another app which has found its market in including office assets, due to theft or damage on account the corporate world for instant messaging is ‘Slack’ which of extraordinary rush on a frequent basis. comes with all features of instant messaging, calling and video calling. One good part about Slack is that it can be WHAT SHOULD YOUR DIGITAL integrated with almost all the other apps and portals. WORKPLACE INCLUDE? Technically and practically, a Digital Workplace should  Other basic communications – Other basic include all the technology tools that we need to operate communication toolkits at any Digital Workplace would in our profession. These tools should broadly take care include customised portals or intranet which may have of four categories of work: how your employees can options to publish news, have blogs or articles, introduce communicate, how they can collaborate, how they can new employees, celebrate birthdays, etc., such as connect and how they can deliver the final services ProofHub, a project-planning software with tools like and evaluate the work done. Let us take a closer look at discussions, notes, Gantt charts, to-do lists, calendaring, each of these: milestones, timesheets, etc. Such intranet communication software if implemented well, can solve a lot of 1. Communications at a Digital Workplace: communication shortcomings of the Digital Workplace. We aren’t in a place now where we can meet at the cafe or share ideas at the water cooler in the office. Considering 2. Collaborations at the Digital Workplace: these restrictions, it becomes important that while we have To solve business problems and operate productively, a Digital Workplace we also give employees freedom to organisations must have the ability to leverage knowledge communicate which they would have otherwise done across the enterprise with online, seamless, integrated at the office. In fact, with a DigiWorkplace around, the and intuitive collaboration tools that enhance the communications aren’t restricted to a team or a location. employees’ ability to work together. A collaboration toolkit Employees in Mumbai can also communicate with those at the workplace should include: in Delhi. The basic communication tools should include the following:  Productivity is a collaborative tool that can’t be

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ignored. Having tools which can enhance productivity of employees can help them to enable knowledge and perform their work more efficiently. A Digital Workplace should have tools which can help all employees to collaborate on projects / files together. These can include a common drive, word processors, live spreadsheets, presentations, CRMs. Google WorkSpace does give an option for all of these in one place.

 Business Applications – To make it easier to collaborate, a Digital Workplace should have basic business applications where employees can work simultaneously. An HR system like FreshTeams which is accessible both on portals and on mobiles indeed suffices as an end-to-end HR function. From on-boarding to maintaining documents and to managing approvals, FreshTeams has us covered for everything. Managing employees’ expenses is another worry that we may face while having a Digital Workplace. However, Expensify is one software that can indeed be very useful. Other business applications that are a must-have for a Digital Workplace include ERPs and CRMs like Tally, SAP, QuickBooks and the recent favourite Zoho.

3. Connect:  Send emails or catch up casually with inactive clients to Self-sufficiency no longer guarantees effectiveness. let them know you are still thinking about them and their Employees need tools that allow them to connect across business; the organisation, leverage intellectual property and gain  Try and accommodate to the apps that your clients use insight from one another. The Digital Workplace delivers so that they do not have to struggle in meetings; on these goals by fostering a stronger sense of culture  Practise – This is one quality that should always remain, and community within the workplace. irrespective of whether the presentations are online or offline. Practise screen-sharing, slide moves and Connectivity apps or data in general help employees to presentation flow on how it may look on the communication know each other’s profiles, their locations, expertise, etc., networks while delivering the same to the client. to reach out easily. A basic data should include employee directory, organisation chart and rich profile. LIMITATIONS OF DIGITAL WORKPLACE: While we see giant leaps in the Digital Workplace, it 4. Deliver the result: has its own drawbacks. There are platforms that The phrase ‘meet your customer where your customer is’ specialise in making collaboration easier and more can take a whole new meaning with a Digital Workplace. effective, but the most important component which is While face-to-face interactions delivering reports or missing in the Digital Workplace is ‘social interaction’. It presentations have gone for a toss, there are still is not merely limited to non-verbal communication where ways to provide your clients with the same sentiments. there are no feelings while reading chats / emails, but a Professionals may shift to virtual communication networks Digital Workplace literally means that staff does not spend like Google Meet, Webex, Zoom, Zoho Meetings, etc. quality time together like being in office, so the chances As we deliver results in virtual form, we share some tips to of having team bonding are less. This, too, can lead to have the same level of interaction as in the physical form: communication difficulties since misunderstandings are more likely.  Hold all the meetings, whether internal or external, on video. You need not keep your video off. Having videos Another sad part is the fact that we are used to seeing turned on during meetings gives a personal touch; employees and colleagues face-to-face, or in real face-

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time. As far as possible, employees should also meet in from all over the world without having to spend additional person from time to time and use the video call function sums on their relocation, etc. Besides, a foolproof Digital for important meetings. When an actual meeting is not Workplace system means the firm can outsource routine possible, it is advisable to arrange a video call at least and monotonous work to people at remote locations at once a month without an official agenda to have team much cheaper rates and it may work like the Knowledge bonding. Process Outsourcing (KPO) model.

CONCLUSION In our articles over the next few months, we will also The way the Digital Workplace is evolving, it may not be discussing other considerations for having a Digital replace the existing physical office or completely do Workplace that shall include: away with it. We are seeing that companies have already  Comparisons between a Physical WorkPlace vs. a started calling their employees back to offices and soon Digital Workplace vs. a Virtual Workplace vs. Co-Working ‘Work From Home’ may not be available to all. But what Spaces; this pandemic has shown us is that it is possible to work  How we can manage various functions of our firm – HR, from home and that there are both advantages and Finance, Marketing, etc., using our Digital Workplaces; limitations of working from home, but with technology  Interviews with industry leaders and practical examples evolving, things are getting better and better. We believe of Digital Workplaces. that even if we may not move to a compulsory ‘Work From Home’ culture anytime soon, travelling will become (The authors of this article are in no way connected with optional and companies will give optional WFH to their or influenced by any of the apps or portals mentioned employees for a few days in a month. Above all, from the herein, except that they are users. The apps and portals firm’s point of view, the Digital Workplace will become mentioned are recommendatory as they have been useful more important as it will be able to cater to the workforce to us)

COVID IMPACT ON INTERNAL CONTROLS OVER FINANCIAL REPORTING Continued from Page 44

therefore have a modified design of internal controls) and date of incorporating the changes, plan of management when operations were running normally. testing of such controls and ensuring that those are operating effectively. A dialogue between the clients and auditors is imperative to discuss the exceptions observed in management (The views expressed in this article are the personal testing, changes being made in internal controls, effective views of the author)

Where we have strong emotions, we’re liable to fool ourselves — Carl Sagan

We plant seeds that will flower as results in our lives, so best to remove the weeds of anger, avarice, envy and doubt… — Dorothy Day

Do what is right, not what is easy nor what is popular — Roy T. Bennett

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Tribunal n ews part A I DOMESTIC TAXATION Jagdish Punjabi i PRACHI PAREKH Chartered Accountants DEVENDRA JAIN Advocate

I Brands Beverages Pvt. Ltd. Crescent Roadways Pvt. Ltd. [2021] TS-546-ITAT-2021 (Bang)] [2021] TS-510-ITAT-2021 (Hyd)] 31 A.Y.: 2015-16; Date of order: 13th July, 2021 32 A.Y.: 2015-16; Date of order: 1st July, 2021 Section 56(2)(viib) Section 43B, 36(1)(va)

ITAT holds that corrigendum to the valuation ITAT holds that amendments of Finance Act, 2021 report to be considered in ascertainment of value to section 43B and 36(1)(va) apply prospectively u/s 56(2)(viib) FACTS FACTS The assessee company had remitted employees’ The assessee, who was engaged in the manufacture and contribution towards PF, ESI before the due date of filing sale of beverages, allotted 4,80,000 shares of a nominal return u/s 139(1) – but after the due date prescribed in value Rs. 10 per share at a premium of Rs. 365 per the corresponding PF, ESI statutes. For the year under share following the discounted cash flow method as per consideration, the A.O. disallowed the amounts on the the valuation report. The A.O. noted that the value per ground that they had been remitted after the due date share as per projections was Rs. 37.49 per share and it prescribed in the corresponding statute, i.e., under the PF / was mistakenly arrived at as Rs. 374.95 per share, and ESI Acts. On appeal, the CIT(A) confirmed the disallowance. therefore assessed the difference of Rs. 16.2 crores as income u/s 56(2)(viib). On appeal with the CIT(A), the Aggrieved, the assessee preferred an appeal with the assessee submitted a corrigendum to the valuation report Tribunal. as additional evidence, contending it to be read with the original valuation report which showed the fair market HELD value at Rs. 374.95 per share. The CIT(A), based on a The Tribunal held that the legislative amendments remand report called from the A.O., held that additional incorporated in sections 36(1)(va) and 43B by the evidence in the form of corrigendum was not admissible Finance Act, 2021 are prospective in application and are and confirmed the additions made by the A.O. therefore applicable w.e.f. 1st April, 2021. Therefore, the disallowance of employees’ contributions towards PF, ESI Aggrieved, the assessee is in appeal before the Tribunal. for the A.Y. under consideration was not sustainable and accordingly deleted the additions made on account of HELD such disallowance. The Tribunal observed that the corrigendum to the original report was issued on account of error and it formed part Dy. Commissioner of Income Tax vs. Peerless of the original valuation report. It further held that the General Finance and Investment Co. Ltd. corrigendum could not be treated as additional evidence [2021] 85 ITR(T) 1 (Kol-Trib)] by the CIT(A) and therefore there was no reason to reject 33 IT Appeal No. 50 (Kol) of 2009 it. The Tribunal holds that the corrigendum and the original A.Y.: 2002-03; Date of order: 3rd December, 2020 report shall constitute the full report to be examined by the A.O. and accordingly remits the matter to the A.O. for Section 115JB(2)(i) – Where an amount debited determination of value per share. for diminution in value of Investments and Non-

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Performing Assets is in nature of an actual write- account for diminution in Investment and NPA was an off, clause (i) of Explanation (1) to sub-section instance of write-off or a provision, the Tribunal observed (2) of section 115JB is not attracted and thus the that the Gujarat High Court in CIT vs. Vodafone Essar aforesaid amount is not to be added back while Gujarat Ltd. (Supra) explained a situation where a computing book profits provision created in respect of assets would be considered as a write-off and not as a provision as per clause (i) of FACTS Explanation (1) to sub-section (2) of section 115JB. While computing profit for the year, the assessee had debited an amount in the Profit & Loss Account for The Gujarat High Court had held that diminution in value of Investments and Non-Performing a) where an assessee debits an amount to the P&L Loans & Advances and had reduced the same from account and simultaneously obliterates such provision the asset side of the balance sheet to the extent of the from its account by reducing the corresponding amount corresponding amount. The assessee contended that the from the respective assets on the asset side of the amount so debited to the P&L account is in the nature of balance sheet, and an actual write-off and not in the nature of mere provision b) consequently, at the end of the year, shows the and, thus, should not be added back while computing respective assets as net of the provision, it would amount book profits u/s 115JB. to an actual write-off and such actual write-off would not attract clause (i) of the Explanation (1) to sub-section (2) The A.O. added back the amount debited for diminution of section 115JB. in Investment and NPA (Non-Performing Assets) while computing the book profits treating it as unascertained In the present case, the Tribunal observed that the liability as envisaged in clause (c) of Explanation (1) to provision for diminution in Investment / Provision for NPA sub-section (2) of section 115JB. The CIT(A) held that was not a mere provision but an actual write-off. Provision the said amount could not be treated as unascertained for Investments / Provision for NPA was created by the liability and allowed the assessee’s appeal. assessee by debiting the P&L account and simultaneously the corresponding amount from Investments / Loans & Aggrieved by the order, Revenue filed an appeal before Advances shown on the asset side of the balance sheet the Tribunal and the Tribunal upheld the action of the A.O. was also reduced / adjusted and Investments / Loans & Aggrieved by this order, the assessee filed an appeal Advances were recorded in the books, net of provision. before High Court which remanded back the matter with a direction to proceed and determine the issue in the Hence, applying the above principle laid down by the light of the decision of the Gujarat High Court in CIT vs. Gujarat High Court, the Tribunal finally held that the said Vodafone Essar Gujarat Ltd. [2017] 397 ITR 55 (Guj), provision for diminution in Investments and Provision for i.e., whether clause (i) of Explanation (1) to sub-section NPA would amount to an actual ‘write-off’ and therefore (2) of section 115JB would be attracted or not in the facts would not attract clause (i) of the Explanation. of this case. Thus, the action of the CIT(A) on the issue was HELD confirmed by the Tribunal and the Revenue’s appeal was To determine whether the amount so debited to the P&L dismissed.

I am not afraid of tomorrow, for I have seen yesterday and I love today — William Allen White

Rule #1 of life. Do what makes YOU happy — Unknown

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in the high courts

part A Ireported decisions

k. b. bhujle Advocate

Vrundavan Ginning and Oil Mill vs. Assistant no scientific method of calculation of the net realisable Registrar / President value, and that there was no infirmity in the orders of the [2021] 434 ITR 583 (Guj) authorities below. 37 Date of order: 18th March, 2021 Ss. 253, 254, 254(2), 260A of ITA, 1961 Thereafter, the assessee filed a miscellaneous application u/s 254 contending that (a) the copies of returns filed in Appeal to Appellate Tribunal – Rectification which agricultural income disclosed by the partners in the of mistake u/s 254(2) – Powers of Tribunal – hands of the Hindu Undivided Family were furnished, (b) Jurisdiction limited to correcting ‘error apparent on the partners in turn disclosed share in the HUF income face of record’ – Tribunal cannot review its earlier in their individual returns and had claimed exemption u/s order or rectify error of law or re-appreciate facts – 10(2) and such exemption claimed was not disturbed by Assessee has remedy of appeal to High Court the A.O., (c) the purchases from the partners and relatives were made at market rate and comparable purchase In the appeal filed by the assessee against the order vouchers along with a chart were furnished indicating passed by the A.O., the Commissioner (Appeals) granted no excess payment to the partners and relatives, (d) relief to the assessee in respect of the addition on there was complete quantity tally on day-to-day basis, account of understatement of net profit by lowering the and (e) there was no rejection of book results and that value of closing stock and confirmed the addition made 20% disallowance was sustained by the Tribunal while by the A.O. The assessee filed a further appeal before adjudicating ground Nos. 1 and 2 without taking into the Tribunal on the grounds that the Commissioner account the above stated facts, and therefore the order (Appeals) erred in (a) confirming the addition made on of the Tribunal needed to be rectified to such extent and account of purchases by holding that the purchases of consequential required relief was to be granted on ground raw cotton from the partners were bogus, (b) confirming No. 3 in respect of the addition on account of alleged the addition made on account of purchases of raw cotton suppression in value of closing stock. from the relatives of the partners holding them to be unexplained / unsubstantiated, and (c) confirming the The Tribunal held that the power of rectification u/s 254 addition made on account of alleged suppression in value could be exercised only when the mistake which was of closing stock by discarding / disregarding the method sought to be rectified was an obvious patent mistake of valuation consistently followed and accepted in the and apparent from the record and not a mistake which past assessments. was required to be established by arguments and a long- drawn process of reasoning on points on which there The Tribunal held that the Commissioner (Appeals) could conceivably be two opinions. It was further held rightly held that the assessee did not follow either of the that after a detailed discussion the disallowance was methods of valuation of closing stock, i.e., either on the restricted to 20% of the purchase made from the partners basis of cost price or market price, whichever was lower, and relatives of the partners and 80% of the purchases rather the assessee followed net realisable value which made by the assessee were allowed; and qua ground No. was an ad hoc method and without any basis, that the 3 relating to the addition made on account of suppression net realisation method was neither based on cost price in the value of closing stock, the issue was discussed and nor calculated on the basis of market price and there was thereafter it was concluded that the assessee adopted an

52 Bombay Chartered Accountant Journal AUGUST 2021 573 (2021) 53-A BCAJ ad hoc method for the valuation of closing stock without point of law or disputed question of fact is not a mistake any basis and that the scope of sub-section (2) of section apparent from the record. 254 was restricted to rectifying any mistake in the order which was apparent from record and did not extend to iv) The Appellate Tribunal, in its own way, had discussed reviewing of the earlier order. The Tribunal rejected the qua ground No. 3 the issue relating to the addition made miscellaneous application filed by the assessee. on account of suppression in the value of closing stock and had recorded a particular finding. If the assessee was The Gujarat High Court dismissed the writ petition filed by dissatisfied, then it had to prefer an appeal u/s 260A, and the assessee and held as under: if the court was convinced, then it could remit the matter to the Tribunal for fresh consideration of ground No. 3. As ‘i) Section 254(2) makes it clear that a “mistake apparent regards the findings recorded by the Tribunal, so far as from the record” is rectifiable. To attract the jurisdiction u/s ground No. 3 was concerned, the assessee could seek 254(2), a mistake should exist and must be apparent from appellate remedies. The power to rectify an order u/s the record. The power to rectify the mistake, however, 254(2) is limited.’ does not cover cases where a revision or review of the order is intended. A mistake which can be rectified under CIT (LTU) vs. Areva T&D India Ltd. this section is one which is patent, obvious and whose [2021] 434 ITR 604 (Mad) discovery is not dependent on argument. The language 38 A.Y.: 2006-07; Date of order: 25th March, 2021 used in section 254(2) is that rectification is permissible S. 28(iv) of ITA, 1961 where it is brought to the notice of the Tribunal that there is any mistake apparent from the record. The amendment Business income – Scope of section 28(iv) – of an order, therefore, does not mean obliteration of the Amalgamation of companies – Excess of net order originally passed and its substitution by a new order consideration over value of companies taken over which is not permissible, under the provisions of this – Not assessable as income section. Further, where an error is far from self-evident, it ceases to be an “apparent” error. Undoubtedly, a “mistake” The assessee is engaged in the business of manufacturing capable of rectification u/s 254(2) is not confined to clerical heavy electrical equipment. Three companies were or arithmetical mistakes. It does not cover any mistake amalgamated with the assessee company and on which may be discovered by a complicated process of amalgamation the assets stood transferred to the investigation, argument or proof. An error “apparent on assessee company with effect from 1st January, 2006. the face of the record” should be one which is not an error The net excess value of the assets over the liability of the that depends for its discovery on an elaborate argument amalgamating company amounted to Rs. 54,26,56,000 on questions of fact or law. and had been adjusted against the general reserve of the assessee company. In the assessment proceedings ii) The power to rectify an order u/s 254(2) is limited. It does for the A.Y. 2006-07, the assessee was called upon to not extend to correcting errors of law or re-appreciating explain why the said excess asset, which was taken over factual findings. Those properly fall within the appellate as liability during the current year, should not be taxed review of an order of a court of first instance. What u/s 28(iv). The explanation offered by the assessee was legitimately falls for consideration are errors (mistakes) not accepted and the A.O. held that the said amount had apparent from the record. to be charged to Income-tax under the head ‘Profits and gains of business’ u/s 28(iv). iii) The language used in Order 47, Rule 1 of the Code of Civil Procedure, 1908 is different from the language The Commissioner (Appeals) allowed the assessee’s used in section 254(2). Power is conferred upon various claim and deleted the addition. The Tribunal dismissed authorities to rectify any “mistake apparent from the the appeal filed by the Revenue. record”. Though the expression “mistake” is of indefinite content and has a large subjective area of operation, yet, On appeal by the Revenue, the Madras High Court upheld to attract the jurisdiction to rectify an order u/s 254(2) it the decision of the Tribunal and held as under: is not sufficient if there is merely a mistake in the order sought to be rectified. The mistake to be rectified must be ‘i) For applicability of section 28(iv) the income must one apparent from the record. A decision on a debatable arise from business or profession and the benefit which

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is received has to be in a form other than in the shape Insurance Regulatory and Development Authority (IRDA) of money. The provisions of section 28(iv) make it clear for issuance of a direct-broker licence. The application that the amount reflected in the balance sheet of the was lodged with the IRDA on 1st December, 2010. While assessee under the head “Reserves and surplus” cannot this application was being processed, presumably by be treated as a benefit or perquisite arising from business the IRDA, the assessee took certain other steps in or exercise of profession. furtherance of its business. Accordingly, on 1st June, 2011, the assessee executed operating lease agreements for ii) The difference in amount post amalgamation was the conducting insurance business from various locations amalgamation reserve and it cannot be said that it was across the country. Against these leases, the assessee out of normal transaction of the business being capital in is said to have paid rent as well. The assessee set up nature, which arose on account of amalgamation of four 29 offices in 29 different locations across the country for companies, it cannot be treated as falling u/s 28(iv).’ carrying on its insurance business. The assessee was finally issued a direct broker’s licence by the IRDA on 2nd Maruti Insurance Broking Pvt. Ltd. vs. Dy. CIT February, 2012. [2021] 435 ITR 34 (Del) 39 A.Y.: 2012-13; Date of order: 12th April, 2021 For the A.Y. 2011-12, the assessee filed return of S. 37 of ITA, 1961 income on 30th September, 2011 declaring a business loss amounting to Rs. 57,582. For the A.Y. 2012-13, Business expenditure – Year in which expenditure is the return of income was filed on 29th September, 2012 deductible – Business – Difference between setting declaring a net loss of Rs. 2,78,22,376. In this return, the up and commencement of business – Incorporation assessee claimed the impugned deduction, i. e., business as company, opening of bank account, training of expenses amounting to Rs. 2,77,99,046. The A.O. held employees and lease agreement in accounting that since the licence was issued by the IRDA on 2nd year relevant to A.Y. 2012-13 – Licence for business February, 2012, the assessee’s business could not have obtained in February, 2012 – Assessee entitled to been set up prior to that date, and therefore the entire deduction of expenditure incurred for business in business expenditure amounting to Rs. 2,78,22,376 was A.Y. 2012-13 required to be disallowed and capitalised as pre-operative expenses. The assessee was incorporated on 24th November, 2010. The first meeting of its board of directors was held The Commissioner (Appeals) upheld the order of the on 29th November, 2010 when certain decisions were A.O. The Tribunal sustained the view taken by both the taken, including, according to the assessee, setting up Commissioner of Income-tax (Appeals) as well as the of its business; appointment of the chief executive officer A.O. and the principal officer; approval of the draft application for obtaining a broker’s licence in the prescribed form The Delhi High Court allowed the appeal filed by the under Regulation 6 of the IRDA (Insurance Brokers) assessee and held as under: Regulations, 2002 (in short ‘2002 Regulations’) [this application had to be filed for obtaining the licence]; a ‘i) The Income-tax Act, 1961 does not define the decision as to the registered office of the assessee; and a expression “setting up of business”. This expression decision concerning the opening of a current account with finds mention though (sic) in section 3 of the Income-tax HDFC Bank at Surya Kiran Building, 19, K.G. Marg, New Act, 1961 which defines “previous year”. The previous Delhi 110001. year gets tied in with section 4 of the Act, which is the charging section. In brief, section 4, inter alia, provides On 29th November, 2010 itself, an agreement was that income arising in the previous year is chargeable executed between the assessee and Maruti Suzuki to tax in the relevant assessment year. Firstly, there is India Limited (MSIL). Via this agreement, the persons a difference between setting up and commencement of who were employees of MSIL were sent on deputation business. Secondly, when the expression “setting up of to the assessee and to meet its objective, were made to business” is used, it merely means that the assessee undergo a minimum of 100 hours of mandatory training is ready to commence business and not that it has as insurance brokers. These steps were a precursor actually commenced its business. Therefore, when the to the application preferred by the assessee with the commencement of business is spoken of in contradiction

54 Bombay Chartered Accountant Journal AUGUST 2021 575 (2021) 53-A BCAJ to the expression “setting up of business”, it only refers to received from the vendors the invoice amount is debited a point in time when the assessee actually conducts its to the provisions already made with corresponding credit business, a stage which it necessarily reaches after the at the respective vendor’s account. The assessee also business is put into a state of readiness. A business does deducts tax at source as required under the provisions not, metaphorically speaking, conform to the “cold start” of the Act and remits the same along with interest to the doctrine. There is, in most cases, a hiatus between the Government. time a person or entity is ready to do business and when business is conducted. During this period, expenses are For the A.Y. 2012-13, the assessee had made a provision incurred towards keeping the business primed up. These towards marketing, overseas and general expenses to expenses cannot be capitalised. the extent of Rs. 1114,718,613. However, at the time of filing of the return of income the provision which remained ii) The assessee did all that was necessary to set up unutilised as per the books of accounts as on 30th April, the insurance broking business. The assessee after its 2012 and on 31st October, 2012 in respect of overseas incorporation opened a bank account, entered into an and domestic payments, respectively, for an amount of agreement for deputing employees (who were to further Rs. 9,27,41,239 was not claimed as deduction u/s 40(a) its insurance business), gave necessary training to the (i) and (ia) and the same was offered to tax. Subsequent employees, executed operating lease agreements, and to filing of the return, the assessee received invoices resultantly set up offices at 29 different locations across from the vendors for the A.Y. 2012-13 and the amount the country. Besides this, the application for obtaining a mentioned in the invoices was debited to the provision licence from the IRDA was also filed on 1st December, already made with a corresponding credit to the respective 2010. The Authority took more than a year in dealing with vendors’ account. The amount indicated in the invoices for the assessee’s application for issuance of a licence. The a sum of Rs. 5,589,454 was utilised against the provision licence was issued only on 2nd February, 2012 although the and the deduction of tax at source along with interest assessee was all primed up, i. e., ready to commence its was also discharged at the time of credit of the invoice business since 1st June, 2011, if not earlier. The assessee amount to the account of the vendor. Subsequently, the was entitled to deduction of the expenses incurred for the amount which remained unutilised, i.e., a sum of Rs. business in the A.Y. 2012-13.’ 8,71,32,988 in the provision account after completion of negotiation / finalisation of services, was reversed in Toyota Kirloskar Motor (P) Ltd. vs. ITO (TDS) the books of accounts of the assessee. The assessee LTU received a communication on 30th July, 2013 asking it to [2021] 434 ITR 719 (Karn) furnish details of computation of income, audit report in 40 A.Y.: 2012-13; Date of order: 24th March, 2021 Form 3CD for the year ending 31st March, 2012 reflecting S. 201(1) of ITA, 1961 the details of disallowances made u/s 40(a)(i) and (ia). The assessee thereupon furnished the information vide Deduction of tax at source – Condition precedent communication dated 12th August, 2013. – Mere entries in accounts – No accrual of income and no liability to deduct tax at source The A.O. initiated the proceedings u/s 201 and also u/s 201(1A) and treated the assessee as assessee-in-default The assessee is a joint venture and is a subsidiary of Toyota in respect of the amount made in the provision, which was Motor Corporation, Japan. It is engaged in manufacturing reversed / unutilised for a sum of Rs. 8,71,32,988 and and sale of passenger cars and multi-utility vehicles. The the amount of deduction of tax at source and interest on assessee follows the mercantile system of accounting the aforesaid amount u/s 201(1A) was computed at Rs. and as per its accounting policies, at the end of the 14,18,327 and Rs. 25,195 was levied for late remittance financial year, i. e., 31st March of every year, the assessee of tax deducted at source. Thus, a total sum of Rs. makes provision for marketing expenses, overseas 17,10,879 was determined as payable by the assessee. expenses and general expenses on an estimated basis in respect of works contracts services which are in the The Commissioner (Appeals) affirmed the order passed process of completion but the vendor is yet to submit the by the A.O. The Tribunal dismissed the appeal preferred bills to ascertain the closest amount of profits / loss. The by the assessee. aforesaid provision is made in conformity with Accounting Standard 29. Subsequently, as and when invoices are In appeal before the High Court, the assessee raised the

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following question of law: Vishwas Act, 2020 on 18th November, 2020. However, the same was rejected on 30th January, 2021. ‘Whether in the facts and circumstances of the present case, the Income-tax Appellate Tribunal was right in law Being aggrieved, the petitioner filed a writ petition and in affirming the order of the Commissioner of Income- challenged the order of rejection. The Bombay High Court tax (Appeals) in treating the appellant as “assessee-in- allowed the writ petition and held as under: default” u/s 201(1) for non-deduction of tax at source from the amount of Rs. 8,74,32,988 when such amount had ‘i) The Direct Tax Vivad se Vishwas Act, 2020 is aimed not accrued to the payee or any person at all?’ not only to benefit the Government by generating timely revenue but also to benefit the taxpayers by providing The Karnataka High Court allowed the appeal and held them with peace of mind, certainty and saving time and as under: resources rather than spending the same otherwise. The Preamble clearly provides that this is an Act to provide ‘i) In the instant case, the provisions were created during for resolution of disputed tax and for matters connected the course of the year and reversal of entry was also therewith or incidental thereto. The emphasis is on made in the same accounting year. The A.O. erred in law disputed tax and not on disputed income. in holding that the assessee should have deducted tax as per the rate applicable along with interest. The authorities ii) For a declarant to file a valid declaration there should be under the Act ought to have appreciated that in the disputed tax in the case of such declarant. The definition absence of any income accruing to anyone, the liability of “tax arrears” clearly refers to an aggregate of the to deduct tax at source on the assessee could not have amount of disputed tax, interest chargeable or charged on been fastened and, consequently, the proceeding u/s 201 such disputed tax, etc., determined under the provisions and u/s 201(1A) could not have been initiated. of the Income-tax Act, 1961. From a plain reading of the provisions of the 2020 Act and the Rules, it emerges that ii) For the aforementioned reasons, the substantial the designated authority would have to issue Form 3 as question of law is answered in favour of the assessee and referred to in section 5(1) specifying the amount payable against the Revenue. in accordance with section 3 of the 2020 Act in the case of a declarant who is an eligible appellant not falling u/s iii) In the result, the impugned orders dated 31st October, 4(6) nor within the exceptions in section 9 of the 2020 Act. 2017, 20th June, 2014 and 11th March, 2014 passed by the Tribunal, the Commissioner of Income-tax (Appeals) and iii) The assessee had filed an application u/s 264 for the A.O., respectively, are hereby quashed. In the result, adjustment or credit of Rs. 12,43,000 paid in respect the appeal is allowed.’ of the tax demands of the A.Ys. 1988-89 to 1998-99 as according to him this amount had been adjusted only Sadruddin Tejani vs. ITO against the demand for the A.Y. 1987-88. While this [2021] 434 ITR 474 (Bom) application was pending, the Direct Tax Vivad se Vishwas A.Ys.: 1988-89 to 1998-99; Date of order: Act, 2020 was enacted, followed by the Direct Tax Vivad 41 9th April, 2021 se Vishwas Rules, 2020. The assessee filed applications S. 264 of ITA, 1961 and Direct Tax Vivad se under the 2020 Act and Rules. The assessee having filed Vishwas Act, 2020 a revision application u/s 264 for the A.Ys. 1988-89 to 1998-99 for adjustment of Rs.12,43,000 which application Direct Tax Vivad se Vishwas Act, 2020 – Scope was pending before the Commissioner, admittedly being of – Act deals with disputed tax – Application for an eligible appellant, squarely satisfied the definition of revision u/s 264 relating to tax demand – Applicant “disputed tax” as contained in section 2(1)(j)(F) of the 2020 eligible to make declaration under Direct Tax Vivad Act. This was because if the revision application u/s 264 se Vishwas Act were rejected, the assessee would purportedly be liable to pay a demand of Rs. 88,90,180 including income tax The petitioner was engaged in the business of retail and interest. The assessee as eligible appellant had filed footwear. He had filed declarations in Form 1 and a declaration u/s 4 with the designated authority under undertaking in Form 2 in respect of each of the A.Ys. the provisions of section 4 of the 2020 Act in respect of 1988-89 to 1997-98, u/s 4(1) of the Direct Tax Vivad se tax arrears, which included the disputed tax which would

56 Bombay Chartered Accountant Journal AUGUST 2021 577 (2021) 53-A BCAJ become payable as may be determined. This was not of Rs. 3,07,60,800 was wrongly copied by the petitioner’s only a case where there was a disputed tax but also tax accountant from the return of income filed for the A.Y. arrears as referred to in section 3 of the 2020 Act. 2017-18, and the same was mistakenly included in the return for the A.Y. 2018-19. The return filed by the iv) The designated authority had not raised any objection petitioner for the A.Y. 2018-19 was processed u/s 143(1) under any provision of the 2020 Act or Rules with respect vide order dated 2nd May, 2019 and a total income of to the declarations or undertakings furnished by the Rs. 3,34,66,446, including long-term capital gains of Rs. assessee, nor passed any order let alone a reasoned or 3,07,60,800 purported to have been inadvertently shown speaking order rejecting the declarations. The designated in the return of income was determined, thereby raising a authority had summarily rejected the declarations tax demand of Rs. 87,40,612. Upon perusal of the order without there being any such provision in the 2020 Act u/s 143(1) dated 2nd May, 2019, the petitioner realised or the Rules. There was also no fetter on the designated that the amount of Rs. 3,07,60,800 towards long-term authority to determine the disputed tax at an amount capital gains had been erroneously shown in the return of other than that declared by the assessee. The designated income for the year under consideration. authority under the 2020 Act was not justified in rejecting the declarations filed by the assessee. Realising the mistake, the petitioner filed an application u/s 154 before the A.O. on 25th July, 2019 seeking to v) Accordingly, we set aside the rejections. We direct rectify the mistake of misrecording of long-term capital respondent No. 2 to consider the applications made gains in the order u/s 143(1) as being an inadvertent error by the petitioner by way of declarations dated 18th as the same had already been considered in the return November, 2020 in Form 1 as per law and proceed with for the A.Y. 2017-18, assessment in respect of which had them according to the scheme of the Direct Tax Vivad se already been completed u/s 143(3). The petitioner had Vishwas Act and Rules in the light of the above discussion not received any order of acceptance or rejection of this within a period of two weeks from the date of this order. application. In the meantime, the petitioner also made the The petition is allowed in the above terms.’ grievance on the e-filing portal of the Central Processing Centre on 4th October, 2019 seeking rectification of the Aafreen Fatima Fazal Abbas Sayed vs. ACIT mistake where the taxpayer was requested to transfer its [2021] 434 ITR 504 (Bom) rectification rights to AST, after which the petitioner filed 42 A.Y.: 2018-19; Date of order: 8th April, 2021 letters dated 17th October, 2019, 20th February, 2020 and S. 264 of ITA, 1961 24th November, 2020 with the A.O., requesting him to rectify the mistake u/s 154. Revision – Application for revision – Conditions precedent – No appeal filed against assessment order In order to alleviate the misery and bring to the notice and expiry of time limit for filing appeal – Application of the higher authorities the delay in the disposal of the for revision valid rectification application, the petitioner approached the Principal Commissioner u/s 264 on 27th January, 2021, The petitioner is an individual and for the A.Y. 2017-18 seeking revision of the order of 2nd May, 2019 passed had offered in the return of income, long-term capital u/s 143(1), narrating the aforementioned facts and gains of Rs. 3,07,60,800 which had arisen on surrender requesting the Principal Commissioner to direct the of tenancy rights for that year. The assessment for A.Y. A.O. to recalculate tax liability for the A.Y. 2018-19 after 2017-18 was completed u/s 143(3) vide assessment reducing the amount of long-term capital gains from the order dated 24th December, 2019. For A.Y. 2018-19, the total income of the petitioner for the said year. petitioner had received income from house property of Rs. 12,69,954 and income from other sources of Rs. However, instead of considering the application on merits, 14,35,692, making a total income of Rs. 27,05,646. After the Principal Commissioner of Income-tax-19, vide order claiming deductions and set-off on account of deduction dated 12th February, 2021, dismissed the application filed of tax at source and advance tax, the refund was by the petitioner on the ground that the same was not determined at Rs. 34,320. maintainable on account of the alternate effective remedy of appeal and that the assessee had also not waived the However, while filing return of income on 20th July, 2018 right of appeal before the Commissioner of Income-tax for the A.Y. 2018-19, the figure of long-term capital gains (Appeals) as per the provisions of section 264(4).

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The petitioner therefore filed this writ petition and the Principal Commissioner, the respondent No. 2, is challenged the order. The Bombay High Court allowed set aside. We direct respondent No. 2 to decide the writ petition and held as under: the application filed by the petitioner u/s 264 afresh on merits and after hearing the petitioner, pass a ‘i) The assessee had not filed an appeal against the reasoned / speaking order in line with the aforesaid order u/s 143(1) u/s 246A of the Act and the time of 30 discussion for grant of relief prayed for in the said application. days to file the appeal had also admittedly expired. Once such an option had been exercised, a plain reading of Obiter dicta: Where errors can be rectified by the the section suggested that it would not then be necessary authorities, the whole idea of relegating or subjecting the for the assessee to waive such right. That waiver would assessee to the appeal machinery or even discretionary have been necessary if the time to file the appeal had not jurisdiction of the High Court, is uncalled for and would be expired. The application for revision was valid. wholly avoidable. The provisions in the Income-tax Act for rectification, revision u/s 264 are meant for the benefit of ii) The order dated 12th February, 2021 passed by the assessee and not to put him to inconvenience.’

part B Iunreported decisions

AJAY R. SINGH Advocate

Income Tax Department vs. D.K. Shivakumar the undisclosed income of the accused and launching [Criminal Revision Petition No. 329 to 331 of the prosecution is without jurisdiction’ and that the piece 7 2019; Date of order: 5th April, 2021; Karnataka of paper torn by the respondent / accused was not a High Court] document lawfully compelled to be produced as evidence and that the same was not ‘obliterated, nor rendered Offence and prosecution – Wilful attempt to evade illegible’ making out the offences under sections 201 and tax – Section 276C, read with section 132 204 of IPC but reserved the Revenue’s liberty to launch fresh prosecution after estimating the undisclosed income During a search, the assessee tore a piece of paper of the assessee / accused by the jurisdictional A.O. on the containing details of alleged unaccounted loan basis of the materials produced by the authorised officer transactions. It was found that the assessee had advanced for the search and such other materials as were available huge amount of loan to these persons / entities. He did with him. Accordingly, the Special Court had discharged not disclose the said unaccounted financial transactions the assessee of the charges. in his returns of income and further, the statements of several persons disclosed that the assessee had received On the criminal revision petition filed by the petitioner / huge amount of interest on the said unaccounted loan, Revenue, the High Court observed that the allegations, which was not reflected in the books of accounts or in the even if accepted as true, did not prima facie constitute returns of income. offences u/s 276C(1). The gist of the offence under this section is the wilful attempt to evade any tax, penalty or The Revenue filed complaints before the Special interest chargeable or imposable or underreporting of Court; the only circumstance relied on by the Revenue income. What is made punishable is ‘attempt to evade tax, / complainant in support of the alleged charges was penalty or interest’ and not the ‘actual evasion of the tax’. that during the search action, certain unaccounted loan The expression ‘attempt’ is nowhere defined under the transactions with several persons / entities were detected Act or IPC. In legal parlance, an ‘attempt’ is understood and the said unaccounted financial transactions were to mean ‘an act or movement towards commission of an not disclosed in the returns of income for the relevant intended crime’. It is doing ‘something in the direction of years and that the assessee had received huge amount commission of offence’. Viewed in that sense ‘in order of interest on the said unaccounted loans. The Special to render the accused / respondent guilty of attempt to Court discharged the assessee mainly on the ground evade tax, penalty or interest, it must be shown that he that the ‘complaints filed by the complainant estimating has done some positive act with an intention to evade any

58 Bombay Chartered Accountant Journal AUGUST 2021 579 (2021) 53-A BCAJ tax, penalty or interest’ as held by the Supreme Court in The petitioner submitted that the reopening was based on Prem Dass vs. ITO [1999] 5 SCC 241 that a positive act a mere change of opinion of the A.O. and, therefore, was on the part of the accused is required to be established bad in law. The reasons for which the assessment was to bring home the charge against the accused for the sought to be reopened had already been considered in offence u/s 276C(2). detail by the A.O. in the original assessment order.

The Court further held that there is no presumption under On behalf of the Income-tax Department, it was submitted law that every unaccounted transaction would lead to that the objections of the petitioner had been considered imposition of tax, penalty or interest. Until and unless it in sufficient detail by the A.O. and had been rightly is determined that unaccounted transactions unearthed rejected. during search are liable for payment of tax, penalty or interest, no prosecution could be launched on the ground The Court observed that the reasons for reopening of of attempt to evade such tax, penalty or interest. Therefore, the assessment, as disclosed by the Department in its the prosecution initiated against the assessee was bad in communication dated 17th May, 2019, inter alia state how law and contrary to procedure prescribed under the Code the DTIT Investigating Unit-1, Kolkata in its letter dated of Criminal Procedure and the provisions of the Income- 15th January, 2019 passed on information in the case of tax Act and, thus, the revision petitions were dismissed. beneficiaries identified in the ‘Banka Group of Cases’. Apparently, a search and seizure / survey operation M/s Amber, Bhubaneswar vs. The Deputy was conducted in the case of the Banka Group on 21st Commissioner of Income-tax, Circle-2(1) & May, 2018. It was found that there were various paper / Others shell companies controlled by one Mr. Mukesh Banka for 8 [Writ petition (C) No. 14369 of 2019; Date of the purpose of providing accommodation entries in the order: 5th July, 2021; Orissa High Court] nature of unsecured loans or in other forms. It appeared that the petitioner firm was one of the beneficiaries who Reopening of assessment – Information of shell had obtained accommodation entries in the financial year companies – Right to cross-examination – Violation 2013-14 from two such paper companies controlled by of the principle of natural justice – These pleas to the said Mr. Mukesh Banka, the details of which had been be raised at time of reassessment – Reopening set out in the reasons for reopening the assessment as justified furnished to the petitioner.

The petitioner filed its return of income for the A.Y. 2012- The said information appears to have been analysed 13 electronically on 28th September, 2012 disclosing a by the Department vis-à-vis the case record of the total income of Rs. 34,80,490. These tax returns were petitioner for the A.Y. 2012-13. It transpired that in the subjected to scrutiny under CASS and an assessment original assessment proceedings the petitioner had order was passed u/s 143(3) on 15th November, 2014 by furnished the ledger accounts of both the above ‘shell’ the A.O. purportedly being satisfied with the genuineness companies for the financial year 2011-12 and these of the transactions and documents, etc., disclosed by the showed that the petitioner had taken loans of Rs. 15 petitioner. lakhs from them. The statement made by Mr. Mukesh Banka u/s 132(4) was also set out in the reasons for the Being aggrieved by certain disallowances of expenses reopening. It needs to be noted that while the original in the aforementioned assessment order, the petitioner assessment u/s 143(3) was completed on 15th November, filed an appeal before the Commissioner of Income-tax 2014 and an assessment order passed, the information (Appeals). Thereafter, the impugned notice u/s 147 was gathered by the Department pursuant to the search and issued to the petitioner by the A.O. on 29th March, 2019 seizure operation on the Banka Group of Companies pursuant to which the petitioner sought the reasons for emerged only on 21st May, 2018 and thereafter. Clearly, such reopening. The petitioner filed objections onth 18 this information was not available with the Department June, 2019. On 26th June, 2019, the A.O. rejected the earlier. Prima facie, therefore, it does not appear that the objections and on 26th July, 2019 issued a notice u/s reassessment was triggered by a mere change of opinion 142(1) seeking further details from the petitioner. The by the A.O. Further, it is not possible to accept the plea petitioner then filed the writ petition against the rejection of the petitioner that such opinion was based on the very order. same material that was available with the A.O. The fact

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of the matter is that there was no occasion for the A.O. extracted in full in the reasons for reopening), or not to have known of the transactions involving the petitioner providing an opportunity to cross-examine Mr. Banka at and the shell companies controlled by Mr. Mukesh Banka. the stage of objections, shall not vitiate the reopening of the assessment. Such opportunity would be provided, It was then contended by the petitioner that despite if sought by the petitioner and if so permitted in law, the petitioner asking for copies of the statement of in the reassessment proceedings. Consequently, the Mr. Mukesh Banka and seeking cross-examination, this Court reserved the right of the petitioner to raise all the was denied to him and, therefore, there was violation of defences available to it in accordance with law in the the principle of natural justice. reassessment proceedings, including the right to cross- examine the deponents of the statements relied upon by The Court observed that the non-supply of the copy of the Department in the reassessment proceedings, The Mr. Banka’s statement (which incidentally has been writ petition is accordingly dismissed.

The true alchemists do not change lead into gold; they change the world into words — William H. Gass

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Bombay Chartered Accountant Journal AUGUST 2021 61 582 (2021) 53-A BCAJ

GLIMPSES OF SUPREME COURT RULINGS

kishor karia Chartered Accountant atul jasani Advocate

Commissioner of Income Tax vs. Reliance the assessee was computed at Rs. 355,74,73,451 and Energy Ltd. the ‘gross total income’ at Rs. 397,37,70,178. Inclusion AIR 2021 SC 2151 of ‘income from other sources’ of Rs. 41,62,96,727 in 7 Civil Appeal No. 1328 of 2021 the ‘gross total income’ and deduction claimed under Date of order: 28th April, 2021 Chapter VI-A against such ‘gross total income’ was not accepted by the A.O. The A.O. also rejected the claim Deduction – Chapter VIA – Section 80-IA r/w/s 80AB of the assessee for allowing deduction u/s 80-IA, along – There is no limitation on deduction admissible u/s with other deductions available to the assessee, to the 80-IA to income under the head ‘business’ only – extent of ‘gross total income’, and restricted the deduction Section 80AB could not be read to be curtailing the allowed u/s 80-IA at Rs. 354,00,75,084 by limiting the width of section 80-IA – The scope of sub-section aggregate of deductions under sections 80-IA and 80-IB (5) of section 80-IA is limited to determination of to the ‘business income’ of the assessee. quantum of deduction under sub-section (1) of section 80-IA by treating ‘eligible business’ as the The A.O. further rejected the contention of the assessee ‘only source of income’ – Sub-section (5) cannot be that section 80AB was not applicable. It was held that pressed into service for reading a limitation of the section 80AB makes it clear that for the purposes of deduction under sub-section (1) only to ‘business deduction in respect of certain incomes, deduction had income’ to be given on the income of the nature specified in the relevant section and allowed against income of that nature The assessee was in the business of generation of power alone. Therefore, the deduction computed u/s 80-IA could and also dealt with purchase and distribution of power. Its not be allowed against any source other than business. power generation unit is located at Dahanu. The Appellate Authority partly allowed the appeal filed by For the assessment year 2002-03, the assessee filed its the assessee by an order dated 23rd March, 2006 and income-tax return on 31st October, 2002 declaring total reversed the finding of the A.O. on the issue of deduction income as ‘Nil’. The return was subsequently revised on u/s 80-IA. The Appellate Authority held that section 80AB 6th December, 2002 and thereafter on 30th March, 2004. places a ceiling on the quantum of deductions in respect of incomes contained in Part C of Chapter VI-A. Such In respect of deduction u/s 80-IA, the assessee was asked deductions are to be computed on the net eligible income, to explain why the deduction should not be restricted to which will be deemed to be included in the gross total business income as had been the stand of the Revenue income. The Appellate Authority observed that section for A.Y. 2000-01. The assessee had revised its claim u/s 80AB is limited to determining the quantum of deductible 80-IA to Rs. 546,26,01,224, having admitted that there income included in the gross total income. It directed the was an error in calculation of income tax depreciation. A.O. not to restrict the deduction admissible u/s 80-IA to income under the head ‘business’. The A.O. was further The A.O. considered the revised claim of the assessee u/s directed to aggregate the deduction u/s 80-IA with the 80-IA and determined the amount eligible for deduction other deductions available to the assessee and then under it at Rs. 492,78,60,973 against the assessee’s to allow deductions of such aggregate amount to the claim of Rs. 546,26,01,224. However, the A.O. stated in extent of ‘gross total income’. The order of the Appellate the assessment order that the actual deduction allowable Authority was affirmed by the Tribunal and also the High shall be to the extent of ‘income from business’ as per Court. Aggrieved, the Revenue filed an appeal before the the provisions of section 80AB. The ‘business income’ of Supreme Court.

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The Supreme Court observed that the controversy in this income from all other heads including ‘income from case pertained to the deduction u/s 80-IA being allowed other sources’, in addition to ‘business income’, have to the extent of ‘business income’ only. to be taken into account for the purpose of allowing the deductions available to it, subject to the ceiling of It noted that section 80AB was inserted in the year 1981 ‘gross total income’. The Supreme Court agreed with the to get over a judgment of this Court in Cloth Traders view taken by the Appellate Authority that there was no (P) Ltd. vs. Additional Commissioner of Income limitation on deduction admissible u/s 80-IA to income Tax (1986) 1 SCC 43. The CBDT Circular dated 22nd under the head ‘business’ only. September, 1980 made it clear that the reason for introduction of section 80AB was for the deductions under The Supreme Court further observed that the other Part C of Chapter VI-A to be made on the net income contention of the Revenue was that sub-section (5) of the eligible business and not on the total profits from of section 80-IA referred to computation of quantum of the eligible business. A plain reading of section 80AB deduction being limited from ‘eligible business’ by taking showed that the provision pertained to determination it as the only source of income. It was contended that the of the quantum of deductible income in the ‘gross total language of sub-section (5) makes it clear that deduction income’. According to the Supreme Court, section 80AB contemplated in sub-section (1) is only with respect to could not be read to be curtailing the width of section 80- the income from ‘eligible business’ which indicates that IA. The Court noted that section 80A(1) stipulates that there is a cap in sub-section (1) that the deduction cannot in the computation of the ‘total income’ of an assessee, exceed the ‘business income’. On the other hand, the deductions specified in section 80C to section 80U shall Court noted, it was the case of the assessee that sub- be allowed from his ‘gross total income’. Sub-section (2) section (5) pertains only to determination of the quantum of section 80A provides that the aggregate amount of of deduction under sub-section (1) by treating the ‘eligible the deductions under Chapter VI-A shall not exceed the business’ as the only source of income. ‘gross total income’ of the assessee. The Court noted that the amount of deduction from the The Supreme Court, therefore, agreed with the Appellate ‘eligible business’ computed u/s 80-IA for A.Y. 2002- Authority that section 80AB which deals with determination 03 was Rs. 492,78,60,973. There was no dispute that of deductions under Part C of Chapter VI-A is with respect the said amount represented income from the ‘eligible only to computation of deduction on the basis of ‘net business’ u/s 80-IA and was the only source of income income’. for the purposes of computing deduction u/s 80-IA. The question that arose further was with reference to allowing After noting the provisions of sub-sections (5) and (1) the deduction so computed to arrive at the ‘total income’ of section 80-IA, the Supreme Court observed that of the assessee and that could not be determined by the import of section 80-IA is that the ‘total income’ of resorting to interpretation of sub-section (5). an assessee is computed by taking into account the allowable deduction of the profits and gains derived The Supreme Court observed that Synco Industries from the ‘eligible business’. With respect to the facts Ltd. vs. Assessing Officer, Income Tax, Mumbai and of this appeal, there was no dispute that the deduction Anr. (2008) 4 SCC 22 was concerned with section 80-I. quantified u/s 80-IA was Rs. 492,78,60,973. The said Section 80-I(6), which is in pari materia to section 80-IA(5) amount represented the net profit made by the assessee and wherein it was held that for the purpose of calculating from the ‘eligible business’ covered under sub-section the deduction u/s 80-I loss sustained in other divisions (4), i.e., from its business unit involved in the generation or units cannot be taken into account as sub-section of power. The claim of the assessee was that in (6) contemplates that only profits from the industrial computing its ‘total income’, deductions available to it undertaking shall be taken into account as it was the have to be set-off against the ‘gross total income’, while only source of income. Further, the Court concluded that the Revenue contended that it was only the ‘business section 80-I(6) dealt with actual computation of deduction, income’ which had to be taken into account for the whereas section 80-I(1) dealt with the treatment to be purpose of setting-off the deductions under sections 80- given to such deductions in order to arrive at the total IA and 80-IB. The ‘gross total income’ of the assessee income of the assessee. for A.Y. 2002-03 was less than the quantum of deduction determined u/s 80-IA. The assessee contended that Continued on Page 68

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controversies pradip kapasi i gautam nayak i Bhadresh Doshi Chartered Accountants

DEDUCTION FOR CONTRIBUTION BY EMPLOYER TO SPECIFIED FUNDS – SECTION 40A(9)

ISSUE FOR CONSIDERATION In this case, pertaining to assessment years 1990-91, 1991- For an employer, staff welfare expense is normally an 92 and another year post assessment year 1980-81, the allowable business deduction under section 36 or 37 in assessee had made a contribution to the Executive Staff computing his income under the head ‘Profits and Gains Provident Fund, which was not a recognised provident of Business or Profession’. However, the allowability of fund, and claimed a deduction for such contribution. Such business deductions is restricted by the provisions of contribution had been allowed to it as a deduction u/s 37 section 40A. Section 40A(9), inserted by the Finance for A.Y. 1979-80 by the Kerala High Court vide its decision Act, 1984 with retrospective effect from 1st April, 1980, reported in 194 ITR 739, and also for A.Y. 1977-78 by the provides that no deduction shall be allowed in respect of Kerala High Court in a decision reported in 204 ITR 225 any sum paid by the assessee as an employer towards u/s 36(1)(iv), following its own earlier decision. The A.O. the setting up or formation of, or as contribution to, any had disallowed such contribution. fund, trust, company, AOP, BOI, society or other institution for any purpose. Exceptions are provided, for permitting The assessee contended before the Kerala High Court deductions, for payment of contributions to specified that in view of the decisions of the High Court in the earlier funds being recognised provident fund, approved years in its own cases, it was entitled to get deduction for superannuation fund, approved gratuity fund and towards the amount paid to the unrecognised provident fund u/s a pension scheme referred to in section 80CCD [i.e., 36(1)(iv) or (v), or in the alternative u/s 37. On behalf of the sums paid for the purposes and to the extent provided by Revenue, it was contended that the earlier decisions of or under clauses (iv), (iva) or (v) of section 36(1)], or for the Kerala High Court would not apply to the assessment payments required by or under any other law. years in question in view of the insertion of sub-section (9) to section 40A with retrospective effect from 1st April, The issue has come up before the High Courts as to 1980. whether all contributions to funds, other than those specified, are hit by the embargo of section 40A(9) The Kerala High Court analysed the provisions of section leading to disallowance of expenditure, or whether the 40A(9) to hold that after the insertion of sub-section (9), provisions for disallowance apply only to funds which no deduction be allowed in respect of any sum paid by merely accumulate and do not spend such contributions the assessee as an employer towards contribution to a on staff welfare. While the Kerala High Court has taken provident fund, except where such amount was paid for the view that in terms of section 40A(9) the payment of the contribution to a recognised provident fund and for the contributions would be disallowed where the contribution purposes of and to the extent provided by or u/s 36(1)(iv). is to a fund other than the specified funds, the Bombay The High Court noted that section 37(1) was a general and Karnataka High Courts have taken a more liberal provision which stated that any expenditure, other than of view, holding that the prohibition does not apply to the nature described in sections 30 to 36 and not being in contributions to genuine funds and the deduction would the nature of capital expenditure or personal expenses of be allowed irrespective of section 40A. the assessee, laid out or expended wholly and exclusively for the purposes of the business or profession, was to ASPINWALL & CO.’S CASE be allowed in computing the income chargeable under The issue had come up before the Kerala High Court in the head ‘profits and gains of business or profession’. the case of Aspinwall and Co. Ltd. vs. DCIT 295 ITR According to the High Court, in view of the provisions of 533. section 40A(9), no deduction could be allowed in respect

64 Bombay Chartered Accountant Journal AUGUST 2021 585 (2021) 53-A BCAJ of any sum paid towards contribution to a provident fund such expenditure, invoking the provisions of section by taking recourse to the residuary section 37(1). 40A(9).

The Kerala High Court analysed the Explanatory Notes The Tribunal allowed the assessee’s claim, observing that to the Finance Act, 1984 in relation to section 40A(9) the assessee had made such contribution to a fund for to hold that the intention of the Legislature was to deny the medical benefits specially envisaged for the retired the deduction in respect of sums paid by the assessee employees of the bank. In the opinion of the Tribunal, as employer towards contribution to any fund, trust, section 40A(9) was inserted to discourage the practice company, etc., for any purposes, except to a recognised of creation of bogus funds and not to disallow the general fund and that, too, within the limits laid down under the expenditure incurred for welfare of the employees. The relevant provisions. Placing reliance on the decision of Tribunal also noted that the A.O. had not doubted the bona the Supreme Court in Shri Sajjan Mills Ltd. vs. CIT 156 fides of the assessee in creation of the fund, and that such ITR 585, where the Supreme Court had held that unless fund was not controlled by the assessee. Proceeding on the conditions laid down in section 40A(7) were fulfilled, the basis that the A.O. and the Commissioner (Appeals) a deduction could not be allowed on general principles had not doubted the bona fides in creation of the trust and under any other provisions of the Act relating to that the expenditure was incurred wholly and exclusively computation of income under the head ‘profits and gains for the employees, the Tribunal allowed the assessee’s of business or profession’, the Kerala High Court held appeal and deleted the disallowance. that section 40A had to be given effect to, notwithstanding anything contained in sections 30 to 39 of the Act, and The Bombay High Court, on appeal by the Revenue, in view of that no deduction could be allowed in respect analysed the provisions of section 40A(9) to hold that the of any contribution towards an unrecognised provident case of the assessee did not fall in any of the clauses of fund. section 36(1) mentioned in section 40A(9), i.e., clauses (iv), (iva) or (v). It referred to the provisions of the The Kerala High Court noted that the deduction u/s 36(1) Explanatory Memorandum and the Notes to the Finance (iv) was subject to the prescribed limits, which limits had Act, 1984 when section 40A(9) was introduced to hold been laid down in Rules 75, 87 and 88 of the Income Tax that the purpose of inserting sub-section (9) in section Rules, 1962. Section 40A(9) referred to the purposes 40A was not to discourage the general expenditure by and the extent provided by or u/s 36(1)(iv), and therefore an employer for the welfare activities of the employees. only such amounts, within the prescribed limits, could be The Bombay High Court was of the view that the purpose allowed as a deduction. of insertion of section 40A(9) was to restrict the claim of expenditure by the employers towards contribution The Kerala High Court, therefore, held that no deduction to funds, trust, association of persons, etc., which were could be allowed u/s 37(1) in respect of contribution to wholly discretionary and which did not impose any the unrecognised provident fund, having regard to the restriction or condition for expending such funds, which provisions of section 40A(9). had possibility of misdirecting or misuse of such funds after the employer claimed benefit of deduction thereof. This decision of the Kerala High Court was followed again Basically, according to the Bombay High Court, the by the Kerala High Court in the case of TCM Ltd. vs. inserted provision was not meant to hit the allowance of CIT 196 Taxman 129 (Ker), where the issue related to the general expenditure by an employer for the welfare the deduction for a contribution to an Employees’ Welfare and the benefit of the employees. Fund. The Court placed reliance on its earlier decisions in the STATE BANK OF INDIA’S CASE cases of CIT vs. Bharat Petroleum Corporation Ltd. The issue came up again recently before the Bombay 252 ITR 43 where a donation to a club created for social, High Court in the case of Pr. CIT vs. State Bank of India cultural and recreational activities of its members was 420 ITR 376. allowed, by holding the expenditure to be on staff welfare activity; CIT vs. Indian Petrochemicals Corporation In this case, the assessee claimed expenditure of Rs. 50 Ltd. 261 Taxman 251, where contributions to various lakhs incurred towards contribution to a fund created for clubs and facilities meant for use by staff and their family the welfare of its retired employees. The A.O. disallowed members were held allowable; and Pr. CIT vs. Indian Oil

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Corporation, ITA No. 1765 of 2016, where expenditure discretion to the trustees to utilise the trust property in on setting up or providing grant-in-aid to Kendriya such manner as they may think fit for the benefit of the Vidyalaya Schools where children of staff of the assessee employees without any scheme or safeguards for the would receive education, was held to be allowable as a proper disbursement of these funds. Investment of trust deduction. funds has also been left to the complete discretion of the trustees. Such trusts are, therefore, intended to be used The Bombay High Court in the case was not asked as a vehicle for tax avoidance by claiming deduction in to examine or consider the ratio of the decision of the respect of such contributions, which may even flow back Kerala High Court in the case of Aspinwall Ltd. (Supra) to the employer in the form of deposits or investment in and the said decision remains to be dissented with. In shares, etc. fact, the Court relied on another decision of the Kerala 16.2 With a view to discouraging creation of such trusts, High Court in the case of PCIT vs. Travancore Cochin funds, companies, association of persons, societies, etc., Chemicals Ltd. 243 ITR 284 to support its action to the Finance Act has provided that no deduction shall be allow the deduction. It held that the contribution to a fund allowed in the computation of taxable profits in respect of for the healthcare of retired employees was an allowable any sums paid by the assessee as an employer towards deduction and was not disallowable u/s 40A(9). the setting up or formation of or as contribution to any fund, trust, company, association of persons, body of A similar view was also taken by the Karnataka High individuals, or society or any other institution for any Court in the case of CIT vs. Motor Industries Co. purpose, except where such sum is paid or contributed Ltd. 226 Taxman 41, where the Court held that the (within the limits laid down under the relevant provisions) contribution made by the assessee towards a benevolent to a recognised provident fund or an approved gratuity fund created for the benefit of its employees was entitled fund or an approved superannuation fund or for the to deduction, notwithstanding section 40A(9), though purposes of and to the extent required by or under any there was no compulsion under any other law for making other law. such contribution. The Karnataka High Court relied on its 16.3 With a view to avoiding litigation regarding earlier decision in the case of the same assessee, in ITA the allowability of claims for deduction in respect of 3 of 2002 dated 2nd November, 2007. Such contribution contributions made in recent years to such trusts, etc., the was made pursuant to a Memorandum of Understanding amendment has been made retrospectively from 1st April, embodying the terms of a settlement arrived at between 1980. However, in order to avoid hardship in cases where the management and employees of the company. such trusts, funds, etc., had, before 1st March, 1984, bona fide incurred expenditure (not being in the nature of capital OBSERVATIONS expenditure) wholly and exclusively for the welfare of the It is interesting to note that both the Kerala as well as employees of the assessee out of the sums contributed the Bombay High Courts relied on the same Explanatory by him, such expenditure will be allowed as deduction in Memorandum to the Finance Act, 1984 explaining the computing the taxable profits of the assessee in respect rationale behind introduction of sub-section (9) in section of the relevant accounting year in which such expenditure 40A, for arriving at diametrically opposite conclusions. has been so incurred, as if such expenditure had been The Explanatory Notes read as under: incurred by the assessee. The effect of the underlined words will be that the deduction under this provision ‘(ix) Imposition of restrictions on contributions by would be subject to the other provisions of the Act, as employers to non-statutory funds. for instance, section 40A(5), which would operate to the 16.1 Sums contributed by an employer to a recognised same extent as they would have operated had such provident fund, an approved superannuation fund and expenditure been incurred by the assessee directly. an approved gratuity fund are deducted in computing Deduction under this provision will be allowed only if no his taxable profits. Expenditure actually incurred on deduction has been allowed to the assessee in an earlier the welfare of employees is also allowed as deduction. year in respect of the sum contributed by him to such Instances have come to notice where certain employers trust, fund, etc.’ have created irrevocable trusts, ostensibly for the welfare of employees, and transferred to such trusts substantial The Kerala High Court interpreted the Memorandum to amounts by way of contribution. Some of these trusts mean that the intention of the Legislature was to deny the have been set up as discretionary trusts with absolute deduction in respect of the sums paid by the assessee to

66 Bombay Chartered Accountant Journal AUGUST 2021 587 (2021) 53-A BCAJ all funds, trusts, AOPs, etc., other than those specified these facts, the Supreme Court further directed the ITAT in section 36(1)(iv), (iva) and (v), while the Bombay High to record a separate finding as to whether the claim for Court understood it to mean that the inserted provision deduction was being made for payments to the school applied only to trusts which were discretionary, with promoted by the assessee or to some other educational possibility of misdirection or misuse of such contributions, institutions / schools and thereafter apply section 40A(9). and not applicable to any genuine expenditure. The action of the Court indicates that the expenditure where incurred for payments to funds, etc., not promoted The intention of the Legislature behind the amendment by the assessee, were to be separately considered. may be gathered from paragraph 16.1 of the Explanatory Notes, where the types of cases of misuse sought to be In Kennametal India Ltd. vs. CIT 350 ITR 209 (SC), the plugged have been set out. The amendment is intended Tribunal had held that the amount paid by a company to apply in cases where the employer had discretion in towards employees’ welfare trust had been reimbursed. utilisation of funds and in investment of funds without The Supreme Court on appeal held that there was a any safeguards, and which could be used as tools of difference between the reimbursement and contribution; tax avoidance by claiming deduction in respect of such the assessee could make a claim for deduction in case contributions, which could flow back to the employer in of the reimbursement, if the quantified amount was the form of deposits or investment in shares, etc. It was certified by the Chartered Accountant of the assessee. certainly not intended to apply to genuine staff welfare This decision supports the case for allowance of the trusts, where the amount of contributions was expended expenditure on payment by way of reimbursement. on staff welfare, where the contribution was really in the nature of staff welfare expenses. Clearly, the amendment Having noted the above, it is possible for the Government was not targeted to curtail the allowance of staff welfare to contend that the language of section 40A(9) is fairly expenditure but only to curb misuse of claim for deduction clear and not ambiguous and may not permit the luxury of of a payment disguised as staff welfare expenditure, interpreting the provision by examining the intent behind of amounts not intended to be spent on staff welfare the insertion of the provision. In simple words, it prohibits expenditure. the allowance of all those payments specified therein, unless the same are covered by the provisions of section The Kerala High Court itself, in CIT vs. Travancore 36(1), clauses (iv), (iva) and (v). At the same time, it has to Cochin Chemicals Ltd. 243 ITR 284, while considering be appreciated that there is nothing in the language that a payment towards proportionate share of expenses of provides for the disallowance of expenditure, including the assessee for running of a school wherein children of the reimbursement thereof, which is wholly and exclusively assessee’s employees were studying, had held that such incurred for the purposes of the business. In cases where expenditure was expenditure for the smooth functioning the contribution can be shown to be expenditure of such of the business of the assessee and also expenditure a nature, in our considered opinion, there can be no wholly and exclusively for the welfare of the employees of disallowance. the assessee and, thus, allowable. Again, the allowance of expenditure or payment would, to In Sandur Manganese & Iron Ores Ltd. vs. CIT 349 a large extent, depend upon the factual position relating to ITR 386, the Supreme Court had occasion to examine the contribution, its size, its objective and the composition the provisions of section 40A(9) and their applicability of the recipient fund / trust. A distinction can be drawn to payments made to schools claimed as welfare between cases where: expenses towards providing education to its employees’ 1. the trusts are controlled by the employer, provisions of children. The Tribunal and High Court had concluded section 40A(9) may apply; that those payments made by the assessee constituted 2. the contributions by the employer are of large amounts ‘reimbursement’ to schools promoted by the assessee, intended to remain invested by the trust and where the and accordingly had upheld the disallowance. The trustees have the discretion to invest the funds with the Supreme Court on appeal observed that section 40A(9) employer, the provisions of section 40A(9) may apply; of the Act was inserted as a measure for combating tax 3. the contributions by the employer are to meet the avoidance. Noting that the A.O. had observed that certain annual staff welfare expenditure incurred by the trust, payments had been made to educational institutions provisions of section 40A(9) may not apply; other than those promoted by the assessee, in view of 4. the expenditure is in the nature of staff welfare or

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reimbursement thereof, the provisions of section 40A(9) provisions relating to disallowance would not apply to should not apply. genuine staff welfare expenditure or reimbursement thereof, even though routed through funds, trusts, AOPs, The better view of the matter seems to be that the etc.

GLIMPSES OF SUPREME COURT RULINGS Continued from Page 63

The Court further observed that in Canara Workshops Authority, nor by the Tribunal or the High Court. However, (P) Ltd., Kodialball, Mangalore (1979) 3 SCC 538, considering the submissions on behalf of the Revenue, the question that arose for consideration related to and as it has a bearing on the interpretation of sub- computation of the profits for the purpose of deduction u/s section (1) of section 80-IA, it held that the scope of sub- 80-E, as it then existed, after setting off the loss incurred section (5) of section 80-IA is limited to determination of by the assessee in the manufacture of alloy steels. the quantum of deduction under sub-section (1) of section Section 80-E, as it then existed, permitted deductions in 80-IA by treating ‘eligible business’ as the ‘only source of respect of profits and gains attributable to the business of income’. Sub-section (5) cannot be pressed into service generation or distribution of electricity or any other form for reading a limitation of the deduction under sub-section of power or of construction, manufacture or production of (1) only to ‘business income’. any one or more of the articles or things specified in the list in the Fifth Schedule. It was argued on behalf of the The Supreme Court further observed that an attempt was Revenue that the profits from the automobile ancillaries made by the Revenue to rely on the phrase ‘derived... industry of the assessee must be reduced by the loss from’ in section 80-IA(1) in respect of his submission that suffered by the assessee in the manufacture of alloy the intention of the Legislature was to give the narrowest steels. The Supreme Court was not in agreement with possible construction to deduction admissible under this the submissions made by the Revenue. It was held that sub-section. According to the Supreme Court, it was not the profits and gains by an industry entitled to benefit u/s necessary to deal with this submission in view of the 80-E cannot be reduced by the loss suffered by any other findings recorded above. industry or industries owned by the assessee. The Court dismissed the appeal for the aforementioned The Supreme Court noted that in the present case there reasons qua the issue of the extent of deduction u/s 80- was no discussion about section 80-IA(5) by the Appellate IA.

In the end, we'll all become stories — Margaret Atwood

Just know, when you truly want success, you’ll never give up on it. No matter how bad the situation may get — Unknown

I don’t regret the things I’ve done, I regret the things I didn’t do when I had the chance — Unknown

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international taxation

mayur B. nayak i tarunkumar g. singhal i anil d. doshi i Mahesh g. nayak Chartered Accountants

EQUALISATION LEVY ON E-COMMERCE SUPPLY AND SERVICES, PART - 2

In the first of this two-part article published in June, EOP if the consumer, to whom goods are sold or services 2021, we analysed some of the issues relating to the either provided to or facilitated, is a person resident in Equalisation Levy on E-commerce Supply and Services India, or one who is using an IP address located in India. (‘EL ESS’) – what is meant by online sale of goods and online provision of services; who is considered as an Interestingly, the words used in the EL provisions are E-commerce Operator (‘EOP’); and what is the amount different from those used in the provisions relating to on which the Equalisation Levy (‘EL’) is leviable. SEP and the extended source rule in Explanations 2A and 3A to section 9(1)(i) of the ITA, respectively. The EL In this part, we attempt to address some other issues ESS provisions refer to the recipient of the ESS being relating to EL ESS such as those relating to the situs of the a ‘person resident in India’, whereas the SEP provisions recipient, turnover threshold and specified circumstances in Explanation 2A refer to the recipient of the transaction under which EL ESS shall apply. We also seek to being a ‘person in India’. Similarly, the extended source understand the interplay of the EL ESS provisions with rule in Explanation 3A refers to certain transactions with a tax treaties, provisions relating to Significant Economic person ‘who resides in India’. Presence (‘SEP’), royalties / Fees for Technical Services (‘FTS’) and the exemption u/s 10(50) of the ITA. While the terms ‘person in India’ and person ‘who resides in India’ referred to in Explanations 2A and 3A, respectively, 1. ISSUES RELATING TO RESIDENCE AND refer to the physical location of the recipient in India, the SITUS OF CONSUMER term ‘person resident in India’ used in the EL provisions Section 165A(1) of the Finance Act, 2016 as amended would refer to the tax residency of a person. While the (‘FA 2016’) states that the provisions of EL ESS apply EL ESS provisions do not define the term ‘resident’, one on consideration received or receivable by an EOP from would interpret the same on the basis of the provisions of E-commerce Supply or Services (‘ESS’) made or provided the ITA, specifically section 6. or facilitated by it: a) To a person resident in India; or This may lead to some challenging situations which have b) To a non-resident in specified circumstances; or been discussed below. c) To a person who buys such goods or services or both using an internet protocol (‘IP’) address located in India. Let us take the example of an EOP who is selling goods online. While such an EOP may have the means to The specified circumstances under which the ESS made track its customers whose IP address is located in or provided or facilitated by an EOP to a non-resident India, how would it be able to keep track of customers would be covered under the EL ESS provisions are: who are residents in India but whose IP address is not a) Sale of advertisement, which targets a customer who located in India? This would be typically so in a case is resident in India, or a customer who accesses the where a person resident in India goes abroad and advertisement through an IP address located in India; and purchases some goods through the EOP. Further, it would b) Sale of data collected from a person who is resident in also be highlighted that unlike citizenship, the residential India or from a person who uses an IP address located status of an individual is based on specific facts and, in India. therefore, may vary from year to year and one may not be able to conclude with surety, before the end of the Therefore, the EL ESS provisions apply to a non-resident said previous year, whether or not one is a resident of

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India. A similar issue would also arise in the case of a India. The reference in the second limb to a non-resident company, especially a foreign company having its ‘Place as against a person who is not residing in India indicates of Effective Management’ in India and, therefore, a tax the intention of the law to consider tax residency. resident of India. b) The third limb of section 165A(1) of the FA 2016 refers to a person who uses an IP address in India. If Similarly, let us take the example of a foreign branch of the intention was to cover a person who is physically an Indian company purchasing some goods from a non- residing in India under the first limb, this limb would resident EOP. In this case, as the branch is not a separate become redundant as a person who uses an IP address person but merely an extension of the Indian company in India would mean a person who is physically residing outside India, the provisions of EL ESS could possibly in India at that time. This also indicates the intention of apply as the goods are sold by the EOP to ‘a person the Legislature to consider a person who is a tax resident resident in India’. rather than a person who is merely physically residing in India under the first limb. While one may argue that nexus based on the tax c) Section 165 of the FA 2016 dealing with Equalisation residence of the payer is not a new concept and is Levy on Online Advertisement Services (‘EL OAS’) prevalent even in section 9 of the ITA, for example in the applies to online advertisement services provided to a case of payment of royalty or fees for technical services person resident in India and to a non-resident person (‘FTS’), the main challenges in applying the payer’s tax having a PE in India. Given that the section refers to a residence-based nexus principle to EL are as follows: PE of a non-resident, it would mean that tax residence a) While the payments of royalty and FTS may also rather than physical residence is important to determine apply for B2C transactions, the primary application is for the applicability of the EL OAS provisions. In such a case, B2B transactions. On the other hand, the EL provisions it may not be possible to apply two different meanings to may primarily apply to B2C transactions. Therefore, the the same term under two sections of the same Act. number of transactions to which the EL provisions apply would be significantly higher; 2. SALE OF ADVERTISEMENT b) In the case of payment of royalty and FTS, the primary As highlighted above, one of the specified circumstances onus is on the payer to deduct tax at source u/s 195, under which ESS made or provided or facilitated by an whereas the primary onus in the case of EL ESS is on the EOP to a non-resident would be covered under the EL recipient. The payer would be aware of its tax residence in ESS provisions, is of sale of advertisement which targets the case of payment of royalty and FTS and, hence, would a customer who is resident in India, or a customer who be able to determine the nexus, whereas in the case of EL accesses the advertisement through an IP address the recipient may not be in a position to determine the tax located in India. residential status of the payer. The question which arises is in respect of the possible Given the intention of the provisions to bring to the tax overlap of the EL ESS and the EL OAS provisions. In this net, income from transactions which have a nexus with respect, section 165A(2)(ii) of the FA 2016 provides that India and applying the principle of impossibility for the the provisions of EL ESS shall not apply if the EL OAS non-resident EOP to evaluate the residential status of the provisions apply. In other words, the EL OAS application customer, one of the possible views is that one may need shall override the application of the EL ESS provisions. to interpret the term ‘person resident in India’ to mean a person physically located in India rather than a person EL OAS provisions apply in respect of payment of online who is a tax resident of India. advertisement services rendered by a non-resident to a resident or to a non-resident having a PE in India. However, in the view of the authors, from a technical However, the application of EL ESS provisions is standpoint a better view may be that one needs to wider. For example, the EL ESS provisions can also consider the tax residency of the customer even though it apply in the case of payment for online advertisement may seem impossible to implement in practice on account services rendered by a non-resident to another non- of the following reasons: resident (which does not have a PE in India), which a) Section 165A(1) of the FA 2016 has three limbs – a targets a customer who is a resident in India or a customer person resident in India, a non-resident in specified who accesses the advertisement through an IP address circumstances, and a person who uses an IP address in located in India.

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3. ISSUES IN RESPECT OF TURNOVER following the principles laid down in the CBDT Circular THRESHOLD No. 452 dated 17th March 1986, provides as below: Section 165A(2)(iii) of the FA 2016 provides that the provisions of EL shall not be applicable where the sales, ‘A question may also arise as to whether the sales by a turnover or gross receipts, as the case may be, of the commission agent or by a person on consignment basis EOP from the ESS made or provided or facilitated is less forms part of the turnover of the commission agent and / than INR 2 crores during the previous year. Some of the or consignee, as the case may be. In such cases, it will be issues in respect of this turnover threshold have been necessary to find out whether the property in the goods or discussed in the ensuing paragraphs. all significant risks, reward of ownership of goods belongs to the commission agent or the consignee immediately 3.1 Meaning of sales, turnover or gross receipts from before the transfer by him to third person. If the property the ESS in the goods or all significant risks and rewards of The first question which arises is what is meant by ‘sales, ownership of goods belong to the principal, the relevant turnover or gross receipts’. The term has not been defined sale price shall not form part of the sales / turnover of the in the FA 2016 nor in the ITA. However, given that the term commission agent and / or the consignee, as the case is an accounting term, one may be able to draw inference may be. If, however, the property in the goods, significant from the Guidance Note on Tax Audit u/s 44AB issued by risks and reward of ownership belongs to the commission the ICAI (‘GN on tax audit’). The GN on tax audit interprets agent and / or the consignee, as the case may be, the ‘turnover’ to mean the aggregate amount for which the sale price received / receivable by him shall form part of sales are effected or services rendered by an enterprise. his sales / turnover.’ Similarly, ‘gross receipts’ has been interpreted to mean all receipts whether in cash or kind arising from the carrying Moreover, section 165A(2)(iii) of the FA 2016 also refers on of business. to sales, turnover or gross receipts of the EOP.

The question which needs to be addressed is this – in the Therefore, in the view of the authors, in the above case of an EOP facilitating the online sale of goods, what example the turnover of the EOP would be INR 5 and should be considered as the turnover? To understand this not INR 100. issue better, let us take an example of goods worth INR 100 owned by a third-party seller sold on the portal owned 3.2 Whether global turnover to be considered by an EOP whose commission or fees for facilitating such Having evaluated the meaning of the term ‘turnover’, sales is INR 5. Let us assume further that the buyer pays a question arises as to whether the global turnover of the entire consideration of INR 100 to the EOP and the the EOP is to be considered or only that in relation to EOP transfers INR 95 to the seller after reducing the India is to be considered. Section 165A(2)(iii) of the FA facilitation fees. 2016 provides that the turnover threshold of the EOP is to be considered in respect of ESS made or provided In such a case, what would be considered as the or facilitated as referred to in sub-section (1). Further, turnover for the purpose of determining the threshold for section 165A(1) of the FA 2016 refers to ESS made or application of EL ESS? As the EL provisions provide that provided or facilitated by an EOP to the following: the consideration received or receivable from the ESS (i) to a person resident in India; or shall include the consideration for the value of the goods (ii) to a non-resident in the specified circumstances; or sold irrespective of whether or not the goods are owned (iii) to a person who buys such goods or services or both by the EOP, can one argue that the same principle should using an IP address located in India. apply in the case of the computation of turnover as well, i.e., turnover in the above case is INR 100? Accordingly, the section is clear that the turnover in respect of transactions with a person resident in India or In the view of the authors, considering the facilitation fee an IP address located in India is to be considered and not earned by the EOP as the turnover of the EOP may be the global turnover. a better view, especially in a scenario where the EOP is merely facilitating the sale of goods and is not undertaking 3.3 Issues relating to application of threshold of INR the risk associated with a sale. One may draw inference 2 crores from paragraph 5.12 of the GN on tax audit which, Another question is whether the turnover threshold of

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INR 2 crores applies to each person referred to in section the ESS is effectively connected to such PE. The term 165A(1) independently or should one aggregate the ‘permanent establishment’ has been defined in section turnover for all the persons who are covered under the 164(g) of the FA 2016 to include a fixed place through sub-section. which business is carried out, similar to the language provided in section 92F(iii) of the ITA. The question arises This issue is explained by way of an example. Let us whether the definition of PE under the FA 2016 would assume that an EOP sells goods to the following persons include only a fixed place PE or whether it would also during the F.Y. 2021-22: include other types of PE such as service PE, dependent agent PE, construction PE, etc. Person Value of Applicable goods sold clause of In this regard, one may refer to the Supreme Court (in lakhs INR) section 165A(1) decision in the case of DIT (International Taxation) vs. 1 Mr. A, a person resident in 50 (i) Morgan Stanley & Co. Inc. wherein the Apex Court India held that the definition of PE under the ITA is an inclusive Mr. B, a person resident in 125 (i) definition and, therefore, would include other types of PE India as envisaged in tax treaties as well. Mr. C, a non-resident under 100 (ii) specified circumstances However, in the view of the authors, ‘Service PE’ may not be considered under this definition under the domestic Mr. D, a non-resident but 25 (iii) tax law as the duration of service period for constitution using an IP address located in India of Service PE is different under various treaties and the definition under a domestic tax law cannot be interpreted Total 300 on the basis of the term given to it under a particular treaty when another treaty may have a different condition. In the above example, the issues are as follows: A similar view may also be considered for construction a) As each clause of section 165A(1) refers to ‘a person’, PE where under different tax treaties the threshold for whether such threshold is to be considered qua each constitution of PE also is different. person. In the above example, the transactions with each person do not exceed INR 2 crores. 5. INTERPLAY BETWEEN EL ESS AND b) As each clause of section 165A(1) is separated by ‘or’, ROYALTY / FEES FOR TECHNICAL does the threshold need to be applied qua each clause, SERVICES i.e., in the above example the transactions with persons Section 163 of the FA 2016 provides that the EL ESS under each individual clause do not exceed INR 2 crores. provisions shall not apply if the consideration is taxable as royalty or FTS under the ITA as well as the relevant tax In other words, the question is whether one should treaty. Similarly, section 10(50) of the ITA also exempts aggregate the turnover in respect of sales to all the income from ESS if such income has been subject to EL persons which are covered u/s 165A(1). In the view of the and is otherwise not taxable as royalty or FTS under the authors, while a technical view that the turnover threshold ITA as well as the relevant tax treaty. of INR 2 crores applies to each buyer independently and not in aggregate is possible, the better view may be that Accordingly, one would need to apply the royalty / FTS the turnover threshold applies in respect of all transactions provisions first and the EL ESS provisions would apply undertaken by the EOP in aggregate. only if the income were not taxable as royalty / FTS under the ITA as well as the tax treaty. Interestingly, the Pillar One solution as agreed amongst the majority of the members of the OECD/G20 Inclusive Interestingly, when the EL provisions were introduced, Framework on BEPS, provides for a global turnover of the the exemption u/s 10(50) of the ITA applied to all income entity of EUR 20 billion. and this carve-out for royalty / FTS did not exist. This amendment of taxation of royalty / FTS overriding the EL 4. INTERPLAY BETWEEN PE AND EL ESS provisions was introduced by the Finance Act, 2021 with One of the exemptions from the application of the EL ESS is in a scenario where the EOP has a PE in India and 1 (2007) 292 ITR 416

72 Bombay Chartered Accountant Journal AUGUST 2021 593 (2021) 53-A BCAJ retrospective effect from F.Y. 2020-21. of copyright or right in the software from the seller to the user-buyer. Prior to the amendment as mentioned above, one could take a view that transactions which, before the introduction Accordingly, payment by the user to the seller for of the EL provisions, were taxable under the ITA at a downloading the software may not be considered as higher rate, would be subject to EL ESS at a lower rate. royalty under the ITA or the relevant tax treaty.

In order to understand this issue better, let us take an The next question which arises is whether such download example of IT-related services provided by a non-resident of software can be subject to EL ESS. online to a resident. Such services may be considered as FTS u/s 9(1)(vii) of the ITA as well as under the tax Assuming that the portal from which the download is treaty (assuming the make available clause does not undertaken is owned or managed by the seller, the first exist). Prior to the amendment made vide Finance Act, issue which needs to be addressed is whether sale of 2021, one could take a view that such services may be software by way of download would be considered as subject to EL (assuming that the service provider satisfies ESS. the definition of an EOP) and therefore result in a lower rate of tax in India at the rate of 2% as against the rate of Section 164(cb) of the FA 2016 defines ESS to mean 10% as is available in most tax treaties. However, with the online sale of goods or online provision of services or amendment vide the Finance Act, 2021, one would need online facilitation of either or a combination of activities to apply the royalty / FTS provisions under the ITA and mentioned above. tax treaty first and only if such income is not taxable, can one apply the EL ESS provisions. Therefore, now While the Supreme Court has held that the sale of software such income would be taxed at the FTS rate of 10%. would be considered as sale of copyrighted material, the ‘goods’ being referred to by the Court are the floppy disk An interesting aspect in the royalty vs. EL debate is in or CD – the medium through which the sale was made. respect of software. Recently, the Supreme Court in the In the view of the authors, the software itself may not be case of Engineering Analysis Centre of Excellence considered as goods. (P) Ltd. vs. CIT (2021) (432 ITR 471) held that payment towards use of software does not constitute royalty as it is Further, such download of software may not be considered not towards the use of the copyright in the software itself. as provision of services as well. In fact, the Court reiterated its own view as in the case of Tata Consultancy Services vs. the State of AP (2005) One may take inference from the SEP provisions (1 SCC 308) that the sale of software on floppy disks or introduced in Explanation 2A of section 9(1)(i) of the ITA, CDs is sale of goods, being a copyrighted article, and not wherein SEP has been defined to mean the following, sale of copyright itself. ‘(a) transaction in respect of any goods, services or property carried out by a non-resident with any person It is important to highlight that the facts in the case of in India including provision of download of data or Engineering Analysis (Supra) and the way business software in India…’ is at present undertaken are different as software is no longer sold on a physical medium such as floppy disks or In this case, one may be able to argue that if the download CDs but is now downloaded by the user from the website of software was considered as sale of goods or services, of the seller. A question arises whether one can apply the there was no need for the Legislature to specifically principles laid down by the above judgment to the present include the download of data or software in the definition business model. and a specific mention was required to be made, is on account of the fact that download of software does not In the view of the authors, downloading the software otherwise fall under transaction in respect of goods, is merely a mode of delivery and does not impact the services or property. principle emanating from the Supreme Court judgment. The principle laid down by the judgment can still be Accordingly, it may be possible to argue that download applied to the present business model wherein the of software does not fall under the definition of ESS and software is downloaded by the user as there is no transfer the provisions of EL, therefore, cannot apply to the same.

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However, this issue is not free from litigation. ESS provided the same is not taxable under the ITA and the relevant tax treaty as royalty or FTS and chargeable In this regard, it is important to highlight that in a scenario to EL ESS. Therefore, while the provisions of SEP under where the transaction is in the nature of Software as a Explanation 2A of section 9(1)(i) of the ITA may get Service (‘SaaS’), it may not be possible to take a view that triggered if the threshold is exceeded, such income would there is no provision of service and such a transaction be exempt if the provisions of EL apply. may, therefore, either be taxed as FTS or under the EL ESS provisions, as the case may be, and depending on In other words, the provisions of EL supersede the the facts. provisions of SEP.

6. INTERPLAY BETWEEN EL AND SEP 7. ORDER OF APPLICATION OF EL ESS PROVISIONS A brief chart summarising the order of application of EL Section 10(50) of the ITA exempts income arising from ESS has been provided below:

Whether receipt of consideration by non-resident EOP?

If yes, whether consideration for ESS provided or made or If no, EL ESS shall not apply facilitated by EOP

If yes, whether ESS provided to persons If no, EL ESS shall not apply specified in 165A(1)

If yes, whether EOP has PE in If no, EL ESS shall not apply India or EL OAS applies?

If no, whether consideration received exceeds INR 2 crores in IIff no,no, ELEL ESSESS shallshall notnot applyapply the previous year

If yes, whether payment subject to tax under the ITA and the relevant IIff no,no, ELEL ESSESS shallshall notnot applyapply DTAA as royalty or FTS?

If Ino,f no, EL EL ESS ESS shall shall not apply apply

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8. WHETHER EL IS RESTRICTED BY TAX be able to argue that even if one considers EL as not an TREATIES income tax, it is a tax which is similar to income tax on One of the fundamental questions which arises in account of the reasons listed above and therefore would the case of EL is whether such EL is restricted by the get the same tax treatment. application of a tax treaty. The Committee on Taxation of E-commerce, constituted by the Ministry of Finance which Further, one may consider applying the principles of the recommended the enactment of EL in 2016, in its report Vienna Convention on the Law of Treaties (VCLT) to stated that EL which is enacted under an Act other than determine whether EL would be restricted under a tax the ITA, would not be considered as a tax on ‘income’ treaty. Article 31(1) of the VCLT provides that: and is a levy on the services and, therefore, would not be ‘A treaty shall be interpreted in good faith in accordance subject to the provisions of the tax treaties which deal with with the ordinary meaning to be given to the terms of the taxes on income and capital. treaty in their context and in light of its object and purpose.’

However, due to the following reasons, one may be able The object of a tax treaty is to allocate taxing rights to take a view that EL may be a tax on ‘income’ and may between the contracting states and thereby eliminate be restricted by the application of the tax treaties: double taxation. In case EL is held as not covered under a. The speech of the Finance Minister while introducing the ambit of the tax treaty, it would defeat the object and EL in the Budget 2016, states, ‘151. In order to tap tax on purpose of the tax treaty and lead to double taxation. In income accruing to foreign e-commerce companies from this regard, it may be important to highlight that while India, it is proposed that …..’; India is not a signatory to the VCLT, VCLT merely codifies b. While EL is enacted in the FA 2016 itself and not as part international trade practice and law. of the ITA, section 164(j) of the FA 2016 allows the import of definitions under the ITA into the relevant sections of the However, courts would also take into account the FA 2016 dealing with EL in situations where a particular intention of the Legislature while adopting EL. EL has term is not defined under the FA 2016. Further, the FA been adopted in order to override the tax treaties as such 2016 also includes terms such as ‘previous year’ which is treaties were not able to adequately capture taxing rights found only in the ITA; in certain transactions. c. In order to avoid double taxation, section 10(50) of the ITA exempts income which has been subject to EL. Now, 9. CONCLUSION if EL is not considered as a tax on ‘income’, where is the On 1st July, 2021, more than 130 countries out of the question of double taxation in India; 139 members of the OECD / G20 Inclusive Framework d. While under a separate Act the assessment for EL on BEPS released a statement advocating the two-pillar would be undertaken by the Income-tax A.O. Further, solution to combat taxation of the digitalised economy similar to income tax, appeals would be handled by the and unfair tax competition. While the details are yet to Commissioner of Income-tax (Appeals) and the Income be finalised, it is expected that the implementation of Tax Appellate Tribunal, as the case may be; Pillar One would result in the withdrawal of the unilateral e. The Committee, while recommending the adoption of measures enacted, such as the EL. However, given EL, stated that such an adoption should be an interim the high threshold agreed for application of Pillar One, measure until a consensus is reached in respect of a it is expected that less than 100 companies would be modified nexus to tax such transactions. Therefore, it is impacted by the reallocation of the taxing right sought clear that the EL is merely a temporary measure until to be addressed in the solution. Therefore, whether India is able to tax the transactions and EL would take the such unilateral measures would be fully withdrawn colour of a tax on ‘income’. or only partially withdrawn to the extent covered by Pillar One, is still not clear. Further, the multilateral This view is further strengthened in a case where Article agreement proposed under Pillar One would be open 2 of a tax treaty covers taxes which are identical or for signature only in the year 2022 and is expected to be substantially similar to income tax. Most of the tax treaties implemented only from the year 2023. Accordingly, EL which India has entered into have the clause which covers provisions would continue to be applicable, at least for substantially similar taxes. In such a scenario, one may the next few years.

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Ind AS/IGAAP–INTERPRETATION AND PRACTICAL APPLICATION

Dolphy D’Souza Chartered Accountant

GROSS VS. NET REVENUE RECOGNITION

The analysis of gross vs. net revenue recognition under In this article, we look at this issue under different Ind AS 115 Revenue from Contracts with Customers scenarios, using a base set of facts. The views expressed can be a highly complex and judgemental exercise. herein are strictly the personal views of the author under This analysis particularly impacts new-age digital, Ind AS standards. Additional evaluation and consideration internet-based companies across several sectors. The may be required with regards to IFRS standards, revenue number in the P&L is very crucial, because particularly the views of the regulator where a filing is the valuation of the entity is largely dependent upon it. considered.

Base Facts

• Pay Co provides an online wallet facility to wallet users for paying merchants, for example, payment of electricity or telecom bill.

• Pay Co charges commission from merchants; but may or may not charge convenience fees from wallet users.

• To incentivise wallet users, Pay Co gives them cash-back and super cash when wallet services are used to pay merchants.

• Super cash is credited as a promotional activity, for example, at the time of completing KYC by the wallet user during a festival season. This is similar to points received by credit card users.

• Cash-back can be used for future transactions or credited to the wallet user’s bank account. Super cash can only be used for future transactions.

• Commission earned from merchants and incentives paid to wallet users could be contractual or separately settled transactions – when they are separately settled transactions, there is no differential commission charged from merchants whose users are incentivised versus those whose users are not incentivised.

Ind AS 115 Five-step approach

For the above base facts, the following questions need to be answered under the five-step approach from the perspective of Pay Co.

Step 1: Identify the contract(s) with a customer Who is the customer – merchant or wallet user? Step 2: Identify the separate performance obligations in Whether the transactions with the merchant and the the contract wallet user are separate or distinct? Step 3: Determine the transaction price Whether the incentives to the wallet user should be charged as marketing expense or netted off from the commission earned from the merchant? Step 4: Allocate the transaction price to the separate - performance obligations Step 5: Recognise revenue when (or as) the entity - satisfies a performance obligation

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Accounting Standard references – Ind AS 115 same, the IFRS 15 basis of conclusion can be used for Revenue from Contracts with Customers interpretation of Ind AS 115.

Revenue BC 255 In some cases, an entity pays Revenue is defined as ‘Income arising in the course of an consideration to one of its customers or entity’s ordinary activities’. to its customer’s customer (for example, an entity may sell a product to a dealer or distributor and subsequently pay a Customer customer of that dealer or distributor). That As per paragraph 6 of Ind AS 115, ‘A customer is a consideration might be in the form of a party that has contracted with an entity to obtain goods payment in exchange for goods or services received from the customer, a discount or or services that are an output of the entity’s ordinary refund for goods or services provided to the activities in exchange for consideration.’ customer, or a combination of both BC 257 The amount of consideration received Consideration payable to customer from a customer for goods or services, As per paragraph 70 of Ind AS 115, ‘Consideration and the amount of any consideration paid payable to a customer includes cash amounts that an to that customer for goods or services, could be linked even if they are separate entity pays, or expects to pay, to the customer (or to other events. For instance, a customer may pay parties that purchase the entity’s goods or services from more for goods or services from an entity the customer). Consideration payable to a customer also than it would otherwise have paid if it was not receiving a payment from the entity. includes credit or other items (for example, a coupon or Consequently, the boards decided that to voucher) that can be applied against amounts owed to the depict revenue faithfully in those cases, any entity (or to other parties that purchase the entity’s goods amount accounted for as a payment to the customer for goods or services received or services from the customer). An entity shall account should be limited to the fair value of those for consideration payable to a customer as a reduction goods or services, with any amount in of the transaction price and, therefore, of revenue unless excess of the fair value being recognised the payment to the customer is in exchange for a distinct as a reduction of the transaction price good or service (as described in paragraphs 26-30) that the customer transfers to the entity. If the consideration ANALYSIS payable to a customer includes a variable amount, an entity shall estimate the transaction price (including Step 1 – Who is the customer – merchant or wallet assessing whether the estimate of variable consideration user? is constrained) in accordance with paragraphs 50-58.’ As per the definition in paragraph 6, only the merchant should qualify as the customer of Pay Co and not the wallet As per paragraph 71 of Ind AS 115, ‘If consideration user as in case of the wallet user, there is no consideration payable to a customer is a payment for a distinct good attached. However, in the case of those services wherein or service from the customer, then an entity shall account a fee is also charged from the wallet user, they, too, would for the purchase of the good or service in the same way be considered as customers of Pay Co. that it accounts for other purchases from suppliers. If the amount of consideration payable to the customer exceeds Step 2 – Whether transaction with merchant and the fair value of the distinct good or service that the entity wallet user are distinct? receives from the customer, then the entity shall account Based upon the contractual agreement, Pay Co earns for such an excess as a reduction of the transaction price. commission from the merchant on every payment made If the entity cannot reasonably estimate the fair value through Pay Co’s platform. On the other hand, wallet of the good or service received from the customer, it users are offered incentives from time to time under shall account for all of the consideration payable to the different schemes launched by Pay Co. Generally, the customer as a reduction of the transaction price.’ incentives are offered as a promotional campaign for a short duration of time rather than on each transaction. Basis of Conclusion in IFRS 15 The intent of cash-back / super cash offered is not to give discount / credits to the wallet user on a transaction- Ind AS 115 does not contain the basis of conclusion of by-transaction basis, but to promote the usage of the IFRS 15. However, since the two standards are the payment platform. The cash-back offered to a wallet user

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can also be more than the commission earned from the recorded as reduction from revenue to the extent of the merchant as the cash-backs are purely sales-focused convenience fee earned from the wallet user. The super and not for any particular transaction. cash is netted of with revenue (as reduction) to the extent of revenue amount, i.e., only to the extent of convenience The contractual agreement with the merchant is long term fee and any further amount of super cash on said in nature; however, the cash-backs offered to wallet users transaction will be recorded as marketing expense and are offered only sporadically and completely unrelated to will not be adjusted against commission earned from the the merchant agreement. Additionally, the commission is merchant, because the transaction with the merchant and earned by Pay Co from all its merchants; however, the with the wallet user are considered distinct / separate. cash-back / super cash is given only to a handful of wallet users. Hence, these are two distinct transactions with In a rare case, where the incentive is paid to the wallet no relation to each other. In rare cases, the incentives user, on the basis of the agreement with the merchant, provided to the wallet user are required as per the the same is deducted from revenue. If this results in contract with the merchant; therefore, in such cases, the negative revenue, the same is presented as marketing transaction with the merchant and the wallet user would expenses, because revenue by definition cannot be a not be considered as distinct. negative number.

Step 3 – Whether the incentives to the wallet user The above principles are used in the Table below, and should be charged as marketing expense or netted the responses to different scenarios are also depicted off from the commission earned from the merchant? thereafter:

Diagram depicting the transaction Figures in INR Merchant Payment collection Scenario Scenario Scenario Scenario Scenario [utility service provider] service A B C D E Commission Commission 100 100 100 100 100 from merchant

Convenience 0 0 20 20 0 Pay Co Utility Service fee [online payment platform] Cash-back / 10 110 10 25 25 super cash

Incentive Contractual? Yes Yes No No No

Wallet user Utility bill payment Revenue 90 0 110 100 100

Marketing 0 10 0 5 25 expense It may be noted that there is no differential commission charged from merchants whose users are incentivised ANALYSIS OF SCENARIOS versus those whose users are not incentivised. Where Pay Co does not receive any consideration In Scenario A, the cash-back / super cash is contractual, from the wallet user, the user is not considered as a i.e., the incentive is paid to the wallet user as per the customer of Pay Co and thus any cash-back / super cash contractual terms with the merchant. The obligation to pay offered to the user is treated as a marketing or promotional the incentive to the wallet user is not distinct or separate expense. from the transaction with the merchant. Consequently, the incentive is reduced from revenue. Where Pay Co charges a convenience fee from users, the user is considered as a customer of Pay Co based on the In Scenario B, the incentive is again contractual, therefore definition of customer under Ind AS 115. Consequently, any cash-back / super cash offered to the wallet user is Continued on Page 81

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FROM PUBLISHED ACCOUNTS

Himanshu V. Kishnadwala Chartered Accountant

Independent Report for Sustainability Disclosures Analysis section of the Report.

Compilers’ Note: SEBI has mandated the top listed Its sustainability performance reporting criteria have been companies to make disclosures related to Sustainability derived from the GRI Standards of the Global Reporting (or ESG as popularly called). Several companies have, Initiative, United Nations’ Sustainable Development in their annual report (called Integrated Report) for the Goals (UN SDGs), American Petroleum Institute / financial year 2020-21, included such disclosures. The International Petroleum Industry Environmental These disclosures are quite detailed and contain a lot Conservation Association (API / IPIECA) Sustainability of information in graphs, charts, diagrams for ease of Reporting Guidelines and Business Responsibility readability and understanding. A few such companies Reporting Framework based on the principles of National also feel the need to have an independent verification of Voluntary Guidelines on Social, Environmental and these disclosures and have appointed external agencies Economic Responsibilities of Business (NVG – SEE). for the same. Given below is an illustration of one such independent report for sustainability disclosures. RIL has also referred to new and emerging frameworks such as Task Force on Climate-related Financial RELIANCE INDUSTRIES LTD. Disclosures (TCFD) recommendations and World (31st MARCH, 2021) Economic Forum’s WEF-IBC metrics. From Integrated Report Assurance Standards Independent Assurance Statement to Reliance We conducted the assurance in accordance with: Industries Limited on their Sustainability Disclosures • The requirements of the International Federation of in the Integrated Annual Report for Financial Year Accountants’ (IFAC) International Standard on Assurance 2020-21 Engagement (ISAE) 3000 (Revised) Assurance Engagements Other than Audits or Reviews of Historical To the Management of Financial Information. Reliance Industries Limited, 3rd Floor, – Under this standard, we have reviewed the information Maker Chambers IV, 222, Nariman Point, presented in the Report against the characteristics Mumbai 400021, Maharashtra, India. of relevance, completeness, reliability, neutrality and understandability. Introduction – Limited assurance consists primarily of inquiries and We, _____, have been engaged for the purpose of analytical procedures. The procedures performed in a providing assurance on the selected sustainability limited assurance engagement vary in nature and timing disclosures presented in the Integrated Annual Report and are less in extent than for a reasonable assurance (‘the Report’) of Reliance Industries Limited (‘RIL’ or ‘the engagement. Company’) for FY 2020-21. Our responsibility was to – Reasonable assurance is a high level of assurance, but provide assurance on the selected aspects of the Report it is not a guarantee that it will always detect a material as described in the boundary, scope and limitations as misstatement when it exists. mentioned below. Boundary, Scope and Limitations Reporting Criteria • The boundary of our assurance covers the sustainability RIL has developed its report based on the applicable performance of RIL’s manufacturing divisions, refineries, accounting standards and has incorporated the principles exploration and production in India; business divisions of the International Integrated Reporting Framework such as chemicals; fibre intermediates; petroleum; () published by the International Integrated Reporting polyester; polymers; Recron and RP Chemicals units in Council (IIRC) into the Management’s Discussion and Malaysia; petro-retail division facilities under Reliance BP

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Mobility Limited (RBML), terminal operations and LPG; methods used to arrive at the sustainability disclosures Reliance Jio Infocomm Limited1; Reliance Retail Ventures presented in the Report. Limited1 and corporate office at Reliance Corporate Park, * Verification of systems and procedures used for for the period 1st April, 2020 to 31st March, 2021. quantification, collation, and analysis of sustainability disclosures included in the Report. (1 Limited to total number of employees, new employee * Understanding the appropriateness of various hires and employee turnover, parental leave, total man- assumptions, estimations and materiality thresholds used hours of training and diversity of governance bodies and by RIL for data analysis. employees) * Discussions with the personnel responsible for the evaluation of competence required to ensure reliability of The sustainability disclosures covered as part of the data and information presented in the Report. scope of reasonable assurance process were reduction * Discussion on sustainability aspects with senior in energy consumption, renewable energy consumption, executives at the different plant locations and at the water withdrawal, water discharge, water recycled, total corporate office to understand the risks and opportunities number of employees at Reliance, employee turnover, from the sustainability context and the strategy RIL is diversity of governance bodies and employees, parental following. leave and total man-hours of training. Additionally, the * Assessment of data reliability and accuracy. disclosures subject to limited assurance process included * For verifying the data and information related to RIL’s direct (scope 1) GHG emissions, energy indirect (scope financial performance we have relied on its audited 2) GHG emissions, emissions of particulate matter, oxides financial statements for the FY 2020-21. of nitrogen, oxides of sulphur, markets served, scale of * Review of the Company’s Business Responsibility the organisation, mechanisms for advice and concerns Report section to check alignment to the nine principles about ethics, governance structure, chair of the highest of the NVG-SEE. governance body, requirements for product and service * Verification of disclosures through virtual conference information and labelling and new employee hires. meetings with manufacturing units at Barabanki, Dahej, Hazira, Hoshiarpur, Jamnagar DTA, Jamnagar SEZ, The assurance scope excludes: Jamnagar C2 complex, Jamnagar Pet Coke Gasification * Aspects of the report other than those mentioned above; unit, Nagothane, Naroda, Patalganga, Silvassa, Vadodara; * Data and information outside the defined reporting Recron (Malaysia) facilities at Nilai and Meleka; RP period; Chemicals Malaysia; Petro-retail division facilities under * The Company’s statements that describe expression RBML, Terminal Operations and LPG; On-shore and off- of opinion, belief, aspiration, expectation, aim or future shore exploration and production facilities at Gadimoga intention and assertions related to Intellectual Property and Shahdol; Reliance Jio Infocomm Limited; Reliance Rights and other competitive issues. Retail Ventures Limited; and Corporate office at Reliance Corporate Park, Navi Mumbai. Assurance Procedures Our assurance process involved performing procedures Appropriate documentary evidences were obtained to to obtain evidence about the reliability of specified support our conclusions on the information and data disclosures. The nature, timing and extent of procedures verified. Where such documentary evidences could not selected depend on our judgment, including the be collected due to sensitive nature of the information, our assessment of the risks of material misstatement of the team verified the same using screen-sharing tools. selected sustainability disclosures whether due to fraud or error. In making those risk assessments we have Independence considered internal controls relevant to the preparation The assurance was conducted by a multi-disciplinary of the Report in order to design assurance procedures team including professionals with suitable skills and that are appropriate in the circumstances. Our assurance experience in auditing environmental, social and procedures also included: economic information in line with the requirements of ISAE 3000 (Revised) standard. Our work was performed * Assessment of RIL’s reporting procedures regarding in compliance with the requirements of the IFAC Code their consistency with the application of GRI Standards. of Ethics for Professional Accountants, which requires, * Evaluating the appropriateness of the quantification among other requirements, that the members of the

80 Bombay Chartered Accountant Journal AUGUST 2021 601 (2021) 53-A BCAJ assurance team (practitioners) be independent of the the fullest extent permitted by law, we do not accept or assurance client, in relation to the scope of this assurance assume responsibility to anyone other than RIL for our engagement, including not being involved in writing the work, for this report, or for the conclusions expressed in Report. The Code also includes detailed requirements for this independent assurance statement. The assurance practitioners regarding integrity, objectivity, professional engagement is based on the assumption that the data competence and due care, confidentiality and professional and information provided to us is complete and true. behaviour. ____ has systems and processes in place to We expressly disclaim any liability or co-responsibility monitor compliance with the Code and to prevent conflicts for any decision a person or entity would make based regarding independence. The firm applies ISQC 1 and the on this assurance statement. By reading this assurance practitioner complies with the applicable independence statement, stakeholders acknowledge and agree to the and other ethical requirements of the IESBA code. limitations and disclaimers mentioned above.

Responsibilities Conclusions RIL is responsible for developing the Report contents. Based on our assurance procedures and in line with RIL is also responsible for identification of material the boundary, scope and limitations, we conclude that, sustainability topics, establishing and maintaining for selected disclosures subjected to limited assurance appropriate performance management and internal control procedures as defined under the scope of assurance, systems and derivation of performance data reported. nothing has come to our attention that causes us not This statement is made solely to the Management of RIL to believe that these are appropriately stated in all in accordance with the terms of our engagement and as material respects, in line with the reporting principles per scope of assurance. of GRI Standards. Non-financial disclosures that have been subject to reasonable assurance procedures as Our work has been undertaken so that we might state defined under scope of assurance, are fairly stated, in to RIL those matters for which we have been engaged all material respects and are in alignment with the GRI to state in this statement and for no other purpose. To standards.

Ind AS/IGAAP–INTERPRETATION AND PRACTICAL APPLICATION Continued from Page 78 the incentive is reduced from revenue, which results in negative revenue of INR 5 (20-25), which is presented as a negative revenue. The negative revenue of INR 10 is a marketing expense. presented as marketing expense, because by definition revenue cannot be negative. In Scenario E, only the merchant is the customer and INR 100 is the revenue. The INR 25 incentive paid to the In Scenario C, the incentive is not contractual. wallet user is a marketing expense, because it is not paid A convenience fee is charged to the wallet user. to a customer or to the customer’s customer in a linear Therefore, both the merchant and the wallet user are relationship. customers. The net revenue from the merchant customer is INR 100, the net revenue from the wallet CONCLUSION user customer is INR 10 (20-10) and the total revenue is INR 110. Ind AS 115 does not establish clear-cut rules on several matters. For example, one may argue that negative In Scenario D, the incentive is not contractual. A revenue should be combined with positive revenue and convenience fee is charged to the wallet user. Therefore, the net number should be presented as revenue, instead both the merchant and the wallet user are customers. The of presenting negative revenue as an expense. These are revenue from the merchant is INR 100, which is presented matters on which the ICAI will need to develop a point of as revenue, and the revenue from the wallet user a view.

It is health that is the real wealth and not pieces of gold and silver — Mahatma Gandhi

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DECODING GST

Sunil Gabhawalla i Rishabh Singhvi i Parth Shah Chartered Accountants

RESOLVING THE INSOLVENT

Taxation laws have always mingled with other regulatory BRIEF OVERVIEW OF THE INSOLVENCY laws and this interplay has resulted in better application & BANKRUPTCY CODE of the tax laws. The intermingling of the GST law with the The Insolvency and Bankruptcy Code, 2016 (IBC) is recently-enacted Insolvency & Bankruptcy Code, 2016 the bankruptcy law of India which aims at creating a poses interesting facets of the GST law. Though both single law for insolvency and bankruptcy for corporates laws have a different orientation, they converge on the and non-corporates. It is a comprehensive code for issue of tax recovery from a defaulter. The said laws also resolving insolvencies which erstwhile laws failed to have an interesting commonality, i.e., they are claimed achieve. Hitherto, the Sick Industrial Companies (Special as reformist action carrying the same ‘magnitude of Provisions) Act, 1985 (‘SICA’), the Recovery of Debt Due 1991’ (the year when economic reforms were carried out to Banks and Financial Institutions Act, 1993 (‘RDDBFI’), under the duo of PM Narasimha Rao and FM Manmohan the Securitisation and Reconstruction of Financial Singh). Assets and Enforcement of Security Interest Act, 2002 (‘SARFAESI’) and the Companies Act, 2013 provided This article is an attempt to identify the points of for insolvency of companies. The Presidency Towns convergence of these revolutionary laws in the context of Insolvency Act, 1909 and the Provincial Insolvency Act, corporate insolvencies. 1920 were made applicable to individuals and partnership firms. But the thrust of the IBC law is to identify sickness Generally speaking, a defaulting / sick enterprise will under a ‘liquidity approach’ rather than a ‘balance sheet also have statutory defaults (referred to as ‘Crown approach’ at the earliest point of time, i.e., default in debts’). Under the erstwhile provisions, Crown debts payment of any debt obligation. were given priority over other financial / trade debts. Empirical evidence suggests that sick enterprises At the end of it, the insolvency process results in two burdened with Crown debts impair the productivity of eventualities: (a) recovery of the enterprise through a assets and deter the overall recovery of the enterprise. Corporate Insolvency Resolution Process (CIRP); or (b) Permitting tax recoveries would defeat the ultimate liquidation of the enterprise and distribution of assets to motive of rejuvenating a sick enterprise and this has been the stakeholders. expressed in the Bankruptcy Law Reforms Committee (BLRC) report in 2015: SUPREMACY OF THE CODE OVER ALL LAWS (INCLUDING GST) ‘2. Executive Summary The law was given teeth through blanket overriding The key economic question in the bankruptcy process… provisions over all other Central and State laws. This The Committee believes that there is only one correct was a learning from the erstwhile laws and the intent forum for evaluating such possibilities and making a of the Legislature was to give corporate revival primacy decision: a creditors’ committee, where all financial over liquidation. Section 238 of the Code gives it creditors have votes in proportion to the magnitude supremacy over all other laws insofar as an insolvency of debt that they hold. In the past, laws in India have resolution process is concerned and it cannot be brought arms of the Government (legislature, executive eclipsed by resorting to remedies available under the or judiciary) into this question. This has been strictly ordinary law of the land. The IBC law has withstood the avoided by the Committee. The appropriate disposition constitutional challenge in the famous Swiss Ribbons of a defaulting firm is a business decision, and only the case (2019) 4 SCC 17 which gave further impetus to creditors should make it.’ this legislation.

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Central or State Government as an operational It is at this juncture that statutory authorities (including creditor Central / State Governments1) have to enter the insolvency In terms of section 5(20) r/w/s 5(21) of IBC 2016, an process and present their claim of unpaid taxes from the operational creditor has been defined as a person Corporate Debtor. Unless a claim is filed, Governments to whom a debt in respect of goods or services is due are not permitted to seek a share in the resolution plan and includes debt payable under any law to the Central of the creditor. These claims are subject to verification and State Government. Contrary to the erstwhile laws and admission by the IRP / RP. Therefore, if the merits which prioritised Crown debts, this law has relegated of the claim itself are disputed, the IRP / RP may not Government dues to the class of operational creditors. consider the same as a valid claim. The Central / State CBEC Circular 134/04/2020-GST, dated 23rd March, Government being in the status of operational creditors, is 2020 also clarifies that the GST dues would stand as not permitted to vote as part of the Committee of Creditors ‘operational debt’ and no coercive action is permitted to (COC) which is the prerogative of the financial creditors. be taken by the proper officer for recovery of debts due They are mute spectators to the resolution process and prior to the CIRP date. It would be seen under the IBC would have to accept the decision of the COC as being in process that operational creditors have a limited power in the overall interests of all stakeholders. revival of the enterprise. Section 30(1) only assures the liquidation value of the Corporate Debtor to operational AGITATING THE RESOLUTION PLAN creditors. Under the revived insolvency law, the financial creditors that comprise the COC are given supreme powers over Participation in the insolvency resolution process – the resolution of the Corporate Debtor. The law-makers operational creditors believe that the financial creditors contributing risk capital The insolvency process commences with an insolvency stand to lose most in an insolvency and therefore would application filed by a financial creditor, operational creditor make all efforts to seek suitors who are willing to revive or corporate debtor (or its member) himself. Operational the company. In case a resolution plan is successfully creditors are permitted to file for initiation of insolvency drawn up and approved by the COC, the same would be in case of default of any debts due to them. The date of approved by the NCLT and given statutory force. In terms admission of the application for insolvency by the NCLT of section 31 of the IBC, the approved resolution plan acts as the ‘insolvency commencement date’. On and would be binding on all stakeholders, including Central / from this date, a blanket moratorium is announced against State Governments. the institution and the continuation, execution of any suit or decree under any law against the Corporate Debtor. In all likelihood creditors (including Central / State In addition, a complete bar is placed on transferring, Governments) would be aggrieved by the reduction in encumbering, alienating, recovering, etc., of any assets the settlement of dues under the resolution plan. Section or rights of the Corporate Debtor. This date serves as a 61(3) recognises that all resolution plans would entail reference point for ascertainment of debts / claims settled some pain to stakeholders, yet the commercial wisdom of under the insolvency resolution process. COC has been given statutory force. IBC limits the scope of any appeal against the order of NCLT (affirming the A public announcement is made of the CIRP containing COC decisions) only in cases where: the details of the insolvency and seeking submission of claims against the Corporate Debtor. Operational * Approved resolution plan is in contravention of any law creditors are required to submit their claims for dues from for the time being in force the Corporate Debtor within the specified time frame. It * Material irregularity in exercise of powers by IRP / RP is based on these claims that the resolution professional * Debts owed to operational creditors have not been (RP) draws up the statement of debts due by the provided for in the resolution plan Corporate Debtor and the available assets against such * Insolvency costs are not provided for claims. The RP is required to verify the claims, including * Or any other prescribed criteria. contingent claims, for arriving at the creditors’ pool of the Corporate Debtor. The Supreme Court, in the case of Ghanshyam Mishra & Sons Private Limited vs. Edelweiss Asset Reconstruction Company Limited (2021) SCC Online 1 For respective GSTIN registration SC 313, has unequivocally stated that the Legislature

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has consciously precluded any ground to challenge the of the corporate debtor. This the successful resolution ‘commercial wisdom’ of the COC before the NCLT and applicant does on a fresh slate, as has been pointed out that decision is ‘non-justiciable’. Effectively, on approval by us hereinabove. For these reasons, NCLAT judgment of the plan by the NCLT, all operational creditors including must also be set aside on this count.’ the Central / State Governments, lose their right to claim any further dues on the fairness doctrine. Discretion on ROLE OF INSOLVENCY RESOLUTION the rationing of the limited funds of the Corporate Debtors PROFESSIONAL rests in the domain of the financial creditors jointly through The CIRP process involves appointment of an IRP / RP the COC. for management of the affairs of the Corporate Debtor. The powers of the board of directors stand suspended In the context of GST, though the Centre / State would and vested in the hands of the RP (section 17/25). It have ascertained their respective dues, they can at the provides that the IRP / RP would act and execute in the most stake their claims and it would be for the COC to name and on behalf of the Corporate Debtor and keep ascertain the eligible claim and provide for the settlement the same as a going concern. In terms of section 148 of of the said claim on a liquidation-value basis depending the CGST / SGST Act r.w. Notification 11/2020-CT dated on the availability of assets of the Corporate Debtor and 21st March, 2020, a special process has been identified the proposal by the incoming resolution applicant. Despite for management of the affairs of the Corporate Debtor by the Centre / State having a self-assessed GST liability the IRP / RP until conclusion of the insolvency resolution available on record, they are bound by the resolution process. In terms of the proviso, this Notification would plan and have to strictly abide by the same. Importantly, be applicable only to such class of persons who have paragraph 67 of the above decision also states that debts defaulted in filing the outward supplies statement in respect of the payment of dues arising under any law (GSTR1) or return (GSTR3B) under the GST law. including the ones owed to Centre / State which do not form part of the resolution plan, stand extinguished. This The IRP / RP would be deemed to be a ‘distinct person’ conclusion seals the fate of all adjudicated / unadjudicated of the Corporate Debtor and is required to take separate GST dues pertaining to the periods up to the CIRP date registration numbers in each of the States where the and the Centre / States cannot proceed to recover any Corporate Debtor was previously registered. In effect, amounts not provided in the resolution plan. Reference a separate GSTIN (under the PAN of the Corporate can also be made to the decision in Essar Steel India Debtor) should be obtained by the IRP / RP and all Ltd. Committee of Creditors vs. Satish Kumar Gupta inward / outward supply transactions from the date of (2020) 8 SCC 531, appointment of the IRP / RP would have to be reported under the new GSTIN. This ensures that pre-CIRP dues ‘107. For the same reason, the impugned NLCAT would be governed by the resolution plan / liquidation judgment [Standard Chartered Bank vs. Satish Kumar order and an IRP / RP being a fiduciary, be responsible Gupta, 2019 SCC OnLine NCLAT 388] in holding that for acts done after its appointment under a fresh claims that may exist apart from those decided on merits registration – refer Circular (Supra). Moreover, non- by the resolution professional and by the Adjudicating filing of prior period returns would not act as a bar on Authority / Appellate Tribunal can now be decided by filing subsequent period returns and the new registration an appropriate forum in terms of section 60(6) of the would facilitate regularising the compliance subsequent Code, also militates against the rationale of section 31 to the appointment of IRP / RP. of the Code. A successful resolution applicant cannot suddenly be faced with “undecided” claims after the Recognising that the creation of a new registration resolution plan submitted by him has been accepted would cause temporary technical challenges, the said as this would amount to a hydra-head popping up Notification waives the time limit of section 16(4) and which would throw into uncertainty amounts payable GSTR2A reflection under Rule 36(4) of the CGST law. by a prospective resolution applicant who would Interestingly, as per the Circular (Supra), this waiver is successfully take over the business of the corporate permitted only for the first return filed by the IRP / RP after debtor. All claims must be submitted to and decided seeking the registration u/s 40. The IRP / RP is permitted by the resolution professional so that a prospective to account for inward supplies which are received since resolution applicant knows exactly what has to be paid its appointment and cannot expand the claim of credit to in order that it may then take over and run the business supplies prior to such date.

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At the customer’s front, invoices raised by the Corporate discharge to the officers, employees and workmen of the Debtor during the interregnum (i.e., from the CIRP Corporate Debtor and the liquidator takes charge of all commencement date and date of registration by IRP / the matters of the Corporate Debtor. In terms of section RP) would be eligible as input tax credit in the hands of 53 of the IBC, the distribution of assets / liquidation value the recipient despite the erstwhile GSTIN being reflected to workmen, secured creditors and unsecured creditors in such invoices. Separately, the said Notification also would be made prior to meeting the Crown debts. In all permits the RP to seek refund of the amounts lying in the likelihood, a Corporate Debtor would not have sufficient electronic cash ledger in the erstwhile registration. assets and the dues would have to be written off by the Central / State Governments. STATUS OF THE ERSTWHILE REGISTRATION Unlike the Notification issued w.r.t. the resolution process, In terms of the Circular (Supra), the erstwhile registration the GST law has not provided for the continuation or is required to be placed under suspension by the proper creation of a new registration in the eventuality of the officer after the CIRP date and cannot be cancelled by company entering into liquidation. A liquidator appointed the proper officer. In case the registration is already u/s 34 of the IBC law may inherit a going concern and cancelled, the proper officer has been directed to revoke would have to perform a piecemeal liquidation of the the cancellation and bring the same to suspension status. Corporate Debtor. The liquidation process may entail GST implications which the official liquidator may It may be noted that the new registration granted to the be liable to discharge. The law appears to be silent IRP / RP is for the limited timeframe from the CIRP date on the status of the IRP / RP registration or the up to the approval / rejection of the resolution plan. In the erstwhile pre-CIRP registration during such process and event that the resolution plan of the resolution applicant the Board should clarify this practical issue faced by is approved and the Corporate Debtor continues in the liquidators. same legal form, the law appears to be silent on the continuation of the new registration or reverting to the SIGNIFICANCE OF DISTINCT PERSON erstwhile registration. On the basis that the law is silent REGISTRATION and that IRP / RP registration is a temporary measure, it Section 168 of the law mandates a fresh registration by can be concluded that the Corporate Debtor would revert the IRP / RP in fiduciary capacity and such registration to the original registration and the proper officer would has been treated as a distinct person. Curiously, this have to revoke the suspension placed on the original Notification, though procedural in nature, raises concerns registration. on the substantive provisions of section 25 which define distinct person. The assets / inventory which Naturally, section 39(10) and the GSTN portal may pose are in possession under the older GSTIN are now to the technical challenge of prohibiting the Corporate Debtor be considered the property of the new IRP / RP GSTIN from filing returns after the resolution date on account of as being ‘distinct person’ under law. While one may default of prior period returns. Due to this hindrance and be tempted to invoke Schedule I and deem a notional given the fact that the IRP / RP has filed the returns for the supply among these GSTINs, we should be conscious corresponding period, one may consider availing a third of the purpose of the Notification. The said Notification registration after the date of approval of the resolution is directed towards procedural aspects and not alteration plan by the NCLT. Of course, where the resolution plan of substantive rights / liabilities of the taxpayer. The involves an amalgamation or merger, the general GST rights and liabilities under law would continue under provisions including transfer of input tax credit, would take the supervision of the IBC process and GST should not over for this purpose. treat this registration as a distinct person in the strict sense. Under the IBC law, sections 17, 18, 24 and 25 SCENARIO ON LIQUIDATION define the role and responsibilities of the IRP /RPas Where the COC fails to draw up a resolution plan within being responsible for the management of affairs and the specified / extended time lines or the resolution plan ensuring compliance of legal requirements under the IBC is rejected or contravened, the NCLT would direct that and other laws. The Supreme Court in Arcellor Mittal the company be liquidated and the assets be distributed (India) Ltd. vs. Satish Kumar Gupta (2019) 2 SCC 1, to the stakeholders under a waterfall mechanism. The states that the RP is taking over the Corporate Debtor liquidation order shall be deemed to be a notice of in an ‘administrative capacity’ and not in an adjudicatory

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capacity. This conclusion should put at rest any doubts estimate’ on the IRP / RP. on the distinct person concept which has been introduced through section 168 of the law. GST being a VAT model, the references to output tax and input tax are made to ascertain the net value addition. INTERESTING FACETS OF INPUT TAX Though they are distinct and independent concepts, the CREDIT AT CUSTOMER’S END scheme of the legislation is to arrive at the net tax liability GST dues which are collected and payable by the after reduction of amounts lying as credit. The scheme of Corporate Debtor may remain unpaid or would be settled section 49 of the GST law (also refer ‘self-assessed tax’) at a reduced value under a resolution / liquidation plan. and returns also depict that the ‘liability or payment’ to the This may result in violation of section 16(2)(c) of the GST Government would be computed after deduction of the law requiring the recipient to establish that input tax has ITC eligible to the Corporate Debtor. But the answer may been paid to the Government. Does the settlement of the be different to the extent of input which is eligible but lying resolution plan by the Corporate Debtor have any bearing unclaimed by the Corporate Debtor (50). This is because on the ITC claim of the recipient? One theory would claim the statutory scheme requires that ITC should be claimed that the debt due by the Corporate Debtor (i.e., output for it to be eligible for a deduction against output tax. tax) itself would stand ‘extinguished’ on approval of the Where the claim is not made by the Corporate Debtor or resolution plan and thus the taxes are not ‘unpaid taxes’ to its representative (IRP / RP), in all likelihood that amount the Government causing invocation of the said provision. would stand lapsed and cannot be claimed as a set-off in Section 16(2) pre-supposes a legally sustainable claim ascertaining the debt due to the Government. and non-payment of such claim would result in denial of ITC. But where the claim itself has been extinguished Where refunds are due by the Government, it may be within one may say that section 16(2) stands complied with. its statutory right to internally adjust these amounts. Section Moreover, Government being a stakeholder of the 54(10) of the GST law empowers the officer to recover the resolution plan, has accepted the haircut (though by said amounts. Where such adjustments are made prior statutory force whose validity has not been challenged at to the moratorium, the Government would be within the appellate forums), it should be estopped from now staking framework to justify the adjustment. But once a moratorium is a new claim at the recipient’s end. declared, section 14(1)(a) bars any transfer, encumbrance, alienation or disposal of the assets of the Corporate Debtor. The alternative theory would claim that taxes which are The Government may be barred from adjusting the refunds not realised by the Government are not ITC and this due to the Corporate Debtor with outstanding dues. In such makes it justifiable for the Revenue to deny the claim. scenarios, the IRP / RP would have to pursue the refund The fallout of this approach would be that the recipient of claim from the Government and transfer the outstanding input from the Corporate Debtor would be under double dues to the decision of the COC under the resolution plan. jeopardy – having paid the tax portion to the Corporate But in case of liquidation, Regulation 29 expressly permits Debtor it would still be denied the ITC by the Government. mutual credits or set-off prior to ascertainment of the net amount payable by the Corporate Debtor. INPUT TAX CREDIT LYING IN BALANCE / REFUNDS DUE AS ON CIRP DATE FATE OF ALTERNATIVE RECOVERIES The Corporate Debtor may be entitled to the ITC lying – JOINT & SEVERAL LIABILITY OF unutilised as on the CIRP date [for example, Input - 100; DIRECTORS, ETC. Input as per 2A - 150; Output – 350]. The question for GST law has amply empowered authorities to recover their consideration is whether the Government’s claim would tax dues from refund adjustments, garnishee proceedings, be 250 or 350? Government in every likelihood may etc. Whether these provisions which can be invoked in proceed to confirm its demand (vide an order) for gross the normal course of business operations have a bearing amount of 350 and this poses a question on the ‘debt’ on the Corporate Debtor? The moment the CIRP process which is due to the Government. Claim u/s 2(6) refers to is initiated, the moratorium shields the Corporate Debtor a ‘right to payment’ whether or not such right is disputed / from any further liabilities and also protects all its assets undisputed, etc. Debt has been defined u/s 2(11) as being from alienation from the Corporate Debtor. This effectively a ‘liability or obligation’ in respect of a claim which is due restricts the taxman from approaching banks / debtors from any person. Regulation 9-14 places the responsibility of verification of the claims and ascertainment of the ‘best Continued on Page 90

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RECENT DEVELOPMENTS IN GST

G.G. GOYAL Chartered Accountant C.B. THAKAR Advocate

NOTIFICATIONS various courts against any quasi-judicial order or where Waiver of penalty – Notification No. 28/2021-Central proceedings for revision or rectification of any order are Tax dated 30th June, 2021 required to be undertaken, and is not applicable to any The Government has introduced the system of QR code other proceedings under GST Laws. vide Notification No. 14/2020-Central Tax dated 21st March, 2020. For non-compliance, penalty u/s 125 can be ADVANCE RULINGS attracted. Vide the above Notification, waiver of penalty is 1. Classification – ‘Track Assembly’ for ‘Automotive provided if such non-compliance is in the period from 1st Seating System’ December, 2020 to 30th September, 2021. M/s Daebu Automotive Seat India Ltd. (GST ARA-01, Application No. 5/2021/ARA dated 1st March, 2021 (TN CIRCULARS AAR) Clarification in respect of applicability of Dynamic Quick Response (QR) Code on B2C invoices and The issue involved in this Advance Ruling application compliances of Notification No. 14/2020-Central Tax (AR) was about classification of Track Assembly. The dated 21st March, 2020 – Circular No. 156/12/2021- applicant is engaged in the business of manufacture of GST dated 21st June, 2021 seat components / accessories which are used in the manufacture of four-wheelers. The CBIC has issued the above Circular clarifying various aspects relating to QR code requirements. The issues The applicant has given particulars of the product, i.e., clarified are about the requirement of QR code on invoices track assembly, with their views regarding classification. issued to a UIN holder, inclusion of bank details in QR The same are reproduced in the AR as under: code, QR code in respect of services provided to parties located outside India but place of supply is considered ‘3.3 On the write-up of the functions of the product, they in India, QR code for sales over the counter, QR code in have stated that: respect of payments received by voucher, etc. (i) This track assembly is fitted on to the floor of the car. Essentially, it enables the movement forward and Clarification regarding extension of limitation under backward of the seat. When seats are fixed on this track GST law in terms of Supreme Court’s order dated 27th assembly, they can slide back and forth with the operation April, 2021 – Circular No. 157/13/2021-GST dated 20th of a lever for varying the positions of the seats, which is July, 2021 basically intended to improve the comfort and efficiency of the persons sitting thereon. This mechanism enables This Circular clarifies certain issues regarding cognizance the passengers and drivers of the automobile to adjust for extension of limitation in terms of the Supreme Court seat positions for their comfort and convenience. Thus, order dated 27th April, 2021 in Miscellaneous Application the track assembly manufactured and supplied by them is No. 665/2021 in SMW(C) No. 3/2020 under the GST law. In an adjunct to the car seat. its detailed Circular, the CBIC has divided various actions (ii) They do not qualify to become parts of the seats as / compliances under GST into three broad categories enunciated in the decision cited, viz., AAR Ruling GUJ/ and stated that the extension of timelines granted by GAARJR/42/2020 dated 30th July, 2020 - 2021-VIL-15- the Supreme Court is applicable in respect of any appeal AAR and the decision of the Supreme Court in the case which is required to be filed before the Joint / Additional of Commissioner C. Ex., Delhi vs. Insulation Electrical Commissioner (Appeals), Commissioner (Appeals), (P) Ltd. reported in 2008 (224) ELT 0512 (SC). Appellate Authority for Advance Ruling, Tribunal and (iii) Car seats would be complete themselves without

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these mechanisms. Hence, track assembly mechanisms From the above definitions, “parts” are an amount or independently could not be called as parts of seats section which when combined with others makes up falling under HSN 94019000, whereas, they could at the whole of something. Hence, part is an essential best be identified as accessories to the seats and hence component of the whole without which the whole cannot would appropriately be classifiable under the heading be complete or cannot function. It is an integral component 87089900.’ of the whole. As defined above, accessories are not an essential component without which the whole cannot be In light of the above facts, the applicant placed the complete or function, but it is a component which when following two questions for determination by AAR: added improves the utility, efficiency or appearance of the (a) What is the correct classification of goods manufactured whole thing. by the applicant, viz., ‘Automotive Seating System’? (b) Will the goods manufactured fall under CH 87089900 Based on the above, the AAR held that ‘part’ is one which attracting GST @ 28% or under CH 940199990 attracting is an essential component of a whole, without which the GST @ 18%? whole cannot be complete or cannot function. In contrast, accessories are not an essential component to complete The CGST authority have contended that HSN 94019900 the whole or to make it function but something to improve covers parts of seats, i.e., those constituting specified the utility, efficiency or appearance of the whole thing. parts such as backs, bottoms, armrests, etc., and cannot cover items like that of the applicant which is basically tied The seat is complete before fitting it on the track assembly under a seat on the floor of the vehicle. which is useful for forward / backward movement of the seat. Hence, seats and track assembly are two Noting the function of the track assembly, the AAR noted independent products fixed together for comfort. that when the seat is fixed on the track assembly, it can slide back and forth with the operation of a lever for Therefore, the Learned AAR held that the track assembly varying the position of the seats. This is basically intended is an accessory to the motor vehicle covered by heading to improve the comfort and efficiency of the person sitting 8708 and cannot be covered by heading 9401. thereon. It is convenient for drivers / passengers to adjust the seat for comfort and convenience. It is a product Accordingly, he held that GST rate of 28% will apply and adjacent to the car seat. The seat can be complete without not the lower rate. such assembly. 2. EPC Contract vis-à-vis sub-contractor and There were two competing headings to be seen in this Government entity case, viz., 9401 and 8708. The AAR also referred to the M/s URC Construction Pvt. Ltd. (Order No. 07/Odisha- section notes under HSN 8708 and sub-classification AAR/2020-21/dated 9th March, 2021) under 8708. Similarly, detailed reference was made to The Steel Authority of India Ltd. (SAIL) intended to get HSN 9401. He then concluded that HSN 9401 covers Ispat Post-Graduate Medical Institute and Super Specialty parts of seats of motor vehicles, whereas HSN 8708 Hospital (referred to as ‘Hospital’) constructed at Rourkela covers parts and accessories of motor vehicles. Steel Plant on design, Engineering, Procurement and Construction (EPC) basis. It appointed NBCC India Ltd. The meanings of ‘parts’ and ‘accessories’ in the Oxford (‘NBCC’), an executive agency, for getting the above English Lexicon were also reproduced as under: work done. An MOU was entered into between SAIL and ‘8.6 CTH 8708 covers “Parts and accessories of NBCC. NBCC awarded a contract to the applicant, M/s Motor Vehicles” and CTH 9401 covers “Parts of seats URC Construction Pvt. Ltd. (‘URC’) who is a national- of Motor vehicles”. Now it is essential to find out the level contractor. definitions of “parts” and “accessories”. As per the Oxford English Lexicon, parts and accessories would be defined The basic question in the AR was whether the contract as under: to be executed by URC will be covered by Notification Parts: An amount or section which, when combined with No. 11/2017-Central Tax (Rate) dated 28th June, 2017 as others, makes up the whole of something. amended by Notifications 24/2017, 31/2017 dated 13th Accessories: A thing which can be added to something October, 2017, 46/2017 dated 14th November, 2017 and else in order to make it more useful, versatile or attractive. 17/2018 dated 26th July. 2018. The relevant part of the

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Notification is reproduced in the AR as under: ‘3.8 M/s SAIL would fall within the ambit of “Government Entity”. The term “Government Entity” is defined in Services CGST Rate Explanation (x) in paragraph 4 of the Notification No. 11/2017-Central Tax (Rate) dated 28th June, 2017 as “an ‘(iv) Composition Supply of Works Contract as authority or a board or any other body including a society, defined in clause (119) of section 2 of the Central Goods and Services Tax Act, 2017, provided to the trust, corporation, (i) set up by an Act of Parliament or a Central Government, State Government, Union State Legislature; or (ii) established by any Government Territory, a Local authority, a Government Authority with 90% or more participation by way of equity or control, to or a Government Entity by way of construction, carry out a function entrusted by the Central Government, erection, commissioning, installation, completion, fitting out, repair, maintenance, renovation, or State Government, Union Territory or a Local authority.’ alteration of - (a) a civil structure or any SAIL is established by way of an Act passed by other original works meant Parliament, viz., Public Sector Iron and Steel Companies predominantly for use other (Restructuring) and Miscellaneous Provision Act, 1978. than for commerce, industry, or any other business or Reliance was also placed on the AAR, Uttarakhand in the profession; 6 case of NHPC Ltd. [(2018)(19) GSTR 34 (AAR-GST)] (b) a structure meant predominantly for use as (i) in which it observed that in a number of Government an educational, (ii) a clinical, entities, though initially the holding by Government is or (iii) an art or cultural 90% or more, after establishment it is diluted for various establishment; or reasons whereby it may go below 90%. (viii) Construction Services other than (i), (ii), (iii), 9 (iv), (v) and (vi) above Based on the above it was submitted that there is no (x) “Government Entity” means an authority or a requirement of continuous holding of 90% and once 90% board or any other body including a society, trust, was already held, it would continue to be a Government corporation, entity. (i) Set up by an Act of Parliament or State Legislature; or (ii) Established by any Government, with 90% And based on this submission, the applicant, URC, or more participation by way of equity or control, canvassed to hold its contract as covered by the above to carry out a function entrusted by the Central Notification attracting tax @ 12%. Government, State Government, Union Territory or a Local authority’ The AAR referred to the history of the establishment of If it is so covered then the rate will be 12%, else there SAIL and observed that it had been established with will be a higher rate. The submission was that the work is the approval of Parliament. Hence it was held as a executed for SAIL, a Government entity, and that the work Government entity. The contract awarded is a composite is predominantly for clinical establishment. It is also work contract involving pre-engineered building structure and covered within the definition of Works Contract as defined RCC frame structure for a specialty hospital. It is works u/s 2(119) of the CGST Act. contract as per section 2(119) of the CGST Act.

It was further submitted that though services are provided It was further observed that the EPC contract gets to NBCC, for the purpose of exemption the constitution of classified in sub-entry (b) as Construction of structure the ultimate service recipient (SAIL) is required to be seen predominantly meant for use as a clinical establishment. and not NBCC, which is merely an executive agency. For For meaning of ‘Clinical establishment’ reference was the above purpose, reliance was placed on Shapoorji made to the meaning of the said term under Service Tax Pallonji & Co. Pvt. Ltd. vs. C.C.C. Excise & S.T., Patna and found that since the given work contract fulfils the [2016 (42) STR 681 (Pat)]. meaning of clinical establishment, it duly qualifies under the above entry. It was stated that SAIL is a Government entity as defined in paragraph 4 of Notification No. 11/2017-Central Tax Regarding the status of NBCC, the AAR observed that dated 28th June, 2017. The said definition of Government it is a separate limited company and not a Government entity referred to in paragraph 3.8 is as under: company. Therefore, the AAR did not agree with the

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applicant that the supply to NBCC amounts to supply to sub-contractor, the applicant is entitled to a concessional ultimate recipient SAIL, which is a Government entity. rate. However, the AAR held that the applicant is a sub- contractor and the benefit of lower rate applicable as It was also observed by the AAR that the construction is per entry at Sl. No. 3(ix) of Notification No. 11/2017 as at the initiative of the Central Government as supported amended by 1/2018 can apply to it. by budget proposal and other documents.

The contract is given by SAIL which is a Government In view of the above, the Learned AAR held that the rate entity. Therefore, NBCC is the main contractor and as a of tax on the above contract of the applicant will be 12%.

DECODING GST Continued from Page 86

and recovering the taxes forcefully. Under general law, the eclipsed into the resolution plan (refer Arcellor Mittal’s right of the creditor in invoking the personal guarantees case, Supra). Another viewpoint would be that the granted by directors was under consideration before the resolution plan would have the effect of determination of Court in SBI vs. V. Ramakrishnan & Ors. (2018) 17 SCC tax dues and no other forum or civil authority is permitted 394, wherein it was held that the moratorium does not to alter these dues from the Corporate Debtor. insulate the guarantors of the debt and their independent and co-extensive liability would continue unhindered. On Implications over criminal or personal penalties these lines, the liability of directors under GST would also against directors, etc. stand on an independent footing. Parallel proceedings such as prosecution, personal penalties are permitted to be invoked against the directors Section 88 provides for joint and several liabilities over of Corporate Debtors. The said proceedings would not the directors of the company unless they prove that form part of the insolvency process and would remain such non-recovery was not on account of any gross unaffected by the resolution plan. The affected persons neglect, misfeasance or breach of duty in relation to the would have to contest these matters at the appropriate affairs of the company. While this provision is specific forum on merits and cannot take shelter under the to cases involving liquidation, it does not specifically resolution scheme. provide for cases where the Corporate Debtor is taken over by a resolution applicant. Therefore, Centre / State CONCLUSION may not be in a position to invoke the said provision in The taxman should appreciate the macro-economic case of reduction of debt due to the respective aspects of introducing this legislation. It is here where Governments. the taxman should don the entrepreneur hat and swallow the bitter pill for a better future of the enterprise and In the alternative, the taxman would like to go after the of the economy as a whole. It was stated by the Court transferee of business (especially in case of a takeover that ‘What is important is that it is the commercial / merger by resolution applicant) u/s 85 which provides wisdom of this majority of creditors which is to for recovery action against the transferee of the business determine, through negotiation with prospective for recovery of taxes from such transferee. While the said resolution application, as to how and in what manner provisions are open-ended, it would be contrary to the the corporate resolution process is to take place’. It IBC provisions which give finality to dues to the resolution is only when such an approach is adopted that the IBC applicant and hence any such claims would have to be resolution process would yield the desired results.

Accept responsibility for your life. Know that it is you who will get you where you want to go, no one else — Les Brown

90 Bombay Chartered Accountant Journal AUGUST 2021 611 (2021) 53-A BCAJ recent decisions–indirect taxes part A IGOODS AND SERVICEs TAX puloma dalal i Jayesh Gogri i mandar telang Chartered Accountants

I. HIGH COURT the Association will be taxable only to the extent contribution exceeds Rs. 7,500 M/s F1 Auto Components Pvt. Ltd. vs. The State Tax Officer FACTS 18 [2021-TIOL-1509-HC-Mad-GST] The applicants sought a ruling from the Advance Ruling Date of order: 9th July, 2021 Authority as to whether they are liable to pay GST only on the amount in excess of Rs. 7,500 collected as Interest is payable only on the net cash liability monthly maintenance charges from the members of the and provisions of section 42 are attracted only in Association or on the entire amount. The Authority held a case of mismatch in input tax credit and not in a that in the event the charges or share of contribution case where a wrong credit is availed goes above Rs. 7,500 per month, such service will not be exempt. Since the share of contribution by members is FACTS above Rs. 7,500 per month, the exemption is not available The challenge is to the order dated 27th January, 2021 and GST at appropriate rates is to be charged on the full levying interest u/s 50 of the CGST Act, 2017 relating to amount of share of contribution. both interest on cash remittances as well as remittances by way of adjustment of electronic credit register. Aggrieved by the said order, a writ petition was filed before the Madras High Court. The Bench noted that the term ‘up HELD to’ employed in the Notification is heavily relied upon by The Tribunal noted that with respect to the second limb of the petitioners to contend that only the amount in excess the transaction, it is covered by the decision in the case of Rs. 7,500 is liable for the tax and not the whole amount of Maansarovar Motors Private Limited 2020-TIOL- collected. The CBIC e-flyer explaining that GST would be 1846-HC-Mad-GST wherein it is clearly held that interest applicable only on the amount in excess of Rs. 5,000 (as can be levied only on the net cash liability. The Tribunal the exemption then stood till 24th January, 2018) is relied further held that the provisions of section 42 can only be upon. The petitioners challenge Circular No. 109/28/2019- invoked in a situation where the mismatch is on account GST dated 22nd July, 2019 wherein it was clarified that in of an error in the database of the Revenue or a mistake case the maintenance charges exceeded Rs. 7,500 per that has been occasioned at the end of the Revenue. month per member, the GST is payable on the entire In a case where the claim of input tax credit (ITC) is amount and is not limited to the excess amount only. erroneous, then the question of applying section 42 does not arise at all, since it is not a case of mismatch but one HELD of wrongful claim of credit. The levy of interest on belated The Court noted that Entry No. 77 of Notification cash remittance is compensatory and mandatory and the 12/2017-Central Tax (Rate) uses the term ‘up to’ an levy is upheld to this extent. amount of Rs. 7,500 which can only be interpreted to state that any contribution in excess of the same would Greenwood Owners Association vs. The Union be liable to tax. The term ‘up to’ hardly needs to be of India defined and connotes an upper limit. The intendment 19 [2021-TIOL-1505-HC-Mad-GST] of the exemption entry in question is simply to exempt Date of order: 1st July, 2021 contributions till a certain specified limit. The clarification by the GST Department even as early as in 2017 has Maintenance charges collected from members of taken the correct view. Thus, the conclusion of the

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AAR as well as Circular No. 109/28/2019-GST dated ARS Steels & Alloy International (P) Ltd. vs. 22nd July, 2019 to the effect that any contribution above State Tax Officer Rs. 7,500 would disentitle the exemption, is contrary to 21 [(2021) 127 taxmann.com 787 (Mad)] the express language of the Entry in question and both Date of order: 24th June, 2021 stand quashed. Only the contribution above Rs. 7,500 will be taxable. A loss that is occasioned by consumption in the process of manufacture is not covered u/s 17(5)(h) D.Y. Beathel Enterprises vs. State Tax Officer of the CGST Act warranting reversal of ITC [(2021) 127 taxmann.com 80 (Mad)] 20 Date of order: 24th February, 2021 FACTS The petitioners are engaged in the manufacture of MS Where assessee purchased goods through billets and ingots. MS scrap is an input in the manufacture registered dealers and substantial portion of sale of MS billets and the latter, in turn, constitute an input consideration was paid through banking channels, for manufacture of TMT / CTD bars. There is a loss of a Revenue could not reverse ITC availed by assessee small portion of the inputs, inherent to the manufacturing for failure of seller to deposit tax on such supply process. The Department sought to reverse a portion of without examining seller and initiating recovery the credit claimed by the petitioners, proportionate to the proceeding against seller loss of the input, referring to the provisions of section 17(5)(h) of the GST Act. FACTS The petitioners are traders and they had purchased HELD goods from a supplier. A substantial portion of the sale The Court held that section 17(5)(h) deals with goods consideration was paid only through banking channels. lost, stolen, destroyed, written off or disposed by way of The payments made to the said supplier included the gift or free samples. Hence, the loss that is occasioned tax component. Based on the returns filed by the sellers, by the process of manufacture cannot be equated to any the petitioners availed ITC. Later, during inspection it of the instances set out in clause (h). It further held that came to light that the supplier did not pay any tax to the the situations as set out in clause (h) indicate loss of Government. The respondent issued show cause notices inputs that are quantifiable and involve external factors to the petitioners. They submitted their replies specifically or compulsions. taking the stand that all the amounts payable by them had been paid to the said suppliers. Unfortunately, without A loss that is occasioned by consumption in the involving the defaulting suppliers, the impugned orders process of manufacture is one which is inherent to the came to be passed levying the entire liability on the process of manufacture itself. The Court also relied petitioners herein. The said orders are under challenge in upon the decision in the case of Rupa & Co. Ltd. vs. these writ petitions. CESTAT, Chennai [2015 (324) ELT 295] in support of its conclusion. HELD The Court noted that no inquiry has been initiated against Bangalore Turf Club Ltd. vs. State of Karnataka the defaulting supplier. When it has come out that the [(2021) 127 taxmann.com 619 (Karn)] supplier has collected tax from the petitioner, the omission 22 Date of order: 2nd June, 2021 on the part of the supplier to remit the tax in question should have been viewed very seriously and strict action Rule 31A(3) of the CGST Rules, insofar as it ought to have been initiated against him. Further, when declares that the value of actionable claim in the there are allegations that the credit is availed without form of chance to win in a horse race of a race club receipt of goods then it is necessary that such suppliers to be 100% of the face value of the bet, is beyond be confronted. Thus, the Court held that the impugned the scope of the Act as the totalisator does not orders suffer from certain fundamental flaws and have to indulge in betting, i.e., (the) business of a race be quashed for more reasons than one. The Court also club for the purposes of the Act but only earns gave specific instructions that the supplier be examined commission, and also for the reason that activity and recovery action in parallel be initiated against the of the petitioners being a game of skill and not a supplier as well. game of chance

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FACTS commission for providing such service. Therefore, there The petitioners challenged the legislative intent of making is no supply of goods / bets by the petitioners as defined the petitioners liable to pay GST on the entire bet amount under the Act. The Court therefore observed that the received by the totalisator and declare the amendments impugned Rule makes the petitioners a ‘supplier’ of bets dated 25th January, 2018 which inserted Rule 31A(3) to which the petitioners do not do and are not the supplier of the CGST Rules as being ultra vires the CGST Act. bets and, therefore, cannot be held liable to pay tax under the Act because the service or supply that the petitioners HELD do is only a totalisator component. Referring to the decisions of the Supreme Court in the cases of Govinda Saran vs. Commissioner of Sales Relying upon the decision of the Apex Court in Dr. K.R. Tax (1985 Supp. SCC 205), Mathuram Aggarwal vs. Lakshmanan vs. State of T.N. and Another [(1996) 2 State of Madhya Pradesh [(1998) 8 SCC 667] and State SCC 226], the Court held that activities of horse racing of Rajasthan vs. Rajasthan Chemists Association are not gambling but are gaming and a game of skill. [(2006) 6 SCC 773], the Court reiterated the principle Adverting to the definition of ‘consideration’ u/s 2(31) of that the measure to which the rate of tax is to be applied the CGST Act, the Court further held that the consideration to a taxable person must have a nexus to the taxable that the petitioners receive for supply of service of event and not de hors it. The Court thereafter noted that the totalisator is only the commission. Therefore, the the activity of the petitioners is required to be noticed consideration component of supply is also not specified to consider whether the petitioners are liable to pay by the impugned Rule which directs payment of tax on tax on 100% of the face value of the bet or only on the the whole bet amount. The Court accordingly held that commission that they receive out of the amount received sub-rule (3) declares the value of supply of actionable in the totalisator. The word ‘totalisator’ ordinarily means a claim in the form of chance to win in betting, gambling or system of betting on horse races in which the aggregate horse racing in a race club shall be at 100% face value stake, less an administration charge and tax, is paid out of the bet, or the amount paid into the totalisator. to winners in proportion to their stakes. Therefore, the act which deals with supply of goods, consideration, business would not apply to the function Further, referring to the decisions of English courts and of the totalisator. the Supreme Court, the Court held that ‘totalisator’ has been interpreted to mean a fixed commission which is Making the entire bet amount that is received by the earned irrespective of the outcome of the race and cannot totalisator liable for payment of GST would take away the be seen to be indulging in a betting activity. Accordingly, principle that a tax can be only based on consideration the Court held that a totalisator does not indulge in betting, even under the CGST. The consideration that the i.e., the business of a race club for the purposes of the Act. petitioners receive is by way of commission for planting a It holds the amount received in the totalisator for a brief totalisator. This can’t be different from that of a stockbroker period in its fiduciary capacity. Rule 31A(3) completely or a travel agent, both of whom are liable to pay GST only wipes out the distinction between the bookmakers and a on the income – commission that they earn and not on totalisator by making the petitioners liable to pay tax on all the monies that pass through them. Therefore, Rule 100% of the bet value. It is the bookmakers who indulge 31A(3) insofar as it declares that the value of actionable in betting and receiving consideration depending on the claim in the form of chance to win in a horse race of a race outcome of the race, irrespective of the result. In contrast, club to be 100% of the face value of the bet, is beyond the the race club provides totalisator service and receives scope of the Act.

It’s hard to wait around for something you know might never happen, but it’s harder to give up when you know it’s everything you want — Unknown

Bombay Chartered Accountant Journal AUGUST 2021 93 614 (2021) 53-A BCAJ

part B IService Tax

puloma dalal i Jayesh Gogri i mandar telang Chartered Accountants

I. TRIBUNAL M/s PVR Ltd. vs. Commissioner of Service Tax [2021-TIOL-368-CESTAT-Del] Commissioner of Service Tax vs. Intas 24 Date of order: 5th July, 2021 Pharmaceuticals 23 [2021-TIOL-367-CESTAT-Mum] Booking of online tickets and charge of Date of order: 25th June, 2021 convenience fees is in the nature of E-commerce transaction not taxable under OIDAR services Notice pay received from the employee being in the nature of compensation for premature termination FACTS of service not liable to service tax The issue involved in these two appeals relates to taxability of ‘convenience fee’ charged by the appellant FACTS to its customers for online booking of movie tickets under The contractual agreement between the company the category of ‘online information and database access and its employees is that the employee should not retrieval system (OIDAR)’ defined u/s 65(75) of the leave the employment before the prescribed period. Finance Act and taxable u/s 65(105)(zh) of the Finance In case of breach of this condition, he would be required Act. to pay one month’s salary which is penal in nature. A show cause notice is issued demanding service tax HELD on the amounts received by the company from its The Tribunal noted that any person who visits the website employees alleging toleration of act of breach of contract of the appellant to seek information about the show taxable as a declared service u/s 66E(e) of the Finance timings or other information does not have to make any Act, 1994. payment and it is only when a ticket is booked online that convenience fee is required to be paid by the user. The HELD substance of the transaction is, therefore, to book a ticket The Tribunal relied on the decision of the Madras High online and thereby engage in E-commerce. Therefore, Court in the case of GE T&D India Pvt. Ltd. [2020] (35) it cannot be said that convenience fee is charged for GSTL 89 (Mad) where the Court categorically holds any access / retrieval of information or database as that the definition in clause (e) of section 66E isnot contemplated under OIDAR service. It is also noted that attracted as the employer has not ‘tolerated’ any act of the Board Circular dated 9th July, 2001 also clarifies that the employee but has permitted a sudden exit upon being E-commerce transactions do not fall within the ambit of compensated by the employee in this regard. Notice OIDAR service. Thus, service tax under the category of pay, in lieu of sudden termination, does not give rise to OIDAR cannot be levied upon a user merely because he the rendition of service either by the employer or the receives a code for getting a printout of the ticket from the employee. Accordingly, the demand was set aside. cinema hall.

One of the most important keys to success is having the discipline to do what you know you should do, even when you don’t feel like doing it — Unknown

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allied laws

Dr. K. Shivaram Senior Advocate Rahul K. Hakani i SHASHI BEKAL Advocates

Arun Kedia (HUF) vs. Runwal Homes (P) Ltd. letter dated 15th March, 2017 cancelling the agreement Consumer Case No. 1115 of 2017 (NCDRC)(Del) dated 5th June, 2013, and to hand over possession of Date of order: 24th June, 2021 the flat allotted to them. Since the notices have not been 18 Bench: Ram Surat Ram Maurya J. and complied with, the present complaint was filed on 18th Mr. C. Vishwanath April, 2017 by the complainants.

Consumer Protection – Builder cancels sale HELD agreement – Without consent – Not handing over It is admitted by the builders and also mentioned in the timely possession – Interest levied [Maharashtra agreement that the Maharashtra Ownership of Flats Ownership of Flats (Regulation of the Promotion (Regulation of the Promotion of Construction, Sale, of Construction, Sale, Management and Transfer) Management and Transfer) Act, 1963 is applicable. Act, 1963, S. 8] According to section 8 of the said Act, if the builder is not able to hand over the possession of the building / FACTS flat within the time specified in the agreement, then the A registered agreement for sale was executed between builder is liable to pay interest for the period for which the complainant and the builders on 5th June, 2013. the possession has not been handed over. The builders Clause 17 of the agreement provided that the builder had failed to complete the construction and hand over would give possession of the premises to the purchasers possession of the flat in March, 2016 as agreed. Due to by March, 2016. the latches on the part of the builders, the complainants are suffering loss. The agreement for sale has been The complainants received a demand letter dated 12th cancelled illegally and the complainants are forced to opt September, 2016 on 13th September, 2016 but as no date for litigation. The Builders shall pay simple interest at 6% of delivery of possession was mentioned, they did not p.a. to the complainants on the amount deposited by them deposit the amount demanded in it, rather, they requested from the due date of possession to the offer of possession for handing over of possession of the flat allotted to after obtaining the occupancy certificate. them. They were not allowed to go to the site to verify the progress under construction, although 85% of the Compack Enterprises India (P) Ltd. vs. sale consideration was paid. The directors and officers of Beant Singh the builder assured that they need not worry and that the (2021) 3 SCC 702 (SC) possession would be given to them within a short time. 19 Date of order: 17th February, 2021 Bench: Mohan M. Shantanagoudar J. and When the builder neglected to give possession of the Vineet Saran J. flat allotted to them, they served a registered notice on the builders on 15th March, 2017 for handing over the Consent decree – No estoppel – Compromise possession of the flat. The builders, through a letter arrived by fraud, misrepresentation or mistake dated 15th March, 2017 (served on 20th March, 2017) [Code of Civil Procedure, 1908, Or. XII, R. 6] unilaterally cancelled the agreement dated 5th June, 2013, mentioning therein that in spite of the demand letter FACTS dated 12th September, 2016, they had not deposited the On a dispute arising on account of mesne profits, the Court instalment as stated in the agreement. The complainants had passed a consent decree directing that the petitioner gave registered notices dated 23rd March, 2017 and 4th shall pay to the respondent (owner of the property), by April, 2017 to the builders, asking them to withdraw their way of mesne profits, an enhanced sum of Rs.1,00,000

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p.m., with a 10% increase every 12 months, i.e., from 1st the will of Late Shri Harish Chand Dhanda to transfer and October, 2009, 1st October, 2011 and so on, till the date vest the area to the beneficiaries. On 21st April, 2005, a the petitioner hands over actual possession of the suit Deed of Assent was executed between M/s H.C. Dhanda property measuring 5,472 sq. ft. to the respondent. Trust, a private trust, as one part and Jogesh Dhanda and others as the other part. By this Deed of Assent, the The petitioner filed a review petition against the consent trustees / executors gave assent to complete the title terms, contending that the High Court had erred in of the legatees and vest two properties absolutely and recording the terms of the consent decree agreed to by forever in their favour. the petitioner. It contended that the judgment records that the mesne profits be increased by 10% every 12 months, A notice was issued by the Collector of Stamps, District instead of recording a 10% increase every 24 months and Indore, stating that proper stamp duty has not been paid that the petitioner was in possession of only 2,200 sq. ft. on the Deed of Assent dated 21st April, 2005. The notice The review petition was rejected. further stated that there was a deficit stamp duty on the said document and asked why ten times penalty should HELD not be imposed. The Trust appeared before the Collector The Court, inter alia, relied on the decision in the case of Stamps and filed its objection. The Collector holding of Byram Pestonji Gariwala vs. Union Bank of India the Deed of Assent as a gift deed held that the deficit & Ors., (1992) 1 SCC 31, wherein it was held that a duty was Rs. 1,28,09,700. He imposed penalty ten times consent decree would not serve as an estoppel where the the deficit duty. The Trustees challenged the order of the compromise was vitiated by fraud, misrepresentation or Collector imposing the penalty. mistake. In the exercise of its inherent powers, the Court may also unilaterally rectify a consent decree suffering HELD from clerical or arithmetical errors, so as to make it The legislative intent is clear from a reading of sections 33, conform to the terms of the compromise. 35, 38 and 39 of the Indian Stamp Act, 1899. It indicates that with respect to the instrument not duly stamped, ten The Court observed that the learned Judge of the High times penalty is not always retained and the power can be Court, in noting that the figure of mesne profits of Rs. exercised u/s 39 to reduce penalty and in regard to that 1 lakh will be increased by 10% after every 12 months, there is a statutory discretion with the Collector to refund i.e., from 1st October, 2009, 1st October, 2011 and so on, the penalty. (emphasis supplied), has confused not only himself but also the parties to the litigation. Referring to the final The purpose of penalty generally is a deterrence and not decree by the Trial Court awarding a 10% increase only retribution. When a discretion is given to a public authority, every alternate year and the original terms of the license such public authority should exercise such discretion agreement between the parties, the period of 12 months reasonably and not in an oppressive manner. The in the consent decree was rectified to 24 months by the responsibility to exercise the discretion in a reasonable Court. The plea of the petitioner that he was in possession manner lies more in cases where discretion vested by the of only 2,200 sq. ft. and not 5,472 sq. ft. was rejected. statute is unfettered. Imposition of the extreme penalty, i.e., ten times the duty or deficient portion thereof, cannot be Trustees of H.C. Dhanda Trust vs. State of M.P. based on the mere factum of evasion of duty. Reasons such (2020) 9 SCC 510 (SC) as fraud or deceit in order to deprive the Revenue or undue Date of order: 17th September, 2020 enrichment are relevant factors to arrive at a decision as 20 Bench: Ashok Bhushan J., R. Subhash Reddy J. to what should be the extent of penalty u/s 40(1)(b). The and M.R. Shah J. penalty was reduced to five times the duty deficit.

Stamp Act – Imposition of penalty – Ten times of Daulat Singh (D) Thr. LRS. vs. The State of duty deficit – Exercise of discretion – Cannot be Rajasthan imposed normally [Indian Stamp Act, 1899, Ss. 33, (2021) 3 SCC 459 (SC) 35, 38, 39 and 40] 21 Date of order: 21st May, 2021 Bench: N.V. Ramana J., S. Abdul Nazeer J. and FACTS Surya Kant J. A resolution was passed by the executors / trustees under

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Gift – Immovable property – Acceptance criterion The gift was held to be a valid gift. [Transfer of Property Act, 1882, Ss. 122 and 123] UOI & Ors. vs. Vishnu Aroma Pouching Pvt. Ltd. FACTS & Anr. The appellant was the owner of 254.2 bighas of land. SLP (C) Diary No. 1434 of 2021 (SC) On 19th December, 1963, he gifted away 127.1 bighas 22 Date of order: 29th June, 2021 to his son. After the said transfer, the appellant was left Bench: Sanjay Kishan Kaul J. and with 17.25 standard acres of land, which was below the Krishna Murari J. prescribed limit under the Ceiling Act. Delay in filing appeal – Not justified – Cost imposed Although proceedings were initiated under the Ceiling – SLP dismissed Act, the same were dropped on 15th April, 1972 by the Court of the Deputy Sub-Divisional Officer, Pali, FACTS Rajasthan. However, by a notice dated 15th March, 1982, The Department filed an application for condonation of the Revenue Ceiling Department reopened the case of delay. It was stated in the application that the judgment the appellant. was pronounced on 14th November, 2019. But the proposal for filing the Special Leave Petition was sent The Court of the Additional District Collector, Pali vide after almost six months, on 20th May, 2020, and it took order dated 28th October, 1988, declared that the mutation another three months to decide whether or not to file the of the land done in favour of the son of the appellant Special Leave Petition. was invalid as there was no acceptance of the gift. It was declared therein that the appellant was holding 11 HELD standard acres of extra land over and above the ceiling Such lethargy on the part of the Revenue Department limit. The Collector, therefore, directed the appellant to with so much computerisation having been achieved is hand over vacant possession of the aforesaid 11 standard no longer acceptable. The application shows the casual acres of extra land to the Tahsildar, Pali. manner in which the petitioner has approached this Court without any cogent or plausible ground for condonation of HELD delay. In fact, other than the lethargy and incompetence The Court, inter alia, on the issue of validity of the gift of the petitioner, there is nothing which has been put on deed held that section 122 of the Transfer of Property record. The leeway which was given to the Government Act, 1882 (TOPA) neither defines acceptance, nor does / public authorities on account of innate inefficiencies it prescribe any particular mode for accepting the gift. was the result of certain orders of this Court that came The word acceptance is defined as ‘is the receipt of a at a time when technology had not advanced and, thus, thing offered by another with an intention to retain it, as greater indulgence was shown. acceptance of a gift.’ The only requirement stipulated under TOPA is that the acceptance of the gift must be Cases of this kind were ‘certificate cases’ filed only with effected during the lifetime of the donor. the objective to obtain a quietus from the Supreme Court on the ground that nothing could be done because the Gifts do not contemplate payment of any consideration highest Court had dismissed the appeal. The objective or compensation. It is, however, beyond any doubt or was to complete a mere formality and save the skin of dispute that in order to constitute a valid gift, acceptance the officers who may be in default in following the due thereof is essential. The document may be handed over process, or may have done it deliberately. Looking to to a donee, which in a given situation may also amount the period of delay and the casual manner in which the to a valid acceptance. The Court held that the fact that application had been worded, the Court considered it possession had been given to the donee also raises a appropriate to impose costs on the petitioner(s) of Rs. presumption of acceptance. The Court referred to the 25,000 for wastage of judicial time which has its own statement made by the son – the donee – before the value. The Special Leave Petition was dismissed as time- Court of the Additional District Magistrate stating that barred. A copy of the order was ordered to be placed the land transferred to him by virtue of the gift deed was before the Secretary, Ministry of Finance, Department of under his possession and he was cultivating the same. Revenue.

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laws and business

Dr. anup p. shah Chartered Accountant

CRYPTOCURRENCIES: TRAPPED IN A LEGAL LABYRINTH (Part - 2)

In the last issue, BCAJ, July, 2021, we looked at the legal background of cryptocurrencies and various issues relating to them. We continue examining the legal problems associated with Virtual Currencies (VCs) in India. This month, we take up the FEMA provisions in relation to VCs

RBI PUTS TO REST 2018 CIRCULAR When the LRS was introduced in February, 2004, the In May, 2021, the RBI issued a Circular to all banks RBI stated that it could be used for any current or capital asking them not to refer to its own Circular of April, account transactions, or a combination of both. In May, 2018 cautioning customers against VCs. This was in 2007, the RBI clarified that remittances under the LRS light of the fact that the Supreme Court in Internet and were allowed only in respect of permissible current or Mobile Association of India vs. Reserve Bank of capital account transactions. However, in June, 2015 the India, WP(C) No. 528/2018, order dated 4th March, RBI introduced a novel concept of defining the permissible 2020 (SC) had held that the RBI Circular of April, 2018 capital account transactions for an individual under the was liable to be set aside on the ground of being LRS. It defined them as follows: ultra vires the Constitution (explained in detail in last month’s feature). Therefore, the RBI directed banks that (i) Opening of foreign currency account abroad with a in view of the order of the Supreme Court, the April, bank; 2018 Circular was no longer valid and hence could not (ii) Purchase of property abroad; be cited or quoted from. It, however, added that banks (iii) Making investments abroad; may continue to carry out customer due diligence (iv) Setting up wholly-owned subsidiaries and joint processes in line with regulations governing standards ventures abroad; for Know Your Customer (KYC), Anti-Money Laundering (v) Extending loans, including loans in Indian Rupees, to (AML), Combating of Financing of Terrorism (CFT) Non-Resident Indians (NRIs) who are relatives as defined and obligations of regulated entities under Prevention in the Companies Act, 2013. of Money Laundering Act (PMLA), 2002, in addition to ensuring compliance with relevant provisions under the The decision of the Supreme Court in the case of Foreign Exchange Management Act. Internet and Mobile Association of India (Supra) examined various facets of cryptocurrencies. The ratio of CAN LRS BE USED FOR INVESTING IN this decision is relevant even for determining the issue CRYPTOCURRENCIES? under LRS. Various important issues were examined The Liberalised Remittance Scheme or LRS is a Scheme in this case and one of the most important of these of the RBI under which any individual resident in India was ‘Are Virtual Currencies (VCs) “currency” under can remit abroad up to US $250,000 per financial year Indian laws?’ After examining various provisions of law, for permissible capital and current account transactions. the Apex Court concluded that it was not possible to accept the contention that VCs were just goods / The million-dollar question is can the LRS be used for commodities and could never be regarded as real money! buying foreign crypto assets such as Bitcoins, Dogecoins? This decision has been analysed in great detail in last Alternatively, can a resident carry out a crypto arbitrage, i.e., month’s feature. buy cryptocurrencies from abroad and sell them in India? This is an issue on which there is no express prohibition One may consider whether VCs can be considered to under the LRS and there is more confusion than clarity. be securities and, hence, permissible under the LRS as

98 Bombay Chartered Accountant Journal AUGUST 2021 619 (2021) 53-A BCAJ an investment in securities. FEMA defines a security to them indirectly. mean shares, stocks, bonds and debentures, Government securities as defined in the Public Debt Act, 1944, Another issue to be considered is that when remitting savings certificates to which the Government Savings money under the LRS one needs to file Form A2 and fill in Certificates Act, 1959 applies, deposit receipts in the Purpose Code. What Purpose Code would the bank respect of deposits of securities and units of the Unit Trust show for cryptocurrencies – would it be Capital Account / of India established under sub-section (1) of section 3 of Foreign Portfolio Investment? Without this clarity, a bank the Unit Trust of India Act, 1963 or of any mutual fund, would not allow remittance for buying VCs. and includes certificates of title to securities, but does not include bills of exchange or promissory notes other than ARE VCs GOODS? Government promissory notes or any other instruments In the aforesaid case of Internet and Mobile Association which may be notified by the Reserve Bank as security of India (Supra), the RBI contended that Virtual for the purposes of this Act. VCs are not shares, stocks, Currencies are not legal tender but tradable commodities bonds, debentures, Government securities, savings / digital goods. If this proposition is upheld then the certificates, deposit receipts in respect of deposits of question which arises is whether the buying and selling of securities or units of any mutual fund. Hence, it is not VCs would attract the provisions under FEMA relating to possible to contend that purchase of VCs from abroad export and import of goods? tantamounts to an investment in securities. The Foreign Exchange Management (Export of Goods The truth of the matter is that the RBI is not comfortable and Services) Regulations, 2015 defines ‘software’ to with the LRS being used to buy VCs. RBI’s view is that mean any computer programme, database, drawing, VCs are not currencies. Hence, bankers are shy to design, audio / video signals, any information by whatever allow the LRS to buy VCs. However, what would be the name called in or on any medium other than in or on any position if a resident were to use the balance standing physical medium. VCs are also computer programmes in his foreign bank account to buy VCs? How would the stored in a virtual medium and, hence, the question arises bankers then restrict the usage? The moot point is can whether they can be considered goods. the RBI have jurisdiction in such a case? Can one use credit cards and buy VCs on the ground that they are If a resident buys VCs from abroad would it be treated goods / intangibles and hence the transaction is a current as import of goods? In this case, the provisions of the account transaction and credit cards can be used on the Master Direction on Import of Goods and Services internet for any permissible current account transaction? amended up to 1st April, 2019 would be applicable. Some Indian banks have started asking their customers remitting money abroad for investment purposes to Similarly, if a resident pays for foreign services / goods provide a declaration that such funds will not be used for availed of by him by way of VCs, then would the payment buying cryptocurrencies such as Bitcoins. by VCs be treated as an export of goods and the receipt of the foreign services / goods as an import? In this case, In fact, some private banks have gone a step forward and the provisions of the Foreign Exchange Management added a clause in the LRS declaration which doesn’t stop (Export of Goods and Services) Regulations, 2015 at cryptocurrencies but also wants customers to declare read with the Master Direction on Export of Goods that funds would not be used to buy units of mutual funds and Services amended up to 12th January, 2018 would or any other capital instrument of a company dealing in be applicable. If one considers the payment by VCs to Bitcoins / cryptocurrencies / virtual currencies. Further, the be an export and the receipt of goods from abroad to LRS declaration even stipulates that the source of funds be an import, then this would constitute a set-off of for LRS remittances should not come from investments in export receivables against import payables. The FEMA Bitcoins or cryptocurrencies. Clearly, a case of throwing Regulations permit a set-off of exports against imports the baby out with the bathwater! only if it is in accordance with the procedure laid down therein. A payment by VCs is not prescribed under the One point to be considered when dealing with this issue FEMA Regulations, and hence it is a moot point whether is that under FEMA one cannot do indirectly what one the same would be permissible. cannot do directly. Thus, if the RBI considers that VCs cannot be bought under the LRS, then one cannot buy (To be concluded)

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securities laws

jayant m. thakur Chartered Accountant

TO BE OR NOT TO BE A PROMOTER

BACKGROUND are willing to share the risk for what they expect to be As the securities laws increasingly seek to lay down sound substantial rewards, without usually participating in the principles of corporate governance and also push towards day-to-day management of the company. greater professionalisation of company management, a question has arisen whether the unique concept of In western countries, promoters / management typically promoters in securities and corporate laws needs a close hold a small share in the capital. Their returns would relook. So much so, that even SEBI has realised this and come as appreciation of such holding and remuneration is considering whether this concept should be dropped or for running the company. In India, traditionally, promoters re-conceptualised. are families who typically own a substantial part, usually 50% or more, of the equity. Thus, they have very In India, promoters have been given a central role, focus substantial control in the company by virtue of their own and obligations in listed companies owing to historical investment. As we will see, even the law expects them to and other reasons. While on their own they have hardly have a significant own stake, or what is termed nowadays any special rights, they have multiple and even onerous as ‘skin in the game’. Their control over the company responsibilities and it is increasingly felt that they need would usually continue through succeeding generations. to be reconsidered considering the changing reality. The Since the promoter family would have dominant control, present law is so stringent that even reclassification of the challenge for the regulator is more of balancing the a person from promoter to non-promoter is a lengthy, interests of these family promoters with those of the difficult and complicated affair. It is almost as if being a public / minority shareholders. promoter is a one-way street, i.e., till death do you part! Thus, a multitude of provisions under the Companies In a recent major proposed public issue, the question Act, 2013 and various SEBI regulations have focused came up yet again about who should be classified as a on identifying these promoters and placing various promoter and why would this status be so keenly shunned. responsibilities and liabilities on them. It was reported that certain top investors / management did not desire to be termed as ‘promoters’. The question THE LEGAL CONCEPT OF PROMOTERS is when and how is a person deemed to be a promoter AND OBLIGATIONS ON THEM and when can he claim that he is no longer a promoter. To begin with, the term is defined very widely. Persons who are in ‘control’ of the company are deemed to be HOW DID THE CONCEPT OF PROMOTER promoters. The term ‘control’ is also given a very wide COME INTO BEING? definition. While majority shareholding is usually enough To appreciate this, we need to understand the term to give them ‘control’, even certain special rights under and then consider how various laws define and treat agreements are deemed to be ‘control’. Once such promoters. Promoters, traditionally, are those enterprising promoters are identified by these criteria, specified persons who conceive a business idea, set up a company relatives and entities connected with them in the specified and seek investors to finance the business. They would manner are also deemed by law to be part of the promoter run the business and later even hand it over to another group. The list of such persons is usually quite long. management. The investors would participate in the ownership / profits / appreciation. Thus, they could be The promoters are required to have a minimum significant seen as persons with ideas but without the financial percentage of capital after a public issue. Thus, the public means to implement them. They need investors who issue cannot be a means of their exit. Further, their

100 Bombay Chartered Accountant Journal AUGUST 2021 621 (2021) 53-A BCAJ shareholding is subject to a lock-in for one to three years. conditions demonstrating that the person is no more Extensive disclosures are required about the history and connected with the promoter or even the company. The background of each of the promoters. They have to make next step is obtaining the approval of the Board of Directors regular disclosures of their shareholding and changes or of the company. Then the approval of the shareholders is charges (such as pledge, etc.) made thereon. required. Finally, the stock exchange has to approve the reclassification. This process may easily take months and Interestingly, they are also the fulcrum around which the its outcome is quite uncertain. The process becomes even independence of directors is tested. Any person who more difficult if the promoters seeking exit have disputes is connected with them in any of the specified ways is with the other promoters, which is something that is often deemed to be not independent. This is again an extension seen in families. of the presumption that the promoters are in control and hence if one is connected with them, one loses one’s Of course, it can be argued that in cases where some independence. of the qualifications or connections that made a person a promoter no longer exist and so the person ought to Importantly, if anything goes wrong in the company, they thereby become a non-promoter. However, one wished could be very likely seen as the primary suspects for there were specific and clear provisions regarding this. blame and punishment. This, again, is linked with their being presumed to be in control. Of course, in many COMPANIES WITHOUT PROMOTERS situations those who are not directly involved in the day- Fortunately, there are provisions in the SEBI Regulations to-day management may not be presumed to be liable. for companies with ‘no identifiable promoters’. This is particularly so in case of companies with professional Deeming as promoters starts with a public issue managements. However, to qualify for this one would One facet of this subject, the complications of which we have to escape the wide net cast by the very broad will discuss later, is that the deeming of persons / group(s) definition of ‘promoter’ and ‘promoter group’. as promoters begins with a public issue under securities laws. This category becomes defined and even frozen at SEBI’S ATTEMPTS TO CHANGE THE this stage and the persons who form part of this group LAW are identified. Unlike being in active management, being SEBI has been making attempts to address some of a promoter is not necessarily a choice. Being a relative or these issues. Indeed, two consultation papers have been connected in one of the many specified ways is sufficient recently issued by SEBI to discuss how to simplify the for a person to be deemed a promoter. reclassification and how to narrow down the definition. These, however, at best scratch the surface. So the only EXITING FROM THE PROMOTER GROUP way out is to squarely avoid becoming a promoter. And While it is easy to become a promoter, often even without the best way is to do this, as stated earlier, at the time of a choice, the difficulty is in exiting. One cannot just the public issue. ‘resign’ as a promoter or exit the group through a mere declaration. Even severing of financial or other ties may But even that is not easy! The definition of promoters not always help one to get out of the category. is very wide and even persons having a significant say in management, whether by way of shareholding It is not as if a promoter is trying to escape responsibility. or by agreements or otherwise, could be classified as There may be members of the family who have no promoters. Litigation on this issue (e.g., the decision of connection with the company. There may even be SAT in the Subhkam Ventures case, dated 15th January, separations / divisions in the family. The promoters 2010, read with the ruling of the Supreme Court on themselves could have so low a shareholding that they appeal) has been inconclusive. SEBI had attempted to have literally no say, whether as directors or shareholders. specify some bright line tests in this regard to lay down Yet they continue to be promoters and remain subject to specific criteria / clauses in an agreement which could multiple restrictions, obligations and liabilities. make a person a promoter. But nothing real came out of this either. Regulation 31A of the SEBI LODR Regulations lays down the procedure for declassification from promoter to non- promoter. It requires, to begin with, the fulfilling of several Continued on Page 106

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Corporate Law Corner

PRAMOD PRABHUDESAI i VIKASH JAIN Chartered Accountants KAUSHIK M. JHAVERI Company Secretary

Registrar of Companies, West Bengal vs. document, fact or information required to be submitted, Goouksheer Farm Fresh (P) Ltd. and Another filed, registered or recorded under sections 92 or 137 Company Appeal (AT) No. 127 of 2020 is not submitted, filed, registered or recorded within the 9 National Company Law Appellate Tribunal period provided in those sections, without prejudice to [(2021) 160 CLA 317 (NCLAT)] any other legal action or liability under this Act, it may be Date of order: 19th November, 2020 submitted, filed, registered or recorded after the expiry of the period so provided in those sections on payment of There is no provision under the Companies Act, such additional fee as may be prescribed, which shall not 2013 that permits the Registrar of Companies to take be less than Rs. 100 per day and different amounts may on record the documents sought to be registered / be prescribed for different classes of companies. filed without payment of requisite filing fee and / or payment of additional fees even if company is in HELD ‘Corporate Insolvency Resolution Process’ The NCLAT stated in its order that the Tribunal was empowered by Rule 11 of the National Company Law FACTS Tribunal Rules, 2016 to make such orders as may be The Registrar of Companies, West Bengal (ROC), had necessary for meeting the ends of justice. However, it struck off the name of the company, M/s G Private Limited, was to be pointed out that the same cannot be pressed after complying with all the requirements of section 248 of into service when section 403(1) of the Companies Act, the Companies Act, 2013 and the Companies (Removal 2013 deals expressly with the fee for filing, etc., coupled of Names of Companies from Register of Companies) with Rule 12 of the Companies (Registration Offices and Rules, 2016. Fees) Rules, 2014. These provisions were regarded as in-built, self-contained and exhaustive ones, and viewed The ‘Financial Creditor’ (M/s P Pvt. Ltd.) had filed an in that perspective, the invocation of Rule 11 of the NCLT application u/s 7 of the Insolvency and Bankruptcy Code, Rules, 2016 was not needed. 2016 against the Corporate Debtor, M/s G Pvt. Ltd. The application to initiate Corporate Insolvency Resolution Further, NCLAT observed that the direction issued by Process against the Corporate Debtor was admitted on the NCLT to the ROC ‘not to levy any fee / penalty’ to 13th December, 2019. the company because it was in Corporate Insolvency Resolution Process was legally untenable, especially The NCLT, Kolkata Bench, through its order dated 22nd in the absence of any express provisions under the January, 2020, allowed restoration of the company with Companies Act, 2013 and the relevant Rules for waiver a direction to the ROC not to levy any fee / penalty on of fees / penalty in respect of filing of documents required the company because of the fact that the company was in to be registered / filed under the Companies Act. Hence, Corporate Insolvency Resolution Process. the said direction was set aside to secure the ends of substantial justice. The ROC preferred an instant appeal against the NCLT order contending that pursuant to section 403 (1) of the Sandeep Agarwal and Another vs. Union of Companies Act, 2013, any document required to be filed India and Another under the Act shall be filed within the time prescribed in W.P. (C) 5490/2020 the relevant provisions on payment of such fee as may 10 Source: Delhi High Court Official Website be prescribed. Further, it was contended that in view Date of order: 2nd September, 2020 of the first proviso to section 403(1) of the Act, if any

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The purpose and intent of the Companies Fresh Thus, in order to enable P to continue the business of Start Scheme, 2020 is to allow a fresh start for the active company, M/s KP Private Limited, the Court companies which have defaulted. For the Scheme directed MCA to set aside the disqualification of P as to be effective, directors of these defaulting directors. The DINs and DSCs of P were also directed to companies must be given an opportunity to avail be re-activated within a period of three working days from the Scheme the date of the order.

FACTS Medeor Hospitals Ltd. vs. Registrar of The petition was filed by Sandeep Agarwal and Muskoka Companies, Delhi Agarwal (collectively referred to as P), both of whom Company Appeal No. 394 of 2018 were directors in two companies, namely M/s KP Private 11 National Company Law Appellate Tribunal Limited and M/s KPP Private Limited. The name of M/s [(2020) 156 CLA 129 (NCLAT)] KPP Private Limited was struck off from the Register of Date of order: 29th January, 2020 Companies on 30th June, 2017 due to non-filing of financial statements and annual returns. P, being directors of M/s Where application for conversion of public KPP Private Limited, were also disqualified with effect limited company into a private limited company from 1st November, 2016 for a period of five years till 31st has complied with the requisite conditions for October, 2021 u/s 164(2)(a) of the Companies Act, 2013. conversion, the application has to be approved In view of their disqualification, their Director Identification Numbers (DINs) and Digital Signature Certificates (DSCs) FACTS were also cancelled. Consequently, they were unable to M/s M Limited was incorporated on 4th August, 2004 carry on the business and file returns, etc., in the active under the Companies Act, 1956 as a public limited company, M/s KP Private Limited. company and was a wholly-owned subsidiary of M/s V Private Limited, having eight equity shareholders. While Through the present petition, the disqualification was the holding company M/s. V Private Limited was holding challenged and quashing was sought of the order almost 100 % of the issued share capital, seven other disqualifying the directors. shareholders were holding one share each on behalf of M/s V Private Limited. HELD The Delhi High Court observed that the Scheme provides A petition was filed before the NCLT for conversion of the an opportunity to put their affairs in order for active company into a private limited company. The Delhi Bench companies that may have defaulted in filing of documents. of the NCLT by its order of 28th August, 2018, observed It thus provides directors of such companies a fresh cause that the petition was filed three months after the date of of action to challenge their disqualification qua the active passing of the Special Resolution. In the notice for the companies. In the present case, the relief was sought EGM, no reasons had been assigned for giving a shorter by the directors of two companies, one whose name notice. It was further observed by the NCLT that on 17th was struck off and one which was still active. In such a October, 2016, the statutory auditor had resigned and on situation, the disqualification and cancellation of DINs the same day, a new auditor M/s DY & Co. was appointed. was a severe impediment for them in availing remedies It was noticed that the new auditor signed the balance under the Scheme in respect of the active company. The sheet on the same day. This raised a doubt as to how purpose and intent of the Scheme was to allow a fresh the new auditor could have conducted the audit in one start for companies which have defaulted. The Scheme day. Further, two independent directors resigned after can be effective if its directors are given an opportunity the passing of the resolution for conversion and this fact to avail of it. was not mentioned in the petition. It was also found that the claims of two objectors, namely, Mr. PS and Mr. RS It is not uncommon to see directors of one company being and E&Y LLP were pending before the Arbitral Tribunal. directors in another company. Under such circumstances, During such pendency it would not be appropriate to to disqualify directors permanently and not allowing them permit conversion of the company from public to private to avail their DINs and DSCs could render the Scheme limited. In view of these shortcomings, the NCLT rejected itself nugatory as its launch constitutes a fresh and the petition. M/s M Limited, being aggrieved with this continuing cause of action. order of the NCLT, filed the present appeal.

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HELD R. Narayanasamy vs. The Registrar of * NCLAT considered the issue of limitation referring Companies, Tamil Nadu to Rule 68(1) of the NCLT Rules, 2016 which provide Company Appeal (AT) No. 171 of 2020 that a petition u/s 14(1) of the Companies Act, 2013 for 12 Source: NCLAT Official Website conversion of a public company into a private company Date of order: 19th January, 2021 shall, not less than three months from the date of the passing of the special resolution, be filed with Divergent views on disposal of the appeal the Tribunal in Form No. NCLT-1. This means that such pertaining to striking off of the name of company petition shall be filed after three months from the date after following necessary procedure u/s 248 of the of passing of the special resolution. Thus, the petition was Companies Act, 2013 well within the limitation. FACTS * The board resolution of the holding company dated 17th This appeal was filed against the order dated 5th May, June, 2017 mentioned that written consent of shareholders 2020 passed by the NCLT, Chennai dismissing the appeal was obtained for shorter notice for the resolution dated u/s 252(3) of the Companies Act, 2013 for restoration of 14th August, 2017. No illegality or irregularity in passing the name of the company ‘M/s Shri L S Pvt. Ltd.’ which the resolution dated 14th August, 2017 was found by the was struck off by the ROC after following the necessary NCLAT. procedure u/s 248 of the Companies Act, 2013. R N, who was the Managing Director of the company, claimed that * M/s M Limited, vide its appointment letter dated non-filing of annual returns and filing statements was due 2nd September, 2016, appointed M/s DY & Co. tax to absence of expert professional guidance. Further, the auditor and, after the appointment, M/s DY & Co had striking off was prejudicial to the interest of the company reviewed and signed the financial statements for the and that returns were not filed out of ignorance and F.Y. 2015-16. In such circumstances the explanation given inadvertence. by M/s M Limited was satisfactory as to how M/s DY & Co. had signed the financial statements for the year HELD 2015-16. The members of the NCLAT Bench delivered divergent judgments on analysing the law as it was existing, on the * NCLAT further considered the submission of M/s basis of what is ‘just’ u/s 252(3) of the Companies Act. M Limited that it was a wholly-owned subsidiary and Thereafter, it was placed before a third member. This third unlisted public company. Therefore, in view of sub-rule member of the NCLAT observed that section 252 provides (1) of Rule 4 of the Companies (Appointment and for relief to aggrieved parties when the Registrar notifies Qualification of Directors) Rules, 2014, appointment of a company as dissolved u/s 248 of the Companies Act, at least two independent directors was not applicable. 2013. Hence, non-disclosure of the resignation of two independent directors would not affect the merit of the The name of the company was required to be restored if petition in any manner. the NCLT * was satisfied that the company, at the time of its name * M/s M Limited also placed on record the ‘No dues being struck off, carried out any business or operation, certificates’ obtained from all creditors (except the dispute OR between E&Y and M/s M Limited as it was pending before * otherwise it was ‘just’ that the name of the company be the Arbitral Tribunal), hence, the conversion of M/s M restored to the register of companies. Limited shall not affect the responsibility and liabilities of M/s M Limited. In the present matter, the admitted fact was that when the name of the company was struck off, it was not functional The NCLAT thus noted that M/s M Limited had fulfilled and was not carrying on business or operations for more all the conditions for conversion and the shortcomings than two years immediately preceding the financial year pointed out by the NCLT were inconsequential. Therefore, and thus attracted section 248(1)(c) of the Companies the NCLAT set aside the order and approved the special Act, 2013. When the question of law has neither been resolution dated 14th August, 2017 for conversion of M/s framed nor referred, and it appeared from the judgments M Limited from public to private company. that the two Hon’ble Members had divergent views, on

104 Bombay Chartered Accountant Journal AUGUST 2021 625 (2021) 53-A BCAJ the basis of facts the appeal should be dismissed by not group of persons’ means ‘an offer made privately such interfering with the dismissal order passed by the NCLT. as to friends and relatives or a selected set of customers distinguished from approaching the general public or The Canning Industries Cochin Ltd. vs. to a section of the public by advertisement, circular or Securities and Exchange Board of India (SEBI) prospectus addressed to the public’. Hence, the restriction Company Appeal (AT) No. 115 of 2019 of subscription of shares to 200 persons or more in the 13 Source: The Securities Appellate Tribunal case of private placement of securities envisaged u/s 42 Official Website of the Companies Act, 2013 was not applicable in the Date of order: 28th January, 2020 instant case.

Whether the issue of unsecured fully convertible Further, section 62(3) was fully applicable as M/s CIC debentures (‘FCDs’) by an unlisted public Ltd. had duly complied with it by passing the special company is rights offer or public offer, or an offer resolution; thus, issuance of FCDs by M/s CIC Ltd. that violates the provisions of private placement of cannot be termed as a public issue or a private securities under the Companies Act, 2013 placement. Hence, a company issuing FCDs is not mandated to comply with any additional requirement FACTS of public issue or private placement specified under M/s CIC Ltd., an unlisted public company, passed a special sections 23 and 42 of the Companies Act, 2013, resolution under sections 62(3) and 71 of the Companies respectively. Act, 2013 to issue 1,92,900 unsecured fully convertible debentures (FCDs) to its 1,929 shareholders, with a In light of the aforesaid, the order passed by the whole- condition that there would exist no right to renounce the time Member cannot be sustained. The interim order as offer to any other person. However, only 335 shareholders well as the order and the directions so issued were all subscribed to the offering. Consequently, one disgruntled quashed and thus the appeal was allowed. shareholder filed a complaint before SEBI and the NCLT alleging that the company had made a public issue of Hytone Merchants Pvt. Ltd. vs. Satabadi securities without complying with the applicable provisions Investment Consultants Pvt. Ltd. of the Companies Act, 2013. 14 Company Appeal (AT) (Insolvency) No. 258 of 2021 On 18th March, 2019, SEBI passed an order which held that the offer of FCDs made by the company was a CASE NOTE ‘deemed public issue’ u/s 42(4) of the Companies Act, 1. NCLAT confirmed rejection of the insolvency 2013 read with Rule 14(2) of the Companies (Prospectus application even when the same was complete in and Allotment of Securities) Rules, 2014, as the offer was all respects on the ground of collusion between the made to more than 200 shareholders and, hence, directed applicant creditor and the respondent corporate the company to comply with the prescribed provisions of debtor. ‘public issue’ in the Act. 2. Quantum of default was very meagre in comparison to the net worth of the corporate Aggrieved by the order, M/s CIC Ltd. appealed before the debtor. Securities Appellate Tribunal (SAT) and contended that 3. The corporate debtor had made substantial the issuance of FCDs was neither a rights issue (as the investments in companies which were under issue was not made on a proportionate basis), nor was it insolvency and also extended corporate guarantee. a private placement and that the issue falls u/s 62(3) of the Companies Act, 2013 which had not been considered The brief facts of the case are as follows: by SEBI. (a) Corporate debtor (‘company’) had accepted loan of HELD Rs. 3 lakhs from the financial creditor @ 15% pa. SAT held that a rights issue of FCDs was not a ‘private b) The company accepted the loan default and also placement’ of securities as the offer of shares to the acknowledged the debt. company’s shareholders cannot be termed as an offer c) The company was also the guarantor for two other to a ‘select group of persons’. The expression ‘select companies which were under insolvency and liquidation.

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The application u/s 7 of the Insolvency and Bankruptcy company was Rs. 15 crores. It appeared to the Tribunal Code, 2016 (IBC) was filed by the financial creditor. NCLT that the acknowledgement of debt and acceptance of rejected the application even after concluding that the default was collusive. The defaulted debt of Rs. 3 lakhs application was complete in all respects and the default was a meagre amount in comparison to the net worth of and debt existed. the company.

The creditor argued that the NCLT has no jurisdiction to The Tribunal also observed that the Court has to see the go beyond the completeness of the application. It only persons behind the company to come to a conclusion has to see the completeness of the application along with whether the insolvency is proposed to be initiated in a the existence of debt and default. collusive manner. It relied on the Supreme Court judgment in Swiss Ribbons vs. Union of India wherein the Court NCLAT, after going through the submissions, confirmed had held that the insolvency application can be rejected the NCLT order. It observed that NCLT has rightly and also cost can be imposed u/s 65 of the IBC. This is rejected the application and is correct in lifting the a safeguard against fraudulent or malicious initiation of corporate veil. insolvency proceedings.

The corporate debtor had stood as corporate guarantor This judgment has clarified that the insolvency for two companies which were under insolvency and proceedings are not mere compliance proceedings. The one had even gone under liquidation. The value of the Tribunal has seen the real intent of the parties and the IB corporate guarantee given by the corporate debtor Code. The object of the Code is to resolve the insolvent amounted to Rs. 482 crores while the net worth of the companies and in the interest of all stakeholders.

securities laws Continued from Page 101

The problem is further complicated because multiple laws to 34% in 2018. Many companies capitalising on new have placed requirements on promoters. These include technology are professionally managed companies the Companies Act, SEBI Insider Trading Regulations, with no identifiable promoters. Hence, now the SEBI Takeover Regulations, SEBI Listing Regulations, responsibilities and obligations are increasingly sought to the SEBI ICDR Regulations, certain laws made by the be placed on the Board of a company rather than on the RBI, etc. Thus, there are multiple regulators involved. All promoters. this makes a change difficult and complex. Robust corporate governance with active involvement of However, such changes are now the need of the hour. institutional investors would be a better long-term objective As SEBI has rightly pointed out in its recent consultation rather than focusing on family-centred promoters. paper dated 11th May, 2021 on redefining the term However, considering that these consultation papers ‘promoter’, the holding of promoters has decreased propose small changes rather than a proper overhaul, steadily from 58% in 2009 to 50% in 2018 in the top 500 the concerns remain. Hence, for now, even if not easy, companies. More importantly, the holding of institutional prevention would be a better strategy for management / investors has substantially increased from 25% in 2009 investors of new companies than the very difficult cure.

Good things come to those who wait… greater things come to those who get off their ass and do anything to make it happen — Unknown

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REGULATORY REFERENCER

PRAMOD S. PRABHUDESAI i RUTVIK SANGHVI i SONALEE GODBOLE i VINAYAK PAI V. Chartered Accountants

DIRECT TAX Vishwas (without additional amount) which was earlier extended to 30th June, 2021 is further extended to 31st 1. CBDT prescribes procedure for compliance check August, 2021. The last date of payment of amount under on sections 206AB and 206CCA – These two sections, Vivad se Vishwas (with additional amount) has been effective from 1st July, 2021, provide for deduction notified as 31st October, 2021. [Notification No. 75 of 2021 or collection of tax at a higher rate in the case of dated 25th June 2021.] non-filers of return of income. The CBDT has issued a new functionality, ‘Compliance Check for Sections 206AB 7. Amendment to Rule 8AA and insertion of Rule 8AB & 206CCA’. This functionality is made available through – Income-tax (18th Amendment) Rules, 2021 – The the reporting portal of the Income-tax Department. It Finance Act, 2021 inserted a new section, 9B, to provide provides for compliance checks for single PAN or bulk that whenever a partner or member (specified person) verification. [Circular regarding use of functionality under receives any capital asset or stock-in-trade or both from sections 206AB and 206CCA. Circular 11 of 2021 dated a firm / AOP / BOI (specified entity), during the previous 21st June, 2021; Notification No. 1 of 2021 dated 22nd year in connection with the dissolution or reconstitution of June, 2021.] such specified entity, it shall be deemed to be a transfer made by the specified entity to the specified person. 2. Extension of time limits of certain compliances like Consequently, section 45(4) was amended. Section 48 filing of TDS returns for the last quarter of F.Y. 2020-21, was also amended to provide that the amount chargeable issue of Form 16, filing of return of Equalisation Levy, etc., to income-tax as income of such specified entity u/s 45(4), to provide relief to taxpayers in view of the pandemic. which is attributable to the capital asset being transferred [Circular 12 of 2021 dated 25th June, 2021.] by the specified entity, shall be reduced from the full value of consideration while computing capital gains. CBDT 3. CBDT issues guidelines to clarify provisions notifies Rule 8AB for computation of sum attributable to related to TDS u/s 194Q on purchase of goods – As per capital asset u/s 48(iii). [Notification No. 76 of 2021 dated section 194Q, the buyer is responsible for deduction of 2nd July, 2021.] tax from any sum paid to a resident seller for purchase of any goods, subject to certain threshold. CBDT has issued 8. Insertion of Rule 8AC – Income-tax (19th Amendment) guidelines to remove the difficulties in implementation Rules, 2021 – CBDT has introduced Rule 8C to provide for of section 194Q and in overlapping situations while computation of short-term capital gains and written down implementing 194O and 206C(1H). [Circular 13 of 2021 value of block of assets, where goodwill is a part of such dated 30th June, 2021.] block and depreciation has been obtained. [Notification No. 77 of 2021 dated 7th July, 2021.] 4. Guidelines for application of newly-inserted section 9B and amended section 45(4). [Circular 14 of 2021 COMPANY LAW dated 2nd July, 2021.] I. COMPANIES ACT, 2013 5. Extension of various Income tax due dates including for imposition of penalty under Chapter XXI, linking of (I) MCA clarifies that companies can conduct their Aadhaar with PAN, for assessment or reassessment EGMs via E-mode up to 31st December, 2021 – MCA under the Income-tax Act and the time limit for completion has issued a clarification to allow companies to conduct of such action u/s 153 or u/s 153B, etc. [Notification No. their EGMs through VC / OVCM or transact items through 74 of 2021 dated 25th June, 2021.] postal ballot up to 31st December, 2021 in accordance with the framework provided in the various Circulars 6. Last date of payment of amount under Vivad se and subject to the conditions prescribed therein. [MCA

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General Circular No. 10/2021 dated 23rd June, 2021.] futures or its variants. [Circular No. SEBI/HO/CDMRD/ CDMRD_DRM/P/CIR/2021/586, dated 29th June, 2021.] (II) Companies (Accounting Standards) Rules, 2021 – The MCA notified the Companies (Accounting (VII) SEBI issues SOP for company getting delisted Standards) Rules, 2021. It applies to companies other through scheme of arrangement – SEBI has issued the than those preparing their financial statements using Standard Operating Procedure (SOP) for listed subsidiary Ind AS framework. The Notification, effective 1st April, company desirous of getting delisted through a Scheme of 2021, redefines a Small and Medium-Sized Company Arrangement wherein the listed parent holding company (SMC). The quantitative threshold limits to qualify as an and the listed subsidiary are in the same line of business. SMC stand amended as follows: (a) turnover does not [Circular No. SEBI/HO/CFD/DIL1/CIR/P/2021/0585, exceed Rs. 250 crores in the immediately preceding dated 06th July, 2021.] accounting year, and (b) borrowings, at any time during the immediately preceding year, do not exceed Rs. 50 (VIII) Mutual Funds to provide justification to crores. [MCA Notification dated 23rd June, 2021.] stakeholders if put option favourable to scheme is not exercised – Based on the recommendation of the (III) ICSI Guidance Note on CSR – The Institute of Mutual Fund Advisory Committee, the SEBI has decided Company Secretaries of India has issued Guidance Note on that, with effect from 1st October, 2021, if put option is Corporate Social Responsibilities. In this Guidance Note, not exercised by a Mutual Fund, and if exercising the put provisions related to Business Responsibility Reports by option would have been in favour of the scheme, then Listed Companies, CSR in Insurance Companies, CSR in a justification for not exercising the put option shall be Banking Companies, CSR and Sustainable Development provided by the Mutual Fund to the Valuation Agencies Goals, CSR and Corporate Governance, etc., have been (VA), Board of AMC and Trustees on or before the last elaborated in detail. [Published in June, 2021.] date of notice period. [Circular No. SEBI/HO/IMD/DF4/P/ CIR/2021/593, dated 09th July, 2021.] (IV) MCA further extends due date for filing certain forms under the Companies Act and the LLP Act to (IX) SEBI reduces advance intimation timeline for 31st August, 2021 – Extension granted to companies / modifications in commodity derivative contract – In LLPs to file forms (other than a CHG-1 Form, CHG-4 Form order to bring in uniformity while giving effect to the contract and CHG-9 Form) which were / are due for filing from st1 modifications (so that they have the desired impact) and April to 31st July, 2021 without any additional fees. [MCA the modified contract represents a healthy replica of the General Circular No. 11/2021 dated 30th June, 2021.] physical market, SEBI has decided, in consultation with the stock exchanges, to reduce the number of days of (V) MCA now allows companies to file charge- advance intimation for all the three categories, i.e., non- related forms without paying an additional fee up to material, material and material modifications which can 1st August, 2021 – In view of the Covid-19 pandemic, be made only after approval from SEBI, to ten days. the MCA has decided to relax the timelines for filing [Circular No. SEBI/HO/CDMRD_DOP/P/CIR/2021/592, of forms related to the creation / modification of charges. As dated 08th July, 2021.] a result, companies can file charge-related forms without paying an additional fee up to 1st August, 2021. [MCA FEMA General Circular No. 12/2021 dated 30th June, 2021.] (i) RBI has decided to collect information about LRS transactions in XBRL format instead of the Online II. SEBI Return Filing System (ORFS). Accordingly, AD Category - I banks shall upload the requisite information on the (VI) SEBI introduces cross margin facility on XBRL system on or before the fifth of the succeeding commodity futures – In order to improve the efficiency of month from 1st July, 2021 onwards. [A.P. (DIR SERIES the use of the margin capital by market participants, SEBI 2021-22) Circular No. 7, dated 17th June, 2021.] has decided to introduce cross margin benefit between Commodity Index futures and futures of its underlying (ii) Indian residents are permitted under LRS to make constituents or its variants. This shall reduce the cost of remittances to units set up in IFSCs in India for investment trading and may lead to enhanced liquidity in both the purposes since February 2021. For this purpose, Resident Commodity Index futures and its underlying constituent Individuals could also open a non-interest-bearing Foreign

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Currency Account (FCA) in IFSCs. The International v1.0: (i) a listed entity; or (ii) banks other than co-operative Financial Services Centres Authority (IFSCA) has now banks (except multi-state co-operative banks); or (iii) amended regulations applicable to Banking Units in such Insurance Companies. Firms doing only branch audits IFSCs. Among other amendments, such Banking Units are not covered. [3rd July, 2021.] can now open accounts in a freely convertible foreign currency for individuals and corporate or institutional ICAI MATERIAL entities, resident in India or outside India, subject to Accountancy and Audit such conditions as may be specified by the Authority. • Guidance Note on Accounting for Derivative [Notification No. IFSCA/2021-22/GN/REG013, dated 5th Contracts (Revised, 2021) [6th July, 2021.] July 2021.] Corporate Laws (iii) The Government had announced a hike in foreign • Technical Guide on Incorporation of Foreign investment limit for the Insurance Sector from 49% to 74% Companies in India [3rd July, 2021.] during the Budget on 1st February, 2021 and an appropriate Handbooks: Amendment Bill was passed into law (covered in the April,  Resolution Plan under the Insolvency and Bankruptcy 2021 issue of this Journal) followed by formally notifying Code, 2016 [10th July, 2021.] these amendments on 19th May, 2021 with Clarifications  Personal Guarantors to Corporate Debtors under on the final rules for increasing the foreign direct the Insolvency and Bankruptcy Code, 2016 [10th July, investment limit to 74%. The FDI Policy for the same was 2021.] also amended by the issuance of Press Note 2 of 2021  Corporate Insolvency Resolution Process under (covered in the July, 2021 issue of this Journal). The IRDAI the Insolvency and Bankruptcy Code, 2016 [10th July, has now amended regulations mandating requirement 2021.] of Resident Indian Citizens at various management  Moratorium under the Insolvency and Bankruptcy posts of Indian Insurance Companies having Code, 2016 [10th July, 2021.] foreign investment. Further, there are disclosure and compliance requirements stated in respect of these new Valuation regulations. Full details are provided in the Notification. Booklets: It should be noted that a corresponding amendment in • Disclaimers, Limitations in a Valuation Report – Are the Non-Debt Instrument Rules, 2019 (NDI Rules) is they even Real? [3rd July, 2021.] pending after which the FDI amendments will take effect. • Is DCF the most Popular Method for Valuation under [Notification No. F. No. IRDAI/REG/6/178/2021, dated 7th Companies Act? [3rd July, 2021.] July, 2021.] • Is DCF the only Method for Valuation of Shares under Income-tax Act? [3rd July, 2021.] ICAI ANNOUNCEMENTS • Minority Holding Valuation: Often Unsatisfactory? A) Audit Quality Maturity Model - Version 1.0 (AQMM [3rd July, 2021.] v1.0) – The ICAI has released AQMM v1.0, an evaluation • Valuation Reports – Do’s and Don’ts – To what extent matrix, as part of its capacity-building measure. The are they Followed? [3rd July, 2021.] Evaluation Matrix is for sole proprietors and audit firms • Valuation date, Valuation reports date and events to help them self-evaluate their current level of audit between these dates [9th July, 2021.] maturity. The same would be recommendatory initially. • Valuation: Professional’s Insights (Series-6) [10th Firms auditing the following entities are covered in AQMM July, 2021.]

Go where you are celebrated — not tolerated. If they can’t see the real value of you, it’s time for a new start — Unknown

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miscellanea

Jhankhana Thakkar i Chirag Chauhan Chartered Accountants

I. World News the content found on his laptop. The article does say that no evidence of wrongdoing was found ‘after the seizure ‘Nobody should trust Wikipedia’, warns its co- of a laptop purportedly belonging to Biden’, but does not 19 founder; says the site is taken over by Leftists mention other explosive content found in the laptop which was left by Hunter at a computer repair shop and which Larry Sanger, the co-founder of Wikipedia, has said he forgot to pick up later. that nobody should trust the crowd-sourced online encyclopaedia as it is run by Left-leaning volunteers. The In October last year, The New York Post had published site is no longer trustworthy as it does not allow content emails retrieved from the laptop relating to Hunter’s that does not fit the agenda of Leftists, and therefore business dealings in Ukraine and the links to his father. people can’t get a complete view on topics. Twitter and Facebook, run by the same Left-leaning propagandists, had blocked The News York Post article, Sanger, who had co-founded Wikipedia along with preventing people from sharing it. Similarly, Wikipedia is Jimmy Wales in 2001, said that the platform has betrayed also completely blocking out any information about the its original mission by only reflecting the views of the contents of the laptop. ‘establishment.’ In an interview with Lockdown TV, he said that he agrees with the view that there are teams Larry Sanger said that Wikipedia’s coverage of Covid-19 of Democratic Party-leaning editors who remove content is also very biased as it just reproduces the views of the that they don’t like. World Economic Council or the World Economic Forum, the World Health Organization, the CDC and various In fact, he noted, Wikipedia had lost its neutral nature other establishment mouthpieces like Anthony Fauci. way back in 2009, before which editors from all ideologies would debate equally before deciding what should be He also gave the example of Wikipedia articles on eastern published on the platform. Articles on most recent issues, medicine which are biased as they basically call the from Covid to Biden, had become partisan, particularly ancient medicine systems quackery in dismissive, quite supporting the Biden administration on such issues judgmental language. and blacking out information that does not show the Democrats in positive light. Showing how biased Wikipedia has become, Larry said that major media houses like Daily Mail and Fox News are The Wikipedia co-founder gave examples of articles on blacklisted by it. This means that if something is covered Joe Biden and his son Hunter Biden in which important by these published publications but not by the Leftist details about them were completely missing. The article on media houses, then that can’t be published on Wikipedia. the US President does not mention most of the criticisms against him and it has completely whitewashed the Wikipedia has become just like any other Left-leaning Ukraine scandal. The paragraph on the Ukraine imbroglio media house. ‘There are a lot of people who would be ‘reads like a defence counsel’s brief’. The section highly motivated to go in and make the article more concerned on the page says ‘no evidence was produced politically neutral, but they’re not allowed to.’ Sanger of any wrongdoing by the Bidens’ and that ‘Trump and his added, ‘If only one version of the facts is allowed, then that allies falsely accused Biden’ of involvement in Ukraine to gives a huge incentive to wealthy and powerful people to protect Hunter Biden. seize control of things like Wikipedia in order to shore up their power. And they do that.’ In fact, the Wikipedia page on Hunter Biden is even more shocking as it does not mention anything about There are now big companies like Wiki PR that employ

110 Bombay Chartered Accountant Journal AUGUST 2021 631 (2021) 53-A BCAJ people to write on Wikipedia, but such writers and editors But the company predicts it will eventually run up to 400 don’t reveal that they are associated with such companies. flights per year. Two seats on one of the first flights are up People are spending money to make changes to Wikipedia for grabs in a prize draw: registrations are open until 1st articles ‘because there’s a very big, nasty, complex game September. being played behind the scenes to make the article say what somebody wants them to say’. As for Blue Origin, no detailed calendar has been announced. ‘We’re planning for two more flights this year, Larry Sanger had left Wikipedia over differences with co- then targeting many more in 2022,’ a spokesperson told founder Jimmy Wales over how to run the website and AFP. has since become a staunch critic of it for its Left-leaning bias. Earlier, he had said that Wikipedia has become Another way to get to space is via reality television. Space a huge moral hazard, saying that it has turned into a Hero, an upcoming show, says it plans to send the winner ‘monocultural establishment organ of propaganda’. of a competition to the International Space Station (ISS) in 2023. (Source: OpIndia – https://www.opindia.com/2021/07/ nobody-should-trust-wikipedia-warns-its-co-founder- The first tickets sold by Virgin Galactic went for between larry-sanger/-16th July, 2021) $200,000 and $250,000 each, but the company has warned that the cost for future sales will go up. II. Business Blue Origin hasn’t announced prices. The anonymous How can you become a winner of a public auction for a seat on the first crewed 20 space tourist? flight paid $28 million, but decided to defer the trip.

Thrill-seekers might soon be able to get their adrenaline It’s not known what amount was bid for the seat secured kicks – and envy-inducing Instagram snaps – from the by Dutch teen Oliver Daemen, who will fly in the auction final frontier, as space tourism finally lifts off. All you’ll winner’s place. need is a bit of patience. And a lot of money. The more ‘budget-conscious’ might consider spending Here’s a rundown of where things stand. $125,000 for a seat on Space Neptune, a capsule that offers 360-degree windows and is lifted to the upper Two companies are offering short ‘suborbital’ hops of a atmosphere by a balloon the size of a football stadium. few minutes: Jeff Bezos’s Blue Origin and Virgin Galactic, founded by Richard Branson. Despite the promise of spectacular views, the balloon ascends only 19 miles – far from the boundary of space Blue Origin’s New Shepard rocket takes off vertically and and weightlessness. The 300 seats for 2024 have all the crew capsule detaches and crosses the Karman line been sold, but reservations are open for 2025. (62 miles, or 100 kilometres, in altitude), before falling back to earth with three parachutes. No – you’re only expected to be in reasonable shape. Virgin Galactic’s training lasts just five days. And Blue Virgin Galactic uses a massive carrier plane which takes Origin promises to teach you everything you need to off from a horizontal runway then drops a rocket-powered know ‘the day before you launch,’ and its first crewed spaceplane. This, in turn, soars to over 50 miles altitude flight includes pioneering aviator Wally Funk, who at 82 before gliding back. will become the oldest astronaut.

In both cases, up to six passengers are able to unbuckle The company’s requirements include being able to climb from their seats to experience a few minutes of seven flights of stairs in under 90 seconds (the height of weightlessness and take in the view of earth from space. the launch tower) and being between 5’0” and 110 pounds (152 centimetres and 50 kilogrammes) and 6’4” and 223 Virgin Galactic has said that regular commercial flights pounds (193 cm. and 100 kg.). will begin from 2022, following two more test flights. Their waiting list is already long, with 600 tickets so far sold. Elon Musk’s company is also getting into the space

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tourism game, but its plans involve journeys that are far Internet for a new era of growth. longer. The costs are also predicted to be astronomical – tens of millions of dollars. This next phase of Internet evolution, dubbed Web 2.0 in 2005 by Internet guru Tim O’Reilly, produced In September, American billionaire Jared Isaacman has the trends that now dominate our lives: mobile-centric chartered a mission called Inspiration4 to take him and e-commerce, social media, user-generated content and three other passengers into orbit around the earth on a video streaming. It also set the stage for the reign of SpaceX Crew Dragon, launched into space by a Falcon the FAANGs: Facebook, Apple, Amazon, Netflix and 9 rocket. Google.

Then in January, 2022, three businessmen will travel Together, these giants offer us forms of connection, to the ISS with an experienced astronaut. The mission, entertainment and instant gratification we could only named Ax-1, is being organised by the company Axiom have imagined a decade ago. But because their business Space, which has signed up for three other future flights models are based on the large-scale monetisation of data with SpaceX. and centralised control of networks, our reliance on these services has also handed them enormous power: over Elon Musk’s company is also planning a trip to orbit for four our time, our wallets and our personal information. people, organised by intermediary Space Adventures – the same company in charge of the flight of the Japanese That stranglehold may seem unbreakable at this point. billionaire Yusaku Maezawa to the ISS in December, But behind the scenes, away from debates about aboard a Russian Soyuz rocket. monopolies, privacy and free speech, a new incarnation of the Internet is emerging. Forces are quietly mustering for Maezawa is also supposed to take a trip around the a new revolution – one whose very structure is designed Moon in 2023, this time aboard a rocket that is still under to prevent such concentrations of profit and control from development by SpaceX, called Starship. shaping the future.

He invited eight members of the public to join him – but The key to this new iteration is decentralisation. Its applications are now closed. foundation is blockchain technology.

(Source: International Business Times, 17th July, 2021 – A quiet revolution By Lucie Aubourg) While the concept of blocks of information shackled III. Technology together in a tamper-resistant way dates back to 1991, it wasn’t until 2009 that Satoshi Nakamoto, the pseudonym How Web3 is overturning the for the developer (or developers) of Bitcoin, set up the 21 Internet status quo first blockchain to allow trading in the new currency. Now there are hundreds. On each blockchain, peers Today, it’s almost taken for granted that the Internet is can exchange economic value – work, content, assets – controlled by a handful of tech behemoths that seem to without intermediaries. amass more and more power every day. It’s easy to forget that when these titans first arrived on the scene, each one This opens up the potential for a new kind of Internet – of them was considered a disrupter, a revolutionary, an Web 3.0. Since blockchain transactions are anonymous upstart. Now, they are the establishment. and processed by a distributed network of many computers known as nodes, users no longer need to cede Since its birth in 1983, the Internet has evolved from an control of their data to a central authority. Meanwhile, the obscure and clunky tool used by a select few into a vast links between blocks produce a record that is resistant to network integral to every facet of our lives. This destiny hacking and manipulation. first became apparent during the dot-com boom of the 1990s. And although many naysayers were quick to Protocols powered by the many self-congratulate during the ensuing bust, the downturn proved no more than a healthy pruning that readied the There are a multitude of new ideas for how to use the

112 Bombay Chartered Accountant Journal AUGUST 2021 633 (2021) 53-A BCAJ power of decentralisation to offer tools and services drive that offers a permanent repository for all kinds of that eschew centralised authority and are thus more information and data. Then there’s The Graph, which affordable and accessible. And since protocols built on helps make sense of all this by allowing fast, private and the distributed Internet are powered by hundreds or even secure queries of its vast store of data about the Web3 thousands of computers, they are subject to neither single universe. points of failure nor single points of control. This makes them both more stable and more secure. New breeds of distributed financial systems are on the rise as well, including decentralised finance (DeFi) platforms As part of the Web3 community’s commitment to where people can earn rewards by ‘staking’ assets democratisation, many of these projects are led by and performing key tasks on a network. The number of Decentralised Autonomous Organisations (DAOs) – decentralised cryptoasset exchanges (DEXs in industry decentralised corporations governed by egalitarian parlance) has ballooned in the past two years, capturing communities rather than boards and executive some market share from their centralised counterparts hierarchies. Built on principles of self-sustaining growth (CEXs) with their promise of greater anonymity, safety and community governance, they are already having and security. major real-world impacts. Total trading volume on these platforms surged to a Mirror, a community-run publishing protocol, puts power in record $172 billion in May, more than twice the $80.2 writers’ hands. Since it is built on the Ethereum blockchain, billion record set just three months before. Protocols such the authorship and provenance of each piece of content as Uniswap have been at the forefront of this growth. is indelibly recorded. Writers can also collaborate on projects, turn their work into non-fungible tokens (NFTs) There are scores and scores more out there or percolating for auction, or even bankroll efforts by issuing their own in the imaginations of developers, many of which will tokens. become the building blocks for a new Internet and a new economy. Some projects will inevitably fall by the wayside The user-generated music platform Playdj.tv uses as Web3 grows to maturity, but many will survive and decentralised infrastructure to cater to a different kind become foundational tools for the industries and customer of creator at rates that enable it to be competitive with bases they serve. YouTube. Its platform enables DJs to set up their own live streams for their sets, which they can use to earn money The difference this time is that these tools are governed and interact with fans all over the globe – a boon during and powered by their own user communities, rather than the pandemic, when clubs and private party venues were by the leaders of a small circle of massive corporations. forced to shut their doors. (Source: Opinion: International Business Times, 7th June, The team behind Arweave has built a distributed hard 2021 – By Doug Petkanis)

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BOOK REVIEW

THINK LIKE A MONK look into the mirror, the truth of who you are and what you (Published: September, 2020) value is obscured. Clearing it may not be pleasant but only when that dust is gone can you see your true reflection.’ Author Jay Shetty The next question that comes up is why should we think Reviewed by Jini Jain, Chartered Accountant like monks? Whenever we attempt a new sport or a new profession, we always look up to the masters in that Jay Shetty is an award-winning host, motivational speaker field to know and adopt their thinking, habits, philosophy, and author who has been featured in ‘Forbes 30 under etc. Similarly, monks are the experts when it is about 30’1. During his teenage years, he found himself in wrong training our minds and living a life with purpose. Jay company but when offered an opportunity, he redeemed Shetty makes a profound statement: ‘If you want to train himself by grabbing it. At school one day, he happened your mind to find peace, calm and purpose, monks are the to hear a monk deliver a talk that made him realise that experts. Monks aren’t born monks. They are people from he wanted to grow as a person and explore a new way of all sorts of backgrounds who have chosen to transform living. And he started living with monks and to like monks! themselves. Becoming a monk is a mindset that anyone can adopt.’ He later returned to ‘normal’ life on the advice of his mentor Gauranga Das so that he could share his experience Jay posits that humans have two mindsets: a monkey and wisdom with the world. This book delineates the mind and a monk mind. These two mindsets are experiences that he underwent in the three years that he interchangeable. He brings out the stark contrast lived a monk’s life. between the two. A monkey mind is one that overthinks and procrastinates, is distracted easily, seeks short- Think like a Monk is in many ways a self-help guide but term gratifications, demands and feels entitled, is self- more than reflecting on positivity, it makes you ponder on centred and is angry, worried and fearful. On the other many other aspects that are essential to lead a happy and hand, the monk mind looks for meaning and genuine peaceful life in the urban set-up. Many people tend to be solutions, controls and engages energy wisely, is averse to the idea of a self-help book being a guide on how enthusiastic, determined, patient, compassionate and to live and feel that if they have read one, then why choose collaborative. Controlling the monkey mind is not easy to read other such books? I would simply put it like this – but it is possible; the author describes how to inculcate the while the premise of self-help books is somewhat similar, it monk mind throughout the book. The book is an effort to is the art of narration and engaging the reader that makes free you from the hypnosis of social conditioning and urge the difference. you to become the architect of your own life.

This book compels the reader to contemplate on certain The book is divided into three sections – Letting introspective questions – Do we really know who we truly Go, Growing and Giving – three seemingly simple are? What do we want to become? What are we seeking? fundamentals forgotten by most of us. We have to first What is it that we truly value? The problem most of us let go of all the unwanted baggage that we probably are face is that we do not intentionally decide on our values. not even aware of hauling. Letting go creates the space In other words, we don’t pick what we deem as important. to grow ourselves by training our minds. Finally, with our Usually, we simply accept and inherit what our society and growth, we are better equipped to serve those around us. the environment have sown and reinforced. When we live It would be correct to say that many concepts he touches our lives trying to impress others based on values that we upon are not new for us but he reminds us beautifully why did not consciously choose, the result more often than not we need to practice them continuously. Jay manages to is fatigue and stress. A striking metaphor which his mentor move beyond abstract terms to practical wisdom with Gauranga Das uses to illustrate what is self-identity is – the fascinating stories from his time as a monk and the ‘Your identity is a mirror covered with dust. When you first learnings that he imbibed from each episode. His book is full of anecdotes of his experiences during his years as a 1 https://www.forbes.com/30-under-30-europe-2017/media/#4631b51129d5 monk and how the principles can be applied in our modern,

114 Bombay Chartered Accountant Journal AUGUST 2021 635 (2021) 53-A BCAJ fast-paced society through the concepts and techniques then try to implement, but we lack consistent efforts. In the that he has elaborated. Jay is not merely driving us into words of James D. Wilson, a renowned author, ‘Knowledge any fictional world of all things nice. He makes it relatable is not power, knowledge plus action equals to power.’ Only for the reader to identify himself in similar situations and our constant and conscious attempts can bring about a overcome his mental roadblocks. No, the book does not change in the way we perceive the outer events. promise overnight miracles. What it does promise is a sense of calm and how a change of attitude is all that it To conclude, Think like a Monk is a book that offers both takes to have better clarity about who we are. Combining conventional as well as unconventional wisdom in an ancient wisdom with the practicalities of today, it provides attempt to make our lives more peaceful and purposeful essential guidance for travelling a balanced path to which in turn can lead to more productivity. Some parts success and building relationships. of the book seemed a little dull to me due to repetitive narration. However, considering the other great offerings My favourite part of the book is when Jay talks about of the book, it is certainly recommended to readers. detachment. It is human nature to get attached to people Anxiety, negativity, disappointment, stress, deteriorating and to material possessions. He states, ‘Detachment is quality of relationships, media clutter, device overdose and not that you own nothing, but that nothing should inadequate sleep are ailments that bother most of us. In own you. The greatest detachment is being close to that sense, this book can help improve the quality of life everything and not letting it consume and own you. of the twenty first century individual. Choose this book if That’s real strength!’ Another great part is where he you have not read this genre in a while, or if you need a explains humility with the concept of salt. Radhanath change in your perspective of looking at the current events Swami in a temple talk in London said that ‘We should in your life. I leave a quote from the book by the famous be like salt – salt is so humble that when something goes poet Kalidasa as food for thought: wrong it takes the blame and when everything goes right, it doesn’t take credit. Nobody says that the meal had the ‘Yesterday is but a dream. Tomorrow is only a vision. perfect amount of salt’. An instant response to that would But a today well lived makes every yesterday a dream of be ‘It’s easier said than done’. Indeed true! We all read and happiness and every tomorrow a vision of hope.’

Don’t be afraid to stand for what you believe in, even if that means standing alone — Andy Biersack

In order to succeed, your desire for success should be greater than your fear of failure — Bill Cosby

We learn something from everyone who passes through our lives... Some lessons are painful, some are painless... but, all are priceless — Unknown

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light elements

C.N. VAZE Chartered Accountant WORK FROM HOME

In my school days, the most boring thing was ‘Homework’. that in addition to the salary, employers shall pay to the It was a serious hindrance to my playtime. Even during employees: Diwali and Christmas vacations, there used to be homework. I used to curse the teachers and parents 1) Domestic harassment / violence allowance (at the and used to wonder who had invented this stupid idea of wife’s hands); homework for school children. 2) Allowance for tea, refreshments and meals that they After I grew older and saw the homework assignments would have got in the office but not now; of my children, I realised that teachers could not do full justice to teaching in class and expected the parents 3) ‘Voucher allowance’ – the amount which an employee to take care of the deficiencies in their teaching. When is deprived of for not being able to claim ‘reimbursement’ parents realised that their ward had not understood of un-incurred expenses. what the teachers taught, they would think of tuitions or coaching classes. That added to the misery of the poor 4) Rent allowance – an employee is required to use some school students. So now, even little kids are occupied at space at his residence. The office saves the corresponding least ten hours a day (!), including school time, tuitions, expenses on maintenance of office, electricity, etc. So, hobby-class and so on. What a torture. a proportionate rent allowance would be paid to the employees; After the school days were over, I heaved a great sigh of relief – relief from ‘homework’. But destiny can be cruel. 5) Fitness allowance – In physical working, employees Corona and the consequent lockdown are the culprits and could maintain their fitness by commuting in trains, the ghost of homework has come back to haunt us again, running to catch buses, some walking, etc. But people this time in the form of ‘Work From Home!’ sitting at home have to specially spend time and money on exercises and fitness. When a person physically attended a corporate office, she used to be occupied for a maximum of 12 hours a The Bill also seeks to regulate working hours at home, day, including commuting time. It is a different story that holidays and so on. the new work culture makes a corporate employee start working in the evening. This is actually just to ‘show’ his ICAI has demanded that the implementation of this Act be ‘sincerity and dedication’. One of the pretexts is to sit in audited by practising CAs. It has also formed a committee late to suit the US timings. to frame a separate Standard on Auditing for this purpose!

But now this ‘Work From Home’ culture has crossed all Note: limits and keeps us ostensibly occupied for 16 hours a day if not more. This may seem like fiction, BUT, please note that France has passed a law that there won’t be any obligation on the I am told that since we are already in the era of regulations, part of employees to receive / act upon any instructions the Government has tabled a Bill called ‘Work From or directions from employers on their weekly and other Home Regulations (Restrictions, Liberties and Facilities) holidays. So there! Bill, 2021’. Suggestions on the Bill are invited from our valued The salient features of the proposed regulations reveal readers.

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72nd ANNUAL GENERAL MEETING AND 73rd FOUNDING DAY

The 72nd Annual General Meeting of the BCAS was held by Mr. Azim Premji. It carried special articles on Effects of online on Tuesday, 6th July, 2021. the Pandemic on CA Profession (by CA Ninad Karpe and CA Madhukar N. Hiregange), The Economy (by Niranjan The President, Mr. Suhas Paranjpe, took the chair and Rajadhyaksha), The Human Psyche (by Dr. Bharat called the meeting to order. All the business as per the Vatwani) in addition to the regular articles and features. agenda contained in the notice was conducted, including Before the conclusion of the AGM, members, including adoption of accounts and appointment of auditors. Past Presidents of the BCAS, were invited to share their views and observations about the Society. Mr. Mihir Sheth, Hon. Joint Secretary, announced the results of the election of the President, the Vice- The 73rd Founding Day lecture was delivered at the end of President, two Honorary Secretaries, the Treasurer and the formal proceedings of the AGM. It was an outstanding eight members of the Managing Committee for the year oration by Mr. Azim Premji, Founder Chairman of WIPRO, 2021-22. who spoke on the topic ‘Professional Excellence and Social Responsibility’. It was attended online by more President Mr. Abhay Mehta than 3,392 professionals on Zoom and the YouTube Vice-President Mr. Mihir Sheth channel of the BCAS. Hon. Joint Secretary Mr. Chirag Doshi Hon. Joint Secretary Mr. Kinjal Shah OUTGOING PRESIDENT’S REPORT Treasurer Mr. Anand Bathiya COMMITTEE MEMBERS SUHAS PARANJAPE: You have just witnessed a short video clip Mr. Bhadresh Doshi Ms Divya Jokhakar presenting the annual activities Mr. Jagdish Punjabi Ms Kinjal Bhuta for 2021-22 in summarised form. Mr. Mandar Telang Mr. Rutvik Sanghvi (The annual report has already Mr. Samir Kapadia Mr. Zubin Billimoria been emailed to members.) You CO-OPTED MEMBERS must have also noticed that the clip Mr. Anand Kothari Mr. Hardik Mehta ended with my favourite song Jai ho! from the popular Mr. Mahesh Nayak Mr. Mrinal Mehta movie Slumdog Millionaire. Mr. Siddharth Banwat Mr. Vaibhav Manek EX-OFFICIO During the year just gone by, I received many answers (Outgoing President) Mr. Suhas Paranjpe / solutions / feeds to various situations through intuition, Member (Editor - BCAJ) Mr. Raman H. Jokhakar experience, the observations of many Past Presidents, my Chairmen, Office-Bearers, Managing Committee members and volunteers. They made my year successful The ‘Jal Erach Dastur Awards’ for the Best Articles and so that today I can say with pride – ‘Jai Ho!’ Features appearing in the BCAS Journal during the year 2020-21 were also presented on the occasion. I acknowledge the virtual presence of Past President P.N. For Best Article the Award went to Sandeep Parekh Shah, Dilipbhai Thakkar and other seniors. I offer my and Manal Shah (both Advocates) for their Article namaskaar, adab to all of you for the opportunity given to PFUTP Regulations – Background, Scope and me to serve you as President of the BCAS. I thank each Implications of 2020 Amendment. The Award for Best and every one of you from the bottom of my heart. Feature went to CA Vinayak Pai for Financial Reporting Dossier. I have had a unique privilege and I feel honoured to say that I am the first-ever ‘virtual’ President of theBCAS The July special issue of the BCA Journal was e-released in its 72-year history! At the same time, I sincerely

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hope and pray that I would be the last one to have organisation that has existed for 72 years and which is an registered such an achievement. I don’t wish to have any outstanding achievement. All of us @ BCAS thank him competition in this! On a lighter note, if ever the BCAS for his support. decides to make Past Presidents eligible for Presidentship in the future, I should be given the honour of being the A second initiative which I kept as my focus point was to first in the line! All of you will agree with me, and since bring more vibrancy and activity to the BCAS Foundation. this is a recorded meeting, I can take this as proof of your All the trustees supported us as we formed our Project agreement! Management Committee (PMC) under the chairmanship of CA Dr. Mayur Nayak. We have started joint activities I do not wish to repeat how challenging the year with other NGOs. But we feel that there is still a long way was and how we converted all ideas into opportunities to go and much more to be done. I thank all the trustees and so on. All of you were part of this endeavour. I will and PMC members for their active involvement and only say that we explored and exploited the power of support. the BCAS platform and the power of digitalisation to a large extent to create visibility, to reach higher, to perform Last but not the least, we had a good fellowship and better. association with sister organisations such as the IMC, the CTC, our own WIRC, the regional CA associations of Right from the beginning of my tenure, I had decided Ahmedabad, Chennai, Bengaluru, Lucknow and Surat – that I would try to be like plain, simple and clean (nirmal) we had joint programmes, joint representations and so on. water in which one can mix any colour that would lead to It was easier with our digital base. For BCAS members we a colourful experience. My role was only to ensure that did good networking with publication services for regular the colours are shuddha, satvik, traditional Indian colours discounted publications and with software vendors to without any chemicals in them. In actual fact, I never give competitive pricing. had to play the role of identifying whether the colours are good, genuine or otherwise. All the colours during The pandemic taught us so much – how to work, how the year were original, shuddha and satvik beyond my to conduct events / programmes, how to be educated imagination. I am happy that I could carry this thought without attending physical seminars and conferences, process to a large extent to my satisfaction and it made how to do audits and render services without visiting our my tenure and term really colourful and glorious. I thank clients’ place – in a nutshell, how to remain relevant under all of you for the same. all circumstances. The show must go on and with much more force through innovations. Zoom, Meet, Teams, There are two or three initiatives that I would like to etc., became our family members, ‘You are on mute, Sir’ mention. became our tag line! To be positive became negative and stressful, being and remaining negative became an First, the BCAS Chowk. I had heard this subject being honour. We of this generation are lucky to have lived this discussed in the Managing Committee meetings many experience. But the sad part is that the pandemic also times and for many years. It became my focus area and taught families how to face health crises, financial crises I started working on it immediately after taking over as and in a few cases, even to live without their near and President. There were many hurdles and roadblocks in dear ones. the process. The process is very long and requires a lot of follow-up. As per the Municipal Corporation’s policy, Ironically, the pandemic created a great deal of financial special permission is required for names to be given for inequality but it treated every one equally – the rich, an organisation. Had there been no Covid lockdowns, we the poor, the elderly, the youngsters, and there was no would have had our BCAS Chowk by now. But we are gender inequality. One thing is certain now, the ‘new still trying our best and we hope that we will have BCAS normal’ is now settled and it will be the future – maybe in Chowk added to our address in the next few weeks. a hybrid manner and for which the BCAS should prepare I must place on record the one person, other than our itself, both mentally and technologically. Past Presidents, Office-Bearers and volunteers, who stood by me, none other than the Maharashtra Industry I congratulate the incoming new team of Abhay, Mihir, Minister, Shri Subhash Desaiji. He considered our Chirag, Anand and Kinjal – it is a great combination of request immediately and set out to honour our voluntary experience, maturity, technical and tech-savvy people to

118 Bombay Chartered Accountant Journal AUGUST 2021 639 (2021) 53-A BCAJ take BCAS forward and into a new orbit and zoom towards assembled, respected Past Torchbearers of BCAS, its 75th year in style with new hope (asha) and inspiration seniors and fellow professionals. (akanksha) and to greater heights (unchaiyaan). I wish them all the best with my support and good wishes. All I heartily welcome you all to the AGM. of you have played your innings for me and now it’s my turn to help you in whatever way I can. I wish you all the I am addressing this august gathering due to the honour very best. showered on me to lead the Temple of Knowledge – BCAS as the President in its 73rd Year. I can’t thank my family members enough – my mother Shalini, wife Swati and son Aarav, for their support I have a mixed feeling of elation and responsibility at and encouragement. My senior partners Mayurbhai this moment when I am addressing you all. Vora, Bharatbhai Chovatia and their families kept me motivated all along, as did all my other partners, Kinnari, Elation, because I have been considered worthy to lead Bhakti, Ronak and Vinit and all the team members. I BCAS for a year and Responsibility for upholding and thank everyone in my office for their help and support. carrying forward the rich legacy of BCAS. I am also Many of my clients-cum-mentors, friends and relatives excited that I shall have an opportunity to implement always provided me with inputs and appreciation. some of the initiatives which I feel will be able to contribute to the development of the profession thereby enhancing Team BCAS has always been the backbone of all the image of BCAS. Presidents. I and my Office-Bearers hardly met any of them during the year. We are aware that Work From The responsibilities are manifold. First of all, I have Home is not always easy. It has its advantages and to prove my worth during the year to the torchbearers of disadvantages, but all of them worked to the best of BCAS who have reposed their confidence in me to lead their abilities. There is always a scope for improvement the Society. Secondly, I have to meet the high standards which will enhance the Office-Bearers’ execution and set by my worthy predecessors. Thirdly, I am conscious productivity. We are all time-bound executives. As our of the dynamic changes which our profession is passing long-term resources, it is our duty and responsibility to through, where an organisation like BCAS has to play the keep team BCAS motivated at all times. I wish all of you role of catalyst to empower professionals with relevant a good life ahead. learnings.

Covid is still in the air and it will require a huge effort by The role of BCAS over all these years has been the Government machinery to keep it in control. Besides, transformational and I am conscious of this role, which has there is the vaccination (which is an external support); but been passed on over all these years by each President to if all of us build our own immunity (an internal strength), I follow. Here, I shall be guided by the wisdom of my GURU am sure we would be able to tackle this health challenge. Mahatria Ra, who has very well said: I wish all of you a healthy and happy life. The purpose of knowledge I conclude by bowing down to the huge membership of is not to build memory this large organisation for its support during the year. May but to create I now request incoming President Abhay to present his understanding and transformation. annual plan for the year 2021-22. At this juncture, I would like to bow before Lord Shriji INCOMING PRESIDENT’S SPEECH Bawa, for blessing me and making me worthy for the coveted post of President at BCAS. ABHAY MEHTA: Good evening, BCAS family. My colleagues on the I also seek the blessings of my parents Late virtual dais, Suhas, Vice President Rashmikant Mehta and Late Kailas Mehta. I am sure Mihirbhai, outgoing Joint Secretary wherever they are, they would shower their blessings Samir, Joint Secretary Chirag, and would feel proud to see me at the helm of BCAS. Incoming Duo - Treasurer Anand In climbing up the ladder of the profession, there is one and Joint Secretary Kinjal, virtually critic and well-wisher who has played a vital role by

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taking care of the responsibilities of the family and also hands of the able teams backed by effective inputs and on the social front. She is my wife Nipa, whom I want guidance wherever required from your end. Though to thank profusely for being a solid support in my journey the year was only through Virtual Events, you made your as a professional. She ensured inculcating values and presence felt as if you were there with each one of the taking care of the upbringing of our son Udit, who is also executing people involved in the events. a qualified professional. I was a silent observer of your management style and I Before I share my journey at BCAS and my vision for the must admit that you have a humane approach to deal year, I take this opportunity to summarise the year gone with the situations. You remained calm and composed by under the able leadership of Suhas. and were never tensed even during the moments of crisis. I can definitely say that my key takeaway while being The year had started amidst the pandemic, but the zeal of deputy has been to remain cool in all situations. Suhas was like a double vaccinated person in a hurry to serve BCAS with his selfless service. His Theme for the Suhas, I convey my best wishes for the future, with year was ‘Tradition, Transition and Transformation’. confidence that your contribution during my tenure will He has excellently steered BCAS as per his theme to be equally valuable in taking BCAS to greater heights. take it through the process of Transition in a manner which did not lose the values and ethos of Tradition. He Now, I turn to my exciting journey at BCAS. I was stepped on the accelerator and increased the speed of witness to my father’s passion as a BCAS member Transition which brought about many Transformational as he was an avid reader of the BCA Journal and changes in the way BCAS delivered its offerings to its actively participated in the seminars and RRCs. He members and the public at large. always encouraged me to become a member of BCAS, which I did in 1994 and immediately started attending Suhas’s approach made me relive the preaching given RRCs. In those years the RRC was held in the month of by my GURU Mahatria Ra, April and I used to celebrate my birthday at RRCs for some years. ‘Make yourself a success magnet. Begin. Take the lantern in your hand, and you will always have light My participation at the RRCs and seminars was noticed enough for your next step. One step at a time… Go… by our Past President Mr. Rajesh Muni and he invited Keep going… Keep growing.’ me to join the Core Group in the year 1999-2000. I convey my sincere thanks to Rajeshbhai, for involving I felt he ably applied the above during the time of the me actively at BCAS. I was inducted in the Accounting pandemic when things were hazy and the road was not & Auditing Committee which gave an impetus to just less travelled but I would say, it was never travelled. my passion in this area of the profession. I was made Convener of this Committee in the year 2003-04 and During the year, we witnessed Lecture Meetings and continued to serve in that capacity for 15 long years. Panel Discussions on topics as varied as ‘Building a During my journey as Convener of the Accounting & Professional Services Firm’ to ‘Cryptocurrencies’. The Auditing Committee, I worked under the Chairmanship Residential Courses in Virtual Avatar were so engrossing of not less than six Past Presidents. The learnings from that everybody was saying ‘Yeh Dil Maange More’. The each one moulded my outlook towards the profession and meticulous planning and the thought process which assurance area of practice in particular. I would make a went into organising Group Discussions and General special mention of Himanshu Kishnadwala, under Assembly were immaculate. It is for certain that a trend whom I was convener for the maximum number of years. is set, even after restrictions on physical meetings are He has that sense of urgency with an eye for detailing, lifted, there will be a Hybrid Model to be worked out to which appealed to me and also inspired me to become serve the interest of participants who may not be able to meticulous in approach and to be prompt in responding to travel to the destination of the event. the issues. I served during the past two decades on other committees too, but my heart was always in the field of Suhas, I was witness to the interest you took in the Auditing and Company Law. planning of each event and the way in which you delegated decision-making for each event in the On my birthday in 2017, Narayanji, who was to take

120 Bombay Chartered Accountant Journal AUGUST 2021 641 (2021) 53-A BCAJ charge as President for 2017-18, approached me to be professionals, capital markets and economists. However, part of his team. Narayanji, I convey my sincere gratitude the same acronym for my theme is for a different meaning to repose confidence in me and inducting me asan and purpose. Individually, each word in the acronym is of Office-Bearer. I also got fair glimpses of working atBCAS critical importance to our profession as well as the country when my partner and dear friend Chetan had been the as a whole. President in the year 2016-17. The Theme for the Year is ‘ESG’. I can vouch for one thing from my experience, that the EMPOWERING SCALING GLOBALISING model of BCAS with Past Presidents as Chairmen to guide the Conveners and the Committees, is so robust To achieve Empowering, I have identified certain that there is perfect grooming of the young talent to be executable initiatives: sound not just academically but also administratively. • I wish that BCAS becomes an enabler of showcasing latest knowledge on the upcoming areas of professional I owe a lot to BCAS for improving my skills and opportunities to the SMPs and Young CAs. outlook towards the profession. The culture at • Concerted efforts be made to create a platform for BCAS is such that the seniors make youngsters really networking amongst members of BCAS from all over comfortable during exchange of ideas by frankly sharing India. their knowledge and experience. • My aim is that the public at large should not view CAs merely as Tax Advisors but they should perceive CAs After reminiscing my journey at BCAS, I am now eager as Business Advisors. Towards this shift BCAS shall to share with you my thoughts on the year 2021-22 aim to equip its members and CA community with working where I aspire to contribute to the progress of BCAS knowledge on other relevant ancillary laws. and the profession at large. This aspiration is with an approach where I would be heavily banking on the Scaling up of the Professionals at BCAS is planned collective wisdom and support of all the Committees. through the following initiatives: I had occasion to convey my thoughts to each • We have in all ten committees, professionals with committee when we had our first meeting for planning the experiences in varied fields of profession and activities for the year. I am glad that each committee has business. It is my endeavour to create a platform, where wholeheartedly supported the Theme which I have for thought leaders from BCAS Core Group and through the the year and they have commenced planning events contacts of BCAS members be brought on the BCAS encompassing the theme. Platform to guide SMPs by providing vision for scaling up their offerings. The dissemination of knowledge I firmly believe in what my GURU has preached on should be such that they can equip themselves for pursuing goals and achieving the same. He says: providing services which offers professional satisfaction and in turn adds to the efforts towards nation building. The strength with which an idea is pursued • BCAS has been a leading professional association Will magnetise the resources and has its reach throughout India. However, there that are required have been barriers to go on its own beyond a certain for the accomplishment of the idea. reach. A concerted effort shall be made to reach out to various local CA chapters from different parts of the You may feel, I am referring many a time to my GURU country as well as trade and industry bodies of various Mahatria Ra. However, I would at this juncture share states. In reaching out, I have requested each committee that I have developed a lot of positivity by going through to become knowledge partners with them, thereby his teachings. I always remind myself to have a positive attracting members and also to jointly create advocacy approach whenever I face situations of difficulties or crisis on critical issues to be taken up with the regulators. in my professional or personal life. This approach has • The year gone by has provided glimpses of the always provided me a path since it is calmness which changes in the profession which are to come, in fact at allows a rational thought process. a rapid pace on account of adoption of technology in all spheres of life. BCAS shall ensure to design seminars, Let me now delve into my theme for the year. It is based on workshops enabling professionals to embrace the acronym which is the current flavour for businesses, technology. This will bring accuracy in the execution of

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services and efficiencies in deliverables. I have termed this Internal Goal-Setting as LEAP.

Indian businesses are going places and have This is my Leap of Faith, that the BCAS will attain much internationalised their operations. Our profession is also greater heights in the years to come by executing the spreading its wings. To ensure our members are provided exercise by the name LEAP. opportunities to explore Globalising their services, I have plans for BCAS to take the following steps: Again, I am tempted to quote my GURU Mahatria Ra: • To organise programmes creating awareness of the Highest manifestation of professional services which may be offered by members Human intelligence is at a global level. FAITH • In this virtual world, distances do not matter. We can now be enlightened by speakers of international repute. LEAP denotes: Efforts shall be to share latest global developments • Leadership for BCAS; in varied fields of professional interest through such • Excellence at BCAS; speakers. Also seminars, workshops shall be planned • Accountability to BCAS members; and to disseminate knowledge on latest developments • Professionalism in BCAS. which enables members to equip in rendering services at global level. I would like to elaborate each in a few words. • There would be professional associations similar to BCAS operating in different geographies worldwide. Leadership There will be efforts to tie up with few such associations BCAS is unarguably one of the leading professional to cross-sell events and publications. Efforts will associations. To continue and improve its Leadership also be made to understand best practices from such position and to be of relevance for the profession, BCAS counterparts and bring to our members to enable them to will have to identify and groom future leaders. be globally relevant. Excellence These are my thoughts which I will drive through Excellence will be possible by keeping a close watch the year. I am of the humble belief that if our team of on the latest developments in the profession. There dedicated Core Group provides their valued inputs on has to be continuous exchange of ideas in each the aspects of this year’s theme, we shall be able to committee and frequent meetings to deliberate on such add at least some additional value to the members’ developments. Once there is such alacrity, then it would professional capabilities. be easy to identify relevant offerings for the benefit of members and public at large. I have been part of the Core Group since two decades. There have been many initiatives over the years, which During the pandemic, we have realised the power of have developed the Brand BCAS. Over these years and technology. Now there are no barriers of distance for lately since I entered the Managing Committee and have bringing on board excellent faculty and for attracting been a part of the Office-Bearers, I have observed that participants for professional offerings. BCAS will initiate there are various pockets of operations within BCAS, all the necessary steps to have an edge technologically which can be further improved. while offering learning initiatives so as to be considered as an excellent place to imbibe knowledge. We have to make conscious efforts not just in a single year of each President. Rather, a concerted and Accountability long-drawn process has to be evolved to improve the I am aware that we have been receiving lots of functionality within BCAS. With this approach in mind, grievances related to the website functioning, online I discussed my thoughts with the incoming Office- payments functionalities, delayed responses to the issues Bearers team. As an outcome of the same, I am laying raised by members, etc. before you all, the Internal Goal-Setting exercise for BCAS, for which I have taken assurance from the There is a thought process to improve experience of Office-Bearers to continue on the same in the years members with the BCAS as an organisation. Towards to come. this end, we shall be creating dedicated email ids for

122 Bombay Chartered Accountant Journal AUGUST 2021 643 (2021) 53-A BCAJ various types of grievances to be monitored by a of its functions. This year while passing the accounts, the responsible person at BCAS. Managing Committee has allocated a substantial sum of Rs. 35 lakhs towards Technology Fund. We shall At Office-Bearers level, we shall take on responsibility ensure effective use of the allocation towards a robust to monitor the replies given and unattended database, efficient execution of events and provision grievances. of timely information for the members. We shall take steps to have effective training of the manpower so as We shall develop a feedback mechanism, whereby to execute their functions in the most efficient manner. professionals can send their experiences for the This will also reduce the burden on the young core hardships faced in various compliances as well group members who have to devote time and effort as their viewpoints on topical subjects for the during the events’ execution. progress of the profession. The collation of such feedback will be sent to the respective committees I know I have projected many things to be carried to deliberate and on quarterly basis the Managing out during the year, which may be felt difficult to attain. Committee would discuss to give responses to the However, I commence my journey as President with respective members regarding the BCAS view and a clear conscience, which is truth. The truth is both action taken at its end. honesty and integrity. I want to assure each one in the BCAS family, that my efforts to achieve what I have laid Professionalism before you all will be with honesty and integrity. BCAS is an organisation run by the professionals and for the professionals. It is of paramount importance With these words, I conclude my speech and I hope to have professionalism inculcated in each area of its that my efforts with your guidance and support will take operations. We are conscious of the fact that BCAS BCAS to further heights of glory. is run by volunteers and hence there is a need to have technology playing a greater role in seamless execution Thank you all.

Forget all the reasons it won’t work and believe the one reason that it will — Unknown

Just remember there is someone out there who is more than happy with less than what you have — Unknown

Life is short, live it. Love is rare, grab it. Anger is bad, dump it. Fear is awful, face it. Memories are sweet, cherish it — Unknown

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society news

CHIRAG DOSHI | KINJAL SHAH Hon. Jt. Secretaries

BALANCING ONE’S STATE OF MIND • His Reason is (said to be) steady whose Mind is without Attachment in all things, and who feels no exultation or The Human Resources Development Study Circle aversion about the agreeable or disagreeable which arranged an excellent discussion on one of the most befalls him. important topics requiring to be explained in detail in these devastating Covid times, viz., ‘Sthitapradnya’ (a • यदा संहरते चायं कू र륋ऽङ्गनीव सर㔵शः। state of balanced intellect in which one is not perturbed इन्섿याणीन्섿या셍镇भ्स㔤स् प煍ञ पतिष्脿ता।।2.58।। by emotions). This is a valued part of the Bhagwad Geeta. • When a person draws in (his) senses from the objects of The presentation was made by the veteran CA C.N. Vaze senses as the tortoise draws in its limbs (such as hands, in the course of a virtual (online) meeting on 11th May. feet, etc.) from all sides, then his Reason is (said to be) It was followed by a brief talk by Ms Manasi Amdekar, steady. counselling psychologist, who dwelt on the role of prayers in achieving ‘Sthitapradnya’. The discussion then turned to Shad Ripu (the six ‘Enemies of Life’), viz., C.N. Vaze explained that ‘Sthitapradnya’ or a balanced state of mind makes it possible for us to pursue our goals • Kaama – Desire irrespective of our situation. Today, because of Covid and • Krodha - Anger the resultant lockdowns there is a lot of negativity and • Lobha – Greed depression leading to severe mental problems. The talk • Moha – Delusion was aimed at generating positivity in the participants by • Mada – Ego focusing on the following qualities of ‘Sthitapradnya’: • Matsara – Jealousy

1. Becoming desireless: Being fully satisfied with the C.N. Vaze concluded by quoting Swami Vivekananda self. who had exhorted Indians to ‘Arise, awake and do not 2. Stability in every situation: Such a person is stable stop until the goal is reached.’ (not shaken by whatever condition he is in, not too ambitious but not complacent either, and will work for He was followed by Ms Manasi Amdekar who focused growth but not be perturbed by negative results). on the role of prayers to achieve ‘Sthitapradnya’. 3. Emotional stability: Neither pleased with good nor angry at bad (evil). Among the points that she discussed were: 4. Complete self-control. 5. Tranquility: Established in calmness of the mind. * The brain has different ‘phases’. It reacts to stimuli, and 6. Established in fullness: Undisturbed by desires, just prayers can help in controlling it; as the ocean is undisturbed by the constant flow of rivers * Words affect water, too. Good words create ripples of into it. good designs and bad language can create distorted 7. Oneness with Brahman. designs. These affect the happenings in a person’s life; water molecules react to words and their vibrations; ‘In Indian culture, we use two words, Sukh which is when we utter words of gratitude, there are beautiful, material comfort, and Anand which is happiness and symmetrical patterns in water; which depends on one’s mental state,’ C.N. Vaze pointed * Non-living objects also react to frequency and can out. change their position; * Our brains behave differently depending on what we • यः सर㔵配섾नभिस्ꅇहस㔤त㔤तꥍ섾प् शुभाशुभम।् speak; नाभिनन㔦ति न द्वष्紿 तस् प煍ञ पतिष्脿ता।।2.57।। * Chanting religious mantras – Actively listening to what

128 Bombay Chartered Accountant Journal AUGUST 2021 649 (2021) 53-A BCAJ you are saying is important, they are holy words and have On the first evening, 3rd June, the programme started an effect on your mind; in fact, we dedicate time for them; at 4.45 pm. CA Sunil Gabhawalla, Chairman, Indirect * Most people are in a chaotic state with so much noise Tax Committee (IDTC), welcomed the participants and around; shared the idea behind the RSC, the technical efforts and * We need to filter out other noise and give focused its design. This was followed by inaugural remarks by attention to the desired stimulus; President CA Suhas Paranjpe, who gave a briefing on * Active and passive listening are crucial; we cannot move the BCAS. IDTC member CA Mrinal Mehta introduced our outer ears, but we can still avoid distractions and the panellists, Advocate V. Sridharan, CA S.S. Gupta concentrate our minds on the job we are doing. and Moderator Sunil Gabhawalla.

The participants in the virtual meeting requested that both The panel discussion on ‘Case Studies on GST Law’ the speakers, C.N. Vaze and Ms Manasi Amdekar, be lasted about three hours. The concluding remarks were invited to speak once again as they found the sessions to also made by Sunil Gabhawalla and the vote of thanks be interesting and enlightening. was proposed by CA Saurabh Shah, the IDTV Convener.

15th RESIDENTIAL STUDY COURSE ON The morning of 4th June had Sunil Gabhawalla GST welcoming the participants for the Group discussion on ‘ITC – Myth or Reality’? The paper was written by When the country was grappling with the Covid pandemic Advocate V. Raghuraman. After the introduction of the and almost the whole of India came to a standstill owing Group Leaders and the Mentors and acknowledging their to the ‘second wave’ which started in March, 2021, the efforts, the Group discussion commenced. For every BSAS organised its 15th Residential Study Course Group discussion paper, the participants were divided on Goods and Services Tax in an attempt to motivate into ten online groups, each with a Group Leader and a people and offer them continuous study in such difficult Mentor. After the Group discussions, the Group Leaders times. and Mentors reported to the Paper Writer about the groups’ views, probable issues and challenges during the However, the course was held in virtual mode between 3rd course of the discussion. and 6th June. It was well designed and planned. Proof of this was the fact that it was attended by 390 participants In the evening session, the opening remarks were from all over India. made by IDTC senior member CA Puloma Dalal, the session chairperson. Following this, the speaker was There were more than 45 live mega case studies. introduced by CA Gaurav Save, IDTC member. Advocate Each case study was unique in its own way and dwelt Raghuraman, Faculty, presented his replies to the Paper on several issues that the professionals and the that had been discussed in the morning. The participants taxpayers face every day. This time, a new concept, enjoyed the free flow from the Paper presenter. The that of a MOCK group discussion, was planned in session concluded with a vote of thanks by CA Vikram advance wherein the Group Leaders and Mentors Mehta, IDTC member. were invited to participate in two ‘GD Papers’ and two ‘Panel Papers’. Before the actual event, selected Group The proceedings of the third day, 5th June, began with the Leaders were allotted the case studies which generated Group discussion on ‘Corporate Restructuring & GST’, active participation all around and acted as a precursor the Paper written by CA Gautam Doshi and CA Bhavna to the main event. The Group Leaders presented their Doshi. In-depth discussions took place among all the views first with slides on the case studies allotted to them ten groups. After the Group discussions, reporting to and other members in the close group deliberated and the Paper Writers was done as planned by all the Group added their viewpoints. After the Mock group discussion, Leaders and Mentors. a Common PPT was prepared for all the Group Leaders for the RSC group discussions. The outcome of this Mock In the evening, the opening remarks were made by discussion was excellent and offered a lot of value to the IDTC senior member and Past President, CA Govind participants. All the Paper writers, faculties and panellists Goyal, chairman of this technical session. CA Parth appreciated the idea of the Mock GD and the Common Shah, IDTC member, introduced the speakers. The PPT. Faculties then presented their replies to the Paper that

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had been discussed in the morning. The session was well to discuss the subject ‘Creating & Sustaining a Team appreciated for the simple solutions from the procedural Culture (Introductory Session)’. It was addressed by and legal perspectives and for the practical solutions. Mr. Gopal Sehjpal. It concluded with a vote of thanks proposed by CA Dushyant Bhatt, IDTC convener. Creating a new team culture or improving upon an existing team culture is about answering the question: ‘Do you The concluding day, 6th June, saw two sessions. The first play well with others?’ was chaired by CA Raman Jokhakar, Past President of the BCAS. After his opening remarks, CA Rishabh The answer to this could lead to one’s success or failure Singhvi, IDTC member, introduced CA Divyesh as a leader. It could be the key factor in one’s personal Lapsiwala, the speaker of the Presentation Paper ‘Tax and family relationships. Many think that ‘plays well with Technology – Current and Future Trends’. The speaker others’ is a category for grading school children, not explained the importance of technology adoption in GST grown-ups. ‘We tell ourselves, “I’m a successful, confident practice and starting preparations in advance. Later, the adult. I shouldn’t have to constantly monitor if I’m being chairman gave the concluding remarks and the vote of nice or if people like me.”’ thanks was proposed by CA Suresh Choudhary, also an IDTC member. Most people hold themselves blameless for any inter- personal friction and believe that it’s always someone After a break of five minutes, the last technical session on else’s fault not their own fault. They say, ‘The other guy ‘GST Practice’ with the panellists, senior advocate Tarun needs to change. I shouldn’t have to. In fact, I don’t need Gulati and CA Sushil Solanki, commenced. The session to, it’s his fault.’ was moderated by CA A.R. Krishnan, senior member of the IDTC. The concluding remarks were made by Sunil Mr. Gopal Sehjpal wondered whether people are so Gabhawalla, IDTC chairman, and the vote of thanks was satisfied with how far their behaviour has already taken proposed by CA Mandar Telang, IDTC convener. them in life that they smugly reject any reason to change? In other words, they believe that ‘If it ain’t broke, don’t fix it.’ Owing to time constraints, a few case studies could not be covered but, considering the importance of the He narrated the story of Alan Mullaly who, when he topics concerned, the said session was carried over to became CEO of Ford, set to work to create an environment 22nd June. The participants benefited from the valuable where the executive team, notorious for not working inputs, legal discussions and analysis of the GST law. together, could learn to play well with each other. Through Sunil Gabhawalla thanked both the panellists and the his leadership, the focus of the team, and ultimately Moderator for their time and effort and also for agreeing of the entire company, became ‘How can we help one to the extended session. another more?’ It worked. The company survived through incredibly difficult times and returned to achieving great The virtual RSC concluded with acknowledgements and success again through working together. If Ford had been thanks to all those who had worked towards making the a schoolyard and the executives school children, they event a success, especially the Paper Writers, Group would have received the highest marks in ‘playing well Leaders, Mentors, Panellists and others who had worked with others’. tirelessly to deliver a seamless experience. Last but not the least, thanks were expressed to the participants without How well does your team play together? whom the sessions would not have been so interactive. Mr. Gopal Sehjpal said that one could answer this Overall, it was an enriching experience and was question about one’s team by trying the simple, four-step appreciated by all the participants. process which can be called ‘team-building without time- wasting.’ The steps are: CREATING AND SUSTAINING TEAM CULTURE 1. In a team meeting, ask each team member to rate ‘How well are we doing?’ vs. ‘How well do we need to be The Human Resource Development Study Circle arranged doing?’ in terms of teamwork. Have each member do this a meeting on the virtual platform of BCAS on 8th June on paper. Have one of the members calculate the scores

130 Bombay Chartered Accountant Journal AUGUST 2021 651 (2021) 53-A BCAJ without identifying anyone. On a 1-10 scale, with 10 being feedforward, differentials are also important aspects the highest score, the average evaluation from over 1,000 to sustain team performance and achievement of the teams is ‘We are a 5.8. We need to be an 8.7.’ organisation’s goal, Mr. Gopal Sehjpal added.

2. Assuming that there is a gap between ‘we are’ and FOREIGN DIRECT INVESTMENT ‘we need to be,’ ask each team member to list two key behaviours that if every other individual team member The FEMA Study Circle conducted a virtual knowledge improved, could help close the gap and improve teamwork. session on ‘Foreign Direct Investment (FDI)’ on 19th Do not mention people, only behaviour, such as listening June to help provide working knowledge about FDI to better, clear goals, etc. Then list the behaviours on a flip members of the Study Circle. The discussion was led chart and have the team pick the one that they believe will by Group Leader CA Mukesh Dhoot who explained key have the biggest impact. provisions of FDI along with the applicable regulatory framework on it. 3. Have each team member conduct a three-minute, one- on-one meeting with each of the other team members. Mukesh Dhoot led the discussion by comparing (Do this while standing and rotate as members become the current regulatory framework with the erstwhile available.) In these sessions, each person should ask, FERA 1973 and by highlighting the differences in their ‘Please suggest one or two positive changes I can objectives. Apart from this comparison, various key make individually to help our team work together more provisions such as capital and current transactions, effectively.’ Then have each person pick one behaviour to pricing guidelines, sectoral caps, prohibited sectors, focus on improving. KYC, minimum lock-in period, etc., were also taken up. Multiple case studies based on practical aspects of FDI 4. Begin a regular monthly follow-up process in which each were also discussed. Group Leader Mukesh Dhoot also team member asks each other member for suggestions encouraged the participants to share their responses / on how to continue their improvement based on their inputs. behaviour the previous month. The conversations should focus on the specific areas identified for improvement It was an enlightening discussion with senior members individually as well as general suggestions for how to be discussing practical examples and approaches in better team members. relation to the subject. Several seniors and members of the BCAS FEMA Study Circle also participated in When asking for inputs, the rules are that the person the discussion and their participation made it more receiving the ideas cannot judge or critique the ideas. He interesting. must just listen and say ‘Thank you.’ The person giving the ideas must focus on the future, not the past. DIRECT TAX LAWS STUDY CIRCLE

Mr. Gopal Sehjpal said this is a quick and easy process The Direct Tax Laws Study Circle organised a virtual that helps teams improve and helps team members meeting on 21st June at which ‘Key Amendments become better team players. Related to TDS Provisions, Effective 1st July, 2021’ were taken up. ‘We hope this is helpful to you and those around you. Life is good.’ Group Leader CA Bhaumik Goda gave a brief overview of the changing TDS landscape. The provisions of For goals of the organisation to be met, he suggested: section 194Q were discussed in depth with illustrations. 1) Creating teams, 2) Team culture. Sustaining a team The applicability of TDS on GST was taken up in light of culture is an independent task with a view to ensuring that judicial precedents and Circulars. Further, the exemptions teams function to achieve the goals of the organisation. to such TDS provisions were also highlighted.

Any defect in the system of creating teams will be harmful Thereafter, the Study Circle discussed the inter-play to the organisation. The process involves: 1) Creating between the TDS and TCS provisions with illustrations. teams, 2) Assessment of each team member, and 3) Also discussed was the TDS impact on non-filers of ITR. Overall assessment of team performance – Feedback, The session ended with Bhaumik Goda sharing his

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thoughts on the practical challenges that will be faced participants took part in it. during implementation of the new TDS provisions. CRYPTOCURRENCY: THE FUTURE OF INTERNATIONAL DAY OF YOGA: MONEY? 21st JUNE The BCAS organised a lecture meeting by Mr. Nishith The Human Resource Development Committee, along Desai on ‘Is cryptocurrency the future of money? with The Yoga Institute, Santacruz East, organised an Challenges and complexities’ on 23rd June. It was online programme to mark the International Day of Yoga planned keeping in mind the current trend of money on 21st June from 8 am to 9.45 am. The programme was exchanges and the related challenges and complexities. conducted by CA Manoj Alimchandani along with CA Mr. Desai, along with his team comprising Mr. Suril Neeta Bakshi, Ms Manju Khatri, Ms Naznin Hussein Desai, Mr. Meyyappan Nagappan, Mr Vaibhav Parikh and Ms Hital Shah making up the faculty. and Mr. Purushotham Kittane, took the participants through the entire gamut of cryptocurrency (crypto).

Chairman CA Govind Goyal welcomed the gathering which was then addressed by President Suhas Paranjpe The role of Moderator was played by CA Ninad Karpe, and Vice-President CA Abhay Mehta. Ms Naznin Hussein who set the ball rolling by stating that there were many spoke at length on food, nutrition and precautions. She mysteries surrounding cryptocurrency and the technology captioned her presentation ‘Ahar, Vihar, Achaar, Vichar.’ used in it. He was confident that the meeting would help solve some of the mysteries regarding crypto as the future She spoke about sattvik, rajasik and tamasik food with of money. slides and suggested that one should choose sattvik food, with a gap of four hours between two meals. Breakfast Mr. Nishith Desai introduced the topic and provided his must be taken within one hour of waking up. There must insight on the crypto market and its development globally be a gap of four hours between meals and it would be and in India. He also explained the history of the evolution best to eat 40% less than the actual appetite. The last of crypto and the legal tussle between crypto and banks. meal of the day should be not later than 7 pm. She also He noted that there was a Supreme Court order stating spoke about the value of gratitude and prayer, as well as that crypto could not be banned. At the same time, it was sunlight and exercise. true that some countries considered crypto as money, while some treated it as security. Ms Hital Shah demonstrated the way to perform Suryanamaskar. Ms Manju Khatri showed how to Mr. Suril Desai recalled the history of crypto and noted perform Talaasan, Utkatasan, Sukhasan, Vajrasan and that it was during the recession of 2008 that the concept neck and shoulder-relaxing postures. Ms Nita Bakshi paper for crypto came in; however, history states that explained the importance of pranayam and warm water the first blog on Bitcon was issued in January, 2003. The and suggested that everyone should practice this in the real pick-up in crypto came after the 2008 recession. current pandemic for better health. Blockchain technology, on which the entire system of crypto was based, was nothing but a shared distribution The programme was anchored by CA Anand Kothari ledger system which was available on multiple systems and the Q&A session by CA Mukesh Trivedi. About 60 or notes and was considered to be very secure, unlike a

132 Bombay Chartered Accountant Journal AUGUST 2021 653 (2021) 53-A BCAJ centralised system where a single attack could bring down some of the other areas covered by him. the entire system. Bitcoin was programmable money. Currently, the Bitcoin world was limited to 21 million coins Mr. Purushotham Kittane explained the RBI’s stand but this limit could be changed with the approval of more and its Circular related to crypto and the emphasis than 51% of the holders. that RBI has put on KYC norms, prevention of money laundering laws and combatting of terrorism Next, Mr. Vaibhav Parikh shared his thoughts on funding. There were several developments on the the Indian legal landscape and the opportunity in the policy level by the Government of India. RBI had also technology world related to remittances. There was proposed its own cryptocurrency as a centralised a big market for blockchain developers. One could not currency for the country. Ninad Karpe summarised the separate public blockchain and crypto, although one session by posing some very relevant questions to the could separate private blockchain and crypto. He also speakers based on his own research and the questions described how blockchain will change the way the finance asked by the participants on the chat and Q&A box. industry worked. In his talk, he covered the Supreme Court judgment on whether crypto was legal or not, the The meeting attracted a large number of participants. It relevance of the FEMA Act, the Payment and Settlement concluded with CA Mihir Sheth proposing the vote of Act, the Security Contract Regulation Act, 1956, FDI, the thanks. An archival video of the meeting has, in a short Prevention of Money Laundering Act, the Companies Act time, garnered a few thousand views. It can be viewed and other subjects. on the following YouTube link: https://www.youtube.com/ watch?v=iO1aNXusAp4&t=6s&ab

LEADERSHIP RETREAT

The last programme of the society for the year 2020- 21 was organised by the Human Resource Committee on 29th June, 2021. The regular Leadership Camp was not organised owing to the lockdown; and in view of the prevailing situation an online presentation was arranged on the topic ‘Creating a High Performing Organisation’. The distinguished faculty was Prof. Dr. Zubin Mulla, who has been a regular on the BCAS platform. More than 160 participants attended the programme. For his part, Mr Meyyappan Nagappan covered the taxation aspects of crypto. He explained that from It commenced with a welcome address by Chairman the taxation perspective its classification could be CA Govind Goyal, followed by talks by President in three categories, namely, goods, property or Suhas Paranjpe and Vice-President Abhay Mehta. CA currency. There were also issues regarding whether it Krishankumar Jhunjhunwala introduced the speaker. was a capital asset vs. a stock-in-trade. He broadly covered the topics related to Significant Economic Presence (SEP), Income attributable to SEP taxable in India, Risk in case of non-treaty jurisdictions, Equalisation Levy (EL), tax base for levy of EL, Withholding Tax Obligation of crypto exchange and Tax Collection / Deduction at Source.

Indirect tax aspects related to crypto, such as did sale of crypto constitute supply? Is a crypto exchange an intermediary under the IGST Act? Is the sale of crypto to a resident buyer import of goods? Or is the sale of crypto to a non-resident buyer export of goods? Tax Collected at Source (TCS), registration requirements, these were Dr. Mulla discussed the following important points:

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• Correct human resource practice and good leadership Dr. Mulla said ‘AMO’ must work together as per the followed by employees, operations and customer outcome needs of the business. He also discussed a case study of create a high-performing organisation. Employees one of the most valuable placement service companies, display skills and competencies, with job satisfaction and Egonzender, which has the following process: commitment and have good behaviour to contribute. On the other hand, customer satisfaction creates loyalty and 1. Understand client’s situation productivity brings good operational outcome. 2. Confirm proposal and specification • What are HR practices? The speaker shared an acronym 3. Conduct systematic research ‘AMO’, for Ability-enhancing, Motivation and Opportunity. 4. Interview potential candidate • Ability and skill-enhancing practices should come with 5. Present candidate and check references a comprehensive scientific recruitment policy, rigorous 6. Assist in negotiation and follow-up. selection criteria and extensive training. Motivation can be enhanced with developmental performance management, Egonzender’s philosophy was to hire consultants who: competitive compensation, giving incentives and rewards  have little interest in personal aggrandisement and creating career prospects with job security. The  are team players opportunity can be enhanced with a flexible job design,  get more pleasure from group’s success and their own creating right teams, information-sharing and employee advancement involvement and psychological safety.  are collaborative • How to select the appropriate candidate? The speaker  eagerly share ideas and information about existing and emphasised that the top five drivers that the employee looks potential clients at are attractive salary, work-life balance, job security, pleasant  share information about the candidate who may fit the work atmosphere and career progression. The top five best needs of the client resources for getting applicants were job portals, placement  wants to stay long with a company. agencies, referrals, social media and company websites. Before recruiting, one must identify employee segments, The reward strategy emerges from the business strategy create an employer brand and identify the appropriate channel. and must be aligned with all elements of HR.

There must be a robust selection process. In the second part of the presentation, the discussion was on leadership. • Dr. Mulla emphasised that even though paying a high salary is the easiest way to get the employee, it is not the • Three ways of getting work done are authority, most scientific approach and in the long run it becomes transaction and leadership. counter-productive. However, performance incentive is an • Leader has to have clarity of purpose and he must walk excellent way to attract and motivate the employees and the talk. high performers. Employers must focus on human capital • Leaders take responsibility and share success. as per the requirements of the organisation. Human • Leaders help others to find purpose at work by capital is the value of the employee in the organisation. engaging them in the pursuit of a higher vision. • While discussing the concept of human capital, the speaker explained that it would pay to look at the value of Dr. Mulla suggested two books for reading: Investing in the employee in the organisation irrespective of his value People by Wayne F. Cascio, John W. Boudreau, Alexis A. in the general market. Once an employee is selected on Fink; The Servant: A Simple story about the true essence the firm’s capital value, he should be shown the path of of Leadership by James C. Hunter. growth within the firm and also explained what quality of behaviour is expected of him. After the presentation CA Mukesh Trivedi conducted the • The speaker advised that it was best to design the job Q&A session and proposed the vote of thanks. in such a way that is inherently motivating, based on skill variety, task variety, autonomy and giving an opportunity FOUNDING DAY LECTURE BY to the employee to give feedback. The vision of the AZIM PREMJI supervisor should be wider compared to the subordinate. The authority and responsibility of the manager should be On 6th July, the 73rd Founding Day of the BCAS, commensurate. Mr. Azim Premji addressed the members on

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‘Professional Excellence and Social Responsibilities’. a philanthropic organisation? His view was that no He complimented the BCAS for its ability to reinvent itself form or structure would work unless one collaborated over 72 years and stated that professional excellence with the Government institutions which alone had the and social responsibilities were not separate but were wherewithal to ensure that the benefits percolated down interlinked in many ways. to the ground level. The Government institutions have to be convinced of the intent and the capability of the organisation.

What would be the best way to take up the issue of education which had suffered the most during and after the Covid pandemic? Mr. Premji advocated mohalla classes in open spaces, proper vaccination of the teachers and also financial and infrastructure support to them.

How could the inequality in income be reduced? For that, he said, it was necessary to improve the level of public education – but the entire thrust of development should Elaborating, he said, both required focus, execution and be on the common man as the beneficiary. No one could trust of the stakeholders. Considering the complexities be emotionally detached from misery; after all, empathy of a country as diverse as India, bringing about social to other human beings is the core of human existence. change was more difficult than running a big business. Hence, it was absolutely essential to partner with the Addressing the impact of Covid-19 on the IT industry, Government institutions and build the right professional Mr. Premji said that the IT industry was quick to ‘rethink’ environment and execution capabilities in philanthropy. and ‘reshape’ against the challenges and had adopted Professional excellence with good execution skills would the hybrid model to find optimal balance. It was this ability help build the right ethos of social responsibilities that, in that could help India become the IT hub of the world and turn, would create a sustainable society. also help the country reach the target of becoming a US $5 trillion economy. In fact, the IT industry had added After his very brief talk, Mr. Premji engaged in a 1,58,000 new jobs during the pandemic year. conversation with CA Naushad Panjwani in the course of which he addressed several questions. What were the secrets behind his company’s ability to manage the ethics and values across various cultures Asked about his inspiration, he said it was his mother where his business had a presence? His reply was and also Mahatma Gandhi who had inspired him to follow that it had been through a process of ‘communicate’, the concept of trusteeship of wealth. This was the driving ‘demonstrate’ and ‘enforce (when violated)’ that it had force that made his Foundation commit more than Rs. been made possible. 1,000 crores to help the people affected by Covid-19. At the same time, he pointed out, his biggest regret was that In the course of his personal journey and his experience he did not start on his journey of philanthropy earlier in after over five decades in business, Mr. Premji said his life. He advised the youth of the country to engage with best learning experience had come from people on the the real world and work in the field to experience the ground, teachers, students, workers, etc. That had helped injustice, inequity and hardship that the common man has him to evolve. to face. This will help them develop empathy. CA Abhay Mehta proposed the vote of thanks and added Mr. Premji apprised members about the various social that as a token of appreciation to the esteemed guest, initiatives in the areas of education, agriculture and BCAS has sponsored 101 trees to be planted across the poultry-farming that his Foundation had been engaged in country. and said that these had helped generate employment for 83 lakh people. The lecture meeting can be viewed on the following YouTube link: https://www.youtube.com/ What was his opinion about the best structure for watch?v=x46zwWVPZk8&t=135s

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