The Institute of Chartered Accountants of India (Set up by an Act of Parliament) Branch of SIRC N e w s l eEnglish t t Monthly e r

` 5/- per copy Volume 04 | Issue 04 | November, 2015 | Pages : 36 For Private Circulation only Heritage of Namma Bengaluru

Damaruga Trishula

Suryapana Chandrapana Mystic Monolithic Monuments at Shri Gavigangadhareshwara Cave Temple

“Very often we forget the economic truth that “Happiness is when what you think, if all around us are happy, what you say, and we ourselves are bound to be happy.” what you do are in harmony” Advt. Advt. Advt.

Advt. On many counts, India is widely perceived as a corrupt nation. In a 2014 study of 189 nations, India ranked 134th in “ Ease of Guest Editorial Doing Business” and 179th in “ Ease of Starting a Business”. In a increasingly global environment, such an adverse perception Ethics for the Profession can have serious consequences. Similarly, a World Bank Study has estimated that because of corruption, India loses every Padma Shri CA Y H Malegam year 0.5% of its Gross Domestic Product. - Past President, ICAI (1979-80) The profession owes its existence to the evolution of the joint - Past Chairman of National stock system which enabled the savings of the community to Advisory Committee on be pooled and made available to talented entrepreneurs and Accounting Standards (NACAS) - Was the Chairman of the innovators, which in turn resulted in much of the improvement famous Malegam Committee in quality of life we enjoy today. The essential element in this (formulated by RBI) system is the segregation between ownership and management and the trust which the owners need to repose in he accountancy profession the managers. The instrument through which this trust is Tfaces two major challenges communicated is the financial statement and the profession, today. First, it is required to function in a business environment through an independent and informed opinion on this which is increasingly affected by corruption and second, a statement, provides the basis of that trust. However, when this spate of corporate failures, both in India and abroad have trust is destroyed, the system gets destroyed and consequently resulted in a massive erosion of trust in the role of the also the role of the profession gets destroyed. professional accountant both in industry and in practice. These In the last few years, there has been a significant erosion of are issues, which if not adequately addressed can seriously that trust. It perhaps started with Enron. There were of course affect the long-term future of the profession. corporate failures before Enron, but it was the sheer size of Corruption has often been described as the sand which clogs Enron and the consequent destruction of Arthur Anderson, a up the machine of economic progress. While on the one hand, blue-chip Big Six accounting firm which caught the public it involves a theft of the tax payer's money, in a more important attention. Enron was followed by the collapse of Lehman sense, it impacts negatively on the nation's economic Brothers and the consequent financial crisis of 2008 whose development and destroys the moral fibre and the value effects are still being felt. In India, we have had Satyam, system of its citizens. Deccan Chronicle and others. (Contd. on Page 8)

dams, irrigation channels, flood control, hydro electric power generation (clean energy) and as well in administration. 2. Mahatma Gandhi - as a missionary Jnanasagara The hall mark of Mahatma was spiritualism laced swadeshi CA. S. Krishna Swamy movement with the purist of means like non violence, quest for truth, eradication of social evils like un-touchablituy etc. says Einstein said of him “generations to come , it may be, will scarce believe that such a one as this ever in flesh and blood walked upon this earth.” Gandhiji had deep, inexhaustible spiritual reserves. Nehru says “He was obviously not of the Comparing two great leaders world's ordinary coinage; he was minted of a different and rare variety and often the unknown stared through his eyes.” In the happiness of his subjects lies his happiness, Top 10 Qualities of Sir M. Vishvesvaraya (leadership) in their welfare; whatever pleases him (personally), 1. Punctuality and Diligence he shall not consider good, but whatever makes his subjects happy, he shall consider good. Even as a student, Visvesvaraya was punctual, diligent and intelligent. These qualities together with his pleasing manners – Arthashastra endeared him to his teachers. He was a brilliant student. The principal of Central College, Charles Waters, took special In the last article, I spoke about the two great leaders, liking for him. Even after he retired and returned to London he 1. Sir, M. Vishvesvaraya as a visionary and remembered Visvesvaraya with special affection. He 2. Mahatma Gandhi as a missionary. bequeathed his own gold cuff-links to Visvesvaraya as a memento. Mrs. Waters came to India specifically to present 1. Sir. M. Vishvesvaraya - as a visionary the cuff-links to Visvesvaraya. These facts show the The hallmark of him was integrity and perfection in every extraordinary impression that Visvesvaraya had made on his aspect of engineering that he undertook construction of teacher, Charles Waters. (Contd. on Page 9) 4 Bangalore Branch of SIRC of the Institute of Chartered Accountants of India PÀ£ÀßqÀ gÁeÉÆåÃvÀìªÀzÀ ±ÀĨsÁ±ÀAiÀÄUÀ¼ÀÄ

GUEST EDITORIAL by Padma Shri CA. Y.H. Malegam: This month’s guest editorial is written by Padma Shri Chairman’s Communique... CA. Y.H. Malegam. He has rendered his services in various capacities and the Fraternity and the Nation at Dear Esteemed Member, large stands benefited. Namasthe, He was the Past President of ICAI (1979-80), Past GST BUSINESS PROCESS & STAKEHOLDER Chairman of National Advisory Committee on Accounting CONSULTATION: Standards (NACAS) and the past Chairman of the famous Malegam Committee (formulated by RBI). The Bangalore n mid October 2015, The Department of Revenue Branch expresses its profound gratitude for accepting our (Ministry of Finance, Government of India) has published I request and obliging to write the guest editorial for us. the Reports of the empowered Committee on business processes for GST relating to Registration, Refund and I thank all the authors of the Articles for writing Payment and invited comments from the stakeholders and interesting Articles and thereby making the News Letter the public at large. more purposeful than ever before. I thank - CA. K.S. Satish, Mysore, for his Digest of Court, This is a very radical step taken by the Ministry of Finance 1. Tribunal and Appellate Decisions on Income Tax , in the implementation of proposed GST, consequently, exclusively focusing on domestic taxation; under the aegis of the Indirect Taxes Committee of ICAI, the Bangalore Branch of SIRC is hosting a One Day 2. CA. K. Gururaja Acharya for providing us useful Seminar on GST on 14th of November 2015. Updates on Companies Act 2013; This is a unique Seminar where we have four Statutory 3. CA. Annapurna Kabra, for compiling a Digest on Authorities rendering their key note Addresses on the recent decisions under the VAT Laws; new development. Details of the event are elsewhere 4. CA. N.R.Badrinath and CA. Madhur Harlalka for published in the News Letter. I request our Members to writing on updates in Central Excise and Customs; utilize this opportunity and submit their comments and and for giving relevant articles on Service Tax. feedbacks on the Business Processes. 5. CA. A. Saiprasad for provding us a Digest on Service CORPORATE ACCOUNTANTS MEET: Tax Case Laws; The annual Corporate Accountants Meet will be held 6. CA. Sachin Kumar B.P., for writing updates exclusively under the aegis of the Committee for Members in Industry on case laws relating to International Taxation. on 20th of November 2015 at Shangri La Hotel, Bengaluru. From this issue, we have also started publishing humorous I request the members in Industry to participate and avail cartoons (YAKTOON’s) written by CA. Vinayak Pai and we the benefit of the event.The Registration is restricted to are thankful to him for permitting us to use his Cartoons 250 members, on first come first served basis. I request in our News Letter. the interested members to confirm their participation by I am sure that all these new initiatives would make the sending an email to: [email protected] News Letter more interesting, informative, educative and OTHER IMPORTANT EVENTS: exciting. One Day workshop on ICDS is organized on 21st of With warm regards November 2015 and One Day Workshop on Internal Dhanyavada Financial Controls (IFC) is scheduled on 17th of December 2015. Members are requested to make a note of the CA. Allama Prabhu M.S. same and participate in the events. Chairman

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9 Bengaluru sold for 3,00,000 !

ll the successors of Kempe Gowda remained indicates about the busy commercial activities of Aloyal to the . All those noble Bengaluru. The inscription throws light not only about convictions, charitable principles and endowment the uprightness of Kempe Gowda II but also about policies and other such profound thoughts and the social, religious and benevolent activities of the concepts that guided the Vijayanagara Empire, as it is, inhabitants of Bengaluru. were followed by Kempe Gowda and his successors; I cannot resist the temptation of quoting the exact they were declaring themselves as the feudatories of words of Mr. M.Fazlul Hasan : Vijayanagara, surprisingly even after the Empire had “..From this inscription, it is obvious that the revitalized ceased to exist. Hindu Culture which blossomed into perfection by the Immadi Kempe Gowda or Kempegowda II, who magnificent efforts of Vidyaranya, the religious and succeeded his elder brother Gidde Gowda, was as political preceptor of the founders of the Vijayanagar charitable and noble as his father. He had inherited empire, proliferated with the lapse of time and had all the virtues of kingship. A copper plate dated 1597 enriched the natural predilections of the inhabitants of accredits him for having erected the four famous watch the Bangalore of those early days” towers in Bengaluru, which are popularly believed to But the predetermined fate manifested itself in the mark the limits of the city to which it was predicted form of an attack by the Army of Bijapur Sultan that the city of Bangalore would extend. But, many led by Ranadulla Khan along with Shahji Bhonsley historians do not agree this theory as they opine that (Shivaji’s father) who was second in command. Both the cardinal locations served as strategic points for were determined to conquer Bengaluru. The jealous defence purposes. neighbours and the defeated enemies of Kempe Kempe Gowda II gave importance to irrigation and built Gowda II joined hands with the Sultan and as a result many tanks and resorvioirs. He continued the good Kempe Gowda II, in 1638, suffered a severe defeat. He work of his father and fulfilled his vision of making negotiated a Treaty and accordingly he was forced to Bengaluru a commercial hub. His heroic victories are vacate Bengaluru and to move to Magadi. described in many Inscriptions. It is nothing but an historical irony that exactly after 101 An inscription dated 1628 in Sri Ranganatha Temple years of the formation of the new City, the founders at Mutyalabeedi at Ballapuradapet which is inscribed handed over their favorite City that was built with in Telugu narrates an act of endowment made by immense dedication and great fondness to the enemies the merchant community, who had made a request and moved out of it ! to Kempe Gowda II, by entering in to an agreement Impressed by the meritorious martial services of shahji to grant certain monies for the offerings, festivals and Bhonsley, the Sultan of Bijapur bestowed Bengaluru and other religious ceremonies of the temple. It describes the surrounding villages as a jahagir, as a reward for Immadi Kempegowda as a righteous king and also the great victory.

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During the realm of Shahji, Maratha Art and Culture The temple is carved out of the natural monolith rock flourished in Bengaluru; he was an astute administrator, formations and it is simply outstanding and unique. The highly diplomatic and a great warrior. He consolidated gigantic mystic discs viz., Suryapana(in the east) and his position and built a strong military base. Chandrapana(in the west) are in the forecourt. During his youth, Shivaji lived in Bengaluru for few These two enormous rock cut discs are identical in size, years and in 1640 he married the Bengaluru girl Saibai shape & design and are placed parallel to each other. Nimbalkar. Each of them are placed on the horns of Nandi. It is a After the death of Shahji, his sons divided his possessions. puzzle that the discs have cross hairs (as in a Telescope) on both the sides. Bengaluru fell to the share of Venkoji(Ekoji) and Poona to Shivaji. Many famous Astronomers have tried to decipher the purpose of erecting these discs as nothing would have Venkoji ruled Bengaluru for few years. During his reign, been so erected without a purpose. The Astronomers he renovated the historical Kadu Malleshwara Temple also noticed and discovered a new phenomenon. at Malleshwaram. Interestingly a bronze pillar (Dwajasthamba) is placed But, Venkoji could not withstand the various petty in between these two discs and the shadow of the warfare and decided to sell Bengaluru to the then pillar coincides with the vertical marking on the discs. Mysore king Chikka Devaraja Wodeyar for 3,00,000/- . Why and how are these two discs aligned? Does it Chikka Devaraha Wodeyar was interested in acquiring have any astronomical significance? Have we lost any Bengaluru for its strategic location. important astronomical information? Questions have Shivaji was upset to hear that his beloved city Bengaluru remained as questions. had become a subject matter of sale he rushed to stop One more spectacular stage show happens on the the transaction, defeated Venkoji and gained control evening (approximately from 4.50PM to 5.20PM) of over Bengaluru. With strict conditions, he then handed Makara Sankranti (usually on 14th of January). This over the City to the safe custody of his sister-in-law radiating event is awaited by thousands of devotees. Deepa Bai (w/o Venkoji). On this day, during this time, Sun light beams from Aurangazeb who was cautiously watching all these the South West Part of the temple, passes through developments and with a desire to acquire Bengaluru the great archway (which is erected on the compound sent his armed forces under the command of his general wall) and thereafter passes through two windows which Khasim Khan. are placed perpendicular to each other, further passes In 1687, Mughals captured Bengaluru. through the horns of Nandi falls on the Shiva Linga After nearly 3 years, in 1690, Mughals decided to and illuminates the Sanctum Santorum. conclude the incomplete sale transaction that was The extraordinary architectural ingenuity of our ancestors earlier initiated by Venkoji and sells Bengaluru to Chikka is demonstrated by this highly complex and complicated Devaraja Wodeyar for 3,00,000/- !! alignment which lies coterminous with the movement COVER PAGE INFORMATION: of Sun. The photos are that of the ancient temple of Shri Gavi One should necessarily visit this temple complex to Gangadhareshwara Cave Temple, Gavipuram Guttahalli, experience and appreciate the divine grace. Bengaluru, renovated by Kempe Gowda I and his Let us feel proud and exuberant to know about the successors. Heritage of Namma Bengaluru.

November Follow us on www.facebook.com/bangaloreicai 7 2015 “The professional man, in essence is one who provides service… But the service he renders is something more than that of the labourer. It is a service that wells up from the entire complex of his personality…….. In a very real Ethics for the Profession sense, his professional service cannot be separate from (Contd. from Page 4) his personal being……. It turns out there is no right price for service, for what As accountants we cannot absolve ourselves of responsibility is a share of a man’s worth ? If he does not contain for these failures. While in some cases, this was a result the quality of integrity, he is worthless. If he does, he of syphoning out of funds, in others it was an attempt to is priceless. The value is either nothing or it is infinite. artificially maintain share prices in adverse circumstances. But in all cases, there was a deliberate misrepresentation So do not try to set a price on yourselves. Do not measure of financial information for which accountants, both in out your professional service on an apothecary’s scale and industry and in practice, who had privileged access to the say “only this for so much“. Do not debase yourselves records must accept responsibility. by hoarding your talents and abilities and knowledge, either among yourselves or in dealings with your clients, It is in this changing environment that the profession patients or flocks. needs to re-examine its ethical code. Ethics goes much beyond a mere adherence to laws and regulations. It Rather be reckless and spendthrift, pouring out your is a code of personal behavior that recognizes that no talent to all to whom it can be of service…. individual is an island unto himself but is a part of the Certain it is that man must eat, so set what price you society to which he has obligations and responsibilities. must on your service. But never confuse the performance A starting point is a re-affirmation of our professionalism. which is great with its compensation, be it money, power In 1957 Justice Elbert P. Tutle Sr. wrote a short piece or form, which is trivial.” titled “Who is a professional ?“ and much of what he We may do well to constantly recall these words of wrote almost sixty years ago is relevant today. He said: wisdom.

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Jnanasagara CA. S. Krishna Swamy says However, the Bombay Government made his case an Comparing two great leaders exception and considered “That the services rendered by Mr.Visvesvaraya has been exceptionally meritorious and (Contd. from Page 4) fully entitles him to the additional pension”. 2. Inventive Genius 5. Integrity He did the tasks entrusted to him with great perfection For some time, when the Bhadravati Factory was in and won the admiration of his superiors as well as the trouble, Sir.M.V worked as the Chairman. At that time, people who benefited from the works. the Government had not decided the salary. It took some He was an Inventive genius and involved himself in the years to do so; the Government owed him more than a construction of: hundred thousand rupees. But he did not touch a rupee 3. Honors even. He told the Government, “Start an institute where boys can learn some profession.” 1904 – Elected as a member of the Institute of Civil Engineers, London. Nominated as a Fellow of the The Institute was about to start work. The Government University of Bombay.Awarded with “Kaisar-i-Hind” medal wanted to name it after Visvesvaraya. But he said, by the Government. “Name it after the Maharaja of Mysore.” This is the Sri Jayachamaraja Polytechnic Institute of Bangalore. He was the First to produce a practical scheme for the establishment of automobile industry in India. In 1912, Maharaja of Mysore appointed Visvesvaraya as his Dewan. Before accepting the position of Dewan of In 1955 Visvesvaraya was made a ‘BharataRatna’, the Mysore, he invited all his relatives for dinner. He Gem of India. told them very clearly that he would accept the 4. Self Esteem prestigious office on the condition that none of Visvesvaraya’s extraordinary abilities attracted a very wide them would approach him for favours. attention and his services were sought for by many In 1918 he decided to give up the Dewanship. He had governments. Due to his exceptional merit he got quick to give the Maharaja his letter. He went to the palace promotions. He was promoted over the head of others in the Government car. He returned in his own car. senior to him in service too. He rose by sheer merit and Those were days when people had to work by notable achievements to the position next to the Chief candlelight. MV used, for official work, the stationery Engineer of Bombay Presidency. He felt he could serve and the candles supplied by the Government; for his more fully if he was made the Chief Engineer for which private work he used stationery and candles which he he would have to wait for some years. Besides, in those had bought. days Chief Engineer’s post was generally reserved for an Englishman. This position was intolerable to Visvesvaraya. 6. Genius He held that Indians too should be considered for the The Block System which he invented, the automatic doors post if they showed the required merit. When he found which he devised to stop wasteful overflow of water, the that there was little chance of quick promotion as Chief water supply and drainage system which he planned for Engineer he resigned his post. Many people persuaded the city of Aden – these won high praise from engineers him to withdraw his resignation. But he was not all over the world. The Krishna raja sagara (KRS) Dam is prepared because it was a question of self-respect as an a brilliant proof of his genius. Indian and also because he had offers from two States as 7. Punctuality Chief Engineer. He resigned after serving for twenty-three Once a minister was late by three minutes; MV advised years in the Bombay Government. As per rules, he had to him to be punctual. A man should do any work he serve for two more years to become eligible for pension. undertakes methodically – that was his firm faith. Every

November Follow us on www.facebook.com/bangaloreicai 9 2015 man should understand his responsibility and do his best Top 10 Qualities of Mahatma Gandhi & why you – which was the essence of his teaching. He practiced Need to learn them (Leadership) this very honestly, and there are hundreds of instances 1. Faith in self: to show this. “In a gentle way, you can shake the world.” Also, “Men 8. Meticulous often become what they believe themselves to be. If I Quite often he had to make speeches. Because of believe I cannot do something, it makes me incapable his genius, experience and mellow wisdom people of doing it. But when I believe I can, then I acquire the wanted to hear him. But whenever he had to make a ability to do it even if I didn't have it in the beginning.” speech he would think about what he was going to say, 2. Resistance & Persistence: write the speech, get it typed and weigh every word “First they ignore you, then they laugh at you, then they and revise it. He would revise it four or five times fight you and then you win.” and give it final shape. Then he would remember 3. Forgiveness: important points. “The weak can never forgive. Forgiveness is the attribute 9. Accomplishments of the strong.” Learning from mistakes: · MV also planned the KRS dam. The cost was estimated; 4. it came to Rs.25,300. Officers of Mysore State were “Confession of errors is like a broom which sweeps away shocked and opposed the scheme. At last Visvesvaraya the dirt and leaves the surface brighter and clearer. I feel convinced the Mysore Government with his arguments stronger for confession.” and it agreed. A new difficulty arose. MV wanted 5. Strength of Character: the height to be 130 feet. The Government of India “There are seven sins in the world: Wealth without approved a height of only 80 feet. MV went ahead work, Pleasure without conscience, Knowledge without with a foundation for a dam 130 feet high. Later, the character, Commerce without morality, Science without Central Government agreed with him. humanity, Worship without sacrifice and politics without principle.” · As Dewan of Mysore, he worked tirelessly for educational and industrial development of the state. 6. Love but never hate: When he was the Dewan many new industries came “Whenever you’re confronted with an opponent, conquer up. him with love.” 7. Truthfulness: · In 1913 Bank of Mysore renamed as State Bank of Mysore. “Truth stands, even if there be no public support. It is self-sustained.” 10. Courage 8. Live in Present: MV had the courage of his convictions. He did what he “I do not want to foresee the future. I am concerned with thought was right and was not afraid of opposition. We taking care of the present. God has given me no control have already seen how much he did for Mysore State. At over the moment following.” every step he had to face opposition. He was far-sighted; 9. Take the first step and Do it anyway: he could see what the country would need fifty years “Nearly everything you do is of no importance, but it is later, a hundred years later. Only because MV was important that you do it” firm, Mysore University was born. 10. Non Violence: He was a person of spotless honest and had self-respect “My religion is based on truth and non-violence. Truth without arrogance. is my God. Non-violence is the means of realizing Him” This matchless Dreamer and Doer lived for 108 years, 6 Also, “An eye for an eye would soon make the whole months, 8 days. world blind.”

November 2015 10 Online Registration is available. Visit our website: bangaloreicai.org Follow us on www.facebook.com/bangaloreicai Bangalore Branch of SIRC of the Institute of Chartered Accountants of India

CALENDAR OF EVENTS - NOVEMBER 2015 Date/Day/ Topic / Speaker CPE Credit Time 04.11.2015 Study Circle Meet Wednesday Income Tax Issues and Legal Solutions hrs 6.00pm to Mr. M.V. Seshachala, Advocate 2 8.00pm VENUE: Branch Premises

06.11.2015 PRACTICE ALERT - DISCUSSIONS Friday Income Tax CA. H. Padamchand Khincha, CA. Sudheendra B.R. & 2 hrs 6.00pm to CA. Shivanand Nayak 8.00pm VENUE: Branch Premises

07.11.2015 Intensive Workshop on International Taxation - 6 Saturday Article 6 - Income from Immovable Property hrs 5.00pm to CA. Krishna .N 3 8.15pm VENUE: Branch Premises No Delegate Fee

07.11.2015 Commencement of Certificate Course on Valuation Saturday - 7th & 8th, 14th & 15th, 21st & 22nd & 28th Nov 2015 Organised by Corporate Laws & Corporate Governance Committee, ICAI ___ Course Fee: ` 20,000/- 10.00am to VENUE : Jnanadayini Hall, Professional Excellence Block, Sub Branch of Bangalore ICAI, 5.30pm No.29/1, 1st Floor, Race Course Road, Next to SBI, Bengaluru.

11.11.2015 Holiday on account of Lakshmi Pooja Wednesday –––

13.11.2015 PRACTICE ALERT - DISCUSSIONS Friday Service Tax hrs 6.00pm to CA. Rajesh Kumar T.R. & CA. Lakshmi G.K. 2 8.00pm VENUE: Branch Premises

14.11.2015 One Day Seminar on GST : Saturday Covering Payments, Returns, Refund & Registration Process hrs 9.30am to Delegate fee: ` 1,000/- 6 5.15pm VENUE: Branch Premises Details in Page No. 15

16.11.2015 PRACTICE SUPPORT WORKSHOP Monday Hands on Training on Filing of ROC e-forms: AOC-4 & MGT-7 CA. Sunitha Jain Delegate fee: ` 250/- Restricted to 40 members 2 hrs 6.15pm to VENUE: Sub Branch of Bangalore ICAI Office - IT Lab, 8.15pm No.29/1, Race course road, next to SBI Bengaluru.

18.11.2015 Study Circle Meet Wednesday Fraud Awareness & Detection in Current Business Environment 2 hrs 6.00pm to CA. Zaid Razvi & Mr. Siddharth Sharma 8.00pm VENUE: Branch Premises

November Follow us on www.facebook.com/bangaloreicai 11 2015 CALENDAR OF EVENTS - NOVEMBER & DECEMBER 2015 Date/Day/ Topic / Speaker CPE Credit Time 20.11.2015 Corporate Accountants Meet Friday High Tea: 6.15pm to 7.00pm, Discussion: 7.00pm to 9.00pm Followed by Dinner 2 hrs VENUE: Shangri-La hotel Grand Ballroom, S6-6B, Palace road, Bengaluru-52 Details in Page No. 16

21.11.2015 One day workshop on ICDS Saturday Co-ordinator: CA K Gururaj Acharya hrs 09.30am to Delegate Fee: `1000/- Details in Page No. 14 6 05.15pm VENUE: Branch Premises

21.11.2015 Intensive Workshop on International Taxation - 7 Saturday Article : 7 - Business Profits hrs 05.30pm to CA. P.V. Srinivasan 3 08.30pm VENUE: Branch Premises No Delegate Fee 22.11.2015 Cricket League ___ Sunday VENUE: Bangalore University Ground Details in Page No. 22

25.11.2015 Study Circle Meet Wednesday Indirect Taxes Implications on Sale of Software (Covering Customs, Central Excise, VAT & Service Tax) 6.00pm to 2 hrs CA. N. Anand 8.00pm VENUE: Branch Premises

27.11.2015 PRACTICE ALERT - DISCUSSIONS Friday VAT hrs 6.00pm to CA. S. Venkataramani & CA. Annapurna D. Kabra 2 8.00pm VENUE: Branch Premises

29.11.2015 Sports & Talent Meet ___ Sunday VENUE: KGS Club, (Opp to MS Bldg) , Bengaluru Details in Page No. 22

04.12.2015 CENTRAL COUNCIL & SIRC ELECTIONS Friday & at 1. Bangalore Branch of SIRC of ICAI, 2. St. Johns Auditorium, & ___ 05.12.2015 3. BHS Higher Education Society (Vijaya College), 4th Block, Jayanagar, Bangalore. Saturday Time : 8.00 am to 8.00 pm

09.12.2015 Study Circle Meet Wednesday Major Compliance Issues under Companies Act 2013 2 hrs 6.00pm to CS. R. Parthasarathy 8.00pm VENUE: Branch Premises

11.12.2015 PRACTICE ALERT - DISCUSSIONS Friday Interactive & Update Programme on Companies Act 2013 hrs 6.00pm to by Shri M. Jayakumar, Registrar of Companies, 2 8.00pm Co-ordinator: CA. K. Gururaj Acharya VENUE: Branch Premises

12.12.2015 Intensive Workshop on International Taxation - 7 Saturday Article : 7 - Business Profits hrs 05.00pm to CA. K.K. Chythanya 3 08.15pm VENUE: Branch Premises No Delegate Fee

November 2015 12 Online Registration is available. Visit our website: bangaloreicai.org Follow us on www.facebook.com/bangaloreicai Bangalore Branch of SIRC of the Institute of Chartered Accountants of India

CALENDAR OF EVENTS - DECEMBER 2015 Date/Day/ Topic / Speaker CPE Credit Time 12.12.2015 Certificate Course on Concurrent Audit of Banks Saturday - 12th & 13th, 19th & 20th, 26th & 27th December 2015 onwords Course Fee: ` 15,000/- 36 hrs 10.00am to VENUE : Jnanadayini Hall, Professional Excellence Block, Sub Branch of Bangalore ICAI, 5.30pm No.29/1, 1st Floor, Race Course Road, Next to SBI, Bengaluru. Details in Page No. 16

16.12.2015 Study Circle Meet Wednesday Ramifications of Amendment to Section 269SS & 269T of the Income Tax Act 2 hrs 6.00pm to CA. H. Ganpatlal Kawad 8.00pm VENUE: Branch Premises

17.12.2015 One Day Workshop on Internal Financial Controls (IFC) Thursday under companies Act - 2013 6 hrs 6.00pm to CA. V. Balaji, CA. K. Gururaja Acharya & CA. Abdul Majeed 8.00pm VENUE: Branch Premises (Details will be informed)

18.12.2015 PRACTICE ALERT - DISCUSSIONS Friday FEMA 2 hrs 6.00pm to CA. S. Parthasarathy & Mr. L. Bharath 8.00pm VENUE: Branch Premises

19.12.2015 Intensive Workshop on International Taxation - 8 Saturday Article : 8 - Shipping, Air Transport & Article 9 - Associated Enterprises 3 hrs 05.30pm to CA. Vishnu Moorthi H. & CA. Vishnu Bagri 08.30pm VENUE: Branch Premises No Delegate Fee

23.12.2015 Study Circle Meet Wednesday Ind AS 101 First Time Adoption hrs 6.00pm to CA. Rakesh Agarwal 2 8.00pm VENUE: Branch Premises

25.12.2015 Holiday on account of Christmas Friday ___

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November Follow us on www.facebook.com/bangaloreicai 13 2015 One Day Workshop on Income Computation & Disclosure Standards - ICDS on Saturday, 21st November 2015 at S. Narayanan Auditorium, 6 hrs Bangalore Branch Premises, Bengaluru CPE

Timings Topics Speaker 9.00AM Registration Inaugural Session 09.30 AM Key Note Address by Ms. Nutan Wodeyar Principal Chief Commissioner of Income Tax - 2, Bengaluru Session I 10.15 AM Introduction to ICDS ICDS - I : Accounting Policies CA K. Gururaj Acharya ICDS -II : Valuation of Inventories 11.30 AM Tea Break Session II 11.45 AM ICDS - VII : Government Grants ICDS - IX : Borrowing Costs CA B.P. Sachin Kumar ICDS - X : Provisions, Contingent Liabilities & Contingent Assets 01.15 PM Lunch Break Session III 02.15 PM ICDS - V : Tangible Fixed Assets ICDS - VI : Effects of Changes in Foreign Exchange Rates CA Shyam Ramadhyani ICDS - VIII : Securities 03.30 PM Tea Break Session IV 03.45PM to ICDS - III : Construction Contracts 05.15PM ICDS - IV : Revenue Recognition CA Padamchand Khincha H ICDS – Overall Impression & Concluding

CA. Allama Prabhu M.S. CA.K Gururaj Acharya CA. Geetha A.B. Chairman Co-Ordinator Secretary

DELEGATE FEES FOR ICAI MEMBERS : ` 1,000/- (Fee includes background material) FOR OTHERS : ` 5,700/-

Mode of Payment: Cash/Cheque/DD in favour of “Bangalore Branch of SIRC of ICAI”, payable at Bengaluru

Only Limited Seats. Registration on First Come First Served Basis.

For Registration, Please contact: Ms. Geetanjali D., Tel: 080 - 3056 3500 / 3513 Email : [email protected] | Website : www.bangaloreicai.org

November 2015 14 Online Registration is available. Visit our website: bangaloreicai.org Follow us on www.facebook.com/bangaloreicai Bangalore Branch of SIRC of the Institute of Chartered Accountants of India

One day Seminar on GST

Organised by Indirect Taxes Committee of ICAI 6 hrs Hosted by Bangalore Branch of SIRC of ICAI CPE

on Saturday, 14th November 2015 at S. Narayanan Auditorium, Bangalore Branch Premises, Bengaluru Timings: 9.30am to 5.30pm

Timings Topics Speaker 09.00 AM Registration 09.30 AM Inaugural session Key Note Address by Mr. Nagendra Kumar Honorable Principal Additional Director General of Central Excise Intelligence

Mr. Sanjay Pant, IRS Honorable Principal Commissioner of Service Tax

Mr. Ritvik Pandey, IAS Honorable Chief Commissioner of Commercial Taxes

11.30 AM Tea Break 11.45 AM New Opportunities & Challenges for CA's CA. Sanjay Dhariwal under GST regime - How to gear up & get equipped 01.15 PM Lunch Break 02.15 PM GST Business Process for Registration CA. T.R. Rajesh Kumar 03.15 PM Tea Break 03.30 PM GST Business Process for Payment CA. T.R. Rajesh Kumar 04.15 PM GST Business Process for Refund & Return CA. Deepak Kumar Jain

CA. Allama Prabhu M.S. CA. Geetha A.B. Chairman, Bangalore Branch Secretary, Bangalore Branch

DELEGATE FEES FOR ICAI MEMBERS : ` 1,000/- (Fee includes background material) FOR OTHERS : ` 5,700/-

Mode of Payment: Cash/Cheque/DD in favour of “Bangalore Branch of SIRC of ICAI”, payable at Bengaluru

Only Limited Seats. Registration on First Come First Served Basis.

For Registration, Please contact: Ms. Geetanjali D., Tel: 080 - 3056 3500 / 3513 Email : [email protected] | Website : www.bangaloreicai.org

November Follow us on www.facebook.com/bangaloreicai 15 2015 CORPORATE ACCOUNTANTS MEET Organised by Committee for Members in Industries, Hosted by Bangalore Branch of SIRC of ICAI 2 hrs CPE on Friday, 20th November 2015 at Shangri-La Hotel, Grand Ball Room, next to Mounts Carmel College, Palace Road, Bangalore 560052

Timings Topics Speakers

6.15 PM High Tea Restricted to 250 Members 7.00 PM Inaugural Session: Key Note Address by - on FCFS basis. Please CA. K. Raghu, Immediate Past President, ICAI confirm your participation CA. Charanjot Singh Nanda, Chairman, Committee for Members in Industry, ICAI by sending an e-mail to [email protected] 7.30 PM Technical Sessions How to gear up & get equipped for GST CA. Sanjay Dhariwal Need for Critical Evaluation of IFC as required by Companies Act 2013 CA. V. Balaji Recent Developments in Companies Act 2013 & Road Map for IFRS CA. K Gururaja Acharya 9.00 PM Dinner

CA. Charanjot Singh Nanda CA. Allama Prabhu M.S. CA. Geetha A.B. Chairman, Committee for Members in Industry, ICAI Chairman, Bangalore Branch Secretary, Bangalore Branch

KIND ATTENTION MEMBERS: ANNOUNCEMENT Registrations Open for CERTIFICATE COURSE ON CONCURRENT AUDIT OF BANKS We are delighted to inform the Members that the Certificate Course on Concurrent Audit of Banks – a week end course at Bangalore (First Batch) is being organised by Internal Audit Standards Board (IASB) of ICAI and hosted by Bangalore Branch for the benefit of the Members involved in Concurrent Audit of Banks.

Dates 12 & 13, 19 & 20, 26 & 27 December 2015. hrs Venue Professional Excellence Block, Sub Branch of Bangalore Branch of SIRC of ICAI 36 # 29/1, 1st Floor, Race Course Road, Bengaluru, Ph : 080 - 4092 9607 CPE

Timings 10.00am to 5.30pm

Objective • To make the participants understand the intricacies of Concurrent Audit of Banks • To supplement the efforts of the Banks in carrying out internal check of the transactions and other verifications and compliance with the procedures laid down. • To improve quality and coverage of Concurrent Audit Reports

Eligibility (For whom) The course is open for Members of the Institute & the Students who have cleared CA final exams.

Course Fee For metro cities Rs. 15000/- per participant and for non-metro cities Rs. 12,500/- per participant.

Mode of Payment Cheque/ DD drawn in favour of “Secretary, Institute of Chartered Accountants of India, payable at Delhi”

For Regn. please Contact: Ms. Geethanjali D, 080 - 3056 3513, [email protected] | www.bangaloreicai.org

Note: For Course structure, application form and other details please visit: http://220.227.161.86/29877course-structure19476.pdf. Only limited seats, restricted to 50 Members. Registration on First Come First Served basis.

CA. Charanjot Singh Nanda CA. Allama Prabhu. M.S Chairman, Internal Audit Standards Board (IASB), ICAI, Noida Chairman, Bangalore Branch

November 2015 16 Online Registration is available. Visit our website: bangaloreicai.org Follow us on www.facebook.com/bangaloreicai Bangalore Branch of SIRC of the Institute of Chartered Accountants of India

DIGEST OF RECENT DECISIONS OF THE INCOME TAX APPELLATE TRIBUNAL

CA. K.S. Satish, Mysore

CHARITABLE TRUST could have fetched estimated by him for a period of 20 years, the Mumbai ‘G’ n Gauhati Greater Sewa Nidhi Trust v. at Rs. 1,33,46,183 and Rs. 20,040 paid Bench held that the right to collect toll ICIT (2015) 154 ITD 254 (Gau) where towards rent by the assessee ruled the was an intangible asset falling within the facts were that the assessee- Mumbai ‘F’ Bench in ACIT v. Yusuf K. the scope of section 32(1)(ii) and that trust constituted on 29.8.2010 filed Hamied (2015) 154 ITD 161 (Mum). the assessee-company was entitled to an application for registration under INCOME FROM HOUSE PROPERTY depreciation thereon. section 12AA with a letter addressed to In Susham Singla v. ACIT (2015) 154 ITD CAPITAL GAINS the Chief Commissioner/Commissioner, 310 (Chd) where the assessee bought The agricultural land owned by the Guwahati on 4.3.2011, the Chief properties but did not let out them assessee can be said to be used for Commissioner forwarded the same to resulting in the same being vacant, the agricultural purposes even if he does not the Commissioner on 20.6.2011 and Chandigarh ‘A’ Bench took the view cultivate it himself but gets it cultivated the Commissioner passed an order on that section 23(1)(c) was not applicable under his supervision and he is entitled 11.8.2011 granting registration under as the properties had never been let to exemption under section 54B on sale section 12AA with effect from 1.4.2011, out and that the notional income from of such land opined the Ahmedabad ‘B’ the Gauhati Bench expressed the view these properties were chargeable to tax. Bench in Shree Bhagwanbhai Revabhai that the assessee-trust should not be BUSINESS EXPENDITURE Prajapati v. ACIT (2015) 154 ITD 710 penalised for the delay in transferring The Delhi ‘H’ Bench has in T & T Motors (Ahd). the papers by the Chief Commissioner Ltd. v. Addl. CIT (2015) 154 ITD 306 INCOME FROM OTHER SOURCES to the Commissioner and that it was to (Del) opined that the demand raised by be granted registration with effect from The Mumbai ‘B’ Bench has in ITO v. the Commissioner of Industries towards 4.3.2011. Bhagwan T. Fatnani (2015) 154 ITD 207 apportioned cost of common effluent (Mum) held that the profit derived by SALARY treatment plant relating to the years the assessee from sale of primary school Where the assessee received house rent ending 31.3.2007 & 31.3.2008 vide land which was encroached upon and allowance from his employer since rent- notice of demand dated 19.6.2008 illegally occupied by him could not be free accommodation was not provided was allowable as a deduction in the assessed as capital gain as the assessee to him by the employer and he took on assessment year 2009-10. did not have a legal right or title over rent a house owned by his employer for DEPRECIATION the land and the land could not be the purposes of his residence and paid considered as a capital asset under rent thereon, the assessee did not derive In ACIT v. West Gujarat Expressway section 2(14) and that the said profit any benefit in his capacity as employee Ltd. (2015) 154 ITD 103 (Mum) where was assessable as income from other as he was in occupation of the house the assessee-company entered into an sources. in terms of an independent contract of agreement with the National Highways tenancy and the Assessing Officer was Authority of India in terms of which CHAPTER VI-A not justified in making the addition it had to develop and maintain the The activity of assembling various parts towards perquisite under section Jetpur-Rajkot road on ‘Build-Operate- and components of generator sets 17(2)(ii) of Rs. 1,33,26,143 being the Transfer’ basis and was given the right carried out by the assessee amounts to difference between the rent the house to collect toll in respect of the said road manufacture of generator sets for the

November Follow us on www.facebook.com/bangaloreicai 17 2015 purpose of allowance of deduction under section 80-IB ruled the Pune ‘A’ Bench in Addl. CIT v. Kala Genset (P) Ltd. (2015) 154 ITD 73 (Pune). PENALTY The Cuttack Bench in N.K. Media Ventures (P) Ltd. v. JCIT (2015) 154 ITD 537 (Ctk) has expressed the view that where the assessee-company filed quarterly statements of tax deduction at source beyond the prescribed due dates due to delay in payment of tax deducted at source on account of paucity of funds, penalty under section 272A(2)(k) was leviable only from the date of payment of tax as the quarterly statements can be filed only after payment of tax to the credit Advt. of the Central Government. TAX DEDUCTION AT SOURCE Where the assessee-company paid sales commission to a non- resident agent who rendered services outside India and did not have a permanent establishment in India, the commission was not chargeable to tax in India in the hands of the non- resident agent and, therefore, the assessee-company was not obliged to deduct tax at source under section 195 in respect

of the commission paid opined the Panaji Bench in ACIT v. Advt. Karishma Global Mineral (P) Ltd. (2015) 154 ITD 147 (Pnj).

Advt. Advt.

November 2015 18 Online Registration is available. Visit our website: bangaloreicai.org Follow us on www.facebook.com/bangaloreicai Bangalore Branch of SIRC of the Institute of Chartered Accountants of India

COMPANIES ACT 2013 – UPDATES

CA K. Gururaj Acharya

I. Important Updates November 2015 (vide GC No. Act), Companies having one or more - October 2015 14/2015 dated 28/10/2015 and subsidiaries (for the purposes of 10/2015 dated 13/07/2015) Consolidation u/s. 129, “Subsidiary” 1. MCA Updates – Last date for 2. ICAI Updates – Withdrawal of 5 includes Associate Company and filing AOC – 4, AOC – 4 XBRL Guidance Notes on Accounting Joint Ventures) are required to prepare, & MGT – 7 without additional in addition to the Standalone Financial ICAI Council, at its Special (347th) fee extended to 30th November Statements (SFA), the Consolidated meeting, held on October 14, 2015. Financial Statement (CFS), which shall 2015, has decided to withdraw also be laid before the AGM. The The Financial Statements, including the following five Guidance Notes provisions regarding Preparation the Consolidated Financial State- on Accounting as the same are no (i.e provisions of Sch III of the ments (CFS), are required to be filed longer relevant in the present day Act), Adoption and Audit of the with the Registrar of Companies context in view of the requirements (ROC) vide Form “AOC-4” and “AOC- of the Companies Act, 2013: Standalone Financial Statements of 4 CFS” respectively within 30 days a Holding company shall also apply i. Treatment of Reserve Created from the date of the Annual General to the CFS. on Revaluation of Fixed Assets Meeting (AGM) of the Company (in GN 3 (Issued 1982) It was further clarified that in the CFS, case the AGM is not held, AOC-4 the company would need to give all ii. Accounting for Depreciation in & AOC-4 CFS are to be filed within disclosures relevant for CFS only and not Companies GN 7 (Issued 1989) 30 days of the due date of AGM) merely repeat the disclosures made by iii. Some Important Issues Arising [S. 137 r/w R. 12 of the Companies it under SFA being consolidated. (vide from the Amendments to (Accounts) Second Amendment General Circular No. 39/2014 dated Schedule XIV to the Companies Rules 2014 dated 04.09.2015] 14.10.2014) Act, 1956 GN 8 (Issued 1994) The Annual return as on the Balance Further, a separate statement of salient iv. Applicability of Accounting Sheet date must be filed with the Standard - 20, Earnings Per features of financial statement of its ROC vide Form “MGT-7” within 60 Share GN 26 (Issued 2008) Subsidiary(s), Associate Companies days from the date of AGM of the and Joint Ventures in v. Remuneration Paid to Key Form AOC-1, Company (in case the AGM is not Management Personnel - certified in the same manner in held, MGT-7 is to be filed within 60 Whether a Related Party which the Balance Sheet is to be days of the due date of AGM). Transaction. GN 27 (Issued 2008) certified, is required to be attached to However, the last date for filing of the Standalone financial statement. AOC-4 (for Standalone Financial II. Consolidated Financial Statements 2. Exemptions from preparation Statements), AOC-4 CFS (for (CFS) of CFS Consolidated Financial Statements) 1. CFS - Provisions and MGT-7 (Annual Return) for a. Preparation of CFS by an FY 2014-15 without additional As per the provisions of Section 129 intermediate wholly-owned fees have been extended to 30th of the Companies Act 2013 (the subsidiary, other than a wholly-

November Follow us on www.facebook.com/bangaloreicai 19 2015 owned subsidiary whose immediate 3. FAQ’s on CFS by a company having subsidiary parent is a company incorporated or subsidiaries incorporated outside India (vide Companies A. Is the Preparation of CFS outside India only for the (Accounts) Amendment rules mandatory under the Act for financial year commencing on dated 14th October 2014) a Private Company which has or after 1" April, 2014” an Indian Subsidiary Company b. For FY 2014-15 only, The above is capable of the for FY 2014-15? b.1. in respect of consolidation following TWO possible of financial statements by a Answer: Yes interpretations – company having subsidiaries There is no exemption from 1. Companies having only incorporated outside India preparation of CFS for a Company Foreign Subsidiaries (and (vide Companies (Accounts) having an Indian Subsidiary. no Indian Subsidiaries) need Amendment rules dated 16th not Consolidate Accounts B. Is the Preparation of CFS January 2015). for FY 2014-15. mandatory under the Act for in case of a company which Companies having Foreign b.2. Company which has an Indian 2. does not have a subsidiary Subsidiaries need not Subsidiary Company and a but has one or more associate Consolidate Accounts only Foreign Subsidiary for FY companies or joint ventures or for FY 2014-15 irrespective of 2014-15? both, for the consolidation of whether or not it has Indian Answer: financial statement in respect Subsidiaries / Associates. The text of the Amended Rules of associate companies or However, the author prefers to go (Chapter IX) Notification dated 16th joint ventures or both. (vide with the 2nd interpretation and is th January 2015 is as under – amendment rules dated 14 of the opinion that if the Company October 2014) “Provided also that nothing in has Foreign Subsidiaries, it need (Refer Table below for Case this rule shall apply in respect of not prepare CFS for FY 2014-15 studies on b1 & b2) consolidation of financial statement irrespective of whether or not it has Indian Subsidiaries / Associates, as SUBSIDIARY ASSOCIATE Prepare CFS Case otherwise the CFS (with only Indian Indian Foreign Indian Foreign FY 2014-15 FY 2015-16 Subsidiaries and not the foreign NO subsidiaries) would not reflect a 1. ü YES (Foreign S exempt) holistic picture of all the Companies

(#1) YES (Indian) / YES under Consolidation. 2. ü ü (Indian + Foreign) No ?? C. Is presentation of YES YES “Consolidated financial 3. ü ü (Indian S + A) (Indian S + A) statements” required in case YES of an Indian Subsidiary Private (#2) 4. ü ü ? (Indian A + Company which is fully held Foreign S) by a Foreign Company? (#1) Refer to FAQ 3B below Ans: No Matter Capable of dual interpretation: YES – CFS to include details of Indian Associate only as Consolidation w.r.t foreign CFS is required to be prepared Subsidiaries is exempt for FY 2014-15 only by the Holding Co. and if such a (#2) NO – CFS is not applicable for FY 2014-15 to Co’s which have only Associates and holding company is a foreign Co., No subsidiaries. In the instant case, the Co. has only foreign subsidiary, which too the entire Companies Act, 2013 is exempt from consolidation as per dated 16th January 2015. itself would not be applicable to it.

November 2015 20 Online Registration is available. Visit our website: bangaloreicai.org Follow us on www.facebook.com/bangaloreicai Bangalore Branch of SIRC of the Institute of Chartered Accountants of India

Provided that in case of a company In case of Companies covered D. Are Small companies, One · Person Companies (OPC) and covered under sub-section (3) of under Ind AS, apart from preparing dormant Companies Exempt section 129 which is not required CFS by the Parent Company in from preparation of CFS? to prepare consolidated financial accordance with Ind-AS 27, it must statements under the Accounting also comply with the requirement Ans: NO Standards, it shall be sufficient of Schedule III of the Act. [i.e By definition, in order to qualify if the company complies with Follow Ind-AS 27 + Schedule III as a Small Company, among provisions on consolidated financial of the Act] other criteria, the Company must statements provided in Schedule III · In case of all other companies neither be a Holding Co. nor a of the Act” [Not covered by Ind-AS], CFS Subsidiary Co. of any other Indian b. Point 1 of General instructions is required to be prepared by Co. Therefore, if a Company has for the preparation of CFS the parent company as per the Subsidiary, then the provisions of (Schedule II to the Act) requirements of Sch III of the Act. CFS will apply to such a Company. “Where a company is required to Even in this case, by virtue of clause Further, there is no exemption to prepare Consolidated Financial 1 of General instructions for the OPC’s and Dormant Companies Statements, i.e., consolidated preparation of CFS in Schedule III, from preparation of CFS. balance sheet and consolidated AS-21 is to be complied with. [i.e statement of profit and loss, the E. Rule 6 of the Co’s (Accounts) Follow Schedule III of the Act + company shall mutatis mutandis Rules 2014 (2nd para) states AS-21] follow the requirements of this that in case of a Company Schedule as applicable to a covered u/s 129(3) which F. If 20% of the Voting Power company in the preparation of is not required to prepare of an Indian Co. is held by balance sheet and statement of CFS under the accounting a foreign company, does profit and loss. In addition, the Standards, it shall be sufficient the foreign Co. become an consolidated financial statements if the company complies with “Associate” of the Indian shall disclose the information as per provisions on CFS provided in company? the requirements specified in the Sch III? Further, will the Indian applicable Accounting Standards Company be required to Explain the significance of including ……” prepare CFS? Rule 6. Further the following difference Ans: No Ans: is to be noted: The relevant extracts from the - IAS-27 / Ind-AS 27 mandates CFS is to be prepared only by the Act and the Rules are reproduced that every Parent shall prepare Parent Company (i.e the Investing below – a CFS. Company) (which in this case is a foreign Co. which falls outside a. Rule 6 of the Companies - AS-21 which deals with the purview of the Act). The fact (Accounts) Rules reads as consolidation does not impose under – preparation of CFS by a holding that the Indian Company and the Foreign Company together are “The consolidation of financial company. It only states that, if called as Associates is not relevant statements of the company shall any company is preparing CFS “ ” and CFS will be prepared only by be made in accordance with the then it must comply with the provisions of Schedule III of the requirement stated in AS- 21. the Investing Co. Act and the applicable accounting On a Combined reading of the standards” above, it may be concluded that –

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DIGEST ON RECENT DECISIONS UNDER VALUE ADDED TAX LAWS

CA Annapurna Kabra

Case 1: M/s Hicure Pharmaceuticals on sale of goods under KVAT Act/CST Further, it pointed out the WFI / DM Pvt. Ltd. V/s The Deputy Commissioner Act water is taxable goods under KVAT Act of Commercial Taxes (Audit-3) Hubli The Assessing Authority concluded and there is a deemed sale of WFI / DM TS-578-HC-2015 (Kar) –VAT the re-assessment proceedings for the water in the execution of works contracts Supply of demineralized water in year 2007-08 and 2008-09 and levied undertaken by assessee, attracting levy medicinal injections taxable as composite tax on ‘Water For Injection’ (WFI/ De- under KVAT / CST Act. Revenue also works contract mineralized water (DM)) under section contended that the commodity supplied he Petitioner is a registered 4(1) (b)(ii) of KVAT Act read with the by assessee is not specified in Entry Tdealer engaged in the business of section 9(2) of the CST Act treating No.54 of the First Schedule, as claimed manufacture and sale of Pharmaceutical the contract executed by the petitioner by assessee. Consequently, Revenue preparations and also engaged in with its principal as a composite works argued that the sale of WFI / DM water executing works contract on job work contract involving transfer of property is not exempted from tax payable under basis for its customers. The Petitioner in goods. The Assessing Authority KVAT Act / CST Act during the relevant has entered into written agreement determined the tax liability on the tax periods. with the customers M/s Wallace value of goods after deducting the The Honourable High Court held Pharmaceuticals (P) Limited, Panaji-Goa; labour & like charges at 25 % of that WFI being water for medicinal M/s Bliss GVS Pharma Ltd., Mumbai and the total works contract receipts. preparation besides demineralised M/s Indi Pharma (P) Ltd, Panjim-Goa to The Tribunal dismissed the appeal by water is not an exempted commodity manufacture and supply medicinal and confirming the order passed by the and the same is exigible to levy of pharmaceutical injections of different FAA. Aggrieved by the above orders, the tax under the provisions of KVAT varieties, both water based and oil petitioner filed a petition before the High Act. Also it is held that the contract based, strictly in accordance with the Court. executed by the petitioner to supply formula supplied by the principals and The Petitioner contented that Firstly, WFI/ WFI/DM water, which is an input the standards laid down under the Indian DM water is an exempted commodity for the manufacture of injection, Drugs and Cosmetics Act, 1940. as per Entry No. 54 of the First schedule is a composite contract involving The issue before the Karnataka High of the KVAT Act and therefore not transfer of property in goods as well Court was leviable to tax and secondly the contract as labour and service. (i) Whether the water for injection (WFI)/ for manufacture of pharmaceuticals Rule 3(2)(l) deals with labour deduction Demineralized water used as input in preparation medicines entered into with on actual basis. If such deduction is not the execution of the works contract its principal is a pure service contract and ascertainable from the books of account entered into by assessee with the not a composite contract. As per Section rule 3(2)(m) provides deduction based principals/customers would attract 5(1) of the KVAT Act, goods specified in on the nature of works contract. The levy of tax under KVAT/CST Act? the First schedule shall be exempted from residual 25% is the general deduction (ii) Whether the contract executed by levy of tax. for those works contracts not specified assessee with its principals/Customers The Revenue submitted that the WFI de- in the table as provided under rule 3(2) is a contract for service or a composite mineralized water is an essential input for (m) of KVAT Rules, 2005. In the present divisible contract attracting levy of tax manufacture of water based injections. case the assessing authority allowed

November Follow us on www.facebook.com/bangaloreicai 23 2015 the deduction 25% being nature of is filed before the Tribunal. The Appellant the manufacture of the notified goods works contract not specified in the table contended that the matters which have i.e. the final product of the petitioners. appended to rule 3(2)(m). On appeal been taken up for rectification are not Thus the manufacture of the notified to FAA, the FAA allowed the labour mistakes apparent on the records but goods itself is dependent upon the use of deduction at 90% of the total contract rather involves interpretation and debate diesel oils in the generator sets directly. value and considered only 10% of the to decide whether to levy tax or not The power supply through generators by total contract value as taxable turnover. and also the FAA has not answered the use of diesel, is so integrally connected It is important to analyse, the basis for same. Further appellant submitted that with the ultimate production of notified arriving 10% taxable turnover, as the the discount shall not be taxable as it is that without it manufacture of the provision provides labour deduction not shown in the invoices and accordingly notified goods would be commercially either on actual basis or ad hoc. For interest is not leviable. The Tribunal inexpedient. The use of diesel oil to allowing the adhoc deduction there is concluded that both the AA and FAA have operate generators so as to run plant no scope for discretionary power for the erred on the subject-matter of rectification and machinery by the petitioners is so AA. Such deduction should be as per the orders and its scope and hence set aside integrally related to the manufacture percentage specified in the table. the impugned orders of the FAA and the of their final products that without that Case 2: Griha Vaibhava Marketing Pvt rectification orders of the AA and the process or activity manufacture shall Ltd, Bangalore V/s State of Karnataka matter is remanded back to the AA to act not be possible. Therefore, diesel oil 2015(83) Kar. L. J. 121 (Tri.) (DB) in accordance with law. It is believed that required to run generators would Section 69 can be made applicable only necessarily fall within the expression The appellant is a company registered when mistake apparent on the records “for use in the manufacture of notified under the KVAT Act and CST Act, and not for change of opinion. goods” and accordingly decided in borne on the records of the LVO - 110, favour of assessee to claim the input Bangalore and engaged in the trading Case 3: M/s Shree Bhawani Paper tax credit. The expression “in the business of electrical, electronic and Mills Ltd., M/s Rama Shyama Papers manufacture of goods” is a question home appliances like TV, fridge, washing Ltd., Versus State Of U.P. and Another of fact depends on nature of activity machine, sound systems, speakers and 2015 (11) TMI 48 - ALLAHABAD and such expression should normally computers etc. The appellant has claimed HIGH COURT - VAT and Sales Tax: encompass the entire process carried deductions towards discount, activation Whether use of diesel oil in generator on by the dealer of converting raw charges and installation charges and the sets to run plant and machinery to materials into finished goods [J K same have been allowed by AA under Sec manufacture the final products as Cotton Spng. & Wvg. Mills Ltd Vs STO 39(1) of the Act during re-assessment. mentioned in the Registration Certificate (1965) 16 STC 563, 568-69 (SC)]. After the original re-assessment orders, would qualify the essential requirement the succeeding Assessing Authority has “for use in the manufacture of notified Case 4: Bharti Telemedia Ltd. Versus revisited the reassessment records and goods” under Section 4-B(2) of the Act . State of Tripura and others, Tata by invoking Sec 69 of the Act, has levied In order to run plant and machinery, the Sky Ltd. Versus State of Tripura and tax on above deductions stating that the generators are essential, and for that others 2015 (11) TMI 46 - TRIPURA allowance of deductions are nothing but purpose, diesel oil has been used in the HIGH COURT - VAT and Sales Tax: sales, pre-sales expenses or incidental to generators. There is no denial of the fact Whether the petitioners-assessees are sales. Aggrieved by the above order, the that the entire process of manufacture liable to pay value added tax (VAT) on appellant preferred an appeal to FAA. carried on by the petitioners for Set up Boxes (STB) in respect of contracts The FAA without answering the basic converting raw material into finished entered into by them with the customers issue whether the subject matter falls goods essentially requires generators in whereby they have agreed to provide within the purview of the rectification which diesel oil has been used. Thus the direct-to-home (DTH) service to the has allowed the appeal in part and has generation of power by generators by customers in the State of Tripura, It is modified the rectification order of the AA. use of diesel oil so as to run plant and held that As far as STBs are concerned Aggrieved by the same, again an appeal machinery is integrally connected with they are in total control of the customer.

November 2015 24 Online Registration is available. Visit our website: bangaloreicai.org Follow us on www.facebook.com/bangaloreicai Bangalore Branch of SIRC of the Institute of Chartered Accountants of India

Under his effective control the STBs are subjected to sales tax. Finally in para 92, It is important to note that, the installed in the house of the customer. He the apex court again held that when a equipments which are installed including can use the STB when he wants to. He can telephone connection is given there STB, are only facilitates for better viewing use the STB to view whichever channel may be transfer of right to use goods in TV. Customers does not operate as he wants to view. He may or may not and where both composite contract of such. The contract between customer use the STB. The company does not even service and sales is concerned the State and DTH distributor is not for using STB have the power of entering the premises may impose tax on the sale elements but for providing connection. STB is one of the customer. Most importantly as provided there is discernible sale and of the equipment which facilitates for per the terms of the agreement, the only the sale element can be taxed. better viewing in TV. companies are responsible for the State is assessing the tax solely on the It is important to analyse the following functioning of the STBs only for a period basis of the value of the STBs as given in things while levying tax under deemed of 6 (six) months. The warranty is valid the books of account of the petitioners. sale (right to use). only for six months and thereafter there The petitioners claim depreciation, · That mere possession does not is no warranty. Therefore, if STB of a etc., on these STBs and the valuation amount to right to use; customer is spoiled after six months he given by the petitioners is the · That providing facility involves the will have to pay for repair or replacement value of the goods, the right to use use of goods; of the same. We are of the considered which has been transferred to the · That mere use of goods is not view that this amounts to transfer of the customers. This is easily separable enough; right to use goods. - after the Forty-sixth and discernible and the State has the · That delivery of possession of goods Amendment the sale element of all the full authority to levy value added tax is distinguished from its custody; six contracts covered under clause (29A) on the sale part of the transaction, · That right to use goods accrues only of article 366 are separable and may be i.e., the value of the STBs. on account of the transfer of right.

‘‘YAK TOON’’ by CA. Vinayak Pai V

November Follow us on www.facebook.com/bangaloreicai 25 2015 CLARIFICATION ON ANCILLARY SERVICES PROVIDED IN RELATION TO TRANSPORTATION OF GOODS BY ROAD

CA. N.R. Badrinath, B.Com, Grad CWA, FCA & CA. Madhur Harlalka, B.Com, FCA, LL.B

Background · Components of a Single as the charges for such services are oods Transport Agency (GTA) composite service need not be included in the invoice issued by the Gmeans any person who provides shown as separated service – GTA. Therefore, the abatement of service to a person in relation to The circular clarifies that a single 70% presently applicable to GTA transport of goods by road and issues composite service need not be broken service (Rate of abatement was 75% for consignment note, by whatever name into its components and considered the period prior to April 1, 2015), would called. The services provided by GTAs as separate services in case where the be available on the ancillary services is a composite service which also services are naturally bundled in the also. includes various additional services like ordinary course of business. Thus, a · Conditions for applicability of loading/ unloading, packing/unpacking, composite service should be treated as Abatement Notification – transshipment, temporary storage etc,. a single service based on the main or It has also been clarified that Doubts were raised regarding treatment principal service. transportation of goods by road by a given to the provision of these ancillary The guiding principle is to identify the GTA, in cases where GTA undertakes to services. essential features of the transaction. In reach/deliver the goods at destination Circular order to identify the essential service in within a stipulated time, should The CBEC has clarified the above stated a naturally bundled service, the principle be considered as services of goods issues vide Circular No. 354/98/20015- of interpretation enumerated in section transport agency in relation to TRU dated 5th October, 2015. 66 F of the Finance Act, 1994 should be transportation of goods and abatement followed. of 70% will be allowed on the same, As per the clarification, · Abatement available for the provided the following conditions are Ancillary services shall be treated · fulfilled - entire composite services – as part of GTA service – Further, it is also clarified that the (a) the entire transportation of goods is These ancillary services provided by ancillary services provided in the by road; and GTAs are not independent in nature; course of transportation of goods by (b) the GTA issues a consignment note, they are the means for successful road would form part of GTA service by whatever name called. provision of the principal service i.e., the transportation of goods by road. These KIND ATTENTION: MEMBERS services may be provided by GTA himself Members are requested to pass on the information to their Articled students or may be sub-contracted by the GTA. In Admissions open for Subject wise Coaching either case, GTA issues a consignment note and the invoice issued by the GTA IPCC & FINAL For May 2016 Examinations for providing the said service includes & CPT for June 2016 Examination the value of ancillary services provided Coaching classes will be commencing at the Bangalore Branch of SIRC of ICAI in the course of transportation of goods from 26th Nov. 2015. The classes will be concluded by 7th March 2016. For further details please contact: Tel: 080-3056 3500 / 511 / 555 by road. Email: [email protected] | Website : www.bangaloreicai.org

November 2015 26 Online Registration is available. Visit our website: bangaloreicai.org Follow us on www.facebook.com/bangaloreicai Bangalore Branch of SIRC of the Institute of Chartered Accountants of India

SERVICE TAX CASES PARTS DIGESTED – VOLUME 40, PARTS 1 & 2

CA. A. Saiprasad

Departmental Clarifications HC has confirmed the Tribunal 2. However a new service called Credit ebate/ Refund Claim – Facility for Order waiving pre-deposit relying on Card, Debit Card, Charge Card or Rpayment directly to Bank Account precedent decisions on identical facts. Other Payment Service (‘CC/DC (Tribunal had entered factual finding service’ for short) was introduced The procedure for crediting rebate/ that employees deputed from company w.e.f. 1.5.06. Consequently BOFS refund directly to assessee’s bank outside India were actually appointed was amended w.e.f. 1.5.06 to delete account is stated in this circular. The in India by Indian Company – hence no credit card service. refund claims have been divided into manpower recruitment service) claims filed prior to and post 1.7.15. 3. Tribunal held that credit card services CC V. TPSC (India) Pvt Ltd, 2015 (40) STR included under BOFS covers only (Commissioner of Service Tax-I, Trade 8 (AP) such services as are provided by Notice No.19/2015-ST dt.23.6.15) Note: Precedent decisions referred issuing bank to cardholder by way of Case Laws above are Bain & Co Ltd case, 2012 (25) extending credit facility. Whether Inconsistent Orders can STR 588 (T) and ITC Ltd case, 2013 (29) 4. Tribunal held that services provided be passed by Tribunal for same STR 387 (T) under CC/DC services are neither assessee? impliedly covered nor inherently Pending Adjudication Matters The High Court set aside the Order of subsumed within the purview of S2 Infotech Pvt Ltd V. UOI, 2015 (40) Tribunal dismissing the appeal when credit card services under BOFS. STR 10 (Bom.) Tribunal in earlier appeal of same 5. Tribunal held that BOFS does assessee on identical issue for a different HC passed strictures against not include services provided by period had remanded the matter to department for 22 months delay Acquiring Bank (Banker providing Adjudicating Authority. High Court held in passing adjudication order after swiping machine) to Merchant Tribunal ought to have remanded the personal hearing. HC directed Chief Establishment (seller). Commissioner to file affidavit listing second matter also and not dismissed 6. Therefore Merchant Enterprise matters pending adjudication and the appeal. HC remanded the matter to Discount (i.e. commission amount measures proposed by department for Adjudicating Authority. retained by acquiring bank while timely disposal of cases. Indfos Industries Ltd V. CC&CE, 2015 making payment to Merchant (40) STR 4 (All) Credit Card Services by Banks – Enterprises) and Inter-change Fee Whether services provided by Note: Even Department cannot take (commission shared by acquiring Acquiring Bank to Card Issuing different stands in identical issues – bank with issuing bankfrom the Bank, Merchant Exporter liable to YellammaDasappa V. CC, 2000 (120) commission retained from ME) is not tax under BOFS ELT 67 (Kar) liable to service tax under BOFS. Tribunal Larger Bench held as follows: Associate Company outside India Standard Chartered Bank V. CST, deputing employees in India – 1. Banking and Other Financial Service 2015 (40) STR 104 (T-LB) Whether Associate Company in India (‘BOFS’ for short), was introduced Note: Aforesaid Larger Bench liable under reverse charge under w.e.f. 16.7.01, which included credit Decision Overrules AMB Amro Manpower Recruitment Service card services. Bank V. CCE, 2011 (23) STR 529 (T)

November Follow us on www.facebook.com/bangaloreicai 27 2015 Whether Sovereign/ Public Authority municipal tax from CCE. The HC held since assessee was providing service on providing Non-Statutory services is that tax cannot be collected in the garb behalf of banks by working as an agent liable to service tax? of service charges of service provider, the said services The Allahabad HC held that Finance CCE, Belgaum V. Commissioner, were branded service and not eligible Act, 94 makes no distinction between Belgaum City Municipal Corporation, for small scale exemption benefit. statutory body and individual. The HC 2015 (40) STR 219 (Kar) Ishwar Consultant V. CCE, 2015 (40) STR therefore held that if a sovereign/ public Note: Also See Municipal Commissioner 336 (T) authority provides a service, which is not V. Senior Superintendent of Post Office, Whether Cenvat Credit available for in the nature of statutory activity for a 2004 (3) SCC 92. construction of factory? consideration (and not statutory fee), Whether Recovery Proceedings can Tribunal held that construction service then service tax would be payable as be initiated before completion of for setting up factory was available to long as the activity fell within the scope Adjudication Proceedings? manufacturer as per definition of input of taxable service. Non-Payment of Service tax was service. Greater Noida Industrial Development admitted by the assessee during CCE V. Technico Industries Ltd., 2015 Authority V. CC, 2015 (40) STR 95 (All) investigations. Tax was also partly paid. (40) STR 259 (T) Whether services provided by Stem SCN was issued and then recovery Note: Definition of input service has Cell Blood Banks are exempt under proceedings were initiated. The HC been amended w.e.f. 1.4.11.The word held that recovery proceedings for the Health Services? ‘setup’was deleted from definition of Entry No.2 of N.No.25/12-ST exempted balance tax could not be initiated before input service. Hence construction service health care services. Entry No.2A covers completion of adjudication proceedings for setting up of factory/ provider of services provided by cord blood banks since tax would not be payable before output service would not be available relating to preservation (inserted only adjudication. w.e.f. 1.4.11. Also see CCE V. Bellsonica w.e.f.17.2.14). Plea that amendment Constant Engineering Pvt Ltd V. ADC Auto Components Pvt Ltd, 2015 (40) by way of inserting Entry No.2A was Service Tax, 2015 (40) STR 224 (Guj) STR 41 (P&H) retroactive (i.e. w.e.f. 1.7.12) was Whether Land Development for Whether Street Light Maintenance rejected by HC. However issue whether township liable to works contract? Service is exempt from service tax? services provided by cord blood banks The Supreme Court dismissed Civil The Authority for Advance Ruling (AAR) fell within health care services under Appeal filed by the revenue against held that street light maintenance Entry No.2 was left open by HC to be Tribunal decision which had held that service was not exempt from tax under decided by assessing authority. development of land for township Notification No.25/12. AAR held that Life Cell International (P) Ltd V. UOI, was not liable prior to 1.6.07 under entry no. 13(a) of N.No.25/12 relating to 2015 (40) STR 77 (Mad) Construction of Residential Complex construction, erection, commissioning, Whether tax can be charged in the Service or post 1.6.07 under works installation, repairs, maintenance of a garb of service charges? contract service. road would not bring within its ambit street light supporting structures erected Belgaum City Municipal Corporation CCE V. Alokik Township Corporation, on road. (MC) was collecting municipal tax 2015 (40) STR J132 (SC) from Commissioner of Central Excise, Whether arranging loans from In Re: K. Ram Mohan, 2015 (40) STR Belgaum (CCE). However as per Banks is liable for Service Tax? 410 (AAR) A.285(1) of Constitution, property The Tribunal held that arranging of Whether Pipeline System embedded of the Union is exempt from all taxes loans from Banks is covered under the to earth becomes part of immovable imposed by the State. Hence MC started ambit of Business Auxiliary Service and property and hence not Capital collecting service charges instead of liable to tax. Tribunal further held that Goods?

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1. AAR held that inextricable link exists Tribunal referred to S.51 of SEZ Act, 05 specifications, other relevant designs between pipes and valves used for which provides for over-riding effect of and details for manufacture is liable laying pipelines and providing of SEZ Act in case of inconsistency with any to tax under temporary transfer of output service of transportation of other Act. Reliance was also placed on intellectual property service and not gas in the said pipeline. S.26(1)(e) of SEZ Act, 05 r/w Rule 30(10) under Consulting Engineering Service. 2. AAR held that though pipes, of SEZ Rules, 06, as per which no service L.G. Balakrishnan& Brothers Ltd V. CCE, like storage tanks may become tax is payable on services provided to 2015 (40) STR 193 (T) immovable, still they would be SEZ unit. The Tribunal therefore held Whether Feasibility Report sent considered as ‘Capital Goods’, that service tax was not liable to be paid abroad to enable foreign investors as they are used for providing an for services provided to SEZ. to invest in India is export of output service. Reliance Ports and Terminals Ltd V. CCE, service? 3. AAR held that relevant date to 2015 (40) STR 200 (T) The Tribunal held that since the determine if an item qualifies to 1. Whether value of free supplies of feasibility report has been used be capital goods is the time of construction materials liable to receipt of capital goods and not any outside India and consideration has service tax? subsequent date. been received in foreign currency, The Tribunal held that value of conditions for export was fulfilled In Re: GSPL India Transco Ltd., 2015 (40) construction material supplied free as per R.3(2) of Export of Service STR 398 (AAR) of cost by service recipient to service Rules, 05. Reversal of Credit used for Taxable provider is not liable to service tax. and Exempted Service 2. Tribunal held that though money Reliance was placed on Tribunal Larger was received in Rupees in their bank 1. Tribunal held that option to reverse Bench Decision in Bhayana Builders account, money was remitted from credit @ 5% (now 7%) of value case, 2013 (32) STR 49 (T-LB) a bank in Mauritius. Hence it was of exempted service under Rule Unibild Engineering & Construction Co treated as consideration received 6(3) would not automatically Pvt Ltd V. CST, 2015 (40) STR 195 (T) in convertible foreign exchange as apply if intimation to avail option of reversing credit as per formula Note: Notification No.26/12, Entry No.12 per FEMA (Manner of Receipt and prescribed in Rule 6(3A) of CCR is (construction service) now specifically Payment) Regulations, 2000. not provided at the beginning of states that value of materials supplied 3. Rent-a-Cab and Insurance Service the year. free of cost by service recipient shall Credit (for quarter ended 31.3.09) 2. Tribunal held that delay in giving be included in value of service. Further was allowed as valid input intimation to opt for formula Rule 2A of Valuation Rules, 2006 (works service for the purpose of claiming method can at most be treated as a contract) also states that value of service refund. procedural lapse. provided free of cost shall be included Mount Kellet Management (I) Pvt Ltd V. 3. Tribunal held that it is upto the in value of services. However words ‘by CST recipient of service’ are missing in Rule assessee to choose the option to Note: Provisions for export of service is 2A of Valuation Rules. reverse the credit and that revenue now to be determined as per Rule 6A of cannot insist on availment of a Whether providing technical STR, 94 r/w Place of Provision of Service particular option. knowhow, is taxable under Rules, 12. Rent-a-Cab and Insurance Mercedes Benz India Pvt Ltd V. CCE, Consulting Engineering Service or (Health & Life) have been specifically 2015 (40) STR 381 (T) Intellectual Property Service? excluded from the definition of input Whether SEZ Act Over-rides The Tribunal held that providing service wef 1.4.11 provisions of Service Tax Laws? technical knowhow, engineering

November Follow us on www.facebook.com/bangaloreicai 29 2015 INTERNATIONAL TAXATION

CA Sachin Kumar B.P.

Wipro Ltd. v. DCIT nature of total income chargeable to tax 2003 relevant to Sec. 90 read as follows: Facts of the case: as per the provisions of Sec. 4 of the Act. “Under the existing Sec. 90, the his case law is the Karnataka High In the second instance, no tax was paid Central Government may enter into an TCourt judgment pronounced on 25th on this income. The credit is being claimed agreement with the Government of any March, 2015,which covers elaborately under the provisions of Sec. 90, which is country outside India for granting of many domestic and international tax applicable for the grant of relief in respect relief in respect of income on which issues. In our discussion, we shall be of income on which have been paid both have been paid both income – tax limiting the analysis toasignificant income tax under this Act and Income tax under the Income – tax Act and income international tax matter covered by this in the foreign country. The issue of credit – tax in that country, or for the avoidance case law. u/sc. 90 clearly does not arise. of double taxation of income under this The following is the significant Assessee’sContention: Act and under the corresponding law in international tax issue pertaining to this Sec. 90(1)(a)(i) provides, if the income force in that country, etc. case law discussed in this article: is subjected to tax, both in India and in In order to encourage international · The assessee has claimed tax credit the foreign country, the foreign income trade and commerce, it is proposed on Foreign Taxes paid on export taxes paid attributable to such income to insert a new clause in sub – section income from USA and Canada are allowed as credit in India. However, (1) of Sec. 90 so as to provide that the which is exempt u/sc. 10A of the Sec. 90(1)(a)(ii) is in respect of DTAA for Central Government may also enter into Income – tax Act, 1961 (‘the Act’). granting of relief in respect of income an agreement with the Government of The assessing officer has disallowed tax chargeable under the Act and under any country outside India, for granting claim of such credit as such income the corresponding law in force in that relief in respect of income – tax is exempt in India by virtue of Sec. country to promote mutual economic chargeable under this Act or under 10A of the Act and there is no relations, trade and investment. Sec. the corresponding law in that country double taxation for providing double 10A income is chargeable to tax in to promote mutual economic relations, taxation relief through the credit view of Sec.4 of the Actand is includible trade and investment.” mechanism in the total income under section 5, With effect from 01.04.2004, Clause The Revenue’s Contention: but no tax is charged on such income (a) (ii) of Sec. 90 (1)was substituted to because of the exemption given under The assessee’s claim of foreign tax credit provide for entering into an agreement is on the ground that the entire earnings section 10A,subject to the assessee for granting relief in respect of income in respect of claim under Sec. 10A have satisfying the conditions prescribed. tax chargeable under this Act and been included in computing the total Once the assessee is made to pay tax under corresponding law in force in that income. Sec. 10A which is appearing on such exempted income in the other country, to promote mutual economic contracting State then Sec. 90(1)(a)(ii) under Chapter – III refers to “incomes relations, trade and investment. Prior to enables him to claim credit of the tax which do not form part of total income”. the amendment, the relief was granted in It is, therefore, clear in the first instance paid in the contracting country. respect of income on which income tax is income falling u/sc. 10A did not form The Hon’ble High Court’s view: paid under the Income tax Act and in the part of total income of the assessee in Present Sec. 90 came into force from contracting country. Therefore, to get the India. Since Sec. 10A falls under Chapter 01.04.2004. Extract of memorandum benefit of the said provision, payment of III, it does not therefore partake of the explaining provisions in the Finance Bill income tax in both countries was sine qua

November 2015 30 Online Registration is available. Visit our website: bangaloreicai.org Follow us on www.facebook.com/bangaloreicai Bangalore Branch of SIRC of the Institute of Chartered Accountants of India non. However, by the amendment made assessee from the exports in respect of derived” and “tax paid in United States of by the Finance Act, 2003, the benefit of the said unit is exempted from payment America on such income”, then tax relief/ granting the relief was extended to of income tax. The very fact that it is credit shall be granted in India on such even income tax chargeable under exempted from payment of tax means tax paid in United States of America. the Act and under the corresponding but for that exemption such income The said provision does not speak of any law in force in the other country. is chargeable to tax. By insertion of income tax being paid by the resident Therefore, the payment of income tax Clause (ii) in sub – section (1) (a) of Sec. Indian under the Income – tax Act as a in both jurisdictions is not sine qua non 90, the Central Government has been condition precedent for claiming the said anymore for granting the relief. vested with the power to enter into an benefit. Therefore, this provision is in In cases covered u/sc. 90(1)(a)(ii) of the agreement with the Government of any conformity with Sec.90(1)(a)(ii). Act, it is not a case of the income being country outside India for the granting of In case of India – Canada DTAA, the subjected to tax or the assessee has paid relief in respect of income tax chargeable provisions make it clear that the benefit tax on the income. This applied to a case under the Income tax Act and under of Article – 23 would be available to an where the income of the assessee is the corresponding law in force in that assessee in India only in respect of the chargeable under this Act as well as in the country, to promote mutual economic income from sources within Canada, corresponding law in force in the other relations, trade and investment. which has been subjected to tax both in country. Though income tax is chargeable Therefore, the statute by itself is not India and Canada, which forms part of under the Act, it is open to the Parliament granting any relief. But, by virtue of the the total income of the assessee and has to grant exemptions under the Act from statute, if an agreement is entered into suffered tax in India under the Income – payment of tax for any specified period. providing such relief, then the assessee tax Act and has suffered tax in Canada Normally it is done as an incentive to would be entitled to such relief. also i.e., assessee has paid tax both in the assessee to carry on manufacturing In case of India – USA DTAA, if a India as well as in Canada on the same activities or in providing the services. resident Indian derives income, which income. Therefore,this provision is in Though the Central Government may may be taxed in United States, India conformity with Sec. 90(1)(a)(i). extend the said benefit to the assessee shall allow as a deduction from the tax Therefore, it is not the requirement in this country, by negotiations with on the income of the resident, amount of law that the assessee, before he the other countries, they could also be equal to the income tax paid in United claims credit under the India – USA requested to extend the same benefit. If States of America, whether directly or convention or under the provisions the contracting country agrees to extend by deduction. The conditions mandated of the Act, should pay tax in India on the said benefit, then the assessee gets in the treaty are that if any “income such income. However, in case of India relief. In another scenario, though said income is exempt in this country, by India – USA DTAA India – Canada DTAA virtue of the agreement, the amount of Article 25 2.(a) Where a resident Article 23 3.(a)The amount of tax paid in the other country could be of India derives income which, in Canadian tax paid, under the laws given credit to the assessee. Thus for the accordance with the provisions of of Canada and in accordance with payment of income tax in the foreign this Convention, may be taxed in the the provisions of the Agreement, jurisdiction, the assessee gets the benefit United States, India shall allow as a whether directly or by deduction, of its credit in this country. deduction from the tax on the income by a resident of India, in respect of Also Sec. 10A(1) provides that, subject to of that resident an amount equal to the income from sources within Canada the provisions of the said section, profits income-tax paid in the United States, which has been subjected to tax both whether directly or by deduction. in India and Canada shall be allowed and gains derived by an undertaking Such deduction shall not, however, as a credit against the Indian tax referred to in that section shall be allowed exceed that part of the income-tax payable in respect of such income as deduction from the total income of (as computed before the deduction but in an amount not exceeding that the assessee. Therefore, by virtue of the is given) which is attributable to the proportion of Indian tax which such aforesaid statutory provision, namely income which may be taxed in the income bears to the entire income Sec. 10A of the Act, the income of the United States. chargeable to Indian tax.

November Follow us on www.facebook.com/bangaloreicai 31 2015 – Canada convention if the assessee is country includes income tax paid not 90(1)(a)(ii) of the Act. The case law exempted from payment of tax in India, only to the Federal Government of provides clarity on situation where a then if the same is subjected to tax in that Country, but also any income tax foreign income suffering tax in the Canada, according to the treaty there charged by any part of that country country of source and if the same is is no double taxation. Therefore, the meaning a State or a local authority, exempt in India, how should the credit benefit of the treaty is not available to and the assessee would be entitled to on foreign taxes paid on such income be the Indian assessee. the relief of double taxation benefit with dealt with, whether the double taxation In so far as the issue related to credit respect to the latter payment also. convention governing the said income of states taxes is concerned, section Therefore, even though, India has not is in consonance with Sec. 90(1)(a)(i) or 91 provides relief from double taxation entered into any agreement with the Sec.90(1)(a)(ii) of the Act. Also in this where no agreement under section 90 State of a Country, the income tax paid decision of the high court, an elaborate for the relief or avoidance of double in relation to that State is also eligible discussion on chargeability of income to taxation exists with a foreign country. for tax credit. tax has been provided where the high Explanation (iv) to Section 91 defines the Hence, the argument that in the court has taken the support of the Apex expression “income-tax” in relation to absence of an agreement between India court decision in the case of Kasinka any country to include any excess profits and the State, the benefit of Section 90 Trading and another v. Union of tax or business profits tax charged on is not available to the assessee is ex-facie India and anotherin arriving at its the profits by the Government of any illegal and requires to be set aside. conclusion that Sec. 10A income even part of that country or a local authority Conclusion though exempt is chargeable to tax for the purpose of Sec. 90(1)(a) (ii) of the in that country. This case law, among the other Act. The intention of the Parliament is very issues, has elaborately discussed the clear. The Income tax in relation to any significance of Sec. 90(1)(a)(i) and Sec.

Advt. Advt.

November 2015 32 Online Registration is available. Visit our website: bangaloreicai.org Follow us on www.facebook.com/bangaloreicai Inauguration of PROFESSIONAL EXCELLENCE BLOCK at Race Course Road Sub Branch

Jnanadayini Hall Adhyayana Hall

The Panoramic view of Jnanadayini Hall at Professional Excellence Block

Ayudha Pooja Celebrations with Branch Staff

At Branch Premises At Race Course Road - Sub Branch

33 Online reporting of FDI through e-Biz portal - RBI Programme

Invocation Welcoming Mr. A.O. Basheer Inauguration Chairman's address

Mr. A.O. Basheer, Mr. Gopal Terdal Mr. R.N. Panigrahi, Mr. Sudhanshu Prasad, Presenting Memento to Mr. A.O. Basheer General Manager, Officer In Charge, General Manager, RBI, Mumbai RBI, Bengaluru RBI, Bengaluru

Presenting Memento to Mr. Sudhanshu Prasad Vote of Thanks Group Photo with RBI Officials

Intensive Workshop on International Taxation Practice Alert - Discussions

CA S Anantha Padmanabhan CA Narendra J Jain CA G Muralikrishna CA S Ramasubramanian & CA Prateek Marlecha

Speakers at Study Circle Meetings

CA Madhur Harlalka CS M S Sivashankaran CA Amith Raj A N CA Krishna Prasad CA Babu Jayendran

34 Advt.

Advt. Licensed to Post without prepayment License No. WPP-326, "Registered" News Letter Total No. of Pages printed : 36 for India vide No.KA/BG GPO-2523/2015-17 & RNI No. KARENG/2012/45348 Date of Posting 7th & 8th of the month, at Bangalore PSO, Mysore Road, Bangalore-560026

Advt. Advt.

36 Bangalore Branch of SIRC News Letter English Monthly Printed & Published & Edited by Editor CA. Allama Prabhu M.S., Chairman, on behalf of Bangalore Branch of SIRC of ICAI., No.16/O, 'ICAI Bhawan', Millers Tank Bed Area, Vasantnagar, Bangalore-560052, Karnataka Tel : 080 - 3056 3500, Fax : 080 - 3056 3542, www.bangaloreicai.org e-mail : [email protected] Printed at: Jwalamukhi Mudranalaya Pvt. Ltd., 44/1, K.R. Road, , Bangalore-560 004, Ph : 080-26617243, e-mail : [email protected] Published at: No.16/O, 'ICAI Bhawan', Millers Tank Bed Area, Vasantnagar, Bangalore-560052, Karnataka, EDITOR: CA. Allama Prabhu M.S.